Iluka Resources Limited

Global Zircon Conference, Shenzhen, China May 2010

Robert Porter
General Manager, Investor Relations
Sydney, 26 May 2010

Information herein derived, in part, from TZ Minerals International and Beijing Ruidow International Global Zircon Conference,
Shenzhen, China May 2010

Disclaimer Forward Looking Statements

This presentation contains forward-looking statements that are subject to risk factors associated with exploring for,
developing, mining, processing and sale of minerals.
These forward-looking statements are subject to a range of risk factors associated, but not exclusive, with potential
changes in:

exchange rate assumptions

product pricing assumptions

mine plans and/or resources

equipment life or capability

current or new technical challenges

market conditions

management decisions
While Iluka has prepared this information based on its current knowledge and understanding and in good faith, there are
risks and uncertainties involved which could cause results to differ from projections. Iluka shall not be liable for the
correctness and/or accuracy of the information nor any differences between the information provided and actual
outcomes, and furthermore reserves the right to change its projections from time to time. Iluka does not undertake to
update the projections provided in this document on a regular basis.
All currency referred to is Australian denominated unless otherwise indicated.

Structure of Presentation

1. Context of the Global Zircon Conference, Shenzhen, China May 2010

2. Zircon Usage in China
3. Ilukas Market Presence in China
4. Views on Global Zircon Supply / Demand

Context of the Shenzhen Conference

May 2010

Annual China Zircon Conference

-

organised by TZMI and Beijing Ruidow

220 delegates

Delegates included:
-

zircon sand consumers, suppliers, project proponents

representatives of major zircon global supplies (with and without facilities in China)

China Ceramics Industry Association

Titanium Zirconium & Hafnium Branch, China Non Ferrous Metal Industry

Beijing Nonferrous Metal Research Institute

Iluka China Customer Forum

-

closed door meeting of customers supply and 2010 pricing increases

individual customer meetings

Main industry conference (organised by TZMI) held in Hong Kong October

4

Zircon Usage in China

Zircon Usage in China

Jiang Dongmin
General Manager of Zhengjiang Shenghua Biok Biology Co.
Vice-Chairman of China Titanium Zirconium Hafnium Association

Speaking at TZMI Mineral Sands Conference (Singapore) October 2009:

Zircon is an important strategic material for Chinas modernization

and defense construction and also the import mainstay of Chinas
new material industryChinese government and the business world
attach much importance to the construction and development of
zirconium materials industry

Chinese Zircon Sector

Key Features

China is the largest global consumer of zircon sands

-

~40% of global consumption

historical demand growth of 17.2% pa (1990-2008)

Predominantly import dependent

-

less than 10% of supply from Hainan Island

Australia and South Africa constitute 80% of supply

Main applications ceramics, floor and wall tiles, sanitary ware

China has a significant zirconium chemicals industry

Strategically important (though relatively small zircon sand input) for zirconium metal
-

used in nuclear fuel rods

7

Zircon End Use: Global vs China

Chinese zircon consumption is more heavily weighted towards zirconia and zirconium chemical
relative to global consumption
Global Zircon Segments 2008
Zirconia &
Chemicals
15%

China Zircon Segments 2008

TV Glass
3%

TV Glass
6%

Zirconia &
Chemicals
27%

Foundry/Casting
14%

Refractory 14%

Ceramics
54%

Ceramics
53%

Foundry/Casting
7%
Refractory

7%

8
Source: Iluka analysis

China Zircon Industry

Tianjin Area
Qingdao Area

Zhangzhou Area

Shanghai Area

Xiamen Area

Huangpu Area

Zircon Demand
Consumption Accelerated by Developing/Urbanising Economies

Global Zircon Consumption CAGR since 1990 is 3.4% while Chinas CAGR is 17.2%

Zircon Demand Growth

Zircon Consumption Trends

Rest of World vs China Growth
1.4

Demand 3.4% CAGR globally

Zircon (kt)
World

China

Rest of World

1.2
1.0
0.8

1990-08 CAGR
= 3.4%

1980-89 CAGR
= 2.8%
1990-08 CAGR
= 1.3%

0.6
1990-08 CAGR
= 17.2%

0.4
0.2

China demand CAGR of 17.2%; largest global

consumer
- largest producer & exporter of ceramics;
- largest producer of zirconium oxychloride;
and
- import dependent
Urbanisation, construction, wealth growth drive
demand
Demand profile strengthening from low base in
BRICs and developing Asian economies

