Iluka: A company on the rise

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 06 Jun 2017   Posted by admin


Heavy mineral concentrate stockpiles at Jacinth- Ambrosia. Image: Iluka Resources.

 

BY ELIZABETH FABRI

 

AFTER experiencing significant financial losses during 2016, international minerals sands company Iluka Resources is back on track with the Sierra Rutile acquisition now under its belt, and a handful of advanced production and exploration opportunities in progress to deliver future growth.

 

Iluka Resources is finally making a comeback. At the end of 2016, the company reported an 11.4 per cent decline in revenue brought on by low market conditions from the minerals sands sector, which was partially responsible for a total reported loss of $224.0 million after tax.

However, higher commodity prices this year have generated a substantial increase in revenue for the global miner.

In the March quarter, Iluka reported a 130 increase in total zircon, rutile and synthetic rutile sales volumes relative to the same period in 2016, and a 118.5 per cent increase in zircon, rutile and synthetic rutile revenue.

During the quarter, Iluka also produced 154,000 tonnes (t) of heavy mineral concentrate and processed 366,000t.

 “The 2017 financial year has commenced more favourably,” Managing director and chief executive Tom O’Leary said.

 

“Sales volumes and revenues have more than doubled by comparison to first quarter 2016; prices in the first quarter for both zircon and rutile were higher than average 2016 levels; and [Iluka] has generated strong free cash flows over the quarter, which have been applied to the repayment of debt, which has reduced from $506 million at 31 December to $403 million.”

 

Mr O’Leary joined the company as chief executive in September last year with the aim of bringing the company’s financials back to a healthy state.

One of his first decisions as head of the company was a review of the business; a result was 90 out of 440 support roles being made redundant.

“As a consequence of these changes, Iluka’s 2017 non production cash costs (excluding Sierra Rutile) are expected to be approximately $20 million lower on a like-for-like basis compared to 2016,” Mr O’Leary said.

“Just as importantly, we’re now resourced more appropriately for key business priorities over the coming years, and there will be a continued focus on lowering the cost base of the company.”

Operating since 1998, Iluka has a diverse portfolio, with a Mining Area C royalty asset, and projects in WA’s Perth Basin, South Australia’s Eucla Basin, Victoria’s Murray Basin, and Sri Lanka.

In December, Iluka all-cash acquisition of London-listed company Sierra Rutile was also approved, marking its entrance into the African market.

 

Image: Sierra Rutile.

 

Sierra Rutile acquisition

At a total cost of $389 million plus assumed $80 million of net debt, the Sierra Rutile merger was an important milestone in reshaping Iluka.

The acquisition has effectively doubled Iluka’s rutile resource base, with the Sierra Leone operations set to produce 150,000t in 2017, and expansion potential in future years up to 240,000tpa.

In the company’s recent reserve and resource statement, it reported an inaugural rutile reserve of 3.9 million tonnes (mt) for Sierra Rutile, equating to a 15 year mine life.

It also confirmed potential to add to the resource and reserve based through further delineation drilling.

Mr O’Leary said Iluka’s strategy for generating a satisfactory return from the mine was to invest in increasing its capacity.

“This increase will come at a capital expenditure cost estimated at ~ $US220 million for the three mine expansion projects,” he said.

“This is inclusive of the $US60 million planned to be spent in 2017 and 2018 on improving safety and efficiency; and increased capacity at the mineral separation plant.

“We are confident we can achieve the reduction in unit cash costs Iluka has guided, with the prospect of robust margins and cash flows.”

Since taking over the mine in December, Iluka has been incredibly busy at the project, and sent some of its most experienced technical and operational personnel to the ground.

Following a visit to the mine in March, Iluka chairman Greg Martin said he was impressed and encouraged by the local workforce and manner in which Iluka personnel had embraced the new requirements of operating effectively and safely in a new country.

“These activities have included developing key relationships at all levels of government, with local communities, including Paramount Chiefs, with non-governmental organisations as well as establishing initial links with international agencies that provide social and economic development support to the country,” Mr Martin said.

