Iluka Announcement 19 Sep 2003Update on Iluka’s Mining Area C...

Iluka Announcement 19 Sep 2003

Update on Iluka’s Mining Area C Iron Ore Royalty

Iluka owns a royalty entitlement over the Mining Area C iron ore resource in the Pilbara region of Western Australia (the “MAC Royalty”). Iluka wishes to update the market on the likely amount and timing of cash flows it expects to receive from the MAC Royalty.

Background and Royalty Terms

Mining Area C is currently being developed by the Mt Goldsworthy Mining Associates Joint Venture (the “Joint Venture”), of which BHP Billiton Ltd (“BHPB”) is the operator and has an 85% interest. Subsidiaries of Itochu (8%) and Mitsui & Co. (7%) are the other Joint Venture partners. Iluka’s ownership of the MAC Royalty is a result of the conversion of a previous direct interest in the Joint Venture that was held by one of Iluka’s subsidiaries.

In simple terms, the MAC Royalty consists of two components:

* ongoing quarterly “Royalty Payments” of 1.25% of FOB iron ore sales revenue from Mining Area C; and

* once off annual “Capacity Payments” of A$1 million for each 1 million tonne increase in the annual production level from Mining Area C above the greater of 5 million tonnes or the previous highest annual production level.

With first production from Mining Area C expected to occur this month, cash flows from the MAC Royalty are now imminent.

Overview of Mining Area C

The Mining Area C mineral lease covers an area of approximately 526km in the Hamersley Ranges in the central Pilbara region of Western Australia. It is located approximately 335km south of Port Hedland and importantly from a development perspective, is only 37 km from BHPB’s existing Yandi mine and its railway link to Port Hedland.

Mining Area C contains a world class undeveloped resource of predominantly high grade “Marra Mamba” type iron ore. The total Mineral Resources for Mining Area C as estimated by BHPB (in accordance with the JORC Code) as at 30 June 2002 were in excess of 900 million tonnes of iron ore at an average grade of over 61% iron. Earlier geological reports suggest that there is excellent potential for growth in this Mineral Resource figure.

Over 600mt of the Mineral Resources are contained in the “Northern Flank” area, including a 209mt Ore Reserve for the “C Deposit” currently being developed.

Proposed Development

In April 2002 the BHPB board approved the development of Mining Area C. As part of the development the leading Korean steel maker and BHPB’s largest customer, POSCO, acquired a 20% interest in just the C Deposit sublease from BHPB, which covers an area of around 6km. POSCO also committed to take 3 Mtpa of iron ore from the operation for 25 years.

BHPB has reported that all statutory approvals for the project have been obtained from State government regulatory bodies and that Native Title agreements have been finalised with all claimants.

Construction of the processing plant and related infrastructure commenced in April 2002 with first production cargoes scheduled for loading in September. In July 2003, in response to ongoing demand growth, BHPB announced that it would be accelerating the development so that capacity of 15 Mtpa would be in place at Mining Area C by the first quarter of 2004. The original schedule was for this capacity to be in place by 2011.

Iluka believes there is substantial potential for ongoing growth in production from Mining Area C above the initial capacity of 15 Mtpa as the demand for seaborne traded iron ore continues to grow. By comparison, BHPB’s nearby Yandi operation has been expanded from around 5 Mtpa when it commenced in 1992 to produce over 37 Mtpa in 2002/03.

Marketing, Pricing and Indicative Cash Flows

Mining Area C will produce lump and fines Marra Mamba iron ore products, similar to the products currently being produced by Robe River’s West Angeles operation. This ore has been rapidly accepted by more technically advanced steelmakers who are able to benefit from its high “value in use”, that result from its low levels of gangue impurities (alumina and silica) and its lower pricing.

BHPB has stated that it expects that the prices of Mining Area C Marra Mamba ore will fall between Brockman and Yandi ore prices, based on relative moisture content, product grades and lump yields.

Further useful background information on the Mining Area C project can be found in various presentations and reports on BHPB’s website at www.bhpbilliton.com.

Mike Folwell
Managing Director