Iluka receives initial gas supply

Mineral sands miner Iluka Resources Ltd has been allocated an initial supply of gas from Alinta to power its Western Australian operations.

The company has been in ongoing talks with the gas provider since a pipeline fire at the Varanus Island gas facility last week, which forced it to conduct a controlled shutdown of its production plants in the Mid West and South West regions.

Iluka had previously said that its WA facilities were operating at base load electricity level and no gas was being consumed.

The company is currently sourcing gas supplies from alternative sources

Full announcement pasted below:

Iluka Resources Limited ("Iluka") today provided an update in relation to the disruption of gas and electricity supply to Iluka's Western Australian mining and processing operations, as a consequence of the pipeline explosion at Apache Energy's Varanus Island facility on 3 June 2008.

On Friday 6 June 2008, Apache Energy advised, via a media statement, that it expected "after an initial assessment that partial restoration of gas supply is likely to take a couple of months."

Iluka has been involved in ongoing discussions with Alinta in terms of allocation of gas to allow at least a partial recommencement of processing operations. Advice provided to Iluka from Alinta as at Tuesday evening indicated that Iluka will be allocated an initial 1,440GJ/day for the period of one day. Further allocations, on a daily basis are anticipated. Iluka plans to utilise this initial gas allocation to produce dry Heavy Mineral Concentrate ("HMC") at its North Capel Separation Mill as a feed source rutile kiln 2 ("SR02"), as well as for the production of zircon at the Narngulu Mineral Separation Plant. The duration of these activities will be dependent on further gas allocations from Atlinta.

Iluka's efforts to manage the potential impact of the gas supply interruption have been directed at ensuring the safety and welfare of employees; protecting the assets of the company; ensuring customer requirements where possible are met and protecting shareholder value.

Major activities undertaken by the company to date have included:

- cessation of mining operations across most of the Mid West and South West operations;

- ramping down mineral processing and synthetic rutile operations, with SR02 in the South West still running and likely to use the HMC being produced from the North Capel Separation Mill;

- continuing efforts to source gas supply from alternative sources (Iluka has little opportunity to use other fuel sources without major equipment modification and capital investment together with long lead times);

- managing supply to existing customers, where possible, based on inventory held. In relation to most products, with the exception of synthetic rutile in the Mid West, and to some extent in the South West, Iluka has sufficient inventory to meet contractual commitments for at least a month but has been obliged, nevertheless, to declare force majeure on a number of its product supply contracts. The company's discussions with customers have included potential rescheduling of shipments and supply of product (such as zircon) from alternative sources within the Group;

- implementing initial steps to reduce operating costs, including suspending contract services from Iluka's two main mining and transportation contractors in Western Australia, while other contractors not performing critical work and those paid on an hourly basis have been stood down; and

- deploying affected employees to other activities.

Given the fluidity of the situation, it is not possible at this stage to quantify, with any degree of confidence, the likely financial impact of the gas outage on Iluka's Western Australian operations.

A significant proportion of any revenue impact is expected to be mitigated through the various means outlined above, including the sale of product from inventory and sourcing product from elsewhere in the Group, in addition to attempts to recover sales later in the year. Iluka's efforts will also be directed to reducing operating and input costs during the period of the outage. Iluka has business interruption insurance which is expected to applicable for this event.

Iluka does not expect any significant impact on its half year results. A full review of the likely financial implications of the disruption to the Western Australian operations will be provided at the time of the half year results in August, which will enable the full range of factors affecting earnings (including, potentially, more robust pricing outcomes) to be conveyed to shareholders and the investment market.

In 2007, Iluka's Western Australian rutile and zircon production represented approximately 25 per cent and 47 per cent of Iluka Group production of these products respectively, with production also sourced from the Murray Basin, Virginia and CRL. Synthetic rutile is produced by Iluka exclusively in Western Australia.

Iluka will continue to keep the market informed of developments.