However despite the positive feedback, production for the March quarter was lower than expected due to a reduced level of surface mobile equipment available prior to the commissioning of the new fleet which led to limited ore supply volumes.

In the March quarter, Sierra Rutile produced 35,700t of rutile, 11,600t of ilmenite and 300t of zircon.

 

Hamilton plant suspension

On 28 March, Iluka announced it would be suspending operations at its Hamilton mineral separation plant in Victoria from October in an effort to further streamline operational costs,.

Over the last few years, the plant had been processing stockpile ore from the Murray Basin mining operations that closed in 2015, and the Jacinth-Ambrosia operation in South Australia.

In March, Iluka announced the Jacinth-Ambrosia feed would now be processed at the Narngulu facility in WA, meaning  the Hamilton plant would now only process the remaining heavy mineral concentrate from the Murray Basin, which was expected to be exhausted by October 2017.

Iluka chief operating officer Steve Wickham said the company intended to recommence processing operations at Hamilton once concentrate became available from the pending Balranald development.

 

“In light of the timing for that development, the decision to suspend operations at Hamilton once the Victorian stockpile has been exhausted is the most cost efficient configuration of the company’s assets,” Mr Wickham said.

 

He confirmed that the suspension was in no way reflective of the economic conditions in Victoria, and was purely made from a commercial standpoint.

The suspension would result in 60 redundancies.

“The company acknowledges that this will be a difficult time for affected employees and will provide whatever assistance it can, including counselling, redeployment and employment placement support,” Mr Wickham said.

“The company’s rehabilitation of former mine sites in Victoria is not affected by the suspension of operations at Hamilton; and will continue in line with long-term planning arrangements.”

 

Planned new production

Over the next few years, Iluka has a huge task ahead to bring its next round of projects into production; Cataby, Balranald and Puttalam.

North of Perth in WA, Cataby is a chloride ilmenite deposit with associated zircon and rutile production and a mine life of about 8.5 years.
Iluka recently completed the definitive feasibility study for the project and environmental approvals and amenity agreements continue on schedule.

Once the project received the green light, concentrate produced at the site would be processed at the Narngulu plant.

“Discussions with existing and potential customers are progressing,” Mr O’Leary said.

“In the 2017 capital expenditure guidance of approximately $260 million, approximately $150 million related to Cataby.

“While a proportion of this – approximately $20 million – will be spent on detailed engineering work and land access arrangements in 2017, the expenditure of the remaining amount will depend on the timing of a development commitment.”

Balranald was the next project in the development pipeline, which had now also completed a definitive feasibility study.

The project comprises two rutile mineral sands deposits in the northern Murray Basin, NSW.

In 2016 Iluka completed a field trial on an unconventional mining method to access the deposits, and further evaluative work was planned for this year.

Further afield, the Puttalam mineral sands deposit in Sri Lanka was being assessed, with a pre-feasibility study being undertaken, along with discussions with the Sri Lankan Government to secure a binding investment agreement.

Iluka was also looking at restarting mining at the Jacinth Ambrosia operation which was suspended in May 2016.

The established project in the Eucla Basin, South Australia, was the largest known global source of zircon.

Mr O’Leary confirmed a decision to re-commence production was expected before the year’s end.

In addition, the company also had a number of exploration projects in the works in Kazakhstan and Canada.

 

2017 outlook

Key areas of focus for the rest of the 2017 calendar year included the potential expansion of the Sierra Rutile operation, a sustainable business review to further reduce costs and improve productivity, and marketing contracts to underpin the Cataby development.

This year, non-production costs were already down $70 million from 2016 through reduced exploration activity and research and development, and lower corporate overheads, while the zircon market was now in a sturdy position.

Mr O’Leary said the market was now stronger and demand was more robust than the company had seen in years.

“In zircon, we’ve had two consecutive quarters of strong sales, in an environment where prices have increased,” he said.

“Our sales volumes for the six months’ ending 31 March are the largest for that period since 2010/11.

“The US$50 per tonne increase on contracted tonnes, effective mid-February, has been accepted by customers and provided support for spot sale prices materially higher.”