INDABA PRESENTATION 11 FEBRUARY 2015

INDABA PRESENTATION
11 FEBRUARY 2015
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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, whether as a
result of new information, future events or otherwise, 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 future performance 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, assumptions 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. These risks, uncertainties, assumptions and other factors
could adversely affect the outcome and financial effects of the plans and events described herein.
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.
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Leading Producer of Natural Rutile
Company Overview
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Location
Sierra Rutile is a well-established, fully-integrated mineral
sands operation in Sierra Leone
GUINEA
— World’s largest natural rutile deposit
SIERRA LEONE
— Wholly-owned multi-mine operation
— Fully-integrated infrastructure supports product delivery
to international markets
>
Second largest producer of natural rutile globally
— High-grade feedstock for pigment manufacturing and
titanium metal
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Also produces ilmenite, a lower grade pigment feedstock,
and zircon, used in the ceramics industry
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Strong and diverse customer base including all primary
chloride-based titanium pigment manufacturers and
producers of high-specification quality titanium metals
Moyamba
Freetown
Bo
Gbangbatok
Momaligi
Exploration licenses
LIBERIA
Mining license
Main roads
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3
Mineral Sands Market Overview
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Sierra Rutile’s primary product is natural rutile, a titanium feedstock (also known as TiO2 feedstock) mainly used for the
manufacture of TiO2 pigment
— Natural rutile is one of a number of TiO2 feedstock in the production of white pigment, used to manufacture paint, plastics and
paper
— Other feedstock include ilmenite, synthetic rutile, leucoxene and titanium slag
— TiO2 pigment is preferred due to its attractive characteristics of high brightness and opacity, surpassing any substitutes
>
Natural rutile is the premium feedstock for the chloride process, the preferred TiO2 pigment processing method
— TiO2 feedstock are processed by either the chloride or the sulphate process
— The chloride process is favoured as it is more efficient, cleaner and lower cost
— Consumes less energy, generates less waste and is environmentally friendly
— Requires use of high-grade feedstock such as natural rutile, synthetic rutile or chloride slag
— In North America, almost all production is via the chloride process and China’s 12 th Five-Year Plan stipulated the move to
chloride-based production
>
TiO2 feedstock is also used in the manufacture of titanium metal, and zircon is used in the global ceramics industry
TiO2 Feedstock
Natural Rutile
Synthetic Rutile
Leucoxene
Titanium Slag
Ilmenite
Zircon
Chloride
Process
Plastics
TiO2 Pigment
Sulphate
Process
Paper
Paints & Coatings
Titanium metal
Ceramics
>
4
Natural Rutile Advantage to Drive Demand
Ore Consumption
13 times less
chloride
consumption
than ilmenite
14
Chloride consumption
indexed to natural rutile
(x)
Preferred pigment feedstock for the chloride process
– Only feedstock that does not require upgrading prior to
use
– Lower greenhouse gas emissions than synthetic rutile
and slag
– Suitable for consumption in demanding regulatory
environments
Chloride Consumption
12
10
8
6
4
2
0
Waste Generation
17 times
less waste
than
ilmenite
18
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Waste generation
indexed to natural rutile
(x)
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Quality and low contaminants of natural rutile promote high
