TRANSCRIPTION Company: Iluka Resources Limited Title: 2011 Half Year Results Date: 25 August 2011 David Robb (Managing Director): Thank you and good morning everybody and, as usual, thank you for your time at the end of what is always a very busy period for you, I know. With me today is Alan Tate, CFO; Simon Green, GM Finance and Commercial; Rob Porter GM Investor Relations and Corporate Affairs; and Chris Cobb, GM of Sales and Marketing. In terms of agenda, the ground we want to cover: an overview of the first half, a comment on how we see the market conditions, some thoughts on product and production developments within Iluka, and obviously some comments on the second half factors we see. I expect all of that to take 30 minutes or less leaving, hopefully, at least 30 minutes for questions. Turning to slide 2; the usual disclaimer slide. Slide 3 the overview. I think for me in considering the half year I begin by reflecting on 12 months ago, our 2010 first half results, when we spoke about recovery being well underway from the stresses of the global economic crisis in 2009. We spoke about certain themes that we had been talking about for some time, in terms of demand and supply playing out. Our net debt peak had passed, we felt, and certainly stronger cash flows were becoming evident. But six months ago, at the full year results for 2010, I said that we were pleased to be back as a profitable, dividend paying company with strong cash flows and that we were confident about the future for the “new Iluka”. As I think about the 2011 first half results, we see continued improvement in profitability and cash flow and very pleasing operational, technical and marketing performance in our business. Market conditions, in our view, remain favourable - I'll say some more about that - and we are evaluating production enhancement options within our existing portfolio. Turning to slide 4; the main features of the results. Well there's lots of green on that slide which indicates to me that we are well on our way to meeting our objective which is to create and deliver value for shareholders. Higher prices and a better product mix, more zircon, have led to strong Mineral Sands margins, in turn producing a return on capital of 32% and a return on equity of 25%. Bearing in mind that return on capital is our most important metric as the internal surrogate for ROE, that in turn leading to lower dividend, sorry, lower debt and increased dividends. Turning to slide 5 and thinking about dividend payment. We believe strongly that increased distributions to shareholders are consistent with our objective and recognise the role that distributions have in total shareholder return. As you would all know any analysis that is done over various periods of time highlights the fact that distributions are very important in TSR and we understand that principle. Now the quantum, I think you can assess it in various ways, you know there are lots of ratios and metrics that you can think about. We've shown two here, there's a percentage of profit or free cash flow. But fundamentally the decision reflects a Board judgement about the right current balance between increasing dividends, reducing debt and investing for growth and that balance will inform future decisions. I am not going to state today a specific and limiting policy. When I joined this Company in 2006 our degrees of freedom were few - whether that be contractually or in terms of asset performance or margins, balance sheet. We are in a position now where degrees of freedom in thinking about that balance are greater and I'm not going to put us back into a box in that regard. With that, I'll handover to Alan Tate just to go through the results in some more detail, starting with slide 6. Alan. Alan Tate (Chief Financial Officer): Thank you David. Just looking at slide number 6, as we've talked about previously Iluka has transitioned to the new operations and the results reflect the improved and enhanced margins. As you'll note, overall our Mineral Sands revenues are up $192 million compared to the first half 2010 and that coupled with lower unit costs has resulted in EBITDA being up $204 million at $319.2 million. EBIT is up $210 million. These improved earnings flow through to our operating cash flow, which when coupled with lower capital expenditure requirements has meant that our free cash flow is up $215 million from the first half 2010 at $167.7 million. These improved earnings and overall cash flow are reflected in our financial ratios. EPS is $0.35 per share, free cash flow $0.40 per share, and very pleasing is to see our return on capital at 32.4% and a return on equity of 25.3%. I turn to slide number 7. This graph shows the movement between first half 2010 EBITDA and first half 2011 EBITDA which overall is up $204 million. I mentioned the improved margins that we've seen across the business, and just moving from left to right across the graph, you'll see that overall our total volumes of rutile, zircon and synthetic rutile are pretty much in line with last year. But we've had an improvement in mix of our products and that's shown in a positive $21.5 million and that improvement in mix is a higher proportion of zircon. Overall our Australian dollar prices are up 49%. We see the significant improvement in our US dollar pricing which had a $201.8 million positive impact, partially offset by the higher exchange rate moving from $0.89 to $1.03. Ilmenite and other products are up $13.5 million and this is a result of work performed by our product and technical team in conjunction with marketing where we've been able to monetise what were previously low-value or waste products. Unit costs are positive by $8.6 million. So relative to the prior period we've actually had an improvement in our unit costs. Mineral Sands/other was negative $6 million and that's really more expenditure on our product and technical development side, increased marketing and selling costs and an increase in exploration costs. Mining Area C, again a positive trend, up $8.8 million due to higher volumes and increased pricing and total corporate costs overall have been positive $3.6 million, due to positive FX translation charges. That brings overall EBITDA for the half of $319.2 million. Turning to slide 8. This graph shows the positive trend of overall Mineral Sands EBITDA and Group EBITDA. As David mentioned, we have talked for some time about the positive conditions we are seeing in our markets and the move to our new operations and they are reflected in this trend with the first half 2011 EBITDA being reflective of the new operations, higher pricing and lower unit costs and an increase in zircon in the mix. As well, you'll note, that relative to the full year 2010 EBITDA which was $304.7 million, the first half 2011 EBITDA actually exceeded that. On the basis of higher expected second half 2011 prices we'd expect this trend to continue. We turn to slide number 9. This graph explains the movement