Iluka Resources Limited (ILU) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I'm Rob Cole, Chairman of the Board of Iluka Resources Limited. Before we commence proceedings today, I'd like to acknowledge the Whadjuk people of the Noongar nation, traditional owners of the land on which we meet today, and pay my respects to the elders past and present. I extend that respect to Aboriginal and Torres Strait Islander peoples here today. I'm really pleased to be presiding over this AGM. And on behalf of the Board, I'd like to welcome you. As the COVID-19 pandemic is not over yet, today's meeting is being held in a hybrid format, allowing all shareholders the opportunity of attending either in person or via the Computershare online platform. It is, however, pleasing to see that some shareholders are able to attend in person today. While every effort has been made to ensure that this meeting runs smoothly for our shareholders, if technology issues do arise, you'll be able to access the meeting address and the results of voting on the ASX platform and on our website. I'm advised that a quorum is present. Therefore, I formally declare the meeting open. To ensure everyone has the best opportunity to vote, I now also declare the poll open. You can vote throughout the meeting. If you are voting through the online platform, you can also change your vote up to the time I declare voting closed. I'll give you a warning before closing the poll. Before commencing the formal part of the meeting, I'll ask Ben Martin, our Company Secretary, to walk through the procedural matters of asking questions and voting. Ben?

Thank you, Chairman, and please bear with me. As mentioned by the Chairman, the meeting is in a hybrid format with participation being conducted at the venue itself and via the online platform. I will now explain the process for online questions and comments. Online shareholder participation at this meeting is supported through the Computershare online platform. Shareholders and proxy holders have the opportunity to ask questions, make comments and vote at the meeting using the online platform. Please ensure that you have registered as a shareholder or proxy holder and not as a guest as guests are not entitled to ask questions, make comments or vote at this meeting. If you have registered as a guest, you can change your registration by selecting the plus symbol next to your name at the top left-hand side of the screen into your SRN or HIN, country of your registered address, your postcode if you live within Australia and then select at holding. [Operator Instructions] All online questions will be addressed to the Chairman. If there is a duplication of questions, we will group them together. If questions are particularly long, we may need to summarize them in the interest of time. The Chairman will either answer the question or pass it to the most appropriate person to answer. [Operator Instructions] If you already have a question prepared, please submit it now so that we can answer as many questions as possible when we come to shareholder questions. For shareholders and proxy holders here at the venue, only shareholders or their proxy, attorney or authorized company representatives holding a green or yellow admission card are entitled to ask questions or make comments. All questions should be addressed to Rob Cole as the Chair of the meeting. When the floor is open to questions, if you wish to ask a question or make a comment on the resolution, please make your way to the microphone with your admission card. It would be appreciated if you could state, for the minutes, your name and indicate whether you're speaking on behalf of a shareholding you own directly or beneficially and/or whether you are speaking as a proxy for another shareholder or shareholders. Please also state your affiliation if you're not here today in your personal capacity. It is important that as many shareholders as possible who wish to ask questions get an opportunity to do so. I ask that speakers restrict themselves initially to no more than 2 questions per turn at the microphone. If you have 2 questions, please ask them together and limit each question to no longer than 2 minutes. Anyone wishing to speak more than once will be given a subsequent opportunity to do so if time permits and, in the meantime, should kindly resume their seat. As there are no pre-meeting questions or comments, the Chair will respond to questions or comments from shareholders in the room first then from the online platform and, finally, audio questions. I will now explain the online voting process. As the poll is open, the Vote icon located at the top of the screen is now active. Selecting this icon will display the resolution and present you with voting options. To cast your vote, simply select one of the options. Once selected, a tick will appear to confirm receipt of your vote. To change your vote, select Click Here to change your vote and press a different option to override. Any appointed proxy who has been given discretion on how to vote should vote in the same manner. Any appointed proxy that has been directed to vote in a certain manner and has no discretionary votes to cast does not need to vote as those votes will be -- automatically be counted in accordance with those directions. If you experience any difficulties with the online platform, the Computershare helpline number within Australia is 03-9415-4024 or for outside Australia is +61-3-9415-4024. For shareholders and proxy holders here at the venue, at the time of registration for this meeting, those persons eligible to vote were given a green admission card. The voting boxes are on the back of this green admission card. If you are a proxy holder, a summary of your voting instructions has been attached to the green admission card you have received. By signing and lodging the voting card, you'll be taken to have voted in accordance with the instructions you have been given. The summary also shows any open votes you have been given to vote as you consider appropriate. Computershare will collect all the voting cards after the resolution has been put to the meeting. Alternatively, you may drop your completed voting card in one of the ballot boxes located at the exit if you need to leave the meeting early. There will be an opportunity for you to ask Computershare staff any questions about the completion of your voting card prior to the closing of the poll. Thank you for your attention.