value-in-use, essential to the manufacture of high-quality
final pigment products
Ore consumption
indexed to natural rutile
(x)
>
15
12
9
6
3
0
Ilmenite
Slag
Synthetic Rutile
Natural Rutile
Natural rutile is far more efficient than other feedstocks in chloride pigment manufacturing
Source: Sierra Rutile
Data based on performance of a typical chlorination plant, indexed to performance of natural rutile
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5
World’s Best Natural Rutile Deposit
Well-Positioned Against Peers3
Large, High-Quality Deposit
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Bubble Size: In-situ Contained Rutile Resource
World’s largest natural rutile deposit
1.20%
— Mining leases over a land area of 560km1
— JORC-compliant resource of 900 Mt of ore grading
0.94% rutile2
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High-value mineral assemblage
>
Resource has potential to support a mine life of over 65
years at current production rates
Ore
Grade (%)
Contained Tonnes (kt)
Rutile Grade (%)
1.00%
Sierra Rutile,
8.4 Mt
0.80%
0.60%
Iluka, 10.7 Mt
0.40%
Category
Mt
Rutile
Ilmenite
Zircon
Rutile
Ilmenite
Zircon
Kenmare,
4.4 Mt
0.20%
Total
Resource
895.5
0.94%
0.13%
0.05%
8,397
763
400
MDL, 0.4 Mt
–
–
Note: as at September 30, 2014
Base
Resources,
4.2 Mt
50
100
150
200
Rutile Production (kt pa)
Large, high-grade rutile deposit that provides a long production life
1 Source: Company Filings
2 As at September 30, 2014
3 2013A rutile production except for MDL and Base Resources, which show LOM average annual production
250
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6
Well-Established Operation
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Leading mining company in Sierra Leone
–
Operating since the 1960’s
–
Contributed 3% of Sierra Leone’s 2013 GDP1
–
Highly skilled and experienced workforce
–
>
–
One of Sierra Leone’s largest private sector
employers
–
>1,400 employees, >90% Sierra Leonean nationals
Existing Operations
Meaningful contributions to local communities
Fully-integrated operation with supporting infrastructure
–
Operation has grown to include two operating mines,
Lanti Dredge Mine and Lanti Dry Mine
–
Land-based mineral separation plant, recently upgraded to
process over 225 ktpa of rutile
–
Supporting infrastructure:
–
Power plant
–
Trucking operation and haulage road network
–
Port, storage and shipping fleet at Nitti
–
On-site camp
World class, established mining operation
1 GDP estimate from The World Bank
Lanti Dredge Mine
Bucket line dredge and integrated
processing plant capable of mining
and treating 1,000 tonnes per hour
Lanti Dry Mine
Truck and shovel mining operation
feeding a central 500 tonnes per
hour processing plant
Mineral Separation Plant
Capable of processing over 225 ktpa
of rutile following the recently
commissioned upgrade
Supporting Infrastructure
Storage, port and shipping fleet
support delivery of product to
international markets
>
7
Strong and Low-Cost Production Base
Meaningful production from multiple mines
–
–
Operational improvements and high-return growth
projects have created a sizeable production base
120-130
2015E production of 120,000 - 130,000 tonnes of
rutile
Attractive operating cost base
–
One of the highest margin producers of TiO2
feedstock
–
Successfully reduced total operating cash cost1 from
$881/t in 2012 to $646/t in 2014
–
Cost reduction initiatives continue, with 2015 total
operating cash cost guidance of $595-615/t
120
120
750
114
$683
$646
94
$595615
80
500
40
250
--
Total Operating Cash Cost ($/t)1
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Successfully added production from Lanti Dry
Mine in 2013
1000
$881
Production sourced from two mining operations,
Lanti Dredge Mine and Lanti Dry Mine
–
–
160
Rutile Production (kt)
>
0
2012
2013
Other
Lanti Dredge Mine
