Iluka Re­sources

Af­ter con­sol­i­dat­ing its Aus­tralian pro­cess­ing op­er­a­tions, Iluka is look­ing to restart zir­con pro­duc­tion in Aus­tralia and progress a ma­jor de­vel­op­ment of its newly ac­quired Sierra Ru­tile op­er­a­tion.

The Australian Mining Review - - CONTENTS - CAMERON DRUM­MOND

PERTH-based Iluka Re­sources is a ma­jor in­ter­na­tional min­eral sands pro­ducer and mar­keter with a ma­jor pro­duc­tion base in Aus­tralia, as well as min­ing and pro­cess­ing op­er­a­tions in Sierra Leone.

It is the world’s largest pro­ducer of zir­con sand and a ma­jor pro­ducer of high-grade ti­ta­nium ores, nat­u­ral and syn­thetic ru­tile.

Iluka has re­cently gone through a trans­for­ma­tional pe­riod, con­sol­i­dat­ing its Mur­ray Basin plant to process all its Aus­tralian ma­te­rial at its Perth Basin op­er­a­tion.

The miner is ramp­ing up de­vel­op­ment of its $393 mil­lion Sierra Ru­tile op­er­a­tion in Sierra Leone with a planned $US300m spend stag­gered over four years.

The com­pany is also eye­ing off a De­cem­ber restart of its Jacinth-Am­brosia zir­con project in the Eu­cla Basin, South Aus­tralia, which is ca­pa­ble of pro­duc­ing up to 300,000 tonnes per an­num (tpa) from two con­tigu­ous de­posits.

High­lights

Dur­ing Septem­ber, Iluka an­nounced an in­crease of its zir­con ref­er­ence price $US130 per tonne (t) to $US1230/t, ef­fec­tive 1 Oc­to­ber for a six month pe­riod.

This was higher than its pre­vi­ous in­crease to $US1100/t that was ef­fected from 1 July.

As one of the world’s largest pro­duc­ers of zir­con, the news rip­pled through the mar­ket, lead­ing other pro­duc­ers to also in­crease their prices, in­clud­ing Rio Tinto – an­other large pro­ducer of the prod­uct.

“This in­crease in pric­ing re­flects a con­tin­u­a­tion of Iluka’s ap­proach to bal­anc­ing the needs of its cus­tomers and down­stream in­dus­tries for pric­ing which en­ables sus­tain­able op­er­a­tions with the re­quire­ment to gen­er­ate sat­is­fac­tory re­turns for its share­hold­ers,” the com­pany said in a state­ment.

Iluka re­vealed a $201m im­pair­ment in Jan­uary, largely due to shut­ter­ing its Mur­ray Basin op­er­a­tions.

90 jobs were axed due to the de­ci­sion, as the com­pany re­ported an op­er­at­ing loss of $230m for 2016.

The losses did not stop dur­ing the first half of this year, as Iluka con­sol­i­dated its Aus­tralian pro­cess­ing to one lo­ca­tion.

Iluka recorded an af­ter tax loss of $82m for H1 2017, largely due to a $106m im­pair­ment of the Hamil­ton min­eral sep­a­ra­tion plant the com­pany to placed on care and main­te­nance last month.

The com­pany said mov­ing for­ward it would utilise the Narn­gulu plant to process all ex­pected Aus­tralian heavy min­eral con­cen­trate.

Re­struc­ture and re­ha­bil­i­ta­tion costs for the Hamil­ton plant were ex­pected to to­tal $14m.

How­ever, the fi­nan­cial im­pact of the im­pair­ment charge was soft­ened by im­proved sale prices, as un­der­ly­ing earn­ings be­fore in­ter­est, tax, de­pre­ci­a­tion and amor­ti­sa­tion (EBITDA) for the half year in­creased to $155m; a $92m in­crease from H1 2016.

While to­tal zir­con, ru­tile and syn­thetic ru­tile (Z/R/SR) pro­duc­tion for the June quar­ter de­creased 11,300t com­pared the pre­vi­ous quar­ter, it was off­set by a 13 per cent price in­crease for Z/S/SR.

This pro­duced a $265.7m rev­enue from Z/R/SR for the three months to the end of June, an in­crease of $61.4m.

“Th­ese re­sults re­flect im­proved mar­ket con­di­tions for both zir­con and ti­ta­nium diox­ide prod­ucts,” Mr O’Leary said.

“Iluka’s cash flow gen­er­a­tion was a high­light for the half, with op­er­at­ing cash flows up $209m to $194m, and free cash flow of $180m.

“This en­abled a sig­nif­i­cant re­duc­tion in net debt and a re­turn to mod­er­ate gear­ing lev­els of 23 per cent fol­low­ing the ac­qui­si­tion of Sierra Ru­tile in De­cem­ber 2016.”

