While Iluka looks very expensive at current levels, it's very cheap on a forward pe and has an asset that has flown under the radar.
Its expansion in the Murray Basin in Vic/NSW and Jacinth Ambrosia in South Australia will eventually replace most of WA's operations which really only do a favor to the community by employing. WA's operations really did not contribute very much to Iluka's 2008 and future profits but is able to meet supply until their high margin operations ramp up. The operations in WA are very high cost.
It has about 40% of the zircon market and I wouldn't be surprised if someone like BHP or Anglo American take a look at Iluka.
Surely BHP must be eyeing Iluka. Afterall it pays Iluka annually approximately $50 million in royalties for the mining of irone ore at Mining Area C (MAC). The royalty entitlement asset is in Iluka's accounts as an intangible asset valued at $10 million and being amortised over 25 years.
So how much could MAC be really worth to a miner? $1 billion?
Wouldn't Iluka be a great fit for BHP? It has the iron ore asset (MAC) and is the market leader in Zircon and Rutile. For a diversified miner like BHP, Iluka provides many synergies for it.
BHP is eyeing someone and it could well be Iluka. What an opportune time to be eyeing it on the face of recently released poor production results. Current performance is no indication of what lies ahead for Iluka.
If you are a believer in the China and iron ore story then its only a matter of time before demand for Zircon and rutile pick up.
DYOR but I think Iluka is great value at current prices.
ILU Price at posting:
$3.21 Sentiment: Buy Disclosure: Not Held