between first half 2010 loss of $6.6 million to the current half profit of $145.9 million. I've discussed as part of the EBITDA the key drivers for EBITDA. In addition to that the impacts on net profit include D&A positive $6.9 million. We've had lower interest expense, as you'd expect with lower debt, of $7.3 million. Those positive indications have been offset by a tax expense of $65.5 million. Effectively, tax for the half pretty much absorbed the company’s book's tax losses as at the end of 31 December 2010. Slide 10 summarises Mining Area C. It's another pleasing EBIT result for MAC. An increase in sales volumes of 6.9% and the Australian dollar prices have improved 32%, from $120 a tonne in H1 2010 to $160 a tonne in H1 2011. The volume and price increases have led to an increase in royalties of 41.7% or $12.8 million. Again it reinforces what a great asset the MAC royalty is. Moving to slide number 11 and operating cash flow. The trend we've seen in earnings is also reflected in operating cash flow, though I also note that it's partially been muted by a $56 million increase in working capital. This increase in working capital is a result of planned builds in concentrate stocks in the Murray Basin, in anticipation of a mine move in the first half of 2012. As part of that mine move that will take around 100 days, just above three months, we are building concentrate stocks such that we're able to continue to run the mineral separation plant at Hamilton next year. That combined with some delays in shipping at the second half – due to weather conditions, especially in Geraldton - had sales moving into the second half of the year so a higher finished goods level led to the build in inventory. Again with what we expect to be the EBITDA improvement in the second half of 2011, due to higher prices, we'd also expect a continuing positive trend in operating cash flow. Slide number 12. Overall net debt compared to 31 December has reduced by $142 million. The strong operating cash flow, you'll see in the first bar there, a positive $212.7 million. The MAC receipts of $42.8 million. You'll note capital expenditure for the half was $48.7 million and this compares to the first half 2010 where we had capital expenditure of $94.4 million. The other key expense for was share purchases, with Iluka Treasury we maintain a pool of shares within the Company to cover employee incentive schemes and that was $16.3 million for the half. Those components, up to that point, reflect our free cash flow which was $167.7 million. In addition we had the dividend payments of $33.5 million which was the full year dividend of 8 cents and we had positive FX impact on US dollar debt of $7.4 million. So closing debt at the end of 30 June $171 million, and as noted earlier, at the end of July net debt was down to $82 million. Finally, on slide number 13, we see the trend in net debt and gearing and at the 2010 full year I noted that we're in a very strong balance sheet position, anticipating strong cash flows and low capital expenditure requirements and we're seeing that positive trend through to H1 11 where we're now at a gearing ratio of 12.2%. As well we maintained our finance facilities. At the end of this year we'll still have $555 million in facilities, and at the end of 2012 we will have $455 million in facilities. This combined with the continuing strong operating position for Iluka puts Iluka in a very strong balance sheet position. With that David I'll hand back to you. David Robb: Thanks Alan. Turning to slide 14; zircon market conditions. Through the first half it was clear to us, in relation to zircon, that demand was greater than supply. Although it's a bit of a mixed bag I think an accurate characterisation is that there was continuing strong demand in China and in developing economies. When we refer to developing economies we refer to a very broad suite of markets, you should not interpret that to be just the traditional BRIC names, for example. Certainly there are some signs of weaker business confidence. You know no one would deny that people are being cautious and particularly, we think, in Europe. In aggregate though there has been demand growth. Certainly when we look at the leading indicators that we think about, be they things like US confidence, forward PMIs, durable goods orders, electricity generation, housing starts, all of the things you would expect us to think about, it’s my judgement that certainly whilst the world perhaps lacks some confidence it is a very far removed place from what we saw in late 2008, and certainly by the time we got to mid 2009. So demand is okay. There are low inventory levels downstream of us. We expect it and we have seen that lack of supply as a primary driver, and prices also as a driver, is encouraging people to be cautious, to try and find ways to produce their products with a bit less, or to experiment with inferior substitutes where they think they can and in fact we've seen some of those experiments go full circle where people tried other things and it hasn't worked very well. Pricing, you would all know that there was a very material lift in prices in the third quarter for zircon. To date, in the third quarter, we have seen some small volume sales, often through our internet site, at prices above third quarter contract levels so that remains a positive signal. I feel a need to state the obvious, frankly, that quarterly contract price increases may moderate. It's simply not conceivable logically that you could keep on doing US$600 a quarter increases ad infinitum. I would also remind you that throughout this process, and the staircase of zircon price movement that we have seen, our objective has been sustainable change in the way that this industry sees the value of our products and in taking our customers with us on that journey. The fundamentals we see as being positive for some years. We are updating our inducement analysis, which you may recall we've shared at a high level with investors previously, and we think supply is an issue and will stay so for some years. Our analysis and, indeed, most people's thinking assumes that the projects we know about proceed in line with the claims and the plans of the proponents of those projects, whereas all of our industry experience tells us that timely delivery and successful performance and ramp-up is unlikely. Given those positive fundamentals we are evaluating potential supply response options from within our own portfolio. Slide 15. Trying to demonstrate to you this point I make about taking customers with us on this price path. In zircon it is clear to us that generally our customer profitability is fine and that is consistent with our sustainable change objective. If you look at the dollar mark-up in absolute dollar terms our customers are better off than they were at the beginning of 2010. Slide 16. Turning to titanium dioxide condition. There are very clear supply issues. There is especially serious for high grade ores