PERTH (miningweekly.com) – Mineral sands miner Iluka has flagged a possible demerger of its Mining Area (MAC) royalty, in the Pilbara, as mining major BHP moves to increase production from the project.
Iluka in September launched a review of the corporate and capital structure of the company’s two principal assets, being the MAC royalty and its mineral sands operations.
The decision to conduct a review followed on from BHP’s development of its South Flank operation, which will increase production from the MAC hub to 145-million tonnes a year, from around 2023 onwards.
Iluka told shareholders on Thursday that production from South Flank is expected to increase the annual iron-ore production within the MAC royalty area from 55-million tonnes a year to 135-million tonnes a year, with the increased royalties having the potential to materially increase the cash flows generated by the MAC royalty, and, in turn, the value to Iluka shareholders.
The earnings from the MAC royalty would, ultimately, be dependent on a number of factors, including the iron-ore price and the US/Australian exchange rate.
“Iluka’s mineral sands businses continues to be a global market leader in the production of zircon and high grade titanium feedstock. The business is producing solid cash flows in the current market environment and is well positioned for the future, with a pipeline of attractive growth projects,” said Iluka MD Tom O’Leary.
“MAC earnings are derived from a high quality, long life asset. The MAC area is a high-grade, low cost iron-ore asset with a tier one operator in BHP. Thanks to the South Flank development, it has significant growth in expected cash flows. In addition, further growth in the value of MAC is possible given the potential for the development by BHP of deposits within the area covered by the royalty agreement.”
O’Leary said that the review will consider a range of options, including dividend policies and a structural separation of MAC by way of a demerger. Capital requirements, business plans, management structures and cost and tax implications will also be assessed.
The results of the review will likely be announced in February next year.
Meanwhile, Iluka on Thursday also reported that mineral sands production for the September quarter was up by 17% on the previous quarter, to 198 000 t.
Rutile production for the September quarter was up 18%, to 48 000 t, while zircon production was up by 29%, to 94 000 t, and synthetic rutile production remained steady at 57 000 t.
Sales volumes for the third quarter were down by 10% on the second quarter, reaching 148 000 t, generating revenues of A$316.9-million, up from the A$295.2-million reported in the previous quarter.