Low-cost production from multiple mines
1 Total operating cash cost (includes direct operating costs, general administrative costs and corporate costs but excludes depreciation) less by-product revenue divided by tonnes of rutile produced
2014
2015E
Lanti Dry Mine
Total Operating Cash Cost
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8
Overcoming Ebola
Minimizing Impact of Ebola on Our Operations
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Sierra Rutile’s performance during the Ebola outbreak
highlights a resilient, well-run operation
— Contrast to other West African mining operations which
struggled to contain costs and overcome operating
challenges
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New Ebola Cases Sharply Declining
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Latest World Health Organization data shows the number
of new weekly cases continuing to fall sharply in Sierra
Leone
Sierra Leone: Weekly Confirmed Ebola Cases1
Ongoing focus on protecting employees, contractors, and
the local community
P
> Safe work environment through proactive
mitigation measures
P
> Proven cost-containment strategies
P
> Active supply chain management
P
> Ongoing support towards Sierra Leone’s efforts
to contain Ebola
Despite obvious challenges, Ebola has only proved the resilience of Sierra Rutile’s operations
1 Source: World Health Organization Ebola Situation Report (January 21, 2015). Data shows confirmed weekly Ebola virus disease cases reported nationally by Sierra Leone. Patient databases give the best representation and include
confirmed and probable cases. However, data for the most recent weeks are sometimes less complete than situation reports. Situation reports contain confirmed cases only
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9
The Future: Leverage the Existing Asset Base
Underutilized production capacity
–
–
Sierra Rutile’s fixed cost base represents approximately
60% of total operating costs
$881
As infrastructure and mineral separation plant capacity
are already in place, expansion is limited to primary
mining and heavy mineral concentration
200
800
$683
$646
$605
150
120
100
600
125
114
$428
94
400
Opportunity to further reduce costs
–
Opportunity for Sierra Rutile to leverage its asset base
and meaningfully lower unit costs by increasing
production volumes
–
Significant margin expansion as production grows
50
Total Operation Cash Cost ($/t)3
Low-risk expansion
–
>
Recent upgrade to the mineral separation plant
brings capacity to over 225 ktpa of rutile
1,000
225
Large fixed cost base stems from current excess installed
capacity at the mineral separation plant, power plant,
port and road network
–
>
250
Rutile Production (kt)
>
200
–
–
2012
2013
Production
2014
2015E 1
Illustrative
Target 2
Total Operating Cash Cost ($/t)
Utilizing existing capacity will further enlarge operating margins
1 Assume mid-point of the 2015 production and operating cash cost guidance
2 Illustrative target based on 225 ktpa production capacity and 2014 costs, assuming a 60% fixed and 40% variable breakdown
3 Total operating cash cost (includes direct operating costs, general administrative costs and corporate costs but excludes depreciation) less by-product revenue divided by tonnes of rutile produced
> 10
Multiple Ready-to-Deliver Projects
>
Extensive portfolio of growth projects
–
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Unique and substantial resource base supports multiple
executable projects:
–
All projects fully permitted
–
Well-understood geology with common physical
and chemical characteristics
–
Accessible through existing infrastructure
–
Can all be processed through the existing mineral
separation plant
Taninahun Boka
Grade: 1.65%
0
Gbap
Kamatpo
Kibi
Dodo
Nyandehun
Grade: 1.93%
Komende
Jagbahun
Grade: 0.97%
Benduma
Well-defined pipeline for expansion
1.
2.
