COMPANY PRESENTATION September 2013

Transcription

1 COMPANY PRESENTATION September 2013

2 Disclaimer Forward-Looking Information This document may contain forward-looking statements. These forward-looking statements are made as of the date of this document and Sierra Rutile Limited (the Company ) does not intend, and does not assume any obligation, to update these forward-looking statements, except as required under applicable securities legislation. Forward-looking statements relate to future events or future performance and reflect Company management s expectations or beliefs regarding future events and include, but are not limited to, statements with respect to the estimation of mineral reserves and resources, the realization of mineral reserve estimates, the timing and amount of estimated future production, costs of production, capital expenditures, success of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage. In certain cases, forward-looking statements can be identified by the use of words such as plans, expects or does not expect, is expected, budget, scheduled, estimates, forecasts, intends, anticipates or does not anticipate, or believes, or variations of such words and phrases or statements that certain actions, events or results may, could, would, might or will be taken, occur or be achieved or the negative of these terms or comparable terminology. By their very nature forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward looking statements. Such factors include, among others, risks related to actual results of current exploration activities; changes in project parameters as plans continue to be refined; future prices of mineral resources; possible variations in ore reserves, grade or recovery rates; accidents, labour disputes and other risks of the mining industry; delays in obtaining governmental approvals or financing or in the completion of development or construction activities; as well as those factors detailed from time to time in the Company's interim and annual reports. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward- looking statements.

3 Sierra Rutile is a leading mineral sands producer Sierra Rutile is a leading mineral sands company, operating the largest primary rutile mine in the world JORC Mineral Resource in excess of 840 million tonnes at 1% rutile Lanti: 63 Mt at 1.42% rutile Gangama: 48 Mt at 1.44% rutile Gbeni: 63 Mt at 1.20% rutile Sembehun: 274 Mt at 1.34% rutile 2013 forecast rutile production of 125,000 tonnes of rutile with additional ilmenite and zircon by-products Resources to support a mine life of over 65 years at current production rates The company has a long and successful history in Sierra Leone The company has a positive and long-standing relationship with the Government of Sierra Leone The mine has been in operation since the early 1970s Sierra Rutile supports local community projects such as schools, wells, bridges, clinics and directly supports the community through: A medical facility, treating over 22,000 people a year Sponsorship of a local technical college, providing education to over 300 students The Lanti Dredge mining the expansive Lanti deposit Child being treated at the Sierra Rutile clinic 1

4 Indexed Process Recovery (3-month average; Feb 2011 = 100%) Trailing 12 months production (rutile tonnes) Driving Value From An Established Operation An integrated multi-mine operation Lanti Dredge: bucket line dredge and integrated processing plant capable of mining and treating over 1,000 tonnes per hour Lanti Dry Mining: truck and shovel mining operation feeding a central 500 tonne per hour processing plant Significant installed infrastructure Mineral separation plant, currently capable of operating at a rate of 165,000 tonnes of rutile per annum, and easily expandable to 200,000 tonnes of rutile per annum A modern MFO (Marine Fuel Oil) power plant capable of producing 23MW of power (current utilisation is under 11MW) Established export port and shipping fleet with capacity to ship 500,000 tonnes of product per annum Over 80km of established haulage roads Strong Rutile Production Growth 130, , , ,000 90,000 80,000 70,000 60,000 50,000 40,000 Source: Sierra Rutile Process Recovery Improvements 140% 130% 120% 110% 100% 1 Since February 2011 Demonstrated ability to drive efficiency improvements 90% Source: Sierra Rutile 2

5 Future Growth: Ready To Be Delivered The Gangama Dry Mining project The Gangama Dry Mining project is operationally identical to the Lanti Dry Mining project The project will be constructed over a 12 month period and will deliver annual production of 93,100 tonnes of rutile 1 High capital efficiency: Power, water and roads are already in place Existing port facility able to handle increased production volumes Only minor upgrades required to MSP to reach required 200,000 tonne capacity Gangama Dry Mining Capital Costs 23% 52% 14% 75% of capital costs are fixed very little risk of cost inflation Ganagama Dry Mining project status Engineering Complete: Detailed engineering of the plant and infrastructure has been successfully completed with Consulmet (Pty) Limited. Capital costs reduced: Value-optimization exercise has reduced capital costs by 17% from US$103 million 2 to US$85 million. Further cost savings are expected. 11% Process Plant (LSTK) Mobile Equipment Earthworks & Infrastructure Other Gangama Dry Mine provides strong leverage to increasing rutile prices 1 Feasibility study estimate 2 Pre-feasibility study estimate 3

