Iluka Resources : Quarterly Review 30 September 2019

Australian Securities Exchange Notice

31 October 2019	ASX: ILU
QUARTERLY REVIEW 30 SEPTEMBER 2019
KEY FEATURES
∙ September quarter zircon/rutile/synthetic rutile (Z/R/SR) production up 17%	to 198kt
(Q2 2019: 169kt):

• • rutile production of 48kt, up 18% on previous quarter (Q2: 40kt);
  • zircon production up 29% to 94kt (Q2: 73kt); and
  • synthetic rutile production steady at 57kt (Q2: 56 kt)
• Z/R/SR sales volumes 10% lower during the quarter at 148kt (Q2: 165kt)
• Year to date mineral sands revenues of $798 million
• Expansion projects at Lanti and Gangama complete
• • Gangama achieving nameplate capacity, and Lanti entering ramp up phase
• Operating performance continues to be below expectations at Sierra Rutile
• Year-to-daterevenue per tonne up 22% on previous corresponding period to A$1,666/t (Sep 2018 YTD: A$1,370/t)
• Net debt as at 30 September was $89 million, down from $142 million as at 30 June.

PHYSICAL AND FINANCIAL SUMMARY

										Sep-19
	Sep-18	June-19		Sep-19		Sep-18		Sep-19		YTD vs
	Quarter	Quarter		Quarter		YTD		YTD		Sep-18
										YTD
	kt	kt		kt		kt		kt		%
Production	96.5	72.7		93.5		255.4		253.4		(0.8)
Zircon
Rutile	43.7	40.4		47.5		126.4		128.3		1.5
Synthetic Rutile	53.7	56.0		57.0		163.0		139.8		(14.2)
Total Z/R/SR Production	193.9	169.1		198.0		544.8		521.5		(4.3)
118.3	82.2				329.2				(31.1)
Ilmenite		101.7			226.7
Total Mineral Sands Production	312.2	251.3		299.7		874.0		748.2		(14.4)
Sales	108.2	67.7				297.8				(37.9)
Zircon		51.7			185.0
46.7	39.5				182.8				(31.9)
Rutile		41.5			124.4
Synthetic Rutile	43.2	57.4		54.3		156.1		139.9		(10.4)
Total Z/R/SR Sales	198.1	164.6		147.5		636.7		449.3		(29.4)
47.8	58.2				167.3				(15.7)
Ilmenite		19.6			141.0
Total Mineral Sands Sales	245.9	222.8		167.1		804.0		590.3		(26.6)

Iluka Resources Limited • ABN 34 008 675 018 • Level 17 240 St Georges Terrace Perth WA 6000

GPO Box U1988 Perth WA 6845 • T [phone] • F [phone] • www.iluka.com

					Sep-19
Sep-18	June-19	Sep-19	Sep-18	Sep-19	YTD vs
Quarter	Quarter	Quarter	YTD	YTD	Sep-18
					YTD

%

$ million

Z/R/SR revenue

Ilmenite and other revenue1

Mineral Sands Revenue2

$ million

Production cash costs of Z/R/SR

Ilmenite concentrate and by-product costs

Total Cash Costs of Production

$ per tonne

Unit Cash Production Costs per tonne Z/R/SR Produced3

Unit Cost of Goods Sold per tonne Z/R/SR Sold

Revenue per tonne Z/R/SR Sold

Average AUD:USD cents

303.4	276.0	241.1	872.1	748.2	(14.2)
13.5	19.2	11.8	53.8	50.2	(6.7)
316.9	295.2	252.9	925.9	798.4	(13.8)
			325.7	381.3	17.1
			9.0	8.7	(3.1)
			334.7	390.1	16.5
			598	731	22.3
			744	866	16.4
1,532	1,677	1,634	1,370	1,666	21.6
73.2	70.0	68.6	75.8	69.9	(7.8)

All currency is Australian dollar denominated unless otherwise indicated.

1. Ilmenite and other revenue include revenues derived from other materials not included in production volumes, including activated carbon products and iron concentrate. Iluka receives a royalty payment from its Mining Area C iron ore royalty. This is not reported as part of quarterly reports but is disclosed in the financial statements.
2. Represents FOB revenue.

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PRODUCTION COMMENTARY

Total Z/R/SR production for the third quarter was 198 thousand tonnes, up 16% from the June quarter of 169 thousand tonnes.

Australian Operations

During the quarter, the mine move from the Jacinth North deposit to the Ambrosia deposit was completed ahead of schedule and budget, with mining and concentrating of heavy mineral concentrate (HMC) now running at expected operational levels at the Ambrosia deposit. HMC produced from Jacinth-Ambrosia for the three quarters to 30 September 2019 was 407 thousand tonnes, while zircon production from the Narngulu mineral separation plant (MSP) attributable to Jacinth-Ambrosia for the same period was 212 thousand tonnes.

HMC production from the Cataby mine for the period year-to-date was 153 thousand tonnes. As previously outlined, the magnetic material from the Cataby operation is trucked to Capel for processing where it is upgraded from ilmenite to synthetic rutile at the SR2 kiln. The kiln has produced 140 thousand tonnes of synthetic rutile from a combination of stockpiled and Cataby sourced ilmenite for the first three quarters of the year. Synthetic rutile production of 57 thousand tonnes during the quarter has been above expectations and the Company expects similar performance in the fourth quarter. The non- magnetic material from Cataby is being trucked to the Narngulu MSP for separation, with production of Cataby zircon and rutile commencing during the quarter. Production attributable to Cataby and from South West concentrate sales for the period was 37 thousand tonnes of zircon and 9 thousand tonnes of rutile.

