Iluka Resources Ltd has revealed plans for the phased closure of its South West mining operations after handing down an interim net profit fall of 15.2 per cent due to a stronger Australian dollar and shipment delays.
Iluka Resources Ltd has revealed plans for the phased closure of its South West mining operations after handing down an interim net profit fall of 15.2 per cent due to a stronger Australian dollar and shipment delays.
Iluka said its first half profit slipped 15.2 per cent to $42 million excluding the losses incurred by its businesses in Florida and Georgia, which have since been shut down.
Taking into account the US losses, Iluka's net profit actually jumped 30.4 per cent.
The mineral sands miner maintained its full year guidance for net profit to come in at between at $55 million to $65 million, which is based on an exchange rate of US87 cents.
Iluka managing director David Robb said he was pleased with the results the company could control during the half, which including keeping cash production cost increases to 6 per cent while at the same time boosting zircon production by 17 per cent, rutile production by 15 per cent and synthetic rutile production by 13.2 per cent.
Iluka's more than 50-year association with mining in the South West will come to an end in 2014, more than 12 years ahead of schedule following a six-month detailed review of its struggling operations.
Iluka said its landholings in the South West had an unimproved land value of $120 million and it would look to sell or develop is property assets over time.
The group has already called for expressions of interest for a 140 hectare parcel of land at Boyanup.
News of the South West closure came as Iluka said it would ramp up its focus on Zircon, flagging plans to lift sales by 60 per cent during the next five to seven years.
Iluka's South West operations employ about 300 people plus about 300 contractors.
Iluka managing director David Robb said he expected some employees would begin leaving the company by their own volition but job cuts would take place as early as next year.
Iluka plans to reduce its concentrators from three to two and halve the deposits mined to seven while mining will cease entirely in 2014.
Iluka will maintain its synthetic rutile business albeit it with one kiln instead of two. It said it would increase the external use of ilmenite subject to availability and price.
"The intention to truncate the direct mining operations undertaken by Iluka and reduce the number of concentrators currently in use will lead to a progressive reduction in the direct workforce and a lower requirement for external contractors," Mr Robb said.
"It is our aim to retain as many affected employees as possible through the offer of alternative employment opportunities within Iluka's current operations and new development opportunities."
Iluka's other WA operations are located in the Mid-West, while its increasing focus has been in Victoria with its Murray Basin project and in South Australia's Eucla Basin.
Mr Robb also said it would continue its focus on reducing its corporate overheads, which fell 15 per cent in the half on the back of what he described as tighter controls on expenditure as well as the loss of some staff.
Iluka plans to reconfigure its office space, which would free up one of its three floors to sub-lease in the extremely tight Perth office rental market.
The miner estimates it will save $700,000 per year by downsizing its office space.
Iluka said it expected stronger earnings after 2008 with the start of the higher margin Murray Basin Stage 2 project in 2009 and the Jacinth-Ambrosia project in the Eucla Basin in 2010.
Its first half revenue fell 2.3 per cent to $422.7 million as it was adversely affected by a stronger Australian dollar as well as 25,000 tonnes of zircon sales being deferred to the second half.
Mr Robb also said the company had experienced congestion problems at the Geraldton Port during the half.
Iluka said during the second half each one cent movement in the Australian/US exchange rate would impact its net profit after tax by about $4 million.
Group earnings before interest and tax rose to $83.1 million, from $56.3 million in the previous corresponding period, thanks to a compensation payment of $2 million and lower corporate costs.
It is also forecasting strong free cash flow generation after 2008, improved return on capital and a strengthened balance sheet with gearing expected to peak in late 2008 or early 2009 at 55 to 60 per cent, with the potential for debt to reduce to zero by 2013, in the absence of reinvestment or capital management initiatives.