driven both by chloride pigment demand and also niche markets, such as welding and titanium sponge manufacture. Pigment and paint manufacturer commentary, for those of you who follow it, has been very positive about the changes that they are seeing in their part of the industry, driven in part by raw material price increases that they are passing through. Obviously our announced Eneabba restart which will bring with it 25,000 tonnes a year of zircon and the same of rutile and ilmenite to feed an SR kiln is a beginning of our response. I would remind you we still have two idle kilns and clearly an objective is to think about how we would bring them back online at some stage. Slide 17 is essentially trying to make the same point as the earlier zircon slide. The positive commentary downstream of us reflects a similar profitable preservation outcomes for our customers and their customers, despite the significant increase in the price of our products to date, such as rutile as shown here. Again we think that situation bodes well for the future in terms of the headroom for prices. Turning to slide 18. I am really pleased with the increased focus and investment in our product and technical development capabilities and activities and that is paying off with low capital expenditure, high innovation thinking and results providing greater leverage in terms of increasing margins. As Alan mentioned any time you can take a material that is previously assumed to have virtually no value, or indeed to be waste, that incurs a cost to dispose of it and we can turn that into a saleable material, the margins that result from that are very attractive. Slide 19, production response evaluation - a cumbersome term, perhaps, but I'm very excited about this. I'd remind you our JORC resource is roughly - has been roughly two times our reserves and we are looking at opportunities to lift both. That outcome would support either production life extensions and/or increased production per annum and there's some examples shown on that slide. It is a complex ranking process. We are determined to stay committed to our focus on return on capital and quick paybacks, and so on, as you would expect in a somewhat uncertain world. So capital efficiency, speed, cost of production relativities and all of those things are part of that evaluation. Second half factors, slide 20, a summary. The new Iluka is delivering on its promise. The decisions we take will take heed of what we see in the world today. It's what we describe actually in - and have been talking about since I joined Iluka, as innovation and prudent risk taking. I think you actually saw that in action in 2009 when we pressed on with our projects and delivered them at a time when demand was recovering. Conditions are favourable, obviously the qualifier that global economic conditions are still relevant but as I mentioned certainly nothing like we saw a couple of years ago. Customer profitability is fine, that implies sustainable change and our inducement analysis supports that view. We're looking at how we might respond with more production. We expect our second half sales volumes to be stronger than the first half. You know there's a bit of seasonality in that, we had some weather constraints on the ports that we would expect to fall away in the second half and, therefore, our sales will be greater. I would also observe, just as an aside, in thinking about the inventory number that there is an allowance obviously in there, as we've said, for the transition early next year to the new mining area of Wornack, Rownack and Pirro in Victoria. There was the impact of the shipping delays. But, fundamentally, if we produced more than we expected in the first half you wouldn't necessarily expect us to try and sell that in the first half, given we can sell it in the second half at significantly higher prices. There will be a maintenance outage for SR3, that's a major maintenance outage to prepare it for a three year campaign as part of the Eneabba restart. We see solid second half pricing outlooks, but we are progressing, as Alan has highlighted, to being debt free and, in turn, net cash position with only $82 million of net debt at the end of July. All of that means that there are enhanced investment opportunities. Clearly, as reflected in the higher dividend, there are capital management opportunities that go with that also. So with that I would conclude, there are some supplementary slides, but that's the end of our presentation and we will begin questions. Question: Good morning gents. Just referring back to some of your comments I think in the quarterly, you're sort of flagging zirconia chemical production. I was just wondering whether or not you can make some comments on what the key driver or who the sort of marginal buyer of your zircon is on your internet site, whether it's coming from the ceramics market or the zirconia chemical markets. Also, I suppose, just thinking about CapEx going forward. I mean obviously you flagged this optimisation and restart as an area where you're going to invest, so would it be reasonable to assume that $100 million, as per your guidance as CapEx in FY12 and onwards to be a base and then additions as you choose to execute them on top of that? Well I suppose that will do me. David Robb: Thanks. Look in relation to the first question what we're seeing on our website, it is quite a broad mix frankly reflecting our full customer base. Both existing and new customers, it's fair to say, people with whom we have a relationship and people trying to establish one. Ceramics and ZOC buyers. As you would know ZOC is principally a China feature and therefore has been very strong, it's fair to say, in terms of that component, that segment of demand as driven by growth in China - and worldwide for derivatives of zircon been very strong. But the internet site sales really cover the spectrum frankly. In relation to capital expenditure and organic opportunities and previous guidance, you know I think you will need to wait for us to update you on that. The work that we are doing to evaluate and rank the opportunities we have obviously includes the capital appetite as we can best estimate it for all those opportunities. As all of that comes together we will provide additional commentary on 2012 capex. I don't see that, in the near term anyway, there's anything too outrageous. I don't, for example, see that we would be back in a position of having to spend the kind of sums that we spent on developing Jacinth-Ambrosia and the Murray Basin. So that's not going to happen. But it is likely based on an assessment of IRRs, payback, NPV, return on capital, the unit cost of production, you name it, all the things you'd expect us to look at, that if there is a sensible way to deploy more capital and to reinvest in the business we will do that. You know our NPAT improvement, has largely been a function of pricing success. We are keen to add to that the lever of volume. Question: David, two questions really around capital management. Can you give us some sort of guidance as to your thinking around dividend versus share buybacks and also what should we be thinking of as a sustainable, either payout ratio or percentage of free cash flow? David Robb: The first question, dividends versus buyback. We do consider both. I said at the AGM, and nothing changed in relation to this decision, that we review whether straight dividends or dividends and some other forms of capital management are appropriate on this occasion. We felt that lifting the dividend was the appropriate course. As you would well appreciate if you ask 100 shareholders what they would prefer, you'd get 100… Question: 105 answers. David Robb: You get 105 answers. That's even better than I would have put it. Thank you. So, look, we will do what we think is entirely consistent with our objective; create and deliver value for shareholders. Is that best done by a dividend plus buyback or its best done by straight dividend? That's a call we're going to make each time. In relation to guidance on payout ratios or whatever, as I said at the outset, we've been a company that's been in a bit of a straightjacket about its decision making options and I'm not going to bind us again at this stage to a specific payout ratio target. What I am going to say - no doubt to the frustration of some - is that we see distributions to shareholders in all their forms as a very important part of total shareholder return. Equally, with the balance sheet in the condition it is rapidly becoming, if we can invest in this business at low risk and with very attractive returns well then shareholders, I'm sure, would expect us to do that. How that balance plays out over time, you know I'm going to keep my powder dry and allow us a little bit of flexibility that we haven't enjoyed in quite a while. Question: David, if I could follow on from that. Tax cash payments, when would you be expecting to actually start making cash tax? I mean you've used up the assessed losses essentially now, should we be looking at that in this next half? David Robb: Whenever I answer a tax question I usually get it wrong. However I've been given the nod by my people who - next year (2012). Question: So you won't be paying any cash tax this financial year? David Robb: No. Question: If I could, one last question. Just in terms of your thinking around the pricing dynamics and the titanium feedstock, you moved to - from annual to six monthly pricing, do you see that moving further to quarterly pricing as you have for zircon? Or is that still really some way away and we need to see perhaps some of the other industry players coming off their caps on pricing? David Robb: Well I'll answer and then I'll ask Chris Cobb to comment, he's in the thick of that every day. We're quite comfortable with how it's sitting at the moment. You know, as we've said previously, downstream of us in TIO2 much more capital-intensive industry than in zircon, bigger scale, and obviously there's a customer preference, therefore a little bit more predictability. If that approach is enabling customers downstream of us to manage their markets better then it is sensible, I think, for us to stick to the kind of approach we have now. You are right. There is still an uncertainty about the approach that may be taken by a major competitor who is still subject to the old-fashioned… David Robb: …style of contract and I think it's prudent just for us to see how all that unfolds. Chris do you want to say… Chris Cobb (General Manager, Sales and Marketing): All I'd add to that is that in the chloride pigment business there is high levels of investment and long term strategic feed requirements and blending of different feed stocks. Going to a quarterly basis would make it very difficult for customers to plan their production and, therefore, maximise their yield out of the plant. So they need the lead-time to be able to shift bulk shipments, most of them halfway across the world, and then blend them and get them into their plants. David Robb: I think it's also true, as an aside, that as we look at the first half on both zircon and high grade TIO2, Iluka has been a standout in terms of delivering on its commitments to our customers. There have been some wobbles in other parts of the industry. So our reliability of supply matched to that six month price horizon, you know I think is a good competitive position for Iluka to be in right now. Question: Thanks David. It's just that you know the pigment producers themselves are pushing through quarterly pricing, so they get two bites of the cherry… David Robb: Yeah. Question: … each time. David Robb: Yeah, that's quite right. In fact whenever we read their comments about their profitability, whenever I read things like you know they anticipate tightness in feed stocks to last for at least a couple more years, they believe - well one of them at least - believes their feed stock costs, which is us obviously, people like us, will increase significantly in 2012. They talk about recapturing margin, previously eroded due to raw material increases. Well that's the sort of lead and lag at work. As you observed if they get more than one go at it in a half hopefully they can build up a bit of a gap again. Our task is then to close that gap when we talk to them about our prices. But having that dynamic at work where they are feeling confident about their industry, some opportunity to get a bit ahead of what they think is coming in terms of raw material price pressures, thinking about reinvesting to expand production. That’s exactly the mindset that we want them to be in. Question: Okay, thank you. David Robb: If that costs us at the margin some term margin per tonne that we could have extracted, well that's not the way we think about our business. Question: David, thank you very much and a good result. David Robb: Thanks. Question: Good morning. A couple of questions, firstly the investments. If I was sitting where you are David, I mean with your visibility and your current market share, do you think you could actually do M&A or you think regulators would just restrict that so all your investment really needs to be organic growth. That's the first one. David Robb: Yes, within Mineral Sands and you know when we think about growth we don't think just about Mineral Sands, although we know it best. But within Mineral Sands, as I have said previously, we see very little that is either financially attractive enough or material enough to be of interest, versus the options that we think we have within our own portfolio. At the larger end of town, it's fair to say, that if you look at market shares M&A amongst the major producers would be very difficult. Question: Yep, okay. Then second question, just visibility I mean I don't want to go back to 18 months ago. But do you feel now that your visibility is improved and how do you - what gives you that comfort? David Robb: Yes. Well you know