GAME PLAN

The Australian Mining Review - - FRONT PAGE - REUBEN ADAMS

Min­eral sands miner Iluka may have flown un­der the radar dur­ing the re­sources rally. But with great as­sets, a shrink­ing debt pile and first rate man­age­ment – not to men­tion some of the best mar­ket con­di­tions in 5 years – Iluka is ready for a year of de­liv­ery at its Sierra Ru­tile, Jacinth-Am­brosia and Cataby projects.

Iluka re­ported sub­stan­tially higher rev­enues in 2017 achieved on the back of im­proved prices and prod­uct de­mand. Now, with the com­pany’s tran­si­tion largely com­plete and a con­fi­dent out­look for the pe­riod ahead, de­liv­ery is Iluka’s core fo­cus for 2018. Reuben Adams spoke with Iluka Re­sources chief fi­nan­cial of­fi­cer and head of Strat­egy and Plan­ning Doug War­den.

Q. Dur­ing Iluka’s 2017 full year re­sults con­fer­ence call chief ex­ec­u­tive Tom O’Leary said “we’re not look­ing to push prices so hard that we in­voke sub­sti­tu­tion and a shrink­ing of the over­all global de­mand pro­file, as hap­pened ear­lier in the decade”. How will you en­sure that price in­creases are sus­tain­able, and how does this dif­fer from Iluka’s ap­proach dur­ing the min­eral sands boom a few years back? Iluka is fo­cussed on de­liv­er­ing sus­tain­able, long-term value from all of its prod­ucts, in­clud­ing zir­con.

In 2015, the com­pany es­tab­lished a zir­con ref­er­ence price, which pro­vides trans­parency and re­duces spec­u­la­tion about what Iluka is do­ing in the mar­ket­place.

We have also in­vested in gain­ing a bet­ter un­der­stand­ing of the trig­ger points for zir­con sub­sti­tu­tion and thrift­ing.

Armed with this knowl­edge, the com­pany is bet­ter able to make in­formed de­ci­sions on the con­se­quences of its pro­duc­tion and pric­ing ac­tions.

Most re­cently, Iluka has ad­justed its pric­ing pe­riod for zir­con from quar­terly to in­clude pe­ri­ods of up to six months.

This ‘smooth­ing’ as­sists our cus­tomers in pass­ing on changes to their cus­tomers and re­duces volatil­ity in pric­ing.

Q. The com­pany noted that prior to the Sierra Ru­tile ac­qui­si­tion, Iluka’s re­serve base had not been re­plen­ished de­spite con­sis­tent ex­plo­ration ef­fort. Do you be­lieve there are still sub­stan­tial high-grade low cost de­posits to be found, or is the fo­cus now on op­er­a­tional per­for­mance to make lower qual­ity de­posits eco­nom­i­cally fea­si­ble?

To sus­tain and grow Iluka’s busi­ness over the short to medium term, the com­pany’s re­source de­vel­op­ment ac­tiv­i­ties are fo­cussed on the de­liv­ery of ex­pan­sion projects at both new and ex­ist­ing mines.

This in­cludes the Cataby Project in WA; the ex­pan­sion of the Jacinth Am­brosia op­er­a­tion in South Aus­tralia; and ex­pan­sions and im­prove­ments at var­i­ous sites in Sierra Leone.

Iluka is also pro­gress­ing a port­fo­lio of longer-term or­ganic growth op­tions, with a time hori­zon of ap­prox­i­mately two to five years.

These in­clude both con­ven­tional re­source de­vel­op­ment ini­tia­tives, such as the Put­ta­lam project in Sri Lanka; as well as those based on in­no­va­tion and tech­ni­cal de­vel­op­ment, such as the Bal­ranald Project in NSW and the Fine Min­er­als Project in Vic­to­ria.

The com­pany main­tains an ac­tive ex­plo­ration pro­gramme, with ac­tiv­i­ties cur­rently tak­ing place in Africa, Kaza­khstan, Canada and Aus­tralia.

As in most com­modi­ties, the like­li­hood of dis­cov­er­ing the ‘easy’ high-grade de­posits at sur­face has re­duced.

How­ever, in­no­va­tive gen­er­a­tion and tar­get test­ing in new ter­rains, es­pe­cially un­der cover, means dis­cov­ery of high-grade, low-cost heavy min­eral de­posits re­mains pos­si­ble and will still de­liver sig­nif­i­cant value.

Q. How is ten­der­ing and con­struc­tion process track­ing at Cataby?

All critical path ac­tiv­i­ties for Cataby are

track­ing in line with Iluka’s sched­ule to see the project de­liv­ered in Q1 2019.

Q. What lo­gis­tics are in­volved in re­lo­cat­ing the 1100tpa New­man wet con­cen­tra­tor plant and other equip­ment to Cataby from Ene­abba and Dou­glas? Is that process un­der­way?

