Yesterday, the Australian dollar was trading around 18-year highs for the second time so far this week, and you can imagine the pain and horror many mining companies feel as they watch the currency appreciate.
All miners are going to feel the pain of a rise in the dollar from a low of just under 78.30 USc in late January, to the latest level of around 87.70 USc.
Mineral sands group, Iluka Resources, has been singled out as a major victim of the surging Aussie dollar.
Broking analysts' picked up on Iluka's worsening position in recent weeks and that has seen the shares fall from $6.40 on June 21, to $5.88 on Tuesday. Yesterday, after a quarterly update, the shares fell a further 11c to $5.77.
Iluka said 2007 net profit (it has a calendar year) would be between $55 million and $65 million, assuming an average exchange rate of 81 US cents.
That's down by up to 45 per cent on the original guidance for the year of a net profit of $90 million to $100 million, based on an average exchange rate of 75 USc.
"Assuming an average exchange rate of 87 US cents for the second half, Iluka estimates that its 2007 full year reported net profit after tax will be in the range of $55 million to $65 million," it said.
Iluka said it sees its first half earnings, due to be released on August 23, at around $40 million, based on an exchange rate of 81 US cents.
This result would include approximately $20 million of an estimated $27 million full year earnings before interest and tax contribution from the close out of currency hedging positions.
"Iluka has been able to mitigate some part of the adverse earnings impact of the significantly higher than budgeted A$/US exchange rate mainly through increased production of higher value products, reduced operating and overhead costs and a lower effective tax rate (approximately 24.5 per cent)," managing director, David Robb, said.
And forecast capital expenditure for the full year has been lopped from $230 million to $180 million and more cost cutting is underway, which will be detailed with the half year figures next month.
Iluka said in a statement to the ASX that it increased production across its main high value products of zircon, rutile and synthetic rutile in the June quarter, compared with the March 2007 quarter and on a comparative 12-month basis. Here's a summary of the statement:
•Total mineral sands sales increased marginally (up 3.8 per cent), compared with the March 2007 quarter and by 9.1 per cent on a comparative 12-month basis, although a number of planned shipments from Western Australia and the Murray Basin were delayed beyond the end of the June quarter, as a result of the tight shipping market. Synthetic rutile sales, in particular, were adversely affected by delayed shipments.
•Zircon production increased by 20.8 per cent compared with the March 2007 quarter, and 12.1 per cent on a comparative 12-month basis. The higher zircon production was the result of a full quarter of Murray Basin production, as well as higher production in the Mid West, Virginia and CRL, partially offset by lower production from the South West and Florida/Georgia.
•Rutile production increased by 20.9 per cent compared with the March 2007 quarter and by 8.4 per cent on a comparative 12-month basis, mainly due to the contribution from Murray Basin and marginally higher CRL production.
•Synthetic rutile production increased by 11.4 per cent compared to the March 2007 quarter and 9.4 per cent on a comparative 12-month basis mainly influenced by the timing of maintenance outages in prior periods.
•Ilmenite production decreased by 5.1 per cent compared with the March 2007 quarter but increased by 4.1 per cent on a comparative 12 month basis. Lower ilmenite production in the quarter reflected the timing of the commencement of the Waroona and Cloverdale mining operations in the South West, with additional external ilmenite feed sourced to maintain synthetic rutile production while these mines were being developed.
•Coal sales volumes from the Narama thermal coal mine in New South Wales increased by over 70 per cent in the June quarter compared with the March 2007 quarter. Volumes are contracted to one domestic customer and Iluka expects full year production to be in line with previous 12-month reporting periods.
•Capital expenditure for the 6 months to 30 June 2007 was $76.6 million with capital predominantly committed to the final stages to the Waroona and Cloverdale developments in the South West of Western Australia, as well as the Murray Basin. Iluka expects full year capital expenditure to be significantly lower than the previously advised level of $230 million, with full year capital expenditure now estimated at approximately $180 million.