Thanks, Ben. Voting today will be conducted by way of a poll on all items of business. Each shareholder present, either in person, online or by proxy, attorney or representative, has one vote for every ordinary share owned. Rod Somes from Computershare Investor Services has agreed to act as returning officer for the poll. Details of the proxies received on the sole item of business will be shown on screen before any discussion commences. I'm holding open proxies in my capacity as Chair, and it's my intention to vote all available proxies in favor of the resolution. The results of the poll will be announced later today to the Australian Securities Exchange and will be posted on Iluka's website. With the procedural matters out of the way, I'd now like to introduce my fellow directors who are at the meeting today, either on stage, sitting in the front row or attending online. First is Tom O'Leary, our Managing Director; followed by Susie Corlett, Marcelo Bastos, Lynne Saint and Andrea Sutton. As well as the Iluka Board, we're also pleased to be joined by the Board of Sierra Rutile Holdings Limited. First is Greg Martin, Chairman of the Sierra Rutile Board; next, Theuns de Bruyn, Managing Director-elect and Chief Executive Officer; next is Martin Alciaturi, Finance Director-elect; next is Joanne Palmer, Independent Non-Executive Director; and last, Graham Davidson, who's also an Independent Non-Executive Director. In addition to our Company Secretary, Ben Martin, also in attendance are Iluka's executive team and members of Sierra Rutile senior management team. Moving now to the formal part of the meeting. The Notice of Meeting was distributed to shareholders in June, and I propose it to be taken as read. As outlined in the notice, we are here today to consider one item of business, the demerger of Sierra Rutile from Iluka. I'll commence our formal business with a short address regarding the proposal. Once again, I extend a warm welcome to all shareholders and guests joining us today at this EGM. As mentioned earlier, shareholders received notice of this meeting in June along with the demerger booklet. The booklet outlines in detail the rationale for the merger, its advantages and disadvantages and the pro forma financial position of both Iluka and Sierra Rutile. These documents contain important information to help inform your vote. At our AGM in April, Iluka announced its intention to demerge the company's business in Sierra Leone. Following that announcement, the Board engaged Deloitte as an independent expert to assist shareholders in considering our proposal. This can be found in Section 8 of the booklet. Like the Board, Deloitte concluded that the demerger is in the best interest of Iluka shareholders. If we approve the demerger today, Iluka and Sierra Rutile will start trading independently on the ASX on 27 July 2022 on a deferred settlements basis with normal settlement trading commencing on 5 August 2022. Eligible Iluka shareholders will retain equity in both companies. As I said in my letter in the booklet, Iluka has evolved significantly since it acquired Sierra Rutile in 2016, with our strategic and capital allocation priorities now focused on key Australian critical minerals operations and development projects. Chief amongst these is Iluka's significant diversification into rare earths. In April, the Board approved the development of Australia's first fully integrated refinery at Eneabba in Western Australia. This final investment decision was taken following the agreement of a strategic partnership with the Australian government. Furthermore, we're progressing a significant pipeline of major mining and processing projects. Some of these, such as Balranald and Wimmera, are potential game changers for the industry and the result of Iluka's sustained investment in technical development to unlock Australian resources. Taken together, Iluka is undergoing substantial evolution. Realizing the opportunities this presents will require disciplined focus at every level of the company, your Board included. Sierra Rutile is at a similarly important point in its history. Following an impressive turnaround over the past year, local management now has the opportunity to extend life in the existing area of operations, Area 1. This provides an important, credible runway to the development of Sembehun, which is one of the world's largest known deposits of natural rutile. A preliminary feasibility study for the Sembehun project has been completed, with its key findings outlined in the demerger booklet. Sembehun holds the prospect of underpinning Sierra Rutile's business for many years to come. As Tom has mentioned in previous meetings, the market outlook for natural rutile is characterized by scarcity and depleting supply globally. This presents potentially very