Mineral sands miner Iluka Resources Ltd recorded a 37.5% fall in sales revenue in calendar 2009, but says revenue increased appreciably in the second half as world prices firmed off the back of the turnaround in China.
Iluka’s December quarter production report, released yesterday, showed a drop of 34.9% in mineral sands revenue for the 12 months to December 31 compared to the previous year, to $576 million, before currency hedging.
After currency hedging, sales revenue was $533 million, down 37.5% from 2008.
The fall in revenue reflected significantly lower global demand for mineral sands products, particularly in the first half of 2009, Iluka said.
Zircon sales volumes plunged 54% year-on-year, rutile fell 14%, synthetic rutile was down 22% and ilmenite sales were 41%.
That mostly reflected the very sharp falls on the first half of 2009 and came as the company slashed production to try and match output to demand.
The December quarter saw signs of an improvement.
Sales revenue before currency hedging was $227.3 million, or nearly 40% of total sales revenue for 2009.
The December sales revenue result "reflects the recovery in demand in some markets", Iluka said.
"Iluka’s sales revenue in the second half increased appreciably from the low first half level," the company said.
"Second half revenues were moderated somewhat by zircon pricing outcomes and a higher prevailing AUD:USD currency.
"As Iluka foreshadowed as a possibility at the half year, there has been some second half softening in zircon prices.
"However, average 2009 zircon prices have remained well above 2008 pricing levels, and year end 2009 prices are also above 2008 levels.
"In relative terms, mineral sands prices, in a year of extreme demand reduction, have remained robust. High grade titanium dioxide prices are typically contracted for the full year and were therefore stable through 2009.
"Iluka’s sales revenue in the second half increased appreciably from the low first half level; with second half sales revenue (before hedging) of $380.8 million, a similar level to that for the first half of 2008 at $380.5 million.
"Iluka extended its 2010 currency hedging through the purchase of call options at 90 cents for US$235 million during the December quarter, adding to existing forward exchange contracts of US$153 million for 2010 at an average of 85.5 cents," the company said yesterday.
"Lower 2009 annual production reflects the company’s response to the global economic crisis ("GEC") and sharply weaker demand, especially in the first half of 2009," the company said in its production report for the quarter and the year.
"Operational changes announced in the first half resulted in markedly lower second half zircon production (the product in which first half demand reduction was most pronounced) as well as ensuring that full year production more closely matched sales.
"Iluka’s second half zircon production was 37.3 per cent lower than the first half, with the result that zircon sales in the second half exceeded second half production by approximately 80 thousand tonnes.
"Full year zircon production of 263 thousand tonnes declined by 31.7 per cent from 2008 (which was a record year for zircon sales).
"Zircon demand recovered progressively through the second half of 2009, particularly in China.
"Approximately 80 per cent of Iluka’s annual sales were second half weighted, with over 50 per cent of the year’s sales being recorded in the December quarter, reflecting the combination of severe demand retraction and customer inventory draw down evident in the first half of the year.
"Whilst China’s demand for zircon has rebounded strongly and is trending above pre-GEC levels, demand recovery has been more muted in Europe and North America. Iluka has not seen any clear evidence of significant customer restocking at this stage.
"Rutile production year-on-year declined by 9.3 per cent to 127 thousand tonnes and was lower than Iluka’s initial expectations.
"The decline was associated mainly with delays in the commissioning of the Murray Basin Stage 2 project. Full year rutile sales of 121 thousand tonnes, were as a consequence, lower than previously advised, although one cargo was held over until early 2010.
"As such, Iluka’s 2009 rutile sales and production were well matched and the company enters 2010 with minimal inventories in a market where demand has shown clear signs of recovery and where medium term supply conditions are challenging.
"Synthetic rutile production for the year declined by 13.3 per cent to 405 thousand tonnes, due to the company’s decision to idle two synthetic rutile kilns, which occurred during the year. Demand for synthetic rutile remained firm and as contracted, with sales closely matching production. Synthetic rutile sales for the year were 398 thousand tonnes."
The update was largely unsurprising for the market and Iluka shares closed steady on $3.49.
