CUO ownes 25% of ILU which is also ASX Listed share Angers
ILUKA PROFIT UPGRADE Iluka Resources Limited (“Iluka”) today advises that its earnings outcome to date in the second half is ahead of expectations. Iluka advised at the half year results in August 2008 that its best estimate of full year NPAT was around $20 million. Although currency volatility, in particular, means that even short term results may vary significantly from forecast, Iluka’s revised best estimate is that its full year 2008 NPAT will be around $50 million. The improved profit outlook for the company is principally the result of the depreciation in the average A$/US$ spot exchange rate (with a second half to the end of September average spot rate of 89.07 cents compared with an average first half 2008 spot rate of 92.48 cents), plus higher second half zircon prices and a favourable titanium dioxide product mix, as well as continuing strong sales, especially of zircon. Iluka’s Managing Director, David Robb, stated: “Iluka’s current performance is a good outcome relative to initial expectations for the second half.” “Industry supply shortages, on top of low stocks of high grade titanium dioxide products and zircon, are occurring at a time when Iluka is in the process of developing two large, long life, high quality rutile and zircon assets in the Murray Basin and Eucla Basin. Iluka’s debt refinancing and capital raising, completed in the first half of the year, plus solid Group cash flow, places Iluka in a very strong balance sheet position. At the end of September, Iluka’s net debt was $140.4 million, equating to a gearing (net debt/net debt + equity) of 11.6 per cent. Group debt facilities available to be drawn total $477 million. Iluka’s strong capacity to service its debt is illustrated by a forecast interest cover (EBITDA/net interest) through the peak capital expenditure year of 2009 of over 10 times.1 “Demand has remained strong for Iluka products, with sales year-to-date of zircon and rutile exceeding production. Iluka has drawn down most of its finished goods inventory to meet this demand.” “While it is too early to determine the effects of global financial conditions on industry demand, Iluka’s zircon sales focus is orientated to the growing Chinese domestic economy where Iluka remains confident demand fundamentals are robust, based primarily on massive urbanisation trends and increases in per capita consumption levels. Slowing economies in Europe and the United States may impact demand for Iluka products in those markets, although there is little evidence of this to date. A feature of the mineral sands sector currently is the tightness in overall industry supply, reflecting a general decline in existing production sources, combined with slower progress in the development, commissioning and ramp up of new supply sources. In addition, turmoil in global financial markets may be expected to make new production investment decisions and funding problematic.” “Iluka has found that, in some markets, customers are seeking to bring forward purchases for 2009 into 2008, while in the titanium dioxide product segment, Iluka has already 1 Based on Iluka business planning assumptions used in securing debt refinancing earlier in 2008, which included forecast 2009 A$:US$ exchange rates of 90 cents and lower 2009 product prices than now forecast. committed to pricing arrangements for some minor volumes to be delivered in 2009. While caution must be exercised when extrapolating those prices achieved into other pricing negotiations, they do reflect a solid increase on 2008 levels.” “In summary, for mineral sands products most important to Iluka we see evidence of significant supply tightness, continuing strong demand and the prospect of appreciable product price increases in 2009.” Iluka also advises that capital expenditure to the end of September has been $158 million. As such, a lower full year 2008 capital expenditure of approximately $310 million is now expected, down from the previously advised $420 million. Approximately $95 million of the planned 2008 expenditure is now expected to be expended in 2009, associated mainly with the previously advised slippage in regulatory approvals for site access for the Murray Basin Stage 2 project. The remaining major regulatory approvals are expected shortly, which will facilitate site access and allow site work in accordance with a schedule which would see Murray Basin Stage 2 commence commissioning late in the first quarter of 2009, followed by production ramp up during the second quarter. The next major approvals for the Jacinth-Ambrosia project in the Eucla Basin are expected to be received in line with project schedules. Refer to Attachment for additional information associated with this Financial Update.
CUO Price at posting:
16.5¢ Sentiment: Buy Disclosure: Held
