JD Neuhaus

Iluka: Quarterly Production Report 30 June 2013 - lower Production of Zircon and Rutils

  • Iluka’s combined production of zircon, rutile and synthetic rutile (Z/R/SR) in the June quarter was 127.2 thousand tonnes, 14.7 per cent higher than March 2013 quarter production of 110.9 thousand tonnes.
  • Z/R/SR production in the June 2013 quarter was 43.9 per cent lower than in the June 2012 quarter (226.8 thousand tonnes), while Iluka’s first half 2013 Z/R/SR production was 238.1 thousand tonnes, 46.3 per cent lower than the 443.8 thousand tonnes recorded in the first half of 2012. Lower production reflected completion, during the quarter, of Iluka’s previously announced operating adjustments to curtail output in response to lower demand, to facilitate a progressive draw down of finished goods inventory, as well as to reduce total operating costs.
  • Iluka’s first half 2013 zircon sales volume of 210.9 thousand tonnes was a marked increase from the previous corresponding period sales volume of 87.4 thousand tonnes and was approximately equal to 2012 full year sales volumes of 213.8 thousand tonnes. Based on a strong first half, Iluka continues to expect that zircon sales in 2013 will exceed production (which has been increased to approximately 280 thousand tonnes).
  • First half zircon demand recovered in most markets and trended well in excess of production, allowing a draw down in finished goods inventory. Conversely, a return to normal mining schedules at Jacinth-Ambrosia in South Australia led to an increase in zircon-rich heavy mineral concentrate at site, despite a modest restart in the shipment and processing of concentrate from the operation.
  • First half rutile and synthetic production of 119.6 thousand tonnes exceeded sales of 76.3 thousand tonnes, reflecting expected weaker first half demand for high grade feedstocks and the completion of operational adjustments in the second quarter, including the idling of Iluka’s largest synthetic rutile kiln, SR 2, in the South West of Western Australia, late in the June quarter. All Iluka Western Australian mining and synthetic rutile plants will be idle during the second half of 2013.
  • Iluka’s combined rutile and synthetic rutile sales volumes in the first half of 2013 were 76.3 thousand tonnes, a level similar to those in the second half of 2012 (88.6 thousand tonnes) and significantly lower than the first half of 2012 volume of 186.5 thousand tonnes, which was a period when Iluka had greater volumes contracted to customers and was prior to the emergence of demand weakness and inventory adjustment activities in the pigment industry. Iluka now expects rutile/synthetic rutile sales in 2013 to be in line with expected production of approximately 200 thousand tonnes.
  • Mineral sands revenue for the three months to 30 June 2013 was $241.8 million. Revenue for the first half of 2013 was $381.7 million. The lower first half revenue compared with the same period in 2012 ($662.8 million), notwithstanding higher Z/R/SR sales volumes, mainly reflects lower received prices period-on-period as demonstrated by the first half revenue per tonne of Z/R/SR of A$1,178 per tonne compared with A$2,255 per tonne in the first half of 2012 and A$1,655 per tonne in the second half of 2012.
  • Indications are that zircon prices have stabilised and Iluka’s received zircon prices increased slightly towards the end of the half, whereas average rutile/synthetic rutile prices, as previously advised, having started the year at a level approximately 30 per cent below the December quarter 2012 rutile price levels, softened through the first half to a level approximately 40 per cent below the December quarter 2012 rutile price levels.2
  • Cash costs of production were $201.9 million in the first half of 2013, a 35.8 per cent decline relative to the first half of 2012 associated with previously announced operational adjustments, which included plant idling and reductions in workforce levels. On a unit basis, cash costs of production were $848 per tonne of Z/R/SR, higher than the corresponding period last year, reflecting the 46.3 per cent lower production of Z/R/SR, partially offset by the 35.8 per cent decline in cash cost of production. Restructure costs incurred in the half amounted to approximately $30 million and, with operating adjustments fully implemented, full year costs will be similar and remain well below the approximately the $50 million figure guided previously.
  • The average Australian/US dollar exchange rate for the quarter was 99.2 cents, down from 103.9 cents in the March quarter. The majority of Iluka’s revenue is denominated in US dollars and as a result a lower Australian/US dollar exchange rate is favourable for revenues translated into reporting currency.
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