I think it should break 40c by production, when the cash comes in next year the funds will get in and ASX 300 will occur, then the price will be much higher 50-$1 I reckon. BMX is more progressed and better on schedule then ILU who has also moved into the murray basin since its grades in WA have been declining...
PERTH (Dow Jones)--Australian mineral sands miner Iluka Ltd. (ILU.AU) said rising Chinese demand for household items such as ceramic tiles, toilets and sinks means it should be able to boost zircon contract prices by 25% in 2006.
ADVERTISEMENT The company, the world's biggest zircon miner, also plans to limit production planned from the Eucla Basin in South Australia to ensure the market doesn't go into oversupply and drive prices down, Iluka's executive general manager of marketing, Steve Ward, told Dow Jones in an interview.
Chinese demand for zircon, which is used mainly as glaze in ceramics, has led to a market deficit and an increase in prices to about US$650 a ton, from US$400 at the end of 2003. Production from the Eucla Basin, due to start in the middle of 2008, will be tuned to just fill the deficit, Ward said.
"Demand is going up and it's firmer in China and Asia than other parts of the world because they have growing construction and demand for lifestyle goods," Ward said.
"We'll be looking to move prices higher again in 2006 about 25%," which is similar to moves in 2004 and 2005, he said.
Iluka's share price has surged 89% since November when the company found high grade zircon deposits in the Eucla Basin containing A$3 billion of zircon resources at current prices. Eucla differs from other mineral sands deposits around the world in that it will be mined mainly for zircon, which is usually produced as a byproduct of cheaper titanium dioxide mineral sands.
After reaching a record high A$9.05 on Tuesday, Iluka shares were eight cents higher at A$9.00 in Wednesday afternoon trade, valuing the company at A$2.08 billion.
Iluka's major competitor in the zircon market is Richards Bay Minerals in South Africa, which produces 22% of the world's zircon and is owned by Rio Tinto Plc (RTP) and BHP Billiton (BHP). The high zircon price favors Iluka if it can get the Eucla Basin into production because Richards Bay produces zircon as a byproduct of the titanium dioxide minerals, which are in oversupply.
Iluka produces 38% of the world's zircon.
Ward rejected a Credit Suisse First Boston report Tuesday which quoted Rio Tinto as saying new production is expected to see the market in oversupply after 2008 and that prices could drop from US$600 to US$150 in a 12-month period. CSFB said in the report it expects prices to peak in 2007.
Days Of Wildly Swinging Prices A Thing Of The Past
"We believe there will still be a gap between supply and demand in 2008 and we will use our Eucla deposit to meet that gap," Ward said.
"We'll manage Eucla to meet demand, we're not going to drive it too hard and oversupply the market."
And while zircon prices have plummeted by 75% in a year in the past, changes to the way zircon is sold mean this isn't likely to happen again.
"Historically, that has happened but it is a completely different market now and we've moved from spot-traded zircon to contract-traded," Ward said.
The rising zircon price and Iluka's healthy production pipeline has caught the eye of some high profile investors, including Australia's richest man, Kerry Packer. Packer has a 50% interest in Kolsen Pty Ltd., which bought 7.25% of the company in June.
Shares surged after the purchase on rumors of a takeover bid but have continued to push higher even when one didn't eventuate. Other Kolsen members include former Normandy Mining Ltd. chief executive Robert Champion de Crespigny, John Fairfax Holdings Ltd. (FXJ.AU) Chairman Ron Walker and businessman John Singleton.
Merrill Lynch and Deutsche Bank have also each taken stakes of more than 5% in Iluka in the past year, while Franklin Resources Inc. and Perpetual Trustees have reduced their stake to less than 5%.
Despite the shortage of supply in zircon, Iluka is taking a gradual approach to price rises, wary of making customers look for other products which can do zircon's job. Price rises in the past have led to consumers finding more appealing products and not returning to zircon when prices came back down.
"Substitution happened in the 80s in the Japanese refractory industry and business never came back, so the applications for zircon are different today," Ward said.
"We've been moving prices up in a progressive manner with a careful eye on whether the higher prices would precipitate substitutions to other materials."
-By Matt Chambers, Dow Jones Newswires; 61-3-9614-2662; [email protected] -Edited by Ian Pemberton
BMX Price at posting:
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