Iluka Suspends Operation at Sierra Rutile

By Theresa Kef Sesay

Mineral sands miner Iluka has temporarily suspended operations at its Sierra Rutile operation, in Sierra Leone, following a community disruption overnight. The company said that the disruption is expected to be resolved shortly, with operations to resume over the coming days.

The temporary suspension of the Sierra Rutile operation comes as Iluka reported a net loss after tax of A$300-million for the full 2019, down from a net profit after tax of A$304-million in the previous financial year, on the back of a A$414-million write-down on the Sierra Rutile asset, and the removal of a A$162-million deferred tax asset.

Iluka MD Tom O’Leary said the write-down of the Sierra Rutile asset was “disappointing”, but he added the company was confident it would generate returns from the asset as Iluka continued to advance the Sembehun project options and the development options for the high quality deposits.

Mineral sands revenue for the full year ended December was down 4.1% on the previous financial year, from A$1.2-billion to A$1.1-billion, while mineral sands earnings before interest, taxes, depreciation and amortization (Ebitda) were down 2.5%, from A$544.5-million to A$530.9-million.

Underlying group Ebitda was up 2.6%, from A$600.1-million to A$616-million.

O’Leary said that the decline in mineral sands revenue for the full year reflected the mixed market conditions, with a 17% increase in revenue per tonne partially offsetting the 18% decline in zircon, rutile, and synthetic rutile sales volumes.

“Market conditions were mixed in 2019. Subdued business sentiment, emanating from persistent trade and other geopolitical tensions, weighed on the zircon market particularly. The flexible approach in Iluka’s market strategy, however, enabled us to meet revised guidance.

“Conditions in the high grade feedstock market were stronger and we worked closely with our high grade feedstock customers to support their requirements in the tighter feedstock market.”

O’Leary said that 2020 would see Iluka’s pipeline of the next phase of sustaining and growth projects progressed, with the company pursuing capital discipline of the quality demonstrated in the Cataby development, and would deploy capital only where and when it had sufficient confidence in achieving a satisfactory return.

Looking at a production guidance, Iluka is expected to produce 280 000 t of zircon, 230 000 t of rutile and 225 000 t of synthetic rutile in the full 2020, with the company telling shareholders that it would adjust its operational settings depending on market demand.

Meanwhile, Iluka  also announced plans to demerge its Mining Area C royalty business, subject to shareholder approval.

The proposed demerger will establish an ASX-listed royalty company with the cornerstone asset being the royalty over mining major BHP’s Mining Area C iron-ore operation, which generated an Ebitda of A$85-million in 2019 and has delivered A$881-million in Ebitda since first iron-ore production from the asset in 2003.

The royalty company will have a strong growth outlook given that Mining Area C’s yearly iron-ore production is expected to more than double to 145-million tonnes by 2023, once BHP’s South Flank expansion is completed.

“The proposed demerger represents the optimal way to unlock value for shareholders by establishing two unique pure-play ASX-listed companies with separate management teams who are able to pursue independent strategies and growth opportunities,” said Iluka chairperson Greg Martin.

“The business characteristics, capital intensity and risk-return profiles of Iluka and the Royalty company differ and hence will likely appeal to different types of investors, with the proposed demerger presenting an opportunity for Iluka shareholders to determine their preferred level of exposure to each business.”

Following the demerger, Iluka would retain sufficient balance sheet flexibility to support the capital investment requirements to advance its project pipeline, and would retain a 15% interest in the royalty company, as an additional source of financial strength.

The royalty company will be headquartered in Perth and its principal activity will involve the management of the existing royalty portfolio and disciplined investment in new royalty opportunities. In seeking new royalty investments, the company will seek to invest in value accretive royalties that provide earnings growth and diversification, O’Leary said.

“The Royalty company is expected to generate attractive cash flows from the Mining Area C royalty, supporting dividends for its shareholders. Further, the Mining Area C royalty is of sufficient scale to form the cornerstone asset of a royalty investment business, a business model that has seen strong performance in overseas equity capital markets.”

Jenny Seabrook will be appointed as chairperson of the royalty company, while Julian Andrews will lead as CEO.


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