The rise of the Australian dollar against the greenback and lower production output has forced mineral sands miner Iluka Resources Ltd to downgrade its profit forecast by about 20 per cent.
The rise of the Australian dollar against the greenback and lower production output has forced mineral sands miner Iluka Resources Ltd to downgrade its profit forecast by about 20 per cent.
The downgrade follows a cut to its annual net profit guidance in July, when it slashed its $90 million to $100 million estimate down to between $55 million and $65 million.
Today the miner revealed it now expected its profit to come at between $45 million and $50 million, based on the current exchange rate of about US90 cents.
Earlier this year the company explained its sensitivity to currency movements, with every one cent increase impacting its bottom line by $4 million.
The group's original $90 million to $100 million forecast was based on average exchange rate of US75 cents, its revised forecast in July was used an average of US 87 cents for the second half of 2007.
But with the Australian dollar trading well above that mark, hitting a 23-year high of US 90.79 cents the week, the company has been forced to issue a statement to investors. Iluka said that the first half of 2007 the average exchange rate was US 80.9 cents.
Yet the dollar is not all to blame.
Iluka said tight shipping markets had meant clients were finding it difficult to source ships to meet agreed shipping schedules, which is delaying exports.
The mineral sands miner, which yesterday slashed its capital expediture budget, aslo said it was forecasting lower production and sales of its higher value zircon and synthetic rutile products and would experience higher unit costs as a result of lower production volumes.
Iluka managing director David Robb is travelling but said in a statement: "This movement in exchange rate
materially impacts our profit as the majority of our revenue from product sales is denominated in US dollars," he said.
"Despite these challenges, we remain committed to our forward plans including reshaping the South West business and developing the exciting new projects of Murray Basin Stage 2 and Jacinth-Ambrosia. We expect the feasibility studies currently underway to fully support an investment decision in both projects, assessed across a wide range of product prices and exchange rate scenarios. We are of course reviewing all options open to us to improve returns and strengthen the balance sheet in advance of these projects coming online."
Mr Robb has been moving to reduce costs in the business with its original CAPEX estimate falling from $330 million to $230 million. Yesterday Mr Robb revealed the company's CAPEX this year would be less than $180 million.
Below is a statement issued today by Iluka:
Iluka Resources today advised that it has revised its full year earnings guidance.
At the time of its half year results release in August the company indicated that it expected a full year 2007 NPAT of between $55.0 million and $65.0 million, based on an average second half exchange rate of 87 cents and assuming deferred sales volumes were made up in the second half.
Continued high and volatile exchange rates, combined with tight shipping markets and resultant difficulties experienced by customers in securing ships to meet agreed schedules, means the full year profit is now expected to fall outside the previously advised range.
Based on current exchange rates (approximately 0.90 cents) and assuming the latest forecast shipping schedules are achieved, the company now expects a full year 2007 NPAT of between $45.0 million and $50.0 million.
This revised guidance also takes account of the following factors:
- lower forecast production and sales of higher value zircon and synthetic rutile products
(as referred to in the company's September quarter production and exploration report);
- a heavy shipment schedule in the remaining quarter of the year at what is likely to be a
higher prevailing exchange rate than advised as part of the half year guidance; and
- higher unit costs as a result of the lower production volumes.
David Robb, Iluka's Managing Director said: "The market environment in which we are operating is challenging. For example, current spot exchange rates for the Australian dollar versus the US dollar of around 90 cents can be compared with an average spot exchange rate of 80.9 cents for the first half of 2007. This movement in exchange rate materially impacts our profit as the majority of our revenue from product sales is denominated in US dollars."
"Despite these challenges, we remain committed to our forward plans including reshaping the South West business and developing the exciting new projects of Murray Basin Stage 2 and Jacinth-Ambrosia. We expect the feasibility studies currently underway to fully support an investment decision in both projects, assessed across a wide range of product prices and exchange rate scenarios. We are of course reviewing all options open to us to improve returns and strengthen the balance sheet in advance of these projects coming online," he said.
