Iluka Resources (ASX:ILU)

Tom O'Leary
Market Cap (AUD): 4.06B
Sector: Materials
Last Trade (AUD): 9.36 -0.23 (-2.5%)
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1. About

Iluka is a major participant in the global mineral sands industry. It is involved in the exploration, project development, operation and marketing of mineral sands products. Its main assets and operations are located in Australia, with a mining and processing operation also in Sierra Leone.

Iluka is the largest producer of zircon, with an approximate market share of one third, and is the second largest producer of high-grade titanium dioxide minerals (rutile and synthetic rutile). The Company also has a royalty over iron ore sales revenues from tenements of BHP Billiton's Mining Area C (MAC) province in the north west of Western Australia.

2. Business model


The Group operates in following divisions:[1]



Revenue ($M)

% of Revenue

% of (Loss)/Profit (before Int, Tax, depn & Amort)

Profit drivers[2]





  • Iluka’s underlying mineral sands EBITDA almost tripled relative to 2016, increasing to $300.9 M
  • Mineral sands revenue increased by 40% to $1,017.5 M. Zircon/ rutile/synthetic rutile (Z/R/ SR) revenue increased by 38% to $959.1 M, its highest level in five years
  • Iluka’s royalty income from Mining Area C increased by 25% to $59.6 M. Iron ore prices rose 16% and sales volumes from the royalty area increased 8%. No capacity payments were received in 2017 or 2016
  • The 2017 underlying Group EBITDA was $360.5 M, up from 2016, reflecting the combination of increased revenue, non-production cost reductions and increased Mining Area C royalty payments









Expl & oth








Corp & elim




3. Strategy


As the company has navigated through a low in the mineral sands business cycle, Iluka ‘s approach has been to:[3]

  • flex asset operation in line with market demand
  • continue market development
  • preserve/advance Mineral sands growth opportunities
  • maintain a strong balance sheet
  • continue to evaluate/pursue corporate growth opportunities
  • act counter-cyclically where appropriate


Iluka has a commitment to "proactivity" in environmental management and sustainability, seeking to achieve the highest standards in health and safety performance

4. Markets


The Group operates in the following industries:[4]



Industry Revenue (2017)

Growth Rate (Annual 13-18)

Mineral Sand Mining (Australia)

$3 billion  


Mineral Exploration (Australia)

$1 billion


Sand & Gravel Mining (US)

$16 billion

6.7% (Annual 12-17)

5. Competition


Major competitors Include:[5]


  • BHP Billiton Limited (ASX:BHP)
  • Rio Tinto Limited (ASX:RIO)
  • Exxaro Resources Limited (JSE:EXX)

6. History



Iluka Resources Limited was formed through the merger of RGC Limited and Westralian Sands Limited



Murray Basin Stage 2 commenced production



Launched an online sales website at the TZ Minerals International Pty Ltd Global Zircon Conference in Shenzhen



Acquired PKD Resources (Pvt) Ltd (PKD), a Sri Lankan domiciled company which owned an exploration tenement located near the city of Puttalam in the North Western Province of Sri Lanka



Iluka has provided Kenmare with a revised, non-binding proposal relating to a potential acquisition of Kenmare by Iluka through an all-share exchange offer



Iluka acquisition of Sierra Rutile Limited



TikForce enters supply chain workforce verification & access management services agreement with Iluka resources

7. Team


Board of Directors[7]


Greg Martin – Chairman

Tom O'Leary – Managing Director and Chief Executive Officer

Marcelo Bastos – Independent Non-Executive Director

Xiaoling Liu – Independent Non-Executive Director

James (Hutch) Ranck – Chairman of the People and Performance Committee

Jenny Seabrook – Chair of the Audit and Risk Committee

Rob Cole – Independent Non-Executive Director

Susie Corlett – Independent Non-Executive Director


Management Team


Tom O'Leary – Chief Executive Officer and Managing Director

Doug Warden – Chief Financial Officer and Head of Strategy and Planning

Steve Wickham – Chief Operating Officer, Mineral Sands

Matthew Blackwell – Head of Marketing, Mineral Sands

Simon Hay – Head of Resource Development

Rob Hattingh – Chief Executive Officer, Sierra Rutile

Sue Wilson – General Counsel and Company Secretary

Adele Stratton – General Manager Finance, Investor Relations & Corporate Affairs                

Sarah Hodgson – General Manager People

Julian Andrews – Head of Business Development

read more

8. Financials


2018 Full Year ResultsPresentation


Financial Year 2016/17 (ended 31 December):[8]



Revenue ($M)

% Change

(Loss)/Profit (before Int, Tax, depn & Amort) ($M)

% Change
















Expl & oth










Corp & elim










9. Risk


Major risks include:[9]


Sustaining operations risks

Maintaining a pipeline of mineral resources, mineral reserves and projects in order to sustain operations and maintain business is a key focus for Iluka. The success of exploration activity and project delivery is critical to sustain operations in a timely manner.