Sierra Leone Operations

Rutile production for the September quarter was 33 thousand tonnes compared to 30 thousand tonnes in the June quarter.

September was the first full month of four operational mining fronts at Sierra Rutile. The Gangama expansion was commissioned in June, while the expansion at Lanti is in ramp up phase with completion expected in the fourth quarter. The MSP produced 13 thousand tonnes of rutile in the month of September and the MSP, which currently has annual capacity of around 175 thousand tonnes per annum, is expected to be operating at full capacity for the remainder of the year.

The September quarter saw targeted production across the mining operations affected by lower than expected ore throughputs and runtimes reflecting materials handling issues encountered at Lanti, maintenance outages and interruptions to mining as a result of wet season conditions and power outages. Of note however during the quarter, the external specialist maintenance team mobilised to site in July have identified and rectified a number of issues that were impacting runtime and throughput, one of which related to gland water supply infrastructure and had been a significant contributor to downtime.

Given the performance at Sierra Rutile continues to be below expectations, the Company has continued work to assess the carrying value of the Sierra Rutile operations, comprising US$360 million at 30 September 2019 and a deferred tax asset of US$115 million. This work will be completed as the relevant information becomes available and the Company will update the market accordingly.

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GROUP MINERAL SANDS PRODUCTION

												Sep-19
	Sep-18June-19		Sep-19				Sep-18		Sep-19		YTD vs
	Quarter	Quarter		Quarter				YTD		YTD		Sep-18
												YTD
	kt	kt		kt				kt		kt		%
Zircon1	82.5	59.0		75.2		225.1		212.4		(5.6)
Jacinth-Ambrosia/Mid west WA
Cataby/South west WA	9.2	9.6		18.0		15.9		36.6		130.2
Sierra Leone	-	4.1		0.3		5.1		4.4		(13.7)
Idle Operations (US/Aus)	4.8	-		-		9.3		-		(100.0)
Total Zircon Production	96.5	72.7		93.5				255.4		253.4		(0.8)
Rutile
Jacinth-Ambrosia/Mid west WA	9.7	8.2		8.7		29.3		26.1		(10.9)
Cataby/South west WA	1.7	1.9		5.4		3.7		9.0		143.2
Sierra Leone	32.3	30.3		33.4		93.4		93.2		(0.2)
Total Rutile Production	43.7	40.4		47.5		126.4		128.3		1.5
Synthetic Rutile (WA)	53.7	56.0		57.0				163.0		139.8		(14.2)
TOTAL Z/R/SR PRODUCTION	193.9	169.1		198.0		544.8		521.5		(4.3)
Ilmenite
Jacinth-Ambrosia/Mid west WA	29.7	32.1		28.3		92.8		86.5		(6.8)
Cataby/South west WA	51.9	37.0		56.8		143.5		97.3		(32.2)
Sierra Leone	16.5	13.1		16.6		42.1		42.9		1.9
Idle Operations (US/Aus)	20.2	-		-		50.8		-		(100.0)
Total Ilmenite	118.3	82.2		101.7				329.2		226.7		(31.1)
TOTAL MINERAL SANDS PRODUCTION	312.2	251.3		299.7		874.0		748.2		(14.4)

Note: The above table details Iluka's total production by product group, with the source of that production attributed to the region al operating mines and basins. Processing of final product occurs in mineral separation plants located in Australia at Narngulu, Western Australia and in Sierra Leone. Iluka also has a mineral separation plant at Stony Creek in Virginia, United States (closed) and Hamilton, Murray Basin (idled).

1 Iluka's zircon production figures include volumes of zircon attributable to external processing arrangements (i.e. zircon in concentrate).

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MINERAL SANDS MARKET CONDITIONS

Zircon Market

Zircon market conditions in the third quarter continued to be affected by global economic uncertainties. As business sentiment remains subdued in key markets, businesses including Iluka customers are reducing zircon inventories throughout the supply chain.

Ceramics applications are still the most affected by the resulting pressure on sales volume and prices, both in China and Southern Europe. The foundry and refractory industries are being impacted by global trade tensions to a lesser extent. We observe that some of the reduction in tile exports from China has shifted to production in other Asian countries, in particular developing ceramics markets in the Indian subcontinent and South East Asia.

Iluka has introduced a number of measures to support its customer base in this more challenging environment. These include enhancing loyalty rewards and adjusting the product offering. The implementation of these measures is delivering satisfactory outcomes, though the September quarter sales volume reflects the lag in translating these measures into customer offtake. The company maintains its guidance that zircon sales are expected to be evenly weighted between the first and second half.

Iluka continues to manage sales of zircon across the company's product suite, including zircon in concentrate (ZIC), based on customer requirements and market dynamics. As noted in the June Quarterly Review, Iluka's second half product mix will include more Standard Zircon and ZIC. The company also expects to carry forward some inventory of higher value Premium Zircon.

The year-to-date weighted average price received for Zircon Standard and Premium products was US$1,505 per tonne.

Titanium Dioxide Feedstock Market

Market conditions in the high grade titanium feedstock market remained steady in the third quarter with customers taking all available spot and contracted volumes.

The pigment industry is dealing with divergent themes, most chloride plants running at high rates of capacity utilisation with long-lead times for certain pigment grades, whereas the sulphate pigment plants are experiencing stronger competition deriving from increased Chinese exports. North America continues to be the steadiest regional market, while Europe deals with the uncertainly of Brexit and the fall out of the China/US trade war with additional sulphate volume finding a home in the EU market.

Welding and sponge markets continue to perform well with demand for high grade ore feedstocks holding firm.

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