21/08/2008 - 10:40

Gas crisis cuts Iluka HY08 earnings

21/08/2008 - 10:40

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The state's gas crisis and a stronger Australian dollar have cut mineral sands miner Iluka Resources Ltd's 2008 half-year result by 63 per cent.

Gas crisis cuts Iluka HY08 earnings

The state's gas crisis and a stronger Australian dollar have cut mineral sands miner Iluka Resources Ltd's 2008 half-year result by 63 per cent.

The Perth-based company reported a net profit of $15.6 million - including the $30 million sale of its Narama coal project - down from the previous corresponding period's $42 million.

The company said the first half results were hampered by an appreciably higher Australian dollar against the US dollar and the disruption to gas supplies in WA, which
costed the company nearly $10 million net of tax in the half.

The company said it had notified its insurer of an event under its business interruption insurance.

The disruption also lowered production across most of its WA operations with losses of about 20,000 tonnes of zircon, 6000t of rutile and 44t of synthetic rutile and 58t of saleable ilmenite in June and July.

However Iluka said that was offset by mineral sands sales volumes which increased by 18 per cent with the company drawing down on inventory in the first half to meet demand.

The higher sales volumes drove sales revenue up 8.4 per cent to $458 million.

With production volumes lower, unit cash production costs increased by 7.8 per cent, after excluding $10.8 million in cash costs associated with the gas supply disruption.

However total cash production costs were relatively steady at $321 million.

Iluka said it would not issue a dividend for the first half of 2008, with the company focused on developing its Jacinth-Ambrosia and Marray Basin stage 2 projects.

The company has forecast a full year net profit of around $20 million for 2008.

 

Below is commentary by managing director David Robb:

"For Iluka, 2008 represents a turning point - the last year of major reliance on the Western Australian production base prior to the contribution of new production from the consolidated Murray Basin operations in 2009 followed by production commissioning and ramp up in the second half of 2010 of the Jacinth-Ambrosia project in the Eucla Basin."

"Despite a markedly higher average exchange rate than expected and the adverse impact of the gas supply disruption in Western Australia the company has recorded a first half NPAT which is within the range of the company's full year earnings guidance of $10 million to $20 million advised in February.

"The company's performance in the second half of 2008 will be subject to a range of variables, including exchange rates and uncertainties related to the restoration of normal gas supplies in Western Australia. At this stage, our best estimate is that full year NPAT will be around $20 million."

"We have worked hard to strengthen Iluka's competitive position and we are well placed to capitalise on more favourable industry dynamics.

"Signs of progress in the business include:

- the recapitalisation of the company through the extension and expansion of debt facilities, combined with a well supported pro-rata entitlement offer, which has underpinned commitments to new growth projects

- Murray Basin Stage 2 and Jacinth-Ambrosia;

- development of these projects in a capital-efficient manner, with maximum use of existing productive capacity within the group and re-use of surplus equipment;

- these projects, though not without their challenges, progressing well overall;

- a sound cost management performance, which will remain a focus to enhance margins and returns across the business, particularly as we move into the commissioning and production phases for Murray Basin Stage 2 and Jacinth-Ambrosia projects;

- significant marketing success demonstrated most dramatically by Iluka selling 100,000 tonnes of zircon in China, at good prices, in the first half, a figure only slightly less than full year 2007 Iluka volumes in this key growth market.

"Our willingness to adopt new approaches including establishing stocks to support spot sales and developing our ability to support containerised, small lot parcels, is reinforcing Iluka's position in the fastest growing market for our products.

"We are developing two of the most attractive projects in the industry at a time when demand is strong and likely to remain so, when serious medium term supply disruptions have become evident in Africa and when funding pressures are extreme for many current producers and potential new entrants. Iluka is ideally placed to supply much of the robust demand growth in developing economies of the region."

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