Iluka: "There is not a demand problem in mineral sands"

By IM Staff
Published: Friday, 06 May 2016

With optimism on the titanium dioxide (TiO2) scene contrasting slipping zircon prices, Cameron Perks, consultant and IM correspondent, spoke to managing director and CEO of Iluka Resources David Robb about the mineral sands market and where the world’s most significant zircon producer thinks it may be heading.

By Cameron Perks

What is your long-term vision of the mineral sands market?

It’s a positive one, reflecting price and demand over time [that are] consistent with global economic growth. The market is benefiting from improvements in emerging economies in particular, as well as from increasing urbanisation.

We see a good demand outlook in the medium to long term, and we also feel there are some supply challenges that the industry will face over the same time frame.

With Iluka being involved in potentially disruptive technologies such as those out of Metalysis, what role do you see emerging technologies playing in the company’s future plans?

I think they’re very important, as this is an industry that generally relies on quite old technologies – as do many minerals sectors. In our case, many of the technologies that are in use have been around for a long time and we think that the role of innovation and new technologies could be a powerful one.

Besides Metalysis, are there any other developments in mineral sands technology that you find particularly interesting?

We’ve said that we’re investing in innovative solutions to mineral sands mining and processing challenges that we see in ore bodies. We expect to spend around $35m in that area in the first half of 2016 alone.

David Robb_Iluka 
David Robb, CEO at Iluka. Source: Iluka

Iluka is serious about putting money behind our views on the benefits of fresh approaches and new technologies – innovative solutions to certain mineral sands mining and processing technical challenges.

We can’t say much more than that at this stage, as much of what we are doing is commercially sensitive – however, it is a much broader approach than just the Metalysis investment.

After Iluka halted operations in the US in 2015, is the company still interested in mining there?

Absolutely. We think that the deposits we currently have available to us will be mined at some stage. We just need commercial landscape returns to our shareholders to be sufficient.

We are aware that Iluka is looking at origins such as Brazil, Sri Lanka, Kazakhstan, and Denmark. What role will these areas play in Iluka’s future production?

This industry is in need of new-high quality ore body discoveries, tier one ore bodies. We haven’t really seen a significant new discovery since Jacinth Ambrosia in South Australia in 2004. Before that, the industry relied heavily on mineral sands provinces in South Africa, Western Australia and Canada, and we haven’t discovered their equal. We think it’s necessary for us to continue to explore on a broad front, so that’s what we’re doing.

Iluka lowered its zircon prices recently, but said that it doesn’t believe that price cuts will help with industry demand. What then needs to be done? Are further price cuts expected?

We don’t make any forecasts on pricing. We did make an adjustment to our zircon reference price, which is just something that happens from time to time in response to competitive pressures.

I think the industry is looking for a period of relative stability. All the feedback we had from customers was that that stability was welcome and was building confidence around future demand and future orders.

We will see how long it takes for that confidence to return. We are very confident in our belief that there will be a recovery of zircon volumes in the second quarter, after the hiatus which was price-related in the first quarter.

We are pleased with the demand we are seeing, and we don’t think there is a demand problem in this industry other than the one that is related to global growth and global economic prices – which is something out of our control.

Iluka said it was cutting its zircon production this year to help the market to rebalance. Does Iluka have plans to do the same with ilmenite, as your sales are continuing to decline? Do you see ilmenite prices getting lower than their current levels?

Ilmenite is not an important product for us. We’re a demand follower, we adjust our production to suit the demand that we see. We’re very happy with the trends we see in high-grade ores, rutile and synthetic rutile, which are more important to us than ilmenite.

Last year ended with the announcement that Iluka had terminated discussions with the board of Kenmare for a potential acquisition. Is there another Kenmare out there for Iluka?

We look at everything in our industry. We try to have a good understanding of everything that moves in our industry.

There are two tests that everything we do has to satisfy: one is there has to be strategic rationale, and the second one is financial merit – has to be good for our shareholders. We are always thinking about opportunities.

What are the main challenges lying ahead for the sector?

I think this is an industry where clearly there are cash flow pressures affecting some participants. There are ownership uncertainties surrounding some assets, there is balance sheet distress and, set against all that, Iluka has no debt, reasonable margins generating positive cash flow, and therefore we are looking for opportunities at this time. We’re looking to act counter-cyclically at a time when many others cannot.

I think it’s really important not to follow the herd. The resources industry is herd-like: everyone gets excited at the same time and pessimistic at the same time. I think it’s important that you have an independent view if you’re going to do the right thing by all of your stakeholders. At a time when many others are simply looking at survival, we are looking at creating options for growth. 

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