0.0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

10
Source: Iluka analysis

China Zircon Consumption

Ceramics Data

2009 Ceramics

2009 Production

Change

Exports

Change

Floor & Wall Tiles

6.72 bn sq m

21.8%

6.8 million sqm

2.5%

Sanitary Ware

177 million pieces

12.3%

4.8 million pieces

-15.2%

Household ceramics

20.4 billion pieces

30.6%

2.4 million

-6.6%

Features of China ceramics production:

-

top 5 provinces account for 85% of all ceramics manufacture

Guandong, Fujian, Shandong account for over 2/3rds of tile manufacture

Development of ceramics industry is emerging in central and western regions

11
Source: Global Zircon Conference participant data

Chinese Ceramic Sector

China Industry Participant Observations

Hot property market in 2009

Real estate closely related to ceramics demand

China Government has not changed policy re steady/moderate growth

Industry challenges
-

world economy

sovereign debt

domestic purchasing power

protectionism (vis Chinese exports)

RMB appreciation

Macro economic policy setting

Exports important to ceramics sector

12

Source: Global Zircon Conference participant data

Chinese Zirconium Chemicals Sector

China the largest global manufacturer of zirconium oxychloride chemicals (ZOC)

Range of applications: ceramics, zirconium products, nuclear grade zirconium material

2009 production of 110kt (2008: 140kt; 2007: 176kt)

China commissioning additional 2kt capacity of zirconium sponge production by 2013

(total capacity of 5kt)

Zirconium metal demand linked to Chinas nuclear power generation capacity

40 million Kwh capacity to 60 million Kwh by 2020

34 nuclear power units currently under production

high corrosion/pressure resistance, nuclear absorption

1/3rd of zirconium material replaced annually

Need for ZrO2 growing sharply as a result the consumption of zircon sand will definitely
continue to increase
13

Source: Global Zircon Conference participant data

Chemicals
ZOC - Overview
Zirconia has excellent hardness and imparts wear, fracture, impact and corrosion resistance.
Zirconium is extremely corrosion resistant at high temperatures. Various other chemical uses.

Ceramics
53.4%

Gemstones+
Technical
Ceramics

Chemicals
7.4%

Nuclear (Metal)

Other

Other
1.4%
TV Glass
3.0%

Cosmetics

Fused Zirconia
9.0%

Paper coatings

TiO2 coatings

Foundry
13.2%
Source: TZMI, Roskill, Iluka consensus

Refractory
12.6%

Paint Dryers

14

Chinese Share of Global Zircon Consumption

China has grown from approximately 16% of global zircon consumption in 1998 to more
than 40% in 2009

Global and Chinese Zircon Consumption

'000
tonnes

1400

45%
40%
35%
30%
25%
20%
15%
10%
5%
0%

1200
1000
800
600
400
200
0
2000

2001

2002
China

2003

2004

2005

Rest of World

2006

2007

2008

2009

China % of World

15
Source: Iluka analysis

Mineral Sands Market Outlook

Increasing Importance of China

Chinas consumption of zircon expected to continue to grow based on a combination of rising per capita income
and urbanisation
Chinese Governments stated goal of quadrupling per capita GDP by 2020 (on 2000 levels)
McKinsey Consultants forecast, by 2025:
- urban population to reach 926 million people
- floor space built per year to rise to 3.06 billion square metres (up from 1.18 billion sqm in 2005)
Both factors are positive for zircon as demand linked to GDP per capita and construction
Zircons largest end use is in ceramic tiles
Usage increases with rising incomes
Chinas Urban Population
1000
900
800
700
600
500
400
300
200
100
0

