Context for 2009
I attach Iluka's December quarter (and 12 months year end) quarterly production and development report.
I thought some context on this disclosure might be useful, given mineral sands may not be a particularly well understood sector and the exceptional year just experienced.
In relation to demand for mineral sands products, and especially the highest value product of zircon, 2009 was a year of severe demand reduction associated with global economic conditions. TZMI, a recognised mineral sands research and advisory body recently stated in its 2009 Global Zircon Industry Report: "As a consequence of the GFC and the subsequent slow down in the global economy, the sharpest ever decline in zircon consumption is likely to occur in 2009."
They further stated: "Effectively in late 2008 and early 2009 many groups just stopped buying on the basis of considerable uncertainty about demand for their end-use products."
In light of this first half set of unprecedented demand conditions, Iluka's approach in 2009 (as detailed in April and subsequently) had the following main focus:
� Attempt to match supply more closely with reduced demand (particularly zircon, given Iluka's industry leading market share position), principally by winding back production from the more mature Western Australian operations (in this regard, Iluka took out over half of the production capacity in mining and processing in WA and also idled two of its four synthetic rutile kilns - kilns which upgraded lower value ilmenite to a higher value product); while
� Continuing with the execution of two major new projects (Murray Basin Stage 2 and Jacinth-Ambrosia) - both projects have a combined budgeted capex of $630 million with $500 million expected to be spent in 2009. Clearly, the reduction in demand and hence revenues made this a more challenging proposition.
The production report indicates that Iluka made clear progress in these two areas (as detailed in the Report):
� Production and sales of zircon, rutile and synthetic rutile in 2009 was closely matched, with Iluka finishing 2009 with low to minimal inventories, and encouragingly, zircon sales strengthened appreciably in the second half of 2009 (80% 2nd half weighted).
� The two new projects were completed for a combined estimated capex of less than the original budget, with Jacinth-Ambrosia well below budget and several months ahead of schedule. 2009 capex was $470 million.
� Pricing for high grade titanium dioxide products (rutile and synthetic rutile) ended the year higher than 2008, as did zircon despite some anticipated softening in second half pricing (as demand recovered and volumes were committed to the recovering market of China). In this respect, in the year of the most severe demand reduction, mineral sands pricing proved to be quite robust.
� Iluka has the capacity to increase production of its main products above pre-GFC levels once demand recovers and grows, with Iluka maintaining a positive view on the medium term supply and demand fundamentals from the point of view of a raw material supplier.
Please call me if you have any follow up questions.
Iluka plans to issue its full year results on 25 February. It is likely that a more detailed market context will be provided at that time.
Regards
Rob
Robert Porter | General Manager Investor Relations and Corporate Affairs
Iluka Resources Limited | Level 50, 120 Collins Street | Melbourne VIC 3000
Phone +61 3 9225 5481 | Mobile 0407 391 829 | Perth Corporate + 61 8 9360 4700
robert.porter@iluka.com