Iluka Jumps 7% On Higher Mineral Sands Production & Sales

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Iluka Jumps 7% On Higher Mineral Sands Production & Sales In June Quarter

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  • Production of zircon, rutile and synthetic rutile up 22.6 percent in H1 22 v H1 21 to 368.8 kt
  • Sales volumes of zircon, rutile and synthetic rutile down 7.9 percent in H1 22 v H1 21
  • Sales volumes for June half year exceeded production volumes by 52.6 kt, reducing 30 June 2022 inventory to a minimal amount
  • Prices for zircon in the June quarter were up 25 percent from the second half year of 2021
  • Sales for the June 2022 half year was US$954.9 million, up 29.8 percent on the previous corresponding 6 months
  • Higher fuel and labour costs to add $55M to costs of production in FY22
  • Growing demand for rare earth metals and alloys for sustainable energy applications and infrastructure should sustain shareholder returns s over the medium to long term.

Iluka Resources Limited (Iluka or the Group) is headquartered in Perth and has a 70-year operating history of mining and value-adding processing operations conducted in Australia, Sierra Leone and Sri Lanka. The Company specialises in mineral sands exploration, with expertise that covers processing, marketing and rehabilitation. Iluka is the world’s largest producer of zircon and high-grade titanium dioxide-derived rutile and synthetic rutile.

Iluka also has an emerging portfolio in rare earth elements. Rare earths are essential elements of an electrified global economy and are considered as critical inputs in the production of electric motors. Iluka’s Eneabba stockpile is the world’s highest grade operational rare earths deposit. Iluka plans to build Australia’s first fully integrated rare earths refinery at this site. The refinery represents a significant downstream, value-adding infrastructure asset, with first production scheduled for 2025.

30 June Quarterly Review

Iluka has released details of increased production volumes and higher sales revenue of zircon, rutile and synthetic rutile for the June 2022 quarter. However, cash production costs are trending ahead of guidance, impacted predominantly by higher fuel and labour costs.

Production of zircon, rutile and synthetic rutile during the half year to June 2022 was a combined total of 368.8 kt, up 22.6 percent compared to the June 2021 half year, and up 5 percent compared to the prior quarter to March 2022.

Sales volumes of zircon, rutile and synthetic rutile during the half year to June 2022 were 421.4 kt, a decrease of 7.9 percent compared to the June 2021 half year. However, sales volumes exceeded production volumes by 52.6 kt, reducing inventory holding levels of finished goods inventory to a minimal amount at 30 June 2022.

Higher weighted average prices for zircon in the June quarter for premium and standard sand were achieved at US$1,910 per tonne, up 25 percent from the second half year of 2021. Weighted average prices for zircon from 1 July 2022 have increased by a further US$140 per tonne and all of Iluka’s September quarter zircon sales are fully contracted. Only minimal spot volumes of high-grade feedstocks are available in the December 2022 half year, with pricing expected to increase. Rutile prices are also strong and are up 17 percent to US$1,506 per tonne.

Higher zircon and rutile prices have boosted mineral sands revenue for the June 2022 half year to US$954.9 million, an increase of 29.8 percent on the US$735.6 million sales recorded in the previous corresponding 6 months reporting period.

Higher fuel and labour costs are expected to increase costs of production for the Group by $55 million from $660 million. Approximately 65 percent of the increase is attributable to higher fuel costs.

Looking Ahead

Although a challenging and uncertain macro environment, demand for Iluka’s suite of products remains very strong and global supply very tight.

Net cash at 30 June was $600 million, reflecting free cash flow of $349 million and capital expenditure of $71 million. Iluka will contribute US$45 million to a rehabilitation trust for Sierra Rutile as part of the proposed demerger.

The demerger will result in Sierra Rutile being a separately listed ASX-listed company focused on its West African mineral sands assets. Sierra Rutile shares are anticipated to commence trading on the ASX on a deferred settlement basis from 24 July 2022.

The commissioning of Australia’s first fully integrated rare earths refinery in 2025 together with growing demand for Iluka’s rare earth metals and alloys in electric vehicles and other sustainable energy applications and infrastructure, should ensure a positive outcome for shareholders over the medium to long term.

Louis Mosmann

Louis Mosmann is a Private Wealth Client and Research Assistant at KOSEC- Kodari Securities. Louis covers macroeconomic events, global markets and ASX300 company announcements, allowing clients to make more informed investment decisions. Email Louis at l.mosmann@kosec.com.au.

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