Chinas Urban Floor Space

People (Millions)
35
926

Square Metres (Billions)

30

33

25

20
601

15

24

18

10
254

0
1990

Source: McKinsey Consultants

2007

2025

2000

2008

Source: McKinsey Consultants & BHP

2015

2025

16

China Ceramic Tiles Growth

By the end of 2008 China accounted for 40% of global ceramic tile production and close to 35%
of consumption

The proportion of production of medium to high quality grade tiles in China continues to increase
Chinese Ceramic Tiles
million sqm
4000
3500
3000
2500
2000
1500
1000
500
0
2003

2004

2005
Production

2006

2007

2008

Internal consumption

17
Source: Ceramic World Review 2009

Ceramics
China Tile Production Trends
% Chinese Tile
Production (RHS)

0.2

40%

Global Zircon
Intensity of Use
(LHS)

0.12

30%

0.08

25%

0.04

20%

15%
1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

Chinas new tile production during the 1990s used less zircon that the rest of world

Ceramic segment zircon consumption expected to grow in China as affordability for good
quality floorings increases in China and China increases exports to compete with western
producers
18

*Note: Global Intensity of Use = Global Tile Production (m2) / Global Ceramic Grade Zircon Consumption (kt)
Source: Ceramic World, TZMI

(%of Total)

35%
China Tile Produ

Zircon kg / Tile

0.16

2010 China Zircon Imports Comparison

2010 imports of zircon to China are at record levels

Monthly China Import Comparison

tonnes
500,000
450,000
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
Jan

Feb

Mar

Apr
07 Cum

May

Jun
08 Cum

Jul
09 Cum

Aug

Sep

Oct

Nov

Dec

10 Cum

19
Source: Iluka interpretation of Chinese import statistics

Ilukas Market Presence in China

20

Importance of China to Iluka

China represented more than 23% of Ilukas total revenue in 2009: Ilukas biggest single market

China represents more than 40% of global zircon consumption and will continue to grow more
rapidly than other zircon markets.

Iluka now has a zircon market share of more than 35% in China.

Iluka Shanghai Representative Office has now been extended to a regional office for all of Asia
(with increasing staff levels)

Increasing level of direct sales of products

Use of strategic mainland warehousing locations to better service customers

Firm plans to further expand Ilukas presence in China

Continued focus on improving our service to the Chinese market: reliability, convenience,
stream-lined supply chain, stronger relationships, communication
21

Ilukas Global Zircon Sales

In 2009 China represented 55% of Ilukas global zircon sales

Iluka Zircon Sales to China
% of Iluka Sales

mt
600000

60%

500000

50%

400000

40%

300000

30%

200000

20%

100000

10%
0

0%
2004

2005
China

2006

Other Iluka Sales

2007

2008

2009

% China Sales

22
Source: Iluka data

Iluka Market Share in China

Ilukas market share in China averaged ~35% in 2008 and 2009

Iluka China Zircon Market Share

50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
2004

2005

2006

2007

2008

2009

23
Source: Iluka analysis

Iluka Sales - Zircon

300

Zircon Sales

kt

200

100

Severe reduction in 1H
2009 sales, including
China

0
Asia

China imports recovered in

2H 2009

European market slow to

recover over 2009

Europe

Americas

Other

-100
1H 2008

China

2H 2008

1H 2009

2H 2009

Change
(2H 2008 to 2H 2009)

Sales Volumes
k tonnes

1H
2008

2H
2008

1H
2009

2H
2009

Change
(2H 2008 to 2H
2009)

Asia (ex. China)

33

41

11

36

(5)

China

81

81

15

104

23

Europe

74

98

17

(81)

Americas

38

33

20

(13)