Gangama Dry Mine: Near-term, low capital intensity
production growth, contributing approximately 90 ktpa
of rutile
Sembehun Mine: Longer-term, long-life production
scale
–
Previously envisioned as a dredge, now assessing
development as a dry mine
10km
Gambia
Grade: 1.03%
Sembehun
Grade: 0.99%
Rutile: 3.6Mt
Mogbwemo
Grade: 0.88%
Gbeni
Grade: 1.09%
Rutile: 708kt
Gangama
Grade: 1.19%
Rutile: 888kt
Lanti
Grade: 1.01%
Rutile: 854kt
Ndendemoia
Grade: 0.80%
SRL plant
Area 1
Mosavi
Grade: 0.50%
Readily-available projects across a large resource base
> 11
Transitioning to a Dry Mining Operation
Sierra Rutile’s next growth projects will be developed as dry
mining rather than dredge operations
>
Dry mining has several advantages over dredge mining in
the current market environment:
— Modular approach to scale up production
— Lower-capital intensity
— Selective mining
Production Flexibility
Ability to selectively mine higher grade material
2.40%
Gangama Dry Mine
Grade (%)
>
1.80%
1.20%
Lanti Dry Mine
— Shorter construction time
0.60%
1
4
5
Reduced preparation requirements shortens lead time
Lower capital intensity vs. dredge operation
$3,200
Construction Period
(months)
Capital Intensity ($/unit
of rutile eq. production)
3
Year of Operation1
Lead Time
Capital Intensity
$2,400
$1,600
$800
–
Gangama
Dry Mine
2
Lanti
Dry Mine
Average Dredge
Mine 2
24
18
12
6
–
Lanti
Dry Mine
Gangama
Dry Mine
Sembehun
3
Dredge Mine
Ability to access high-grade resources with a short lead time and low capital cost
1 Shows Lanti Dry Mine from 2014 and Gangama Dry Mine’s first five years of production
2 Average capital intensity of Rio Tinto’s Zulti South project and Mineral Deposit Limited’s Grande Côte project. Rutile equivalency calculated using long-term consensus estimates of $1,200/t rutile, $200/t ilmenite and $1,413/t zircon
3 Source: Sembehun Scoping Study, Sierra Rutile press release October 31 2012
> 12
Building on the Success of Lanti Dry Mine
>
Lanti Dry Mine Production Profile
–
Designed and built in less than 12 months
4,000
–
Delivered under budget
3,500
Strong performance to date
3,000
–
Relatively stable production to date
–
Provides operational flexibility through its ability to
selectively mine as well as access multiple areas
simultaneously
Significantly de-risks future dry mining projects
–
Experience of developing and operating Lanti Dry Mine
will materially de-risk future dry mining operations
–
Future dry mining projects have been further optimized
from Lanti Dry Mine learnings
2,500
2,000
1,500
1,000
500
–
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
>
Successfully commissioned
Rutile Production (t)
>
Future dry mining projects are significantly de-risked as a result of the experience gained
at Lanti Dry Mine
> 13
Next Key Growth Project: Gangama Dry Mine
>
Project overview
–
>
Key Project Highlights1
One of the highest grade deposits within Sierra Rutile’s
asset portfolio
–
Production available within 12 months
–
Gangama Dry Mine is operationally identical to the Lanti
Dry Mine project
Average annual production rate (ore mined)
6.9 mtpa
Average annual rutile production (Gangama
deposit only)
93 ktpa
Project life (Gangama and other deposits)
–
The 1,000 tph of ore feed project consists of 2 x 500 tph
units
Up-front capital expenditure2
–
Power, water and road access is already in place
Construction period
–
20+ year life as the concentrator unit will be moved to
nearby deposits once the Gangama deposit is depleted
Grade Profile
Minimal risk of capital cost over-runs
$81m
12 months
2.50%
— Mineral separation plant already capable of processing
all production from Gangama Dry Mine
Leverage Sierra Rutile’s large fixed cost base, lowering unit
operating costs
Grade (%)
— 77% of capital cost is fixed
>
20+ years
2.00%
1.50%
1.00%
1
2
3
4
Year of Operation (Gangama deposit only)
5
High grade, low-cost operation
1 Source: August 2013 Feasibility Study
2 Source: Sierra Rutile press release October 4, 2013
> 14
Further Production Growth: Sembehun Mine
>
>
Project overview
–
The Sembehun group of deposits are located 45 km northwest of the existing operations
–
Largest resources within Sierra Rutile’s existing endowment,
containing 3.6 Mt of rutile1
–
Sembehun will provide longer-term production growth for
Sierra Rutile
Project status
–
Originally envisioned as a 1,875 tph dredge mining
