Iluka hit as customers fail to take mineral sands products
Iluka Resources is feeling the pinch of the coronavirus crisis as customers walk away from contracts to buy some of its products.
The global coronavirus crisis has begun to bite for mineral sands producer Iluka Resources, as customers abandon contracts to buy some of its products.
Iluka said on Friday it had issued a default notice on one of its take-or-pay synthetic rutile contracts, after a customer failed to make good on promises to take 20,000 tonnes of the product in May.
It said a second customer had flagged a move to take lower volumes of the product – used as a pigment in paints, plastics, paper, foods, and other applications – than it was contractually obliged to pay. Iluka said that may affect a 12,000 tonne shipment of synthetic rutile scheduled for September.
Iluka has 175,000 tonnes of synthetic rutile subject to take-or-pay contracts in 2020, and said actual sales volumes may fall below that level for the year.
“Year to date, 78 thousand tonnes of synthetic rutile have been sold under these contracts,” the company said.
In 2019, Iluka sold 207 thousand tonnes of synthetic rutile, with total rutile and synthetic rutile sales volumes of 407,000t. Its 2019 total rutile and synthetic rutile revenues were $583 million.
Iluka’s move to lock in take-or-pay contracts for its pigment products has been one of the company’s key strategies to moderate the impact of the swings its suffers through economic downturns, as the value of its products are generally seen as directly linked to middle-class spending trends and economic growth in developed nations.
In May managing director Tom O’Leary told a Goldman Sachs conference Iluka’s business had been “impacted substantially” by the global coronavirus pandemic, noting one of its synthetic rutile customers had requested “accommodation” under its contracts.
He said Iluka had used the contracts to underpin the $275m development of its Cataby mineral sands mine in Western Australia, where offtake contracts worth 85 per cent of its production were signed before it pulled the trigger on the mine’s development.
In April Iluka withdrew its 2020 financial guidance, citing an uncertain outlook given the coronavirus crisis.
Iluka shares were down 18c, or 2.1 per cent to $8.31 at 10.30am (AEST).
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