favorable dynamics for existing established producers. As is the case for Iluka, disciplined focus will be central to Sierra Rutile delivering on these opportunities. And it's notable that the growth paths of both businesses are set to play out in parallel from a timing perspective over coming years. Given these circumstances, the Board has determined that a demerger presents the best way of enabling the respective strategies of our Iluka and Sierra Rutile to be achieved. It will facilitate the requisite management bandwidth to do this in the time frame required and thereby maximize the potential value for shareholders. The local turnaround delivered at Sierra Rutile has been central in the Board's decision-making. This includes marked operational improvement underscored by consistent production performance over each of the past 4 quarters and a renegotiated fiscal regime for Area 1 operations that's been ratified by the Parliament of Sierra Leone. Building on this position we have, as you'd expect, sought to set Sierra Rutile up for success post demerger. Sierra Rutile has been established with a dedicated, high-quality Board and management team. Having led the business's operational and financial turnaround, Theuns de Bruyn has been appointed Managing Director-elect. Theuns' local management team will be supported by a strong Board that includes former Iluka Chairman, Greg Martin, who will assume the Chair; Martin Alciaturi as Finance Director-elect; and other appointed non-executive directors, Joanne Palmer and Graham Davidson. Sierra Rutile's stand-alone balance sheet will be established with no debt and a healthy opening cash balance. Significantly, Iluka has established a trust, which will be cash fund with USD 45 million, to support Sierra Rutile's existing rehabilitation obligations. These steps are consistent with the priority Iluka places on sound governance, financial management and sustainable development outcomes as first principles. Post demerger, Sierra Rutile will continue to benefit from the robust sustainability frameworks that have been implemented during Iluka's ownership. These include a strong focus on safety, environmental management, community relations and anti-bribery and corruption. Ladies and gentlemen, the Iluka Board unanimously views the demerger of Sierra Rutile as being in the best interest of our shareholders and delivering greater value than the current structure over time. Both companies have exciting futures ahead. Thank you. The transcript of my address is available on the company's website and the ASX company announcement platform. We now come to the sole agenda item of the meeting. As mentioned, all voting today will be conducted by way of poll, which is already open. You may vote through the online platform in your browser. Let's now proceed to the item of business. As mentioned earlier, the purpose of the meeting is to consider the demerger resolution. The demerger resolution is being put to shareholders to obtain approval for an equal capital reduction in Iluka's ordinary share capital under the Corporations Act. The capital reduction must be approved by a simple majority, more than 50% of votes cast by Iluka shareholders on the demerger resolution. The capital reduction amount will not be paid in cash to Iluka shareholders. Instead, the capital reduction and a related dividend will be provided to Iluka shareholders by way of an in-specie distribution of Sierra Rutile shares. If the demerger resolution is approved by shareholders and the demerger proceeds, eligible Iluka shareholders will be entitled to receive 1 Sierra Rutile share for each Iluka share they hold on the record date, being 5:00 p.m. Western Standard Time on Thursday, 28 July 2022. Iluka shareholders will also retain their shareholding in Iluka. The Board is of the view that taking into account all relevant matters, the capital reduction is fair and reasonable to Iluka shareholders as a whole and will not materially prejudice the ability of Iluka to pay its creditors. As outlined in the demerger booklet, the independent expert has also concluded that the demerger, comprising the capital reduction and dividend, will not materially prejudice the ability of Iluka to pay its creditors. The directors recommend that you vote in favor of this resolution. Before we move to shareholder questions and voting on this item of business, shown on screen are the proxies received. To give shareholders online a chance to submit their questions, I'll first respond to questions or comments from shareholders or proxy holders in the room. If you'd like to ask a question or make a comment, please make your way to one of the microphones and state your name, who you are representing, if applicable, and your number of questions. Are there any questions from the room?

