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Iluka Announces $126.1m After Tax Profit In First Half Of 2018

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The Mineral sands company has revealed an after tax profit of $126.1 million, compared with the loss of $81.5 million reported for the first half 2017.

The reason for the slide in the share price may be due to problems the company (and higher costs) in Sierra Leone.

CEO, Tom O’Leary, said in last week’s release that, “Operationally, we have seen a disappointing production performance from Sierra Rutile over the past six months, with commissioning issues on the in-pit mining unit and age-related failures of equipment at the dredge.

“This has been accompanied by increased costs in addressing the operational issues encountered.

“Our Australian assets have performed well, with mining completed, as planned, at the Tutunup South mine in advance of commissioning the Cataby development, scheduled for early 2019; and, following a successful restart in December, Jacinth-Ambrosia has produced more heavy mineral concentrate than expected.”
Ikuka said in it’s statement that the improvement in earnings reflected stronger market conditions and a better pricing environment, “combined with 2017 recording a $105.6 million post-tax impairment charge in relation to idling of the Hamilton mineral separation plant.”

Iluka’s underlying mineral sands earnings before interest, tax, depreciation and amortisation more than doubled from the first half of last year, increasing by 102% to $249.3 million.

Mineral sands revenue rose 21% to $606.9 million in the June, 2018 half, “ eflecting positive mineral sands market conditions and sales price increases achieved across the product suite,” according to the statement yesterday.

Zircon/rutile/synthetic rutile (Z/R/SR) sales volumes eased 3% to 439 thousand tonnes from the previous corresponding period.

Iluka said its weighted average zircon premium and standard price received in the first half 2018 was 47% higher than the first half of 2017, reflecting a further price increase of US$180 per tonne in the Zircon Reference Price to US$1,410 per tonne effective from 1 April 2018.

“This follows three zircon price increases throughout the course of 2017 (US$50 per tonne in February 2017; US$130 per tonne from 1 July 2017 and US$130 per tonne from 1 October 2017 for a six month period).

Rutile prices, excluding HYTI, rose 20% on average from the first half 2017. Synthetic rutile sales are, in large part, underpinned by commercial off-take arrangements and the terms of these arrangements are commercial in confidence and as such cannot be disclosed.

This result predominantly reflects strong revenue growth, combined with lower idle capacity charges with the restart of mining and concentrating activities at the world’s largest zircon mine, Jacinth-Ambrosia in December 2017.
Cash production costs increased by $24.8 million to $224.9 million with additional costs following the restart of Jacinth-Ambrosia and higher maintenance and commissioning costs at Sierra Rutile, offset by the conclusion of processing activities in the Murray Basin following the idling of the Hamilton mineral separation plant in October 2017.

Iluka also said its royalty income from Mining Area C (iron ore) reduced to $29.2 million, due to an 11% fall in the realised iron ore price, which was partially offset by a 1% increase in sales volumes and a $1 million capacity payment in H1 2018.

The company reported free cash flow of $225.5 million, reducing net debt to $34.4 million (3.5% gearing).

“To ease potential zircon shortfalls, we are also planning to sell additional zircon in concentrate (ZIC). Accordingly, we have increased zircon production guidance from 300 thousand tonnes to 330 thousand tonnes,” the company said yesterday.

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