As a consequence of this work, Iluka advises the following items are expected to be included in the Group's 2019 full year (FY19) financial results, subject to completion of its annual audit.
An impairment charge of
A write-down of SRL's deferred tax assets of
A change related to the risk-free discount rate used to calculate Australian rehabilitation provisions, due to the continuing decline in Australian dollar bond rates, which will increase the rehabilitation liability in the FY19 by
SRL carrying value
As a consequence of the matters noted above, the carrying value of SRL's remaining net assets would be reduced to
The expected carrying value assumes minimal improvement from current performance levels. Iluka is, however, continuing to implement various measures to drive production increases in its current SRL operations, and to advance the Sembehun development options.
Sembehun development pathway
Sembehun is one of the largest and highest quality known rutile deposits in the world. Iluka is committed to determining a development approach in a disciplined and rigorous manner which ensures optimum value can be created from Sembehun.
The impairment charge will not impact study work which continues across a number of areas including identifying and evaluating optimum infrastructure, logistics and mining methods.
Recent work to assess the potential of alternate mining methods has yielded encouraging results with field trials planned for the first half of 2020. Outcomes of these trials may support potential extensions to the existing mining areas, which are currently excluded from the carrying value assessment but may provide additional production.
Sierra Rutile operational performance, 2020 guidance and improvement initiatives
Despite improving production over the second half of 2019 as the mining expansions have been commissioned and ramped up, overall operational performance has been less than the original investment case.
Rutile production from SRL to September was 93kt with full year 2019 rutile production expected to be 135kt (FY18: 122Kt). SRL is an important contributor to Iluka's rutile supply, and has generated
The impairment assessment includes an outlook in future years (including expected rehabilitation costs) and Iluka provides the following SRL guidance for 2020
Rutile production of 170kt
Total Z/R production of 175kt (i.e. zircon production of 5kt)
Ilmenite production of 70kt
Cash costs of production of
Unit production cash costs of
Iluka is also progressing a range of operational initiatives to improve SRL's productivity, including maintenance and runtime improvement measures to increase mining and plant performance; operating cost and procurement review to reduce cost base; assessment of potential extensions to current mining areas; embedding the refreshed leadership team to support key operational areas and development of a training plan for skilled artisan roles.
Iluka's Managing Director,
While production from SRL has been improving over 2019 following the completion of the expansion projects at Lanti and Gangama, the acquisition has not lived up to the investment case. This is a disappointing outcome. We remain focused on continuing to improve SRL's existing operations, including in relation to throughput, reliability, production and cost.
For the Sembehun development, our approach has been to revisit and broaden the project studies to determine a development option that optimises value. The impairment announced today does not detract from the potential we see in this world class rutile deposit. We expect to provide an update by mid-2020.'
Background to Sierra Rutile acquisition
Iluka acquired SRL in
Terms of further
In
SRL deferred tax asset
On acquiring SRL, Iluka inherited tax losses that resulted in the recognition of a deferred tax asset of
Australian rehabilitation adjustment
Iluka is also expecting to include a change related to the risk-free discount rate used to calculate rehabilitation provisions, due to the continuing decline in Australian dollar bond rates, which will increase Iluka's Australian rehabilitation liability by
The assessment of rehabilitation provisions typically requires a judgement as to the rate at which to discount future rehabilitation-related cash flows. Considerations include the likely timing of those cash flows and prevailing market related risk-free rates.
The 15 year Australian Government Bond rate (bond rate) is used by Iluka as the discount rate in calculating the Australian rehabilitation provision. Due to the sustained decline in the bond rate to around 1.3% (from the current 3% discount rate), the present value of the Australian rehabilitation provision has increased by
Contact:
Tel: + 61 (0) 8 9360 4785
Email: luke.woodgate@iluka.com
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