Iluka Resources Limited

Iluka Resources Limited (ASX: ILU) is a major player in global mineral sand industry and engages in exploration, project development, operation and marketing of mineral sands products. Group’s mineral sand revenue during FY17 was recorded at $1017.5 Mn against $726.3 Mn in FY16, marking a growth of 40.1% YoY on the back of volume and value growth of high quality products. Underlying EBITDA, excluding impairment and rehabilitation adjustment rose to $361 Mn in FY17 from $151 Mn in FY16, representing strong growth of 140% YoY. Underlying EBITDA margin improved by 1468 bps to 35.5% from 20.8% in FY16. This reflected strong operating cash flow, enabling the group to reduce net debt by 64% to $183 Mn and support a fully franked final dividend of 25 cents per share. Capex guidance of $410 Mn is supporting to the Cataby development and Gangama and Lanti Dry expansion projects at Sierra Rutile. The company is expecting Z/R/SR production of 705 thousand tonnes in full year which is down from 825 thousand tonnes in FY17 due to completion of processing heavy mineral concentrate from Murray Basin site.

Among the competitors, the company has maintained its leading position with sales at $1017.5 Mn in first half of the year. Its position in the mining industry seems to be a strengthened one compared to peers that have delivered lower sales. The group is benefitting from strong market conditions with 40% rise in Zircon price, 13% rise in rutile price and 27% rise in Z/R/SR price coming towards the end of FY17. Further, group’s investments have been timely done, for instance, Sierra Rutile Ltd was acquired during a period of low mineral sand price scenario and the same is now looking beneficial with returns on improved cyclical pricing scenario. The macro perspective on rise in requirement of high grade materials is expected to boost the performance of Australia’s largest producer of Zircon.
 

Net Debt Reduction Performance (Source: Company Reports)
 
In the past six months, the share price has risen by 12.6% as on March 01, 2018. While the immense potential is taking some shape with key projects expected to drive value in FY19, the stock is trading at a higher level and we give a “Hold” recommendation at the current market price $10.41

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