these already sound like famous last words, but we have worked very hard to get a much better visibility on what is certainly immediately downstream of us, obviously the further away you go from our direct customers and ultimately into people who sell bathroom ware, for example, it gets harder and harder. However, we are very diligent in walking the plants of our customers, in having a look at inventory that they have on hand of our material and of finished goods. We certainly monitor very closely a lot of leading business indicators; I mentioned a few of them earlier. I think we take a better -a slightly more sanguine view of what our customers are telling us than we did back in 2008 when everyone was pretty bullish. Finally, we have a pretty good database now of customer plant capacities. We can have a look at what we're selling them versus their capacity. We know people who express a confidence that they can get material cheaper elsewhere and then they come back to us and buy from us anyway, suggesting that they can't get it from elsewhere. As I mentioned, we know there have been some supply disruptions. You know there are some - there's at least one major project, which has not yet hit its numbers, in terms of feedstocks. There have been some other disruptions to supply lines, not from us. All of which keep the market tight. So you know it's an imperfect science, but we do believe we do it a lot better than we did back in early '09. Question: Sorry, just to circle back to the growth then. Would you consider additional commodities now or is Mineral Sands going to remain the focus? David Robb: As with dividend for capital management policy I'm not going to box us in. I defined an objective for this Company to create and deliver value for shareholders. That objective is deliberately agnostic as to how we might do that. I've said that our business model is centred around Mineral Sands but that might change over time. We have looked over time - in all of my time here, we've looked at quite a broad range of opportunities. As you would appreciate the nature of this beast is you look at a lot of things and you weigh them all up. It is certainly true that as we look at the numerous opportunities within our Mineral Sands portfolio and if you think about how we assess the market conditions in Mineral Sands and what we would bring to developing something in our own portfolio, logically, they would have to have a priority. Question: Yep, okay. No, that's great, thanks David. David Robb: Thanks. Question: Thank you. The first one I'd like to ask is when you're considering the ability to bring… David Robb: Can you just speak up a little bit please, sorry I'm struggling to hear you. Question: Yes, sure. Is that better? David Robb: Yes, thanks. Question: Okay, great. The first one is when you're looking at the opportunities to bring through additional production, at what point or in what sense does longevity of operations start to become a factor in striking a balance. Then an extension to the response given to Glyn's question, I certainly appreciate your candid response in not boxing yourself into alternate avenues of investment and growth. But perhaps if you could offer an insight as to where you see skill sets… David Robb: Sure. Question:…and your ability to extend the company beyond the current core business. David Robb: Yes. Longevity versus production per annum I guess, it's why I used the language earlier. Question: Yep. David Robb: Sometimes, you are quite right, you can have one or the other, sometimes however you get both. Some ore bodies are very responsive to change assumptions around prices, other ore bodies less so. Some opportunities leverage existing infrastructure, some do not. It's why I mentioned that this whole enhanced Mineral Sands production effort is taking sometime as we work through those judgements. I - well I guess the other factor we think about obviously is market trajectory, pricing objectives, and just balancing all of that into a final decision. I don't know, the bird in the hand is always a good philosophy in life I think Brendan. So things that can be done quickly, low capex, in our backyard, obviously we favour those things. I would hope later this year that we can characterise, broadly at least, some of these options that we think about and what the aggregate picture might look like, and when you think about that - when we think about that we overlay two additional sources of growth, which do not rob either longevity or sort of in creating additional production, and that's the whole product and technical development area i.e. creating saleable production out of nothing or getting yields up, throughputs up and so on. Creating new products for markets we don't serve out of material that we typically, in the past, have not been able to sell and exploration. You know we have an active, extensive exploration program. It is global. We don't necessarily refer to it extensively, but you know that has to have a role to play as well in supporting both longevity and future production. On the skill sets question, I think you just have to have a look at our type of mining and processing that we do that would give you some feel for what might be of interest. Geography is important to us. We think about country risk and so on. You know our investors have an exposure to a pretty stable, low risk production base at the moment in Australia and the US. A significant departure from that would be - you know the returns would need to be commensurate with the risk. You know the things that, I mean it's sort of teaching grandmothers to suck eggs or stating the obvious or whatever. But clearly the trick is to find something that is either unloved or not thought about much or seen as a bit hard, or whatever, much as Mineral Sands was once upon a time and - rather than something that has already captured the world's attention. I know full well, throughout my career, that ill-considered M&A and step outs and so on are a wonderful way to destroy shareholder value. So we will be very considered. Sorry, the other group I didn't mention and he's sitting in the room, so I'm sorry Chris. But I think we have demonstrated clear marketing expertise and an ability to think carefully about how to go about a marketing shift in an industry, where to locate our people, how to be close to customers, logistics, moving into small locked packaging, changing the way an industry thinks about itself. Obviously we would have some confidence that we could bring that to bear as well. Question: Okay, that was great. That was very informative. Thank you. Question: Hi David, I was just after a little more information about some of the opportunities you've mentioned, in particular what's really at Eneabba. You've talked about three years of mining there but I guess there's possibilities beyond that if you get the permitting, so I wanted to know what's there. Also you've mentioned Aurelian Springs, some new deposit over at