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Sydney - Tuesday - April 27: (RWE Aust Business News)
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OVERVIEW
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Iluka Resources Ltd (ASX:ILU) is at last picking up steam with
the shares up about 50 per cent since the beginning of the year.
There was much stronger demand for high-value mineral sands
products recovered in Iluka's main geographical markets in the March
quarter.
After successfully adjusting supply in 2009 to better match lower
short-term demand in the context of the global economic crisis, Iluka has
met increased demand by increasing production, where practicable, and by
supplying from inventory.
Iluka's current tight supply position in zircon and high-grade
titanium dioxide reflects both strong demand recovery and a slightly
slower than expected ramp up of Murray Basin rutile production.
Iluka's first half focus remains on commissioning and ramping up
its two new sources of production - the Murray Basin Stage 2 and
Jacinth-Ambrosia operations.
The company achieved higher March quarter production relative to
the preceding December quarter for zircon (up 31.8 per cent), rutile (up
23.4 per cent) and synthetic rutile (up 1.5 per cent).
Compared with the previous corresponding period, which was before
Iluka took steps to curtail production, rutile production rose 36.4 per
cent while zircon production fell 38.9 per cent lower and synthetic
rutile production declined 37.8 per cent.
Lower synthetic rutile production reflects Iluka's decisions to
idle two of its synthetic rutile kilns over the period.
Iluka's zircon sales in the March quarter exceeded production.
On the basis of sales and orders year-to-date, Iluka's 2010
opening zircon inventories are expected to be reduced to minimal levels
by mid year.
As Iluka has advised previously, a large proportion of first-half
zircon sales are being drawn from lower margin inventory and from
residual production from the midwest of Western Australia.
In response to higher demand, full production has recommenced at
the Virginia operations following production cuts implemented in the
second half of 2009.
Production from Murray Basin Stage 2 and Jacinth-Ambrosia will
increase in the second quarter and is expected to be at planned levels in
the second half of the year.
Iluka's production of rutile and synthetic rutile in the March
quarter exceeded underlying sales levels, due mainly to shipment timing.
Given a slower than targeted ramp up of Murray Basin rutile in
the March quarter and the absence of any significant levels of rutile or
synthetic rutile inventories at the beginning of the year, Iluka's
potential high-grade titanium dioxide sales volumes are currently
constrained by production.
Iluka recently confirmed its decision to idle its remaining
midwest Western Australian mining operations in June.
Production from the midwest mining operations will be replaced by
higher margin production from Jacinth-Ambrosia in South Australia.
Iluka expects that approximately $5 million will be incurred.
Remaining expected restructuring costs for 2010 are associated
with the probable idling of synthetic rutile kiln 3 (in the midwest,
Western Australia) in the second half of 2010.