6 Cash Flow Yield (Operating CFPS / share price) Cash Generation Supports Future Distributions Strong Operating Cash Flow Yield 30% Cash Flow Yield Cash Flow From Operations 25% 20% 15% 10% 5% $120 $100 $80 $60 $40 $20 Cash Flow From Operations (US$m) Stated dividend policy Sierra Rutile has an approved policy to distribute at least 50% of free cash flows after capital expenditures, committed future expenditures and repayment of any borrowings Growing operating cash flow per share Sierra Rutile is forecast to generate operating cash flow sufficient to pay a dividend yield of up to 25% base on current share price Near-term cost reduction and efficiency gains to further improve operating margins 0% 2014E 2015E 2016E Source: Capital IQ, broker consensus Note: Cash flow yield calculated as operating cash flow per share divided by current share price $0 Debt facilities provide flexibility and optionality Ability to optimize capital structure provides further potential for returns to shareholders Sierra Rutile s operating cash flow could support considerable returns to shareholders 4

7 Maintaining Cost Discipline Operating Costs: Currently undergoing a comprehensive bottom-up review to reaffirm a culture of cost-efficiency Continued focus on cost control across the organization Re-examining all operations in order to identify areas for cost reduction, including: Power and fuel: Potential improvements in power plant optimization and vehicle utilization Human resources: Localization plan is being implemented to drive down overall expatriate headcount Expatriate Headcount Source: Sierra Rutile 1 Pre-feasibility study estimate Expatriate headcount declining as operational improvements have been completed Capital Costs: Focusing on efficient capital allocation Lanti Dry Mining: The Lanti Dry Mining project was completed on budget and ahead of schedule Gangama Dry Mining: Identified capital cost savings for the Gangama Dry mining project has reduced total capex by 17%,from US$103 million to US$85 million 1 Gbeni Deposit: $23 million in savings to be realized through the decision to dry mine the Gbeni deposit Cost savings realized by eliminating preparation work and village relocation associated with the dredge move Delayed the move of the Lanti Dry Mining processing plant by seven years Pending retirement of Lanti Dredge further reduces the near-term stay-in-business capital requirement SRX is one of the first companies we have seen to start coming out with reduced capital development cost expectations that reflect the more muted environment in which miners find themselves. We expect that others will be following Investec Securities - August 6, 2013 Sierra Rutile continues to generate shareholder returns by focusing on cost efficiency 5

8 Trading Multiple (x) Trading Multiple (x) Sierra Rutile Is A Best-In-Class Opportunity Enterprise Value to EBITDA 30x 25x 20x 15x 10x 5x 0x SRL Iluka Kenmare EV/EBITDA 2013E Relative to its feedstock producing peers, Sierra Rutile trades at significantly discounted multiples EV / EBITDA Sierra Rutile trades at a substantial discount to both Iluka and Kenmare Price to cash flow Sierra Rutile s current share price implies that the company s 2013 cash flow is worth less than half of peers cash flow Price to Cash Flow 30x 25x 20x 15x 10x SRL Iluka Kenmare Sierra Rutile trades at a discount despite having a stronger growth profile Sierra Rutile s production growth is forecast to be significantly more than both Iluka s and Kenmare s 5x 0x Source: Capital IQ as at September 24, 2013; Estimates as per broker consensus P/CFPS 2013E Sierra Rutile provides value to shareholders 6

9 Increasing Sector Consolidation & Integration Continued trend toward consolidation and vertical integration of key TiO 2 players Cost and operating synergies create value within supply chain Reduced input cost volatility TiO 2 feedstock supply concern amongst pigment producers is alleviated Recent Consolidation Activity May 2008 Highly concentrated supply base More that 60% of current rutile supply is supplied by four producers July 2011 CRL 8% Tronox 7% Iluka 20% 2013E Global Rutile Production Volnogorsk 8% Rio Tinto 10% Other 16% Cristal / Bemax 13% Sierra Rutile 18% September 2011 September 2013 (mineral sands) (pigment units) Continued consolidation activity within the TiO 2 industry Source: Sierra Rutile 7

10 Strong & Supportive Shareholder Base Sierra Rutile Shareholder Base Over Time June 2011 Current Pala Investments 30% 54% M&G 16% 20% JPMorgan 10% 9% Neon Liberty Capital 6% 6% Investec 4% 5% Source: Bloomberg, Statutory Filings Supportive shareholder base that remains committed to the story Since mid-2011, Sierra Rutile has seen existing shareholders add to their shareholding Little willingness to sell stock amongst existing shareholders has restricted liquidity Shareholders continue to see significant value upside Committed shareholder base believes that significant value is yet to be realized 8

