PERTH (miningweekly.com) - Mineral sands miner Iluka Resources on Thursday announced it would cut some 200 jobs and halve production in an effort to curb production and operating costs, following a 33% decline in its 2012 after-tax profit.

“The actions to curtail production are being implemented as a consequence of the weak market conditions which prevailed in 2012 and [which] resulted in Iluka’s production volumes exceeding sales for the year,” said MD David Robb.

“While measures were taken to curtail production in 2012, prudent planning for a gradual recovery in demand through 2013 means that further actions to reduce production and lower costs are necessary.”

The measures planned include halving the 2012 combined production of around 420 000 t of zircon, rutile and synthetic rutile during 2013, which meant that only between 30% and 40% of Iluka’s total production capacity would be used.

Sales volumes for 2013 were expected to be higher than production, allowing the company to draw down on its inventory of finished goods.

“Iluka has the ability to draw down finished product inventory, or to process existing concentrate stocks, and this allows the company to meet most, if not all, market demand recovery scenarios in 2013 from a combination of inventory and the planned lower production,” Robb said.

The miner would also look to reduce production costs from A$583-million in 2012 to A$375-million in 2013, through idling operations, reducing employment levels and other actions. Some A$50-million would also be saved through restructuring and redundancy costs.

Additionally, capital expenditure for the year would also be lowered to A$100-million, compared with the A$167-million spent in 2012.

“While sales volumes in 2013 are expected to be stronger than 2012, prioritising cash flow and balance sheet conservatism have meant that fixed costs have to be reduced,” Robb said.

“A significant proportion of these costs relate to direct and indirect employees and so, regrettably, a significant number of Iluka employees, as well as contracting staff, will lose their jobs.”

Meanwhile, Iluka on Thursday reported that net profit for the full 2012 had declined to A$363.2-million, compared with the A$541.8-million reported in 2011, while revenue for the full year declined by 30.4%, to just over A$1-billion.

Iluka said lower mineral sands profitability reflected the significantly lower sales volumes year-on-year, with combined zircon, rutile and synthetic rutile sales volumes down 52.9% to 488 900 t, compared with the more than one-million tons sold in 2011.

“The company is of the view that it is in a low period in terms of the business cycle for mineral sands. Furthermore, in 2012, unlike the previous low period in 2009, the company experienced a severe coincident reduction in demand for both its zircon and high-grade titanium dioxide products,” said Robb.

“Avoidance at the end of last year of the US fiscal cliff, the smooth transition of the Chinese leadership and a more sanguine view about events in Europe, combined with increasingly positive lead indicators, such as property-related activity in China and the US, and actions in the mineral sands industry to address high inventory levels, may indicate a turning point in the current mineral sands business cycle is near, and that product demand environments are likely to become progressively more positive over 2013.”

However, Robb warned that, despite the general positive indications, risks remained in terms of both global economic performance and specific business conditions for the mineral sands sector.

“The company’s further production cuts and cost reduction measures are focused on maintaining the lowest-possible unit cost given reduced operations' activity levels, targeting finished inventory draw down, reducing overheads and capital expenditure, while maintaining the flexibility to respond to market recovery.”