Iluka Resources: Iluka-ing Good

0 Comment
 24 Oct 2017   Posted by admin


All Images: Iluka Resources.


BY CAMERON DRUMMOND


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.


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 also 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 from $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.