Product demand and price risks

The resources sector typically exhibits cyclicality, and Iluka is subject to cyclical fluctuations in global economic conditions, customer demand and end-use markets. The demand for Iluka’s products may be sensitive to a wide range of factors most of which are outside of the company’s control such as changes in the global economy, adverse changes in pigment or ceramic markets, or technology changes that reduce the level of feedstock required (substitution or thrifting). The prices for our products are also subject to these market conditions generally.

The company’s approach in such conditions is to adjust production and inventory levels in the context of market demand, and seek offtake agreements that underpin project returns where appropriate.


Financial risks

Iluka faces risks relating to the cost of and access to funds, movement in interest rates and foreign exchange rates (refer note 20). Iluka maintains policies which define appropriate financial controls and governance which seeks to ensure financial risks are fully recognised, managed and recorded in a manner consistent with:

  • the financial risk appetite and delegations as set by Iluka’s Board
  • generally accepted industry practice and corporate governance standards
  • shareholder expectations of a mineral sands producer.

Where an operation has entered into long-term contracts with fixed or floor prices (i.e. hedged the commodity price), Iluka may manage the risks related to movements in foreign exchange rates by entering into appropriate hedging arrangements. Any hedging is done in accordance with Iluka’s risk tolerances and policies including appropriate approvals.


Project development risks

Iluka regularly assesses its ability to enhance its production profile, or extend the economic life of deposits, by the development of new deposits within its portfolio. A failure to develop and operate projects in accordance with expectations could negatively impact results of operations and the company’s financial position.

Risks to major development projects include the ability to acquire and/or obtain appropriate access to property, regulatory approvals, supply chain risks, construction and commissioning risks. There are also technology risks regarding the new unconventional mineral sands mining approach planned for the Balranald deposit.

A structured capital process and project delivery framework is utilised to facilitate successful project development and manage risks in bringing new projects into operation.


Growth risks

To ensure a sustainable business going forward, Iluka attempts to generate growth options through exploration, innovation and appropriate external growth opportunities. The ability of Iluka to create and deliver value for shareholders is to some extent dependent on successful growth strategies.

Evaluating growth opportunities requires prudent risk taking as part of a disciplined process of project selection and interrogation to maximise the opportunity, achieve the desired outcomes, and manage the associated risks to the company. This includes applying the company’s established disciplines and systems to evaluate growth opportunities and assess their potential value and impact considering a range of modifying factors and assumptions.


Country risk

Increasing international activities have increased Iluka’s exposure to country risks. New or evolving regulations and international standards are outside of the company’s control and are often complex and difficult to predict. The potential development of international opportunities can be jeopardised by changes in fiscal or regulatory regimes, difficulties in interpreting or complying with local laws, material differences in sustainability standards and practices, or reversal of current political, judicial or administrative policies. Risks in the locations in which Iluka operates could include terrorism, civil unrest, judicial activism, community challenge or opposition, regulatory investigation, nationalisation, protectionism, renegotiation or nullification of existing contracts, leases, permits or other agreements, imposts, restrictions on repatriation of earnings or capital and changes in laws and policy, as well as other unforeseeable risks. If any of the company’s operations are affected by one or more of these risks, it could have a material adverse effect on its assets in those countries, as well as Iluka’s overall operating results, financial condition and prospects.


Sierra Rutile risks

Sierra Rutile continues to work towards full adoption of Iluka’s governance standards, operational processes and controls. As this continues, there are risks relating to the standard of systems, processes, policies, practices, or any related key controls which require investment or improvement to meet Iluka’s standards. Iluka has made significant progress in implementing the improvements outlined at the time of acquisition such as modifying the dry mining method to incorporate an in-pit mining unit increasing throughput at Lanti, revising plant designs for the current mining units, improvements in mine pit de-watering and detailed planning for upgrades to the mineral separation plant. A delay in these projects and in achieving further operational improvements could impose unexpected costs that may adversely affect the financial performance of the company.


Anti-bribery and corruption risk

Iluka’s business activities and operations are located in jurisdictions with varying degrees of political and judicial stability, including some countries with a relatively high inherent risk with regards to bribery and corruption. This exposes Iluka to the risk of unauthorised payments or offers of payments to or by employees, agents or distributors that could be in violation of applicable anti-corruption laws. Risks also include possible delays or disruptions resulting from a refusal to make so-called facilitation payments or any other form of benefit inconsistent with Iluka policy or applicable laws. Iluka has a clear Anti-bribery and Corruption Policy, and internal controls and procedures to protect against such risks including training and compliance programmes for its employees, agents and distributors. However, there is no assurance that such controls, policies, procedures or programmes will protect Iluka from potentially improper or criminal acts. Violations of anti-corruption laws or regulations may result in criminal or civil sanctions and adverse publicity.