operation, now assessing possibility to develop as a lowercapital 1,000 tph dry mining project
–
Greater production flexibility, enabling selective
mining
–
Lower capital costs, shorter lead-time and reduced
impact to the community
–
Operations will be similar to those of Gangama Dry
Mine and Lanti Dry Mine, substantially de-risking
project development
–
Scoping study to be completed in 2015, with
feasibility study commencing shortly thereafter
Long-life project with significant development optionality
1 As at September 30, 2014
> 15
Capital-Efficient Production Growth Plan
Capital Efficient Growth Plan
Illustrative Production Outlook
250
P
> Low-risk, short lead-time development pipeline
– Apply proven ability to construct and
operate dry mining operations
P
> Flexible, modular production
– Maintain ability to quickly respond to
market demand
200
Rutile Production (kt)
P
> Disciplined capital allocation to maximize free
cash flow generation
– Focus on low-capital intensity projects
150
100
50
P
> Continued emphasis on operating efficiency
– Leverage strong infrastructure and large
fixed cost base
–
2014
1
2015
Current Operations
2016
2017
2018
Gangama Dry Mine
2019
2020
Sembehun Mine
Organic growth plan focusing on low-risk, low-capital, modular dry mining projects
1 Assume mid-point of the 2015 production guidance
> 16
Balanced Approach to Growth and Shareholder Returns
Well-Positioned to Responsibly Fund Growth
>
Sierra Rutile is well-positioned to fund high-returning growth
without compromising future shareholder returns
P
Free Cash Flow Generation Supports Future Distributions
>
> Strong operating platform for cash flow
generation
– Consistent, low-cost production
>
Not a typical junior mining company
–
Transition towards financially disciplined growth and
prioritizing a consistent return of capital to shareholders
–
Capital allocation framework will still allow for
opportunistic growth to respond to changes in market
demand
Support meaningful and sustained dividend
P
> Healthy balance sheet
– Allows for financial flexibility
–
Additional free cash flow generation from Gangama Dry
Mine will provide capacity to initiate a meaningful and
sustainable dividend
P
> Strong shareholder base
– Supportive of disciplined capital allocation
for growth
–
Dividend will differentiate Sierra Rutile from industry
peers while still preserving balance sheet strength and
operational flexibility
P
> Willingness to preserve shareholder value
– Focus on minimizing equity dilution
Ability to fund growth while supporting meaningful and sustained dividend distribution
> 17
Strong Balance Sheet Relative to Peers
Robust Balance Sheet for Future Growth
>
Low Leverage vs. Peers
Sierra Rutile has maintained a strong balance sheet
through its previous expansion and a challenging market
environment
5
8%
— Net debt of $37m1
— Borrowings include a $20m working capital facility and
a loan of $23m from the Government of Sierra Leone1
— Availability period through to year-end 2015
>
Focus is to maintain low leverage ratio to preserve financial
flexibility
Debt to Market Capitalization3
— Undrawn $30m senior loan facility2 that could be used
towards the development of Gangama Dry Mine
4
26%
3
91%
2
252%
1
353%
–
100%
200%
300%
400%
Maintaining low leverage ratio to preserve financial flexibility
1 As at December 31, 2014. Repayments for the Government of Sierra Leone loan have been deferred until June 2016
2 Subject to certain, customary conditions
3 Source: Bloomberg as at February 2, 2015. Mineral Deposits Limited has no debt
> 18
Highlights: Not a Typical Junior Mining Company
P
> World-class natural rutile deposit supporting an established, low-cost production base
P
> Resilient operation with proven ability to withstand the Ebola outbreak
P
> Opportunity to leverage fixed-cost base and extensive infrastructure to further reduce costs
P
> Transitioning to a more flexible and capital-efficient operation through dry mining expansion
P
> Low-risk production growth plan from well-defined and advanced projects
P
> Well-positioned to responsibly fund growth and support meaningful and sustained dividend
> 19
Contact Details
John Sisay
Chief Executive Officer
Email: [email protected]
Sierra Rutile Limited
30 Siaka Stevens Street
2nd Floor, Access Bank Building
Freetown
Sierra Leone
www.sierra-rutile.com
`