Iluka (ILU) $9.30 as at 31/10/2019
The mineral sands miner is the best in the top 200 locally today, trading more than 5% higher following the release of their September quarter production report as well as announcing a review into the business. Iluka’s main operations in zircon and rutile continue to track well with production substantially higher than the previous quarter. The mineral sands, a group of key ingredients in tile manufacturing, market has been mixed however, but Iluka has been keeping a lid on costs helping sustain margins at this point.
More relevant to today’s move however is the announcement the company will review its iron ore royalties. Iluka currently receive 1.232% of sales out of a BHP run iron ore mine South Flank. Production at the mine has been steadily increasing over recent years and BHP has now guided capacity higher from 2023 as the development continues, expecting a minimum yield of 135mtpa from 2023 onwards, up from ~55mtpa.
Iluka received $41m in the first half as a result of the royalties and even with factoring in a lower iron ore price in outer years, the royalties could be yielding a solid $100m+ a year. Today the company announced a review into the handling of the money from BHP with a number of options being assessed including a potential spin off sale.
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