Other

Total

227

254

42

181

(73)

24
Excludes CRL

Ilukas Zircon Production

Declining production from Ilukas traditional ore bodies will be off-set from new production at
Murray and Eucla Basins

Most production from

new projects:
Murray and Eucla Basins

Iluka Zircon Production

600
500

kt

400
300
200
100
0
2006

2007

2008
Other

2009
MB

2010

2011

Eucla

25
Note: All production figures exclude CRL

Views on Global Zircon Supply / Demand

26

2005 2010 Global Supply and Demand

A tight market through to 2008 resulted in escalating zircon prices

Decline in production from major producers and Indonesia resulted in the zircon market
falling into short supply through the course of 2008

The Global Financial Crisis resulted in an over supply in 2009 despite significant
reductions in production

Demand in 2010 is fast out-pacing production causing significant tightness

Supply and Demand (kt)
1,500

1,250

1,000

750

500
2005

2006

2007

2008
Supply

Source: Iluka analysis

Demand

2009

2010

27

China Zircon Market 2010

Demand
- Jan + Feb ~ 40-50kt/month consumption (normally a very quiet period)
- Mar + Apr ~ 40-50kt/month consumption
- expect H1, 2010 to be near 250kt consumption
- expect H2, 2010 to also be close to 250kt consumption
Supply
- total supply to end of March ~ 150kt

China recovered from the Financial Crisis by Q3, 2009 and is now far exceeding all consumption expectations
Iluka expects monthly consumption in China to stay firmly in the range of 35-50kt per month and in the range
of 450-500kt for all of 2010

28
Source: Iluka estimates based on market data

2010 Supply

The global zircon market in 2010 will be tight:

-

a very strong end to 2009

lower than expected production from major new projects

further declines in Indonesia production

limited Hainan production

demand far exceeding expectations at the start of 2010

Europe and North American markets recovering very rapidly

production of zircon from new projects much lower than expected

production of zircon from all suppliers very slow to recover

29

Indonesia Zircon Supply

Indonesia zircon supply remains constrained by resource depletion and increased government
control of mining activity
Tonnes

Chinese Zircon Imports from Indonesia

('000)

16
14
12
10
8
6
4
2

2007

2008

2009

Dec

Nov

Oct

Sep

Aug

Jul

Jun

May

Apr

Mar

Feb

Jan

2010

30
Source: Iluka interpretation of Chinese import statistics

Mineral Sands Market Conditions

Zircon 2010

Zircon demand across all main markets rebounded strongly in first quarter
uncontracted bulk shipments to Europe
steady improvement in North American market
continued strong demand in China

Iluka advised customers of 1st of at least 2 price increases in 2010 (April and July)

If realised, average prices well above prices prevailing at commencement of 2010

Ilukas zircon supply constrained by project ramp up in 2010

31

Zircon Supply/Demand
TZMI Perspective from Conference - Data not reproduced

Future growth in demand (ceramics and specialty applications) driven by China and
emerging economies

No further decline in demand expected from developed economies but recovery

expected to be gradual

2012-2020 CAGR in global demand of 3.8%

Not a large number of new projects to be commissioned, plus time to market for new
projects may take longer than expected

New supply will fill the gap & perhaps lead to short term excess
- short term surplus (not currently a surplus)
- expect discipline on part of suppliers

Worrying trend is highly unlikely to be matched to 2020 by new supply

- flat supply equation
- onset of deficit in supply between 2012-2014
- potentially large deficit; could be upside to their demand scenario

Large concern is the rate of new project development

32

Zircon Supply / Demand

TZMI Perspective from Conference - Data not reproduced

Zircon prices still have not surpassed real high in 1975

TZMI view that Q2 price increases of US$20-50/tonnes have been passed through

2nd half price increase they expect to be a similar magnitude to the high end of this
range (although they are hearing higher numbers)

TZMI view that price increases are justified

See a continuing trend in prices over next 5 years

Matter of when prices increase above US$1,000/tonne would be above US$1,000/t

if not for GFC

TZMI view on prices doesn't reflect demand (on which they are bullish) but supply

33

Zircon Supply
Ilukas View - Supply Crunch Near Term?

