28-July-2020: Quarterly Review to 30 June 2020
[I hold ILU shares]
12-May-2020: Presentation to BoAML Conference
That's a link to the presentation that Tom O'Leary, MD of ILU, will be giving at the Bank of America Merrill Lynch 2020 Global Metals, Mining and Steel Conference - on Thursday (14th May 2020).
...click on link above for more...
20-Feb-2020: Iluka's financial year ends on December 31, and they've just released the following announcements, including their Full Year Results for FY2019:
The results aren't bad, however the market appears to be most enthusiastic about the announcement of Iluka's intention to demerge their MAC (BHP's Mining Area "C") Royalty into a new listed business to be known as RoyaltyCo. [link above] In the first half hour of trading today, Iluka has been up by between +9% and +10% (in that range, or above it) for most of that time. This outcome was always a strong possibility, but there had been some scepticism concerning whether Iluka's management would actually take this step, particularly considering that various activist investors have been pushing for such an outcome for years, with zero success until today. Previous CEOs (/MDs) at Iluka had been against a demerger (aka "spin-out") or divestment (sale) of the MAC Royalty because they believed that the passive income stream that it provided (that was not aligned with the drivers of their main mineral sands business) gave them a competitive advantage. For instance, when mineral sands prices were down and Iluka chose to idle or reduce production as a result of those lower prices for what they produced, they always had that passive income coming in from BHP for every tonne of iron ore produced in Mining Area "C" which helped fund Iluka's investments through the mineral sands cycle and provided them with vital cashflow. The counter-argument was around unlocking value for shareholders - that the ILU SP never really reflected the true value of BOTH the mineral sands business AND the MAC Royalty. It looked for many years like the various attempts to break up the cozy relationship that SOL (Soul Patt's) and BKW (Brickworks) enjoy - with their large shareholdings in each other that precludes any takeover of either company by anyone else - i.e. that the status quo would continue due to management's resistance to any change. The Iluka/MAC thing is totally different of course, but it just looked like another doomed attempt by activist investors to try to get a better outcome for shareholders while the company management held the opposite view - that the status quo was the most advantageous arrangement for the company. In this case, Iluka's new management have had a change of heart and are willing to now go in a new direction, and that is certainly positive for existing ILU shareholders. The income that is currently being derived from the MAC Royalty is going to materially increase when BHP's huge new "South Flank" project comes online next year because South Flank lies within Mining Area "C".
Disclosure: I hold ILU shares.
20-Feb-2020: Along with their FY2019 Full Year Results, Iluka (ASX:ILU) have this morning announced that they intend to demerge their MAC (Mining Area "C") Royalty into a separate listed company to unlock value for shareholders. ILU is already up over +10% in early trade (in the first 10 minutes of the day) on the back of this announcement:
29-Jan-2020: Quarterly Review 31 December 2019
Things I found interesting:
Cash is building:
Net cash as at 31 December 2019 of $43 million (31 December 2018: net cash $2 million), reflecting free cash flow of $140 million in 2019 while investing $198 million in capital expenditure.
Review of Corporate and Capital Structure of Mineral Sands Operations and Mining Area C Royalty
As previously announced on 31 October 2019, Iluka has commenced a formal review (the Review) of the corporate and capital structure of Iluka’s two principal businesses – mineral sands operations and the Mining Area C royalty (MAC).
Work continues on the Review, and as previously stated the company expects to provide an update on the Review at the announcement of the Full Year Results.
2019 Full Year Results
Iluka is scheduled to release its 2019 Full Year Results on 20 February 2020. An investment market conference call will take place on the day.
Dial-in details for the conference call will be on the Events page of Iluka’s website in due course: www.iluka.com/investors-media/events
. . . . . .
The value of the MAC (Mining Area C) royalty will increase materially when BHP's new South Flank mine comes online next year, because Iluka is entitled to a royalty on every tonne of iron ore produced by South Flank (which falls within Area C). ILU are currently looking at a variety of options that include (but are not limited to):
Option 3 has been Iluka's preferred option to date, but they're now at least prepared to entertain the idea of spinning the royalty out or selling it. I suspect that may have been at least partly as a result of some activist investors (such as Sandon Capital - SNC) who have been pushing for a divestment or spin-off because they believe that the Iluka share price doesn't adequately reflect the value of the MAC royalty - but really just covers the Iluka mineral sands business.
South Flank construction began in July 2018 with first production of iron ore anticipated in 2021. The project is expected to produce ore for more than 25 years.
What is the MAC Royalty (that Iluka own) worth? Joseph Kim from Montgomery Investment Management had a go at working it out in July 2019 - see here: https://www.livewiremarkets.com/wires/how-valuable-is-iluka-resources-mac-royalty - and his estimates vary from $1.5 billion up to $6 billion. He believes it is likely to be between $1.5 billion and $2.2 billion - using a DCF (discounted cash flow) approach. Iluka (at $9.54) has a current market capitisation (market cap) of just over $4 billion.
I suspect that Gabriel Radzyminski at SNC is correct (along with others) in saying that the Iluka SP does NOT adequately reflect the combined value of both Iluka's Mineral Sands business AND the MAC Royalty.
Roll on Feb 20th !
Disclosure: I hold ILU and SNC shares.
29-Apr-2020: Quarterly Review to 31 March 2020
24 July 2019: Quarterly Review 30 June 2019