It was no wonder shares in mineral sands group, Iluka jumped more than 8% yesterday to a new record high.
The company says it has won another six months of even higher prices for its main products, a move that will boost profits substantially and bring closer a capital return for shareholders.
The company revealed the increases (of more than 70%) in a short statement to the ASX yesterday.
Those increases are double the 30% to 40% increases won in the first half of 2011 under the company’s new pricing system.
No wonder the shares jumped to a new all time high of $17.66 before retreating to close up 7.3% or $1.15 at $17, which was a record closing price.
The reasons for the surge weren’t hard to find in yesterday’s statement.
The company said new price agreements for the second half of this year should see "an increase in second half weighted average price for rutile of between 70 and 75 per cent, relative to a forecast weighted average first half 2011 price of approximately US$770/tonne".
That will boost the second half price to well over $US1,300 a tonne.
"For synthetic rutile, a weighted average price increase of between 70 and 75 per cent is expected to be achieved relative to a forecast weighted average first half price of approximately US$640/tonne. "The new prices are effective 1 July 2011 for six months."
The price for synthetic rutile will jump to around $US1,100 a tonne.
"The agreements relate to most of Iluka’s planned second half high grade titanium dioxide sales, which are predominantly into the pigment market, but also into other titanium market segments such as titanium sponge and welding.
"Discussions with zircon customers in relation to proposed third quarter zircon prices have also progressed satisfactorily, such that Iluka can advise that it expects to achieve an increase in weighted average price for zircon of between 35 and 40 per cent for the September quarter (commencing 1 July), relative to a forecast weighted average price in the second quarter of approximately US$1,600/tonne."
Zircon will be sold for around $US2,200 a tonne in the six months from next month.
"The price increases achieved for zircon and for high grade titanium products reflect Iluka’s preferred product pricing approach, current market dynamics and competitive conditions, all of which may vary from period to period," the company said.
At last month’s AGM, Iluka shareholders were told the company will boost production of zircon and high grade titanium ore after achieving price increases in the first half of calendar 2011.
As well they were promised that when debt is further reduced, a capital return will be considered.
"Our net debt has reduced from $312 million at the 31 December 2010 to $247 million at the end of April," chairman John Pizzey told the meeting
CEO David Robb said Iluka also would use surplus cash to pursue organic growth, rather than acquisitions, as there were few attractive opportunities within the mineral sands industry.
"Where this company generates surplus cash and there is not deemed to be an opportunity for its effective utilisation in the near to medium term, the approach will be to distribute that cash to shareholders in the most appropriate and effective manner," CEO David Robb told investors at the meeting.
"Iluka will invest in internal opportunities within its existing business, to develop both physical and human resources and to enhance the intellectual and technical capabilities of the business.
"Iluka is building a strong balance sheet which better enables us to contemplate acquisitions than has been the case previously.
"Quite apart from cash flow, we now have stronger internal capabilities and more time to think about, to identify, to screen and to assess such opportunities."