Environmental standards risk

Mining operations, by their nature, can have a significant impact on the environment. Given this, Iluka is committed to leading practice in environmental management as outlined in the Iluka Environment, Health and Safety Policy. Leading practice is based upon current community expectations, applicable legislation and regulatory standards, all of which change over time. With increasing government and public sensitivity to environmental sustainability, environmental regulation is becoming more stringent. Iluka could be subject to increasing environmental responsibility and liability, including laws and regulations dealing with air quality, water and noise pollution and other discharges of materials into the environment, plant and wildlife protection, the reclamation and restoration of certain of its properties, greenhouse gas emissions, the storage, treatment and disposal of wastes and the effects of its business on the water table and groundwater quality. Sanctions for non-compliance with these laws and regulations may include administrative, civil and criminal penalties, revocation of permits, reputational issues, increased license conditions and corrective action orders. Accidents, environmental incidents, the failure to comply with laws or regulations and real or perceived threats to the environment or the amenity of local communities could result in a loss of Iluka’s ability to operate, leading to delays, disruption or the shut-down of exploration and production activities. Accidents, environmental incidents and failures to comply with laws or regulations could also lead to fines, additional costs, and adverse publicity.

There is a risk that historic operations or disposal methods by the company or its predecessor companies, although materially compliant with regulatory requirements at the time, may be subject to increased or new environmental standards which require additional material remediation costs. The company monitors these risks on an ongoing basis as part of the ongoing remediation of its former mine sites and operations.


Business interruption risks

Circumstances may arise which preclude sites from operating including natural disaster, material disruption to our logistics, critical plant failure or industrial action. Iluka undertakes regular reviews for mitigation of property and business continuity risks. Iluka also conducts planning and preparedness activities to ensure a rapid and effective response in the event of a crisis. Appropriate business plans, policies, and training provides support to Iluka’s risk mitigation activities. Iluka also maintains a prudent insurance programme that may offset a portion of the financial impact of a major interruption risk.


Social license to operate risks

An integral part of Iluka’s activities is maintaining a social license to operate. Iluka’s safety, health, environmental, people and stakeholder performance expectations are clearly articulated in its policies and overseen by the Board. The annual Iluka Sustainability Report contains further information on the company’s operating conditions, as well as elements of the business strategy.


Financial risk management

The Group's activities expose it to a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance of the Group. Financial risk management is managed by a central treasury department under policies approved by the Board.


Market risk

Market risk is the risk that changes in market prices such as foreign exchange rates and interest rates will affect the Group’s income or value of its holdings of financial instruments


Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising predominantly from the US dollar, which is the currency the Group’s sales are generally denominated in. The Group has operations in Sierra Leone and rehabilitation obligations in the US, which both have a USD functional currency. The balance sheet translation risk is managed by designating part of the Group’s borrowing in US dollars as a hedge against the net US dollar investment in the Sierra Rutile operation (translation differences are taken to the foreign currency translation reserve). Other US dollar borrowings act as a ‘natural’ hedge against movements in US dollar receivables from Australian sales (translation differences taken to the profit or loss).


Interest rate risk

Interest rate risk arises from the Group’s borrowings and cash deposits. During 2017 and 2016, the Group's borrowings at variable rates were denominated in Australian dollars and US dollars.

The sensitivity is calculated using the average debt position for the year ended 31 December 2017. The interest charges in note 15(d) of $15.4 million (2016: $14.7 million) reflect interest-bearing liabilities in 2017 that range between $236.1 million and $607.6 million (2016: $49.0 million and $607.6 million).


Credit risk

Credit risk arises from cash and cash equivalents and hedging instruments held with financial institutions, as well as credit exposure to customers. The Group has policies in place to ensure that credit sales are only made to customers with an appropriate credit history. The Group also maintains an insurance policy to assist in managing the credit risk of its customers.

Derivative counterparties and cash transactions are limited to high credit quality financial institutions and policies limit the amount of credit exposure to any one financial institution. The Group's policy is to ensure that cash deposits are held with counterparties with a minimum A-/A3 credit rating. Credit exposure limits are approved by the Board based on both credit and sovereign ratings.


Liquidity risk

Liquidity risk is the risk the Group will not be able to meet its financial obligations as they fall due. Liquidity risk management involves maintaining sufficient cash on hand or undrawn credit facilities to meet the operating requirements of the business. This is managed through committed undrawn facilities under the MOFA of $456.5 million at balance date as well as cash and cash equivalents of $53.6 million and prudent cash flow management


  1. ^ Annual Report 2017, P.30
  2. ^ Annual Report 2017, P.14
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  8. ^ Annual Report 2017, P. 30
  9. ^ Annual Report 2017, P 40-41, 105-107