up 6.6%??, page-7

Citi report:

Iluka Resources Ltd (ILU.AX)
Riding the Crest of a Wave
 Buy Rated ? Iluka is riding the crest of a wave as pricing power is now firmly in the
hands of producers in very tight zircon and TiO2 feedstock markets. ILU has been at
the forefront of this new supply side discipline and we expect further significant price
increases. We also expect ILU to responsibly increase production where possible. We
maintain our Buy rating and increase our target price to A$17, previously A$12.50.
 Prices Upgraded ? We have made significant upgrades to our mineral sands prices
driven by strong demand, constrained supply and discipline shown by producers.
Zircon price upgraded to US$1,600/t in 2011, US$2,000/t in 2012 and US$2,200/t in
2013. Rutile price increased to US$815/t in 2011, US$950/t in 2012 and US$1,000/t in
2013, with SR of US$670/t in 2011, US$800/t in 2012 and US$850/t in 2013. Long-term
prices remain unchanged, although we see considerable potential upside to all.
 Volume Response ? At these prices we expect ILU to restart idled SR capacity in WA
and have accordingly increased production to 288kt in 2011, 410kt in 2012 and 500kt
in 2013. We have not increased zircon production appreciably, but the ability to
increase Eucla Basin production by 20% and ramp-up WA mining could deliver an
additional100+kt on top of our ~500ktpa forecasts.
 Earnings Upgrades ? Higher prices and volumes have driven significant earnings
upgrades of 50% to A$343m in 2011, 75% to A$658m in 2012 and 162% to A$967m in
2013. The biggest risk to estimates is the A$, although higher margins have greatly
reduced the sensitivity to currency. With a very strong balance sheet, the company
could now look at spinning out the MAC royalty or growing through M&A.
 NPV A$15.90/share ? NPV increased to A$15.90/share, previously A$10.70, driven
by higher prices and increased SR production. If we kept prices flat from 2016-2020,
rather than revert to our conservative LT prices, our NPV would be ~A$17.50/share.
We see potential upside to >A$20/share at long-term incentive prices, all else equal