Iluka to close two WA mines

Mineral sands miner Iluka Resources plans to close two mines in Western Australia but has reaffirmed its production outlook of only a few months ago.

Iluka said it had begun to close its Wagerup site and plans to finish mining at Waroona in the fourth quarter of 2009 following exhaustion of higher-value synthetic rutile feedstock and ilmenite.

Iluka general manager investor relations and corporate affairs Robert Porter told WA Business News that following the closure of both mines, 27 employees will be affected with 16 to be made redundant. The rest will be redeployed to other operations.

"The decision to cease mining operations early at Wagerup and Waroona is aligned with Iluka's focus on generating acceptable returns from its operations," the company said in a statement on Wednesday.

"Both of these operations are now at the stage where the production output is mainly lower value sulphate ilmenite."

Iluka said a number of closure costs would be reflected in full year results, expected on February 19.

The miner said its 2009 production outlook remains predominately the same as that provided on October 15, 2008 and that sales were expected to be more closely aligned to production than in 2008.

Iluka said total mineral sands sales revenue for 2008 increased by 16.7 per cent to $1.008 billion, before currency hedging, and by nine per cent to $979 million after currency hedging.

ABN Amro Morgans private client adviser Craig Walker said Iluka has been a beneficiary from a weaker Aussie dollar for quite some time and as a result had outperformed some other resources stocks over the past few months.

"Their share price is actually up over a rolling 12-months period, by about 15 per cent versus companies like BHP and Rio, which are down quite substantially," he said.

The company said higher sales revenue reflected mainly higher zircon sales, an increase in high-grade titanium dioxide (rutile and synthetic rutile) prices, and a marginally lower average full year exchange rate with the US dollar.

Iluka said sales exceeded underlying production, and by a significant amount in the case of zircon and synthetic rutile.

It said 2008 production levels were affected in June and July by a gas supply outage stemming from an explostion on Varanus Island.

Zircon production in 2008 declined by 14.8 per cent to 438,000 tonnes (kt), including a reduction of approximately 15kt associated with the gas supply disruption in WA.

Rutile production was down 0.9 per cent at 214kt on an annual basis, despite the loss of approximately 8kt associated with the gas supply disruption, it said.

Synthetic rutile production declined 11.3 per cent year-on-year to 467 kt, with production affected by approximately 45 kt associated with the gas disruption, as well as major maintenance outages in the first quarter.

Iluka reaffirmed that it expects 2009 zircon production to be in line with 2008 levels and that 2009 sales volumes were expected to be more closely aligned to production.

Iluka now expects 2009 rutile production to be 30 per cent to 40 per cent higher than in 2008, against the October expectation of approximately 40 per cent.

It reaffirmed that it expects 2009 production of synthetic rutile to be similar to 2008 levels.

Iluka said capital spending for the full year was $252 million, of which $194 million was for the growth projects of Murray Basin Stage 2 in Victoria, Jacinth-Ambrosia in South Australia, and Brink in Virginia, in the United States.

"The lower expenditure level compared with October 2008 guidance of $310 million reflects slower actual capital expenditure rates (as opposed to committed expenditure) than previously forecast in the major projects.

"Each of these projects is within budget and on-schedule, with Murray Basin Stage 2 and Brink commissioning to be followed by production ramp up in the second quarter this financial year, and Jacinth-Ambrosia expected to commence operations by mid 2010."

Iluka was down 19 cents, or 4.13 per cent, at $4.41 at 1422 AEDT.