Virginia, I think it is and finally the tails at WA. You're talking about I think selling that offshore and having it treated, what could you really - where would that go and conceivably what could you deliver from that? David Robb: Well I think the real answer comes later in the year, as I said. Eneabba, you know there's a lot of Mineral Sands left in Western Australia. If - we used the word idling very deliberately with all those changes we made in the GFC, I think a lot of people at the time assumed that's it, that's the end. But when you look at our portfolio of options and you compare them in terms of size, grade, assemblage, risk, ability to leverage existing infrastructure and you compare it with much of what is being promoted as new sources of supply in this industry we're quite comfortable about how ours stacks up. There is clearly more material in Eneabba still than the three years that we have spoken about but you've got to look at access issues, permits may have lapsed, you need to look at declining unit returns in effect depending on what prices are doing, because the reason that they were idled in the first place was because, compared with others, they were lower margin. What we've been able to achieve is getting the margins to a point where some of that material becomes economic. So I'm not going to put a timeframe for tonnes to that yet. The work is incomplete and I think it would be unwise for me to do so, but we have numerous options within our existing portfolio, that we are trying to evaluate and rank and I would hope to be able to say some more about that later this year. We have a session scheduled for November and we're thinking around about that time. Question: Sure. Can I also just have a quick question about Murray Basin and the ilmenite there. I think you've mentioned 90,000 tonnes going to the SR3 kiln and you've also mentioned some sales to the Chinese. So are we seeing the sales that you previously had there switching across to the SR kiln? Are we actually seeing a lot more ilmenite actually being used? Is it a change of direction or an increase in what's being… David Robb: It's both, I'll get Chris to comment. Chris Cobb: Basically the Murray Basin ilmenite that we're bringing across to use in the kilns, specifically SR3, is ilmenite we have used in smaller quantities previously as part of a mix into the kilns. The work that the technical development team has managed to make that useable in a 100% basis within the kiln, to make an SR85 which is 85% TIO2 product, so it's taking a product from Hamilton in the Murray Basin, that previously was blended, now it's capable of being used 100% in a kiln if we choose to do so, given the work they've done on kiln control, temperatures and everything else. We have other opportunities in the Murray Basin that we will leverage off, and other material that we could fractionate to make a sulphate ilmenite which we could sell directly into the sulphate market in China and elsewhere, as well as producing even more SR ilmenite in the future. David Robb: We are selling some ilmenite direct. Chris Cobb: We're already selling some ilmenite direct and that quantity has grown. David Robb: As I look back on the original investment case that went to the Board for Stage 2 investment in the Murray Basin that ilmenite was assumed to have no value. Question: Alright, thanks very much. Question: Good morning David. You'll probably tell me to wait until November, but can you give us any indication as to what the cost and volume impacts of the restart of the kiln would be? The second question is can you just sort of confirm that Mining Area C is now sort of surplus to requirements or would you regard it as a valuable sort of revenue or whatever sort of diversification. Certainly you don't need it to sponsor your debt levels at this point in time. David Robb: Yes Question: The third question would be is it important for you to know when you're selling at above like trend or long term prices, does that change your attitude to capital management or any other issues regarding operating the company. The fourth question is when you're talking about restarting Eneabba, is that Eneabba itself or is it actually Cataby? David Robb: Last one first. It's Eneabba, it's not Cataby. What we're trying to do is bring forward the start of Cataby quite separate from what we've announced in relation to Eneabba. It was, I think, scheduled in our mine plans around 2019 before and we're now looking at 2014 for a start up there. The second to last question about capital management reflecting whether prices are above what we think are long term trends or not. No, that hasn't been a consideration. You know prices - we've said consistently that in the near term prices can do quite strange things as supply and demand pressures bite home. We've also given some indication previously. We have an updated view which we haven't disclosed about inducement price levels going forward. But certainly investment decisions take account of what we think long run numbers are and we look at our competitiveness, from a margin point of view, assuming those long run inducement numbers. What I'd emphasise there is the inducement numbers that we did talk about some time ago were really in order to get a certain tranche of volume developed. You go beyond that, based on what we know today, it is logical to assume that the next tranche of volume is actually at a higher inducement price all other things being equal. So it's actually a curve, it's not linear or it doesn't plateau in our view. SR volumes and costs, well a bit difficult to answer on that sort of capex cost because really our goal there is to monetise things in the past we haven't been able to and to use a material where, frankly, it is free other than perhaps the cost of getting it to the kiln e.g. the Murray Basin ilmenites. Capex for a restart of our kiln is about $18 million to $20 million, for a maintenance outage that then sets it up for a three to four year campaign life. The production of the smaller kilns, not the big one that has kept running, is of the order of 100,000 tonnes a year, or so, of SR. A bit more in some cases depending on what we're producing. So you know that's your numbers pretty much, $18 million to equip a kiln for a three to four year run. It will produce somewhere between 100,000 to maybe 120,000 tonnes a year of SR, depending on product quality and feed quality and then it's the mining capex which you know we're trying to avoid by using materials that we're already mining. Question: David, just an operating - what would happen to your $500 odd million operating cost guidance for - which you're providing for this year. David Robb: Well our objective - I don't know the answer. What we've been able to indicate that even with the restart of one kiln at least then you know you get the production offset. So our goal will be to create enough tonnes to try and keeps that operating - unit operating cost reasonably