The im­prove­ment in the un­der­ly­ing re­sult en­abled Iluka to pro­vide share­hold­ers with an in­terim div­i­dend of 6 cents a share, fully franked.

Mr O’Leary said the profit re­sult and div­i­dend pay­out re­flected Iluka’s de­ci­sion in June to con­sol­i­date its Aus­tralian pro­cess­ing op­er­a­tions and idle the Hamil­ton plant.

Sierra Ru­tile

In De­cem­ber 2016, Iluka com­pleted a $393m ac­qui­si­tion of the Sierra Ru­tile op­er­a­tion in Sierra Leone.

As part of the agree­ment Iluka as­sumed Sierra Ru­tile’s net debt of $80m, which the com­pany re­paid through its own fund­ing.

The com­pany said it would im­me­di­ately start eval­u­at­ing and de­vel­op­ing a four year, $US300m de­vel­op­ment plan for the project.

“Iluka plans to com­mit pro­gres­sively to ex­pan­sion op­por­tu­ni­ties that, in ag­gre­gate, could see a sig­nif­i­cant in­crease in ru­tile pro­duc­tion and a ma­te­rial im­prove­ment in unit cash costs pro­duc­tion,” Iluka man­ag­ing di­rec­tor Tom O’Leary said.

Iluka said it would fo­cus on ex­pan­sion work, in­clud­ing drilling pro­grams to im­prove the re­source and sup­port mine plan­ning; im­ple­ment­ing ini­tia­tives to im­prove pro­duc­tiv­ity; and de­vel­op­ing the Lanti de­posit to an in-pit min­ing op­er­a­tion by the end of the year.

Th­ese de­vel­op­ments – out­lined by Iluka at the start of the year – would dou­ble pro­duc­tion from both the Lanti and Gangama ru­tile mines from 500 tonnes per hour (tph) to 1000tph.

Fur­ther im­prove­ments to the Lanti wet con­cen­tra­tor plant would also en­hance through­put ca­pac­ity lev­els and re­duce pro­duc­tion costs.

Iluka also flagged the de­vel­op­ment of

the Sem­be­hun de­posits – 20km north of ex­ist­ing op­er­a­tions – into a new 1000tph mine.

Sierra Ru­tile pro­duced 43,000t of ru­tile dur­ing the June quar­ter, a 21 per cent im­prove­ment on first quar­ter pro­duc­tion of 36,000t, re­flected by im­proved grade re­cov­ery and on­go­ing op­er­a­tion de­vel­op­ments.

Those fig­ures were in line with a 2017 pro­duc­tion guid­ance of 150,000t.

Out­look

Fol­low­ing re­vi­sions to its min­eral sep­a­ra­tion plant setup, Iluka up­graded its 2017 full year pro­duc­tion guid­ance from 720,000t to 795,000t.

Ex­pected zir­con pro­duc­tion was up­graded to 310,000t and ru­tile 280,000t; while syn­thetic ru­tile re­mained un­changed at 205,000t.

Spend­ing guid­ance for the year was re­duced from $260m to $135m, mainly a re­flec­tion of con­struc­tion of the Cataby project be­ing pushed into 2018 as the com­pany con­tin­ued to ce­ment off­take agree­ments.

“Look­ing at Iluka’s projects, the fea­si­bil­ity stud­ies for the three Sierra Ru­tile ex­pan­sion projects at Lanti, Gangama and Sem­be­hun are pro­gress­ing well,” Mr O’Leary said.

“Once ex­e­cuted, th­ese projects will con­trib­ute to higher pro­duc­tion and a lower unit cash cost of pro­duc­tion, re­sult­ing in a more ro­bust busi­ness through the cy­cle.

“In ad­di­tion, we are also restart­ing min­ing at Jacinth-Am­brosia in De­cem­ber 2017, as planned, given im­proved sup­ply and de­mand fun­da­men­tals.”

Iluka said pro­duc­tion from its Aus­tralian op­er­a­tions were ex­pected to be first half weighted while quar­terly vari­a­tions in pro­duc­tion lev­els re­flected cam­paign and process tim­ing of the plants across the quar­ters.

“iluka plans to com­mit pro­gres­sively to ex­pan­sion op­por­tu­ni­ties that, in ag­gre­gate, could see a sig­nif­i­cant in­crease in ru­tile pro­duc­tion and a ma­te­rial im­prove­ment in unit cash costs of pro­duc­tion.”

All Images: Iluka Re­sources.

Iluka’s 300,000tpa Jacinth-Am­brosia zir­con op­er­a­tion is ex­pected to com­mence pro­duc­tion in De­cem­ber.

The Narn­gulu sep­a­ra­tion plant is now Iluka’s sole Aus­tralian pro­cess­ing fa­cil­ity.

Hamil­ton plant op­er­a­tions were sus­pended in Oc­to­ber 2016.

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