Ann: Iluka Resources June 2017 Quarterly Production Report, page-8

UBS at 10.60

Iluka Resources – Production strong, pricing momentum continues: Iluka delivers strong revenue and debt reduction. Iluka delivered a strong quarterly result, with Z/R/SR production of 221kt, 21% above UBSe. The 36% lift in 1H production y/y reflects higher Mineral Separation Plant run rates, Sierra Rutile contributions and some remnant zircon concentrate stocks carrying over into 2017 numbers. Total H1 17 sales of Z/R/SR totalled 454kt (UBSe 425kt) comprising of 197kt zircon, 118kt rutile and 138kt SR. Strong production and pricing over the quarter enabled Iluka to deliver H1 17 revenue from Z/R/SR sales of $470m, 7% above UBSe. Net debt was also reduced to $305m as a result of strong free cash flow and a strengthening of the Australian dollar (UBSe $367m).
Pricing momentum continuing. Higher than expected revenues in H1 2017 have been driven by both volume and price increases. The weighted realised price achieved over the half was A$1,036/t of Z/R/SR which compares with a UBSe of A$1025/t. The pricing momentum leading into H2 17 appears stronger than expected. Iluka has advised customers of a US$70-100/t increase in rutile price from July 1, for un-contracted tonnes, above our estimates of a US$40/t price increase in H2 17. Furthermore, the announced 13% price increase (US$130/t) in Iluka's Zircon Reference Price took effect on the 1st of July. In many regions pigment inventories have been drawn down due to supply disruptions and environmental restrictions in China, improving market conditions for Iluka.
Managing volumes and increasing returns. Iluka continue to restructure reflecting their intention to manage volume to market demand and ensure any investments will generate sufficient returns. This strategy will see the idling of the Murray Basin MSP from Oct 17 and the re-start of Jacinth-Ambrosia from Dec 17.
Valuation: A$10.60ps (unch) DCF 10% d.r. We retain our Buy rating given our confidence in the fundamentals improving for Iluka. We believe the market is not yet fully pricing in the price rise potential for Iluka