Sep­a­rate work pack­ages have been awarded to com­pa­nies that suc­cess­fully bid on the re­lo­ca­tion of equip­ment from Ene­abba (WA), Ouyen and Dou­glas (Vic­to­ria).

The use of this re­lo­cated equip­ment has had pos­i­tive im­pacts on the cap­i­tal cost for Cataby.

Re­lo­ca­tion, re­fur­bish­ment and in­stal­la­tion works are on sched­ule, with sub­con­trac­tors present on all sites.

Q. You men­tioned that the pos­i­tive mar­ket en­vi­ron­ment led to the restart­ing of Jacinth-Am­brosia in De­cem­ber. Was there a quicker than ex­pected draw­down in HMC stock­piles last year?

Min­ing and con­cen­trat­ing ac­tiv­i­ties at Jacinth-Am­brosia were sus­pended in April 2016 to ac­cel­er­ate HMC in­ven­tory draw-down dur­ing a pe­riod of sub­dued mar­ket de­mand.

In an­nounc­ing the sus­pen­sion, Iluka stated it would be for a pe­riod of 18 to 24 months.

In line with both the com­pany’s ex­pec­ta­tions and im­proved mar­ket con­di­tions, these ac­tiv­i­ties recom­menced in De­cem­ber 2017 – amount­ing to a sus­pen­sion pe­riod of about 20 months.

Q. What mine op­ti­mi­sa­tion ini­tia­tives are you look­ing at for Jacinth-Am­brosia?

To off­set de­clin­ing ore grades, Iluka is plan­ning to ex­pand the op­er­a­tion, in­creas­ing plant through­put by about 30 per cent.

The scope in­cludes an up­grade of the wet con­cen­tra­tor plant; a se­cond min­ing unit to han­dle ad­di­tional ore; and a ca­pac­ity in­crease at the site’s ac­com­mo­da­tion camp.

The ex­pan­sion is ex­pected to cost about $40 mil­lion, with com­ple­tion sched­uled for Q2 2019.

A de­fin­i­tive feasibility study is ex­pected to be com­pleted by mid-2018, with project ex­e­cu­tion ex­pected to com­mence in H2 2018, sub­ject to Board ap­proval and mar­ket con­di­tions.

Q. Where does Bal­ranald fit into the com­pany’s longer term plans af­ter 2019?

Bal­ranald is a large, deep, ru­tile-rich de­posit in the north­ern Mur­ray Basin, New South Wales.

Be­cause of the de­posit’s depth (ap­prox­i­mately 60 me­tres un­der­ground), Iluka is pur­su­ing an in­no­va­tive, un­con­ven­tional ap­proach to this de­vel­op­ment, with a min­ing method based on di­rec­tional drill tech­nol­ogy.

Ad­van­tages of this ap­proach en­com­pass a min­i­mal en­vi­ron­men­tal foot­print ver­sus con­ven­tional min­ing; po­ten­tially lower cap­i­tal in­ten­sity; scal­able op­er­a­tions; and port­fo­lio flex­i­bil­ity.

The com­pany is tak­ing a staged ap­proach to po­ten­tial pro­duc­tion start-up in 2021.

This in­cludes con­tin­ued de-risk­ing in 2018, with a third pro­duc­tion trial sched­uled at a cost of ap­prox­i­mately $25 mil­lion.

Q. Why was the Me­tal­y­sis in­vest­ment im­paired to nil in De­cem­ber? What other in­no­va­tion op­por­tu­ni­ties is Iluka ex­plor­ing?

Me­tal­y­sis is an un­listed UK-based tech­nol­ogy com­pany fo­cused on solid state man­u­fac­tur­ing of metal pow­der.

Iluka’s in­vest­ment in this early stage tech­nol­ogy was in­tended to pro­mote new mar­kets for our prod­ucts and pro­vide an op­por­tu­nity to gen­er­ate new rev­enues through par­tic­i­pa­tion in met­als man­u­fac­tur­ing.

The write down oc­curred fol­low­ing Iluka’s de­ci­sion not to par­tic­i­pate in Me­tal­y­sis’ most re­cent round of fund­ing.

Me­tal­y­sis’ fo­cus has shifted away from ti­ta­nium, which was the orig­i­nal ba­sis of Iluka’s in­vest­ment in the com­pany.

De­spite this dis­ap­point­ing de­vel­op­ment, in­no­va­tion re­mains a key el­e­ment of Iluka’s op­er­at­ing model and the com­pany is com­mit­ted to ex­plor­ing op­por­tu­ni­ties to im­prove and grow its busi­ness.

No­table in­no­va­tion op­por­tu­ni­ties in­clude the Bal­ranald and Fine Min­er­als projects re­spec­tively, among other ini­tia­tives.

“The [Jacinth-Am­brosia] ex­pan­sion is ex­pected to cost about $40 mil­lion, with com­ple­tion sched­uled for Q2 2019.”

Al­lim­ages:IlukaRe­sources.

Im­age: Iluka Re­sources.

Jacinth-Am­brosia.

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