Few material new zircon sources

- primary contribution from existing suppliers

Even with advent of Jacinth-Ambrosia, relative

industry zircon:Ti02 production ratio remains stable
at ~0.2 (over period 1990-2013)

Zircon Supply
Induced New Projects at 0%, 25% and 50% Zircon
price rises (on 2008 levels)
1800
1600

Majority of mooted / planned TiO2 projects have

low zircon assemblage

1400

Ilukas assessment is zircon market comes into

balance into 2011/2012

1000

Given zircon typically a co-product in mineral sands

developments, higher TiO2 prices also required to
realise associated zircon production
Given zircon demand growth historically greater
than TiO2, zircon availability may come under
further pressure if projected TiO2 volumes do not
materialise
Even with advent of 50% price increase, zircon
supply to 2015 increases only marginally relative to
2011 levels; significantly higher pricing required to
support new supply

ktpa
Current Producers

No price rise

25% price rise

50% price rise

1200

800
600
400
200
0
2000

2002

2004

2006

2008

2010

2012

2014

Ilukas analysis of mineral sands supply is based on inducement

analysis of known projects, at varying zircon and Ti02 prices, with a
risk weighting applied based on: sovereign, environmental,
regulatory approval, funding and technical risks.
Source: Iluka analysis of company announcements

34

Industry Zircon:TiO2 Ratio

Despite Advent of Jacinth-Ambrosia, Industry Z:TiO2 Ratio Remains Stable
mt of TiO2 or Zircon

Ratio t Zircon/t TiO2

0.35

7.0

TiO2 Historical Supply

Zircon Historical Supply

0.3

6.0
Zircon/TiO2 Ratio All
Feedstock Producers
(including J-A)

5.0

0.25
0.2

4.0

0.15

3.0
Zircon/TiO2 Ratio
Excluding Iluka

2.0

0.1

1.0

0.05

0.0

0
1990

1995

2000

2005

2010F

2013

Decline in zircon:TiO2 ratio forecast from existing producers (excluding Iluka)

Despite Jacinth-Ambrosia (largest new supply source in 30 years) industry Z:TiO2 ratio stable
Given zircon demand growth historically > TiO2, zircon availability likely to come under further
pressure, particularly if projected TiO2 volumes do not materialise
35
Source: TZMI and Iluka analysis

Iluka Outlook
Confluence of Positive Factors

Transition to high quality long life production operations almost complete

Additional high margin zircon and rutile production over the next 3 years

Tight industry supply conditions for high grade titanium dioxide and zircon
Ilukas inducement analysis suggests prices need to increase appreciably
Iluka has idled upgrading capacity capable of being re-activated

Zircon prices increasing in 2010

Unconstrained pricing environment from 2010 for rutile

Growing low risk iron ore royalty stream

Significantly improved financial characteristics expected 2011-2013

36

Closing Slide

Iluka Resources Limited

Closing Statement

For further information, contact:

Robert Porter, General Manager, Investor Relations
robert.porter@iluka.com
+61 3 9225 5481
Ilukas website www.iluka.com

Information has been drawn from the following presentations:

Huang Xinhong, Secretary General, China Ceramics Industry Association

Gavin Deiner, Senior Consultant, TZ Minerals International

Philip Murphy, Managing Director, TZ Minerals International

Jian Dongmin, GM Zhejiang Shenghua Biok Biology Zircon Valley Branch Company,
Director China Nonferrous Metal Industry Association

Che Xiaokui, Superintendent, Beijing Nonferrous Metal Research Institute

Yu Ping, Analyst, Zirconium Industry, Ruidow

Copies of the Conference presentational materials can be obtained from TZ Minerals International
(www.tzmi.com)

38