level. We are subject to cost pressures the same as everybody. Our unit costs of mining will be higher as we go to lower grade material and perhaps material that's further away overtime. So you would expect for us I think in the medium term, all other things being equal, the same as the industry. If we're going to be reliant on material that we have chosen to defer that deferral suggests that it's actually higher cost of production material. We've taken the better stuff first. Question: Okay and just the Mining Area… David Robb: But that's true across the industry. That's true across the industry, of course. Question: Yep. The Mining Area C question. David Robb: Mining Area C is a wonderful asset, I think I described it earlier as a gift that keeps on giving. You deal in it very carefully. We've always thought about it in that light. You are right. It was an important underpinning of overall corporate debt facilities. It gave the banks great comfort, psychologically, if nothing else. It is an option that we have. We continue to do some work around legal and tax issues if it was to have a life of its own. On the other hand, you know there's got to be a very strong logic for doing that in terms of unlocking shareholder value that can't be obtained any other way. If we came to that conclusion then that’s what we'd do. So you know I don't think anything's changed frankly. We continue to make sure that we know all of the ins and outs if it was to be a candidate for separation from Mineral Sands. That ultimately will need to include an ATO ruling because you wouldn't want to do it without that confidence. But equally as we think about opportunities to grow this business and if those opportunities eventually were to include things other than Mineral Sands then MAC is no different in terms of being other than Mineral Sands. David Robb: Peter, are you there? It sounds like he's gone. Can we move onto the next question please? Operator: Your next question today comes from the line of Clarke Wilkins from Citi, please go ahead. Question: Hi David, how are you? David Robb: Good thanks. Question: Just in regards to this Geraldton and the port risk, is this just the weather related issue or is actually a bit of a structural risk to the business as you get more iron ore ships coming in and out of the port does that actually create the potential for you know sort of supply disruption given your moving more material in and out you know with the Eucla Basin and ramp-up et cetera. David Robb: Yes. Question: Just the extension of the Mining Area C, is it big enough and bad enough by itself to be a sort of a spun-out, or do you actually need to bulk it up with something else do you think, given - depending on what multiple you put it on, it could be a $1 billion to $2 billion sort of company in its own right. David Robb: Look, I'll come back to Geraldton. I'll deal with MAC again given it follows on from the question. It's clearly big enough, and certainly if you were to contemplate the kind of trading multiples that North American royalty entities get it would be even bigger than most of you perhaps tend to value it. However, it's - you really need to have a logic about why you would get rid of an asset that is so incredibly hard to come by if you think about. I mean obviously our shareholders would still own it in a demerger situation. They'd make their own decisions. But it's all about shareholder value and whether we think we can actually unlock value through some different arrangement and if we came to a categorical conclusion that that was the case that's exactly what we would do. If you do think about those North American royalty companies for example, I mean they tend to be precious metals focused so they're quite different beasts. There are very few analogues to Mining Area C in the world, but one of the things they offer investors is optionality around future royalty streams. They tend to have a pipeline of possible royalties and MAC on its own, without some track-record of acquiring royalties, would not have that element and, therefore maybe not have the similar kind of market appeal. We're certainly thinking about whether that element of creating future options you know is a thing we should target before doing anything else. Question: But it isn't in effect, as you say, it would trade at a premium and a quality asset whether that’s - if you can realise value by spinning out to shareholders then they get the same value creation. David Robb: Yes. Question: So… David Robb: Absolutely, absolutely right. But then you've got to make sure that you don't lose 30 cents in the dollar value through tax because you overlooked something. There are issues about whether the passive receipt of a royalty is a conduct of a business in the eyes of the tax office. Question: Yeah. David Robb: You can only demerge a business for example. So that links too to this issue does it need to be a bit more proactive, does it need to have a degree of independence within Iluka? All of those things before you could tax effectively do the demerger in order to pass that precondition about it being a business because you can only demerge a business. On Geraldton, it's really been a pretty freakish winter in Western Australia generally. It's normally in the winter you do get some swells from the north west, and that is a particular problem in Geraldton just given the design of that harbour. It's designed really to cope more with summer conditions or the more prevalent conditions year round which are more from the south west. When you get winds and swell from the north west it goes straight in the harbour channel and the entrance and slops around inside the harbour making ship loading or unloading impossible. There has been some increase in congestion of other users and obviously the delays to the Oakajee Port development, and so on, don't help. But, no, I think it's fundamentally a weather issue and it will sort itself out when these quite unusual conditions abate. Chris you've got some actual days that we've been up, it's been quite extraordinary, hasn't it? Chris Cobb: So far in August, due to a number of things - circumstances, surge has been the major one, but they've been working on environmental improvements on the loading systems at the port. But up until today total loading is less than five days out of the month and we're more into towards the end of the month. The rest of the time the port's been closed for predominantly, like I say, for swell conditions that causes wave resonance in the harbour itself and breaks the ropes on the ships so they have to put back to sea until the swell subsides. David Robb: So strategically though, we're certainly thinking about dependence on that port. You know should we be looking at a slightly different logistics model that gets more material offshore when we can. Obviously there's a cost to that. But there's also cheaper rehandling opportunities offshore than there are in Australia. There's perhaps, or