rbs upgrade to buy

See below report on Iluka by RBS Morgans. Upcoming announcement should be promising.

Iluka Resources (ILU, $9.44) Buy
We have increased our zircon price forecasts to reflect sustained market tightness and what we see as a
preliminary pricing response. ILU is to provide an update on mineral sands markets as part of its FY result
on 25 February, which we expect to be positive. We move to a Buy recommendation. ILU disclosed fullyear
revenue and cash costs as part of its 4Q10 report, reducing the potential for earnings surprise on 25
February. We forecast reported earnings of A$21m, which compares with Bloomberg consensus of
A$22m. The result contains impacts from the financial crisis and doesn?t reflect the company?s current
earnings strength, in our view. We believe focus will be on mineral sands market outlook commentary,
which we expect to be positive. We believe ILU?s average achieved zircon price for 1Q11 is US$1,250-
1,300/t. Discussions with zircon consumers in Australia and China suggest to us that customers are
expecting a price rise in the order of US$100 to US$150/t for 2Q11. This implies our previous peak-cycle
price forecast of US$1,400/t will be achieved a year earlier than we expected. We now forecast zircon
prices of US$1,500/t by year end, peaking at US$1,800/t in 2013. The zircon market remains very tight,
which we believe will support rolling price increases in the short and mid-term. Tension in titanium dioxide
markets is also increasing. We foresee greater potential for a supply response in TiO2 but believe price
spikes may surprise to the upside short term. We move to a Buy recommendation on the back of higher
zircon price forecasts which have increased our NPV to A$10.63 ps.