Iluka Resources forgoes dividend despite solid half-year profit
Despite a solid profit, Iluka has joined the list of major corporates holding back on dividends due the coronavirus slowdown.
Iluka Resources will push ahead with its move into rare earth production, giving the go-ahead to the expansion of its WA rare earths project hot on the heels of shipping its first cargo of concentrate, citing the potentially substantial returns from the diversification push.
Managing director Tom O’Leary said on Friday Iluka’s board had ticked off on a $35m expansion of its Eneabba rare earths project, which is extracting rare earths concentrate from the waste of its mothballed mineral sands mine.
Iluka sent its first shipment from the mine recently, after a quick-fire start up of the project to capitalise on rising interest in rare earths from non-Chinese sources in the wake of geopolitical tensions which have put China’s production dominance in political, as well as commercial, focus.
The expansion will allow Iluka to produce of a far higher grade concentrate from the waste and, although Iluka is yet to give a firm indication of the price its current product will fetch, Mr O’Leary said the high-grade concentrate will deliver a better return, per tonne, than its traditional zircon products, which fetched an average $US1354/t in the first half of the year.
Iluka said yesterday sales from the $35m Eneabba expansion, which will allow it to produce about 20,000 tonnes of monazite, or rare earths, concentrate a year, along with up to 9,000t one zircon and 20,000t of ilmenite.
And Mr O’Leary confirmed the company is still drawing up plans for further downstream processing of the concentrate, including the possible construction of a full-blown refinery in Australia.
“We are exploring going further downstream into cracking and leaching and solvent extraction. It is early days yet, but we are exploring that possibility,” he said.
“The Eneabba monazite stockpile is just that, a stockpile. It doesn’t really need to be mined, so it’s probably the most suitable for accelerated development into cracking and leaching and beyond, but no decisions have been made.”
Mr O’Leary would not comment on whether the company was in active discussions with Lynas over the possibility of a tie-up with the rare earths producer over potential access to its proposed Kalgoorlie processing facility, but said the company was “consulting with a range of government and commercial stakeholders” over its plans.
On Friday Iluka has joined the list of corporate majors holding back on dividend payments due the coronavirus slowdown, saying it would not pay an interim dividend “given current economic uncertainty”, despite the company booking a solid $113m net profit for the first half of the year.
Revenue from Iluka’s core mineral sands business was down 16.3 per cent compared to the first half of 2019, to $456.6m, with underlying earnings before interest, tax, depreciation and amortisation from the business down 23.9 per cent to $177.1m.
Its overall result was held up by earnings from its royalty over BHP’s Mining Area C, which lifted to $48.5m for the half, up 16.5 per cent cent. Iluka said it still plans to demerge the royalty into a separate listed vehicle by the end of the year, but is still waiting on a ruling from the Australian Taxation Office on the tax implications of the move.
Managing director Tom O’Leary said the result was a “solid” set of figures given the impact of the coronavirus on zircon and titanium markets, and the broader global economy.
“The impact of the pandemic to Iluka’s business is evident in the 20 per cent decline in mineral sands sales volumes recorded in the first half of the year. Zircon prices registered some erosion, though management of production levels and the sustainable nature of previous price increases has meant that the decline has been less than that experienced in previous periods of market weakness,” he said.
“Iluka has also consistently noted that a decline in zircon prices is not expected to result in increased demand.”
Iluka said it had still booked $97m in operating cash flow for the first half of the year, despite the downturn, and free cash flow of $46m. It finished June 30 in a net cash position of $62m, up from $43m at the end of December 2019.
The company said it would push ahead with an expansion to its new rare earths business, setting aside $35m for work that will help it produce a higher grade rare earths concentrate from tailings at its mothballed Eneabba mineral sands mine in WA, after the first stage of the project got off to a positive start in the first half of the year.
Iluka shares closed down 8c, or 0.8 per cent, at $9.60 on Friday.
More Coverage
To join the conversation, please log in. Don't have an account? Register
Join the conversation, you are commenting as Logout