Green Light For Iluka Project

Sydney Morning Herald

Thursday May 22, 2008

Jamie Freed

THE mineral sands miner Iluka Resources has approved the development of its $420 million Jacinth-Ambrosia project in an effort to lower costs and maintain its dominant position in the global zircon market.

The project, in South Australia's Eucla Basin, should begin production by the first quarter of 2010. The capital cost given yesterday was $30 million less than announced earlier this year, because the company decided to run the concentrator at a lower rate than planned.

Iluka has so far missed out on the benefits of the mining boom, having struggled to control higher costs at its ageing West Australian mineral sands mines and seen profits eroded by the rising Australian dollar.

A Merrill Lynch analyst, Mike Harrowell, yesterday said the rising local dollar had not been accompanied by increases in titanium feedstock prices in US dollar terms.

"We are confident the titanium feedstock prices will experience the increase required to restore Iluka's profitability," he said, adding that there was little sign of it yet.

Iluka is expected to be profitable this year only because of income from the royalty it holds over BHP Billiton's mining area C iron ore mine in the Pilbara.

Iluka's managing director, David Robb, said yesterday his company was prepared to cut production if necessary to keep product prices high. Iluka controls 37 per cent of the global market for zircon, which is used in ceramics.

The Jacinth-Ambrosia project is particularly attractive because the mineral sands contain an average of 50 per cent zircon, Iluka's highest-value product.

Mr Robb said the dynamics of the industry were starting to move to Iluka's advantage, through growing demand in China and power shortages in South Africa.

Iluka recently raised $353 million through a deeply discounted rights issue to help fund the Jacinth-Ambrosia project, and its second-stage development in Victoria's Murray Basin.

Mr Robb told shareholders at the annual meeting in Perth yesterday that the company planned to rebuild its reputation in delivering on big projects. "As market confidence grows so, I believe, will the rating afforded to Iluka shares," he said.

But he warned that schedules were tight and required timely regulatory and other external approvals.

Iluka shares closed 1c higher at $3.84

© 2008 Sydney Morning Herald

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