11 Market Fundamentals

12 Saturation Level (%) Pigment Apparent Consumption (kg) Strong Fundamentals for Growing TiO 2 Demand TiO 2 is a late-cycle commodity, leveraged to the development of emerging economies in addition to already established markets TiO 2 demand growth is anticipated to increase dramatically as emerging economies develop China alone will drive significant TiO 2 demand as it s middleclass population grows to 70% by 2020 Continued urbanization in Asia, Latin America, and India will further add continued TiO 2 demand growth Late-Cycle Demand Growth Pigment Consumption vs. GDP Per Capita South Korea (Average) USA (Average) Western Europe (Average) 1.5 China (annual) Japan (Average) Indicative S-Curve Note: Saturation level is the point at which consumption per capita does not increase with income levels Source: Rio Tinto Source: Rio Tinto TiO 2 demand growth anticipated as emerging economies continue to develop ,000 20,000 30,000 40,000 50,000 GDP Per Capita (PPP Basis 2005$) 10

13 Current Market Showing Signs of Improvement Economic indicators illustrate that the Chinese economy is beginning to regain growth momentum Year-over-year, Chinese manufacturing PMI has increased notably and continues to trend upward Chinese industrial production has increased approximately 10% year-over-year Both urban and industrial fixed asset investment statistics also show that the Chinese economy is strengthening Chinese Manufacturing PMI US economic recovery is well underway Recovery of the US economy and the US housing sector presents near-term upside in TiO2 consumption growth TiO 2 inventory held by paint producers has declined materially, paving the way for increasing TiO 2 feedstock demand Downstream restocking activity had repercussions on upstream production and inventory Inventories at pigment plants and downstream reported to be at or below normal levels Near-term metrics imply an expected strengthening TiO 2 feedstock demand 48 Source: Bloomberg TiO 2 Inventory Days in Coatings Significant TiO 2 destocking by 2012YE Source: Tronox 11

14 Appendix: TiO 2 Overview

15 TiO 2 Overview Titanium dioxide (TiO 2 ) pigment is a fine white powder used in paints, plastics and paper products - which imparts whiteness, brightness and opacity on the products Titanium dioxide pigments are produced from titanium feedstocks. The principle feedstock products are: High-grade: Natural rutile (95-96% TiO 2 ) Synthetic rutile (90-93% TiO 2 ) Titanium slag (75-85% TiO 2 ) Low-grade: Ilmenite (30-63% TiO 2 ) Leucoxene (<90% TiO 2 ) Titanium pigments are produced using the chloride process (55%) or the sulphate process (45%) The chloride process requires higher-grade feedstocks (90% TiO 2 ) and is favoured for its more efficient, cleaner and lowercost process The sulphate process can utilise lower grade (usually ilmenite) feedstocks 90% of titanium feedstocks are used for the manufacture of TiO 2 pigment Effects of the Refractive Index on Opacity Source: DuPont Overall TiO 2 End Markets Source: Credit Suisse 4% 6% Pigments (paint) Titanium sponge Other (welding) 90% Overall TiO 2 market: 6.8 million tonnes 13

16 TiO 2 units (millions) Sierra Rutile Produces a Premium Product Sierra Rutile s core rutile product is a key input in the production of titanium dioxide Rutile is the only source of high-grade titanium dioxide feedstock that does not require upgrading prior to use in the chloride process The lower level of impurities found in rutile has significant operating cost benefits to pigment producers over other types of TiO 2 feedstock Industry trend towards use of high-grade feedstock, such as rutile, in TiO 2 production Chloride processing route increasingly used in the creation of TiO 2 due to its cost and environmental benefits Chloride processing benefits from high-grade TiO 2 such as natural rutile Feedstock Performance in Manufacturing of TiCl 4 Waste Index 17 times less waste than ilmenite Source: TZMI, Company Estimates; TiCl4 production is key stage in the production of pigment (chloride process) and Titanium metal Feedstock Usage in TiO 2 pigment production Ore Consumption 38% less ore required Ilmenite Slag Synthetic Rutile Natural Rutile Rutile Synthetic Rutile Titanium Slag Ilmenite - Chloride Process Sulphate Process Source: Credit Suisse 14

17 Contact Details John Sisay Chief Executive Officer Sierra Rutile Limited 30 Siaka Stevens Street 2nd Floor, Access Bank Building Freetown Sierra Leone