Iluka Resources: Pushing forward

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 29 Nov 2016   Posted by admin


The Sierra Rutile acquisition was soon to be finalised. Image: Sierra Rutile.

 

By Elizabeth Fabri

 

WHEN new Iluka Resources managing director and chief executive Tom O’Leary stepped into the role in September, the company was grappling with a $20.9 million net loss from the first half of the year. Three months in, and Mr O’Leary is steering the company out of a financial slump and towards a prosperous 2017.

It’s been a year of change for mineral sands company Iluka. A leadership shakeup, weak US dollar, lower income from its Mining Area C iron ore royalty, higher non production cash costs, and depressed zircon price have all played a part in company performance.

In the first half of 2016, Iluka reported a net loss of $20.9 million, a tough pill to swallow given an almost equivalent profit of $20.4 million was made in the 2015 corresponding period.

But September quarter results indicated a renewed sense of hope, with year-to-date zircon, rutile and synthetic rutile sales of 451,600 tonnes, 8.8 per cent up from 2015.

September year-to-date zircon, rutile and synthetic rutile production was also 10.8 per cent higher at 526,400t , compared to the 475,100t produced in the 2015 period.

“The higher year-to-date production mainly reflects higher synthetic rutile production, with a full nine months of synthetic rutile production, following re-activation of SR kiln 2 in March 2015,” the company stated.

Operating since 1998, Iluka has established a diverse portfolio, with mines in WA’s Perth Basin, South Australia’s Eucla Basin, Victoria’s Murray Basin, a mineral sands project in Sri Lanka, as well as exploration projects in NSW, WA, South Australia and the US.

With production on track, Iluka was confident it would meet full year guidance of 660,000t.

 

New leadership

 

In March, after more than 10 years at the helm, Iluka managing director and chief executive David Robb announced he would resign from the role in the second half of the year.

The news prompted the company to begin an extensive recruitment search, reviewing a number of internal and external candidates.

At the end of June, former Wesfarmers Chemicals, Energy and Fertilisers division managing director Tom O’Leary was announced as Mr Robb’s successor.

While many internal candidates were considered, Iluka Resources chairman Greg Martin said the board determined shareholder interests were best met through an external appointment.

“Tom is a seasoned business executive, who has run complex businesses…has a depth of business development and capital deployment experience, including major transactional experience,” Mr Martin said.

“Tom provides an important continuity in terms of the capital disciplines and capital allocation abilities that I know our shareholders regard highly as distinguishing features of Iluka.

“While Iluka, as with other companies in the resources sector, has had the challenges of a lower demand environment and lower prices for its main products, the board believes our company is well placed.”

Stepping into the role on 5 September, Mr O’Leary said he was delighted to have been given the opportunity to lead the company.

“I’ve been at Wesfarmers for over 15 years, where the primary objective has been to deliver satisfactory returns to shareholders,” Mr O’Leary said.

“I understand that a similar objective, to be delivered through the application of sound financial disciplines, is also a core expectation of Iluka’s shareholders.

“I believe that is best achieved through the performance of highly engaged teams. “

 

Sierra Rutile merger

 

With a number of existing and budding projects overseas, it came as no surprise in August when Iluka announced it plans to enter the African market through an all-cash acquisition of London-listed company Sierra Rutile (SRL).

The $375 million acquisition would see Iluka purchase SRL shares for 36 pence each and assume the company’s debt of about $80 million.

The acquisition would likely double Iluka’s rutile resource base, with SRL’s Sierra Leone operations currently producing 130,000 tonnes per annum of rutile with expansion potential up to 240,000tpa.

On 7 November, Iluka issued a statement it was still working closely with SRL towards the completion of the merger in accordance with the Merger Implementation Agreement.

The company stated the deal would not hinder its ability to fund internal projects, such as Cataby and Balranald.

“The transaction is consistent with Iluka’s approach to act in a counter-cyclical manner where appropriate, including via transactions where strategic rationale and financial merit can be demonstrated,” Iluka chairman Greg Martin said.

“It is a logical combination of complementary businesses at this point in the mineral sands cycle.”

“The acquisition of SRL along with current Iluka project progress provides the potential for enhanced portfolio flexibility which will in turn determine the level and phasing of Iluka’s future capital expenditure.”

 

Feasibility works

 

While the Sierra Rutile acquisition was high on the agenda, Iluka was continuing to progress feasibility works at its existing deposits Cataby, Balranald, and Puttalam.
In 2015, a Definitive Feasibility Study (DFS) was completed at its Cataby mineral sands project in WA.

“The definitive feasibility study has been completed and various pre-execute activities including environmental approvals and amenity agreements continue on schedule, along with work to further refine and optimise the project configuration,” the company stated.

“A development decision on Cataby is linked to planning for the continuation of Iluka’s SR 2 kiln as well as high grade feedstock market demand conditions.”

Once constructed, Cataby would produce ilmenite suitable for sale, or as a feed source for synthetic rutile production, as well as material volumes of zircon and rutile over an 8.5 year mine life.

A DFS was also ongoing at Balranald in NSW, with stage 2 involving detailed engineering for a conventional mine development.

“The Balranald development, subject to regulatory approvals and the approval of the Iluka Board, will provide the potential for approximately eight years of substantial rutile, zircon and associated ilmenite production,” the company stated.

“Activities associated with the definitive feasibility study for a conventional development approach, as at the end of September, were complete.”

Iluka had evaluated an alternative mining approach, through trialling a new innovative mineral sands mining technique.

“An important phase of evaluating this mining technique has recently concluded and has provided the company with sufficient confidence in terms of technical and commercial criteria, to commence detailed operational and financial planning for the next phase of activities, subject to all necessary regulatory approvals,” it said.

Iluka was also assessing the development of mineral sands deposit Puttalam Quarry in Sri Lanka, undertaking a pre-feasibility study on a limited number of work packages relating to pre-mining or baseline conditions.

 

Continued exploration

 

At the end of 2015, Iluka reported a mineral resources base of 172.9mt, a figure it aimed to increase through continued exploration; innovation and technology; and acquisitions and joint ventures.

From an exploration standpoint, the September quarter was a productive period as the company completed drilling programs in WA’s Canning Basin; the Foothills project in Quebec, Canada; and Kazakhstan.

In July and August, Iluka continued its campaign in the Canning Basin, drilling a total of 118 air-core holes.

“The drilling established that this sediment is largely unconsolidated and consists of very fine to medium grained, well sorted sands with low grade HM mineralisation,” the company stated.

During this period Iluka applied for 12 additional exploration licenses in the region to the south west of its existing tenement package.

Further afield, Iluka continued work at Foothills in Canada, in an effort to understand the potential geophysical anomalies identified earlier in the year.

Specific work for the quarter included ground reconnaissance and costeaning,” it stated.

“In addition to the on ground activities, Iluka agreed to add an additional 140 claims to the existing Foothills Option and Exploration Joint Venture Agreement.

“The new agreement increases the minimum expenditure from CAD$400,000 to CAD$500,000 in the first year to earn 51 per cent.”

Iluka also completed a second phase of aerial geophysics in two areas of Kazakhstan.

Moving forward, the company said it would continue to pursue exploration activities, from initial prospecting, tenement acquisition to drilling activities in Australia and six international jurisdictions.