in my view and the view of my team, lower industrial relations risk offshore Australia given we've got our back to the 1970s IR system unfolding in Australia. So there are lots of reasons why we are thinking about alternatives and even future investment decisions. You know we do have a processing plant in the south west, for example, that could be expanded as an alternative to Geraldton in the future, using the Bunbury port, you know getting more material in containers, things like that. You know they're all options that we're looking at. Question: Great, thank you. Question: Hi David, thanks. Most of my questions have been answered already, but just one in terms of kind of the incentive analysis that you have talked about previously, you're - obviously understand you're going to be updating that. But just as prices have moved up to and well through those kind of incentive price levels has the supply side of the equation, in terms of the projects you would expect to have seen starting to be developing, financed et cetera, has that come to pass? Has it behaved as you've expected and if not where were the kinds of major surprises? I'm thinking more not so much about western world projects et cetera which I think are fairly well understand but more Vietnam, Indonesia, India, the supply side there, how has that been reacting? David Robb: Look I think again it's a mixed bag, we're actually sending material to places that previously were suppliers. On the other hand the sort of swing production or the artisinal production, Indonesia, Vietnam and so on is encouraged not so much by zircon prices, for example, but what's happening with gold prices. The zircon tends to come with that as a by-product of that activity. All of which is illegal but, nonetheless, takes place. So Indonesia appears to be - to have returned to roughly the kind of levels it was at pre- global crisis and it hasn't had an impact on the overall supply/demand, therefore pricing dynamic. Some of the projects that are in our modelling and thinking are talking confidently about their timelines, their funding and so on. People are at different stages of advancement, I don't believe anyone is really over the line yet. Certainly none of them are talking about production before, say, 2014-ish; if they get up on time, if they work when they get up, and if they can ramp-up successfully, and if their products are accepted into the market. So no, there are no surprises in essence. We've seen some of the material come back from sources that we knew about before and were there before. Equally we've seen some holes open up. There's - both from our major competitors and from other sources where there appear to be problems. We don't know all of the ins and outs of those, but it's reflected in customer approaches to us for more material. But nothing that I think changes the overall supply and demand dynamic. David Robb: I think there's one more. We'll take - we've got time for one more. Question: David I wanted to ask about rutile pricing. As I understand it, the pigment guys have put it up by, what, 2 times $500 a tonne which is ahead your numbers for the current half. Can you confirm that? On a relative see-through, you know what I'm talking? Chris Cobb: This is Chris here. We can confirm that they've put out price increases of that magnitude. I can't actually confirm they've achieved them… David Robb: Secured them. Chris Cobb: …and secured them. Question: My question is if they secure them how much is that ahead of your proposed, or the price increase that you're talking about for this half? David Robb: I think the best way to look at it is in the chart in the pack. It is clear that there is some margin expansion happening, if pigment guys are able to deliver what they're announcing. Question: But is that partly because of the… David Robb: Where I - as I said - Question: …legacy, thanks David. David Robb: Sorry? Question: Is that partly because they've got a mix of legacy versus spot contracts? David Robb: That's certainly helping their margins and they've been quite open about the fact that they are shielded to some extent from the full effect of say the Iluka price rise by the legacy contracts that they still enjoy. Timing and roll-off of those people don't really know, I think 2012 sometime seems to be the conventional wisdom. I think it's a very healthy situation. Yes, there will be leads and lags. They might get ahead of us. We might put them under a bit of pressure and then they have to go - it's just the way normal markets work. But the fact that they are moving, the fact that they are in terms of eking extra production out without committing yet to new capital seeking to increase the quality of their feed stocks, all of that is very good news for high grade ore demand and as you know that's our focus area. So as we get towards the end of the year and we talk about next year that will be an interesting conversation. Question: David, you know let me ask you, have you lost leadership on that to the pigment producers given that they can react so quickly? David Robb: I don't really care who's leading, as long as it's going where we think it should go. Question: That's fine. I'm not… David Robb: In an ideal world, in an ideal world you know to be clear, Iluka's not the only participant in this industry. We've got competitors we have to think about. We don’t call all the shots. Having both sides of the industry comfortable with an upwards price trajectory and comfortable, it would seem, that it's got further to go you know who led that well I don't really care frankly, as long as it's going in that direction. Question: Okay and just to finalise. I think in your presentation you indicated, I'll make sure I've sort of interpreted this correctly, in a relative sense - I understand that they're both pretty good - but in a relative sense, is the market softening in the appetite for higher zircon prices a head compared with rutile? David Robb: I think we've got - it's a much more complex market, zircon. It's harder to get therefore a really uniform trend if you like, than in TIO2 where you tend to have much bigger purchases all the way through to paint. They've got bigger balance sheets. They can take more strategic views. Zircon has run very hard. It's why we say that future price increases may moderate in size. If - from an Iluka investor point of view, if both the zircon train and the TIO2 train are moving as we would hope them to move the fact that one's, at any given point in time, moving a bit faster than then other doesn't particularly phase me. In fact, I actually think it's quite a healthy situation in that the load of changing the industry is being shared. Question: Thank you David. David Robb: With that I think we'll have to call it a day. I thank you for your time. If you have further questions then certainly Rob Porter or myself or members of my team are available to take those questions. So thank you for your time and your patience.