Mr. Chairman, my name is Geoff Reid. I'm a representative -- a proxy holder for 60 Iluka shareholders who are members of the Australian Shareholders' Association, who between them hold about 230,000 shares. Thank you for the address, Mr. Chairman. My question concerns the USD 45 million rehabilitation trust for Area 1. And the question really is this. The Iluka has significantly increased the governance regime for SRL since taking over the asset in 2016. But USD 45 million is a lot of money. How -- what controls are in place to ensure that, that money is properly spent and not subject to any external government or Sierra Leone influences and is only directed towards rehabilitation of mine Area 1?

Yes. Thanks, Geoff. So first one, I'd say we take all our rehabilitation obligations incredibly seriously, including in relation to setting up SRX post demerger to be able to fulfill its rehabilitation obligations over time. So we went to considerable lengths to establish a really robust trust structure that would ensure that those funds can only ever be applied for rehabilitation activities and mine closure activities. With the assistance of multiple legal firms, we've put in place the trust. Perpetual is the trustee, as outlined in the booklet. We have an independent technical adviser, SRK, who makes recommendations to the trustee. The trustee can only apply those funds for the purposes set out in the trustee on advice from the technical adviser. So we're very satisfied that those funds can only or will be available and applied for rehabilitation activities and mine closure activities. Thanks, Geoff.

Can an advance be made in -- prior to the money being spent?

The money will be provided to the trustee upfront. I'm not sure of the exact date, but the idea is Iluka will put the money upfront. Then as I understand it, the funds -- the technical adviser will respond in real time to actual requirements and release funds in real time, so not sort of pay a lump sum upfront. Any more questions from the room? Okay. There appear to be no more questions, I now move to questions or comments from the online platform. Ben, any questions or comments online?

Rob, there are no questions or comments online.

Okay. Thanks, Ben. I'll now move to the audio platform. Are there any audio questions or comments?

Chairman, we have no audio questions.

Okay. Thank you. Well, ladies and gentlemen, that concludes our discussion on the sole item of business. So thanks for the question, Geoff. If you've not already done so, please cast your vote now. [Voting]

For shareholders in the room, if you have any questions regarding your green voting card, please raise your hand and someone from Computershare will come over and assist you. Computershare staff will now walk around. Can all person voting please place your green voting card in one of the Computershare voting boxes? Please raise your hand if you're yet to place your green voting card in one of the Computershare voting boxes. I think we've covered everyone. So it appears as though the voting process has been completed. I therefore declare the poll closed. Based on the proxies received, it's clear that the demerger resolution is passed by the requisite majority, well and truly. The details of the final results will be posted on both the company's website and on the ASX company announcement platform later in the day. Ladies and gentlemen, that concludes the formal business for today. I again thank everyone for their participation. It's not every day that you get to list a new company, particularly one with the opportunities that Sierra Rutile has in front of it. And I thank you for your attendance at today's meeting, whether it be in person or via the online platform. And look forward to meeting you again at Iluka's 2023 AGM. For shareholders and guests at the venue, light refreshments will be served outside of this room, and I hope shareholders will take the opportunity to meet with the Iluka and Sierra Rutile directors and members of their management. I now formally declare the meeting closed, subject to the finalization of the poll. Thank you for joining us, and please keep safe.