MARKET OBSERVATIONS
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Zircon demand across all of Iluka's main markets has rebounded
strongly.
Zircon sales in the first quarter of 2010 were higher than in the
directly comparable first quarter of 2008 and only marginally lower than
the fourth quarter of 2009.
The stronger-than-budgeted start to the year reflects a
combination of factors:
* A number of large, uncontracted bulk shipments, especially to
European customers as European demand recovers from global crisis lows in
2009;
* A steady improvement of sales into the North American market;
and
* Continued strong demand in China, with no evidence of the usual
sales slow down associated with Chinese New Year.
Iluka believes that first-quarter sales reflect underlying
consumption, as evidenced by a widespread customer requirement for
increased and early delivery of product to meet rising end user demand.
The company advised its customers in March that it intended to
increase zircon prices from April 1, with a further price increase
planned for the second half of 2010.
Rutile and synthetic rutile demand increased during the first
quarter, reflecting buoyant demand from the United States and Europe for
high-grade feedstocks as some customers undertake initial restocking.
While Iluka's sales are below budget for the quarter, with an
attendant impact on revenues, the company says that this is a timing
difference which has already, in large part, been made up in the second
quarter.
It expects sales to remain constrained by production for the
remainder of 2010 and into 2011.
Zircon production in the March quarter increased as a result of:
* A higher contribution from the Murray Basin as the progressive
ramp up of the Kulwin deposit provided additional heavy mineral
concentrate for processing at the Hamilton mineral separation plant, and
* Higher production from Virginia as this operation returned to a
24 hours/7 day a week operational roster in mid March, as well as
improved recoveries.
Rutile production increased in the March quarter compared with
both the December and the previous corresponding quarter, associated with
higher rutile production from the Murray Basin, reflecting a progressive
ramp up of the Kulwin operation.
Iluka is currently operating two of its four synthetic rutile
kilns, which resulted in the reduced production compared with the
corresponding quarter in 2009.
The company's synthetic kiln in the southwest continued to
operate at record levels with excellent equipment availability and
utilisation.
Iluka operates its other kiln in the midwest which, after the
planned idling of mining operations in June, is expected to also idle in
the second half of 2010.
Virginia and the midwest are the company's two main sources of
saleable ilmenite.
With the exception of the high-quality Virginia chloride ilmenite
production, which is sold in the United States, most of Iluka's future
ilmenite production is expected to be utilised - where quality is
appropriate - as a feed source for its ilmenite upgrading (synthetic
rutile) operations.
In Virginia, operations are moving back to a 24/7 production
schedule.
This operation had slightly lower production associated with the
progressive ramp up and with lower titanium dioxide levels in the
concentrate processed.

SHARE PRICE MOVEMENTS
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Shares of Iluka Resources on Friday edged up 1c to $4.84 Rolling
high for the year is $5.04 and low $2.70. The company has 418.7 million
shares on issue with a market cap of $2 billion.
In the full year to December 31, Iluka reported a loss after tax
and minority interests of $108.6 million, in contrast to a profit after
tax and minority interests in the previous period of $77.5 million.
The 2009 result included a number of non-recurring items which,
in large measure, reflect Iluka's response to an unprecedented reduction
in demand associated with the global economic crisis.
The result also included a profit from the sale of Iluka's
interest in Consolidated Rutile Ltd of $22.9 million before tax.
The severe global contraction in demand for mineral sands
products, especially in the first half, resulted in a 35.6 per cent
reduction in mineral sands sales revenue before currency hedging to $576
million (2008: $894.8 million).
The main factors influencing the decline in revenue were a 54 per
cent reduction in sales of zircon (Iluka's highest value product), a 15
per cent reduction in rutile sales and a 22 per cent decline in
synthetic rutile sales (the latter influenced by Iluka's decision to
curtail production).
Iluka's revenues were two thirds second-half weighted, reflecting
markedly stronger zircon sales in the second half compared with the first
half.

BACKGROUND
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Iluka Resources Ltd listed on June 30, 1962.
It is involved in the exploration, project development, operation
and marketing of mineral sands.
The company is the largest producer of zircon in the world, with
an approximate market share of 34 per cent and the second-largest
producer of titanium dioxide minerals with an approximate market share of
18 per cent.
Iluka's core business is the production and processing of mineral
sands (producing ilmenite, rutile, synthetic rutile and leucoxene) and
zircon with its business based in Australia and the United States.
Outside the core mineral sands business Iluka has a royalty
interest in specific parts of BHP Billiton's (ASX:BHP) Mining Area C
(MAC) iron ore region in the northwest of Western Australia.
The main mineral sands products of rutile, synthetic rutile,
ilmenite and zircon have a wide range of consumer, lifestyle and
industrial applications - from pigment production used in paints,
plastics, papers, titanium metal production, welding electrodes, to
tiles, sanitary ware and zirconium based chemicals and zirconia metal
applications.
The company employs about 1,000 people across its operations and
development projects with its head office located in Perth.
Iluka is committed to operating in a sustainable matter.
It is expected to evolve over the next few years from its current
reliance on the Western Australian operations to larger, higher-quality,
longer-life operations in Victoria, New South Wales and South Australia.
ENDS rx