23-Oct-2020:  Just a quick note that Iluka (ILU) has today gone ex-entitlement for their demerger (spin-out) of their MAC iron ore royalty into a new company called Deterra Royalties Limited (ASX: DRR).  All shareholders who are on the ILU share register today will receive one DRR share for every ILU share they own.  Obviously, anybody buying today will be added to the ILU share register tomorrow, and will miss out on the free shares in DRR.  Hence, the 40% to 50% fall in the ILU share price today.

Further Details can be viewed here:  https://www.iluka.com/getattachment/2d4847b2-f9fd-477f-9d62-1aec66251cbc/deterra-royalties-demerger-briefing-presentation.aspx

[I hold ILU shares.]

19-Oct-2020:  5:22pm:  ZSP:Treatment of Iluka Resources Ltd Demerger within S&P/ASX

16-Oct-2020:  Iluka Resources Limited 2020 EGM Voting Results   and   Iluka Resources Limited 2020 EGM Speeches

The spin-out (demerger) of Iluka's MAC (iron ore) royalty into a new company called Deterra Royalties was approved by ILU shareholders at their EGM on Friday (16-Oct-2020) by 99.92% of those who voted.  The new royalties business will be added to the S&P/ASX200 index from this coming Friday (23-Oct-2020).

[I hold ILU shares, and therefore I will be a Deterra Royalties shareholder also.]

14-Oct-2020:  Quarterly Review to 30 September 2020

[I hold ILU shares.  The upcoming spin-out (demerger) of Deterra Royalties (whose main asset will be the MAC - Mining Area C - iron ore royalty that covers much of BHP's iron ore production - including their huge new South Flank development) remains on track (and is being fast-tracked).  In this report they have said:  "The demerger of Iluka’s royalty business, with Iluka retaining a 20% stake, remains on track and an Extraordinary General Meeting (EGM) for shareholders to vote on the demerger of Deterra Royalties is being held on 16 October. Subject to shareholder approval, Deterra Royalty shares are expected to commence trading on a deferred settlement basis on the ASX on 23 October 2020."  That is a big positive for current ILU shareholders in my opinion, particularly if you bought them at lower levels, as I did.]

10-Sep-2020:  Demerger of Ilukas royalty business, Deterra Royalties   plus   Iluka - Chairman's Letter to Shareholders   and   Iluka - Demerger Booklet   and   Iluka - Demerger Briefing Presentation   and   Deterra - Demerger Briefing Presentation   and   Iluka - Demerger Sale Facility Form

So it's finally happening.  After years of activism from many investors and fundies, Iluka is demerging their MAC (Mining Area "C") iron ore royalty into a new company called Deterra Royalties.  They are even giving ILU shareholders the option of selling them into a share sale facility immediately on issue and realising the cash instead.  I'll be keeping mine.  This royalty covers all of BHP's new South Flank mine, which is going to produce a LOT of iron ore, and the iron ore price is HIGH and could well stay high for some time.  It's a good time to be creaming off an iron ore royalty from BHP.  Iluka are a mineral sands company, so this demerger makes a lot of sense, and WILL release value for shareholders.

[I hold ILU shares.]

Edit:  Correction:  The share sale facility is only available to ILU shareholders who hold 500 ILU shares or less on the record date, expected to be Monday, 26 October 2020.  Those shareholders might have ended up with an "unmarketable parcel" of Deterra shares (i.e. less than $500 worth) so the sale facility allows them to elect to have their Deterra shares sold without incurring any brokerage costs.  Everyone else, who holds more than 500 ILU shares will have to arrange the sale themselves (and pay brokerage) if they want to sell.

Other info:

The EGM to vote on the demerger is going to be a virtual meeting to be held on Friday, 16 October 2020, and if the demerger is approved by shareholders, eligible Iluka shareholders will be entitled to receive one Deterra share for each Iluka share they hold on the Record Date, which is expected to be 4.00pm (AWST) on Monday, 26 October 2020. Iluka shareholders will also retain their existing Iluka shares.  Normal trading of Deterra Royalty shares should commence on Tuesday 3rd November 2020.

14-Aug-2020:  Iluka Half Year Results to 30 June 2020   plus   Iluka 2020 Half Year Results Presentation   and   Iluka 2020 Half Year Report (4D)

Half Year Results to 30 June 2020

Key Features

• Solid profit for the period (NPAT) of $113 million despite challenging market conditions
• Underlying group EBITDA of $225 million, down 18%
• Mineral sands EBITDA margin remains robust at 39%
• Mineral sands revenue lower due to impact of COVID-19 pandemic on global markets
• MAC royalty contribution of $48 million, up 16% due to increased iron ore prices and volumes
• Operating cash flow of $97 million and free cash flow of $46 million, reflecting operational changes and other measures implemented during the half to preserve cash flow
• Net cash position of $62 million as at 30 June 2020 ($43 million net cash as at 31 December 2019)
• No interim dividend given current economic uncertainty
• Phase 2 of Eneabba project approved by the Iluka Board, comprising ~$35 million in execute funding to produce an upgraded monazite feedstock. This confirms the next step in the company’s incremental approach to entering the rare earths market.
• Board approval to put demerger of the royalty business, to be called Deterra Royalties, to shareholders in coming weeks with Iluka retaining a 20% stake.
• Demerger booklet planned to be distributed to shareholders in September and shareholder vote by end of October, subject to final Board and other approvals.

--- click on link above for the full announcement as well as the presso and the full HY report (4D) ---

[I hold ILU shares]

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).

29-Apr-2020:  Quarterly Review to 31 March 2020

09-Apr-2020:  2020 AGM - Chairman's and Managing Director's Address

Excerpts:

• Iluka has, to date, maintained operational continuity across the company’s sites. Further, the company’s supply chains remain operational at this time and product is being moved as planned.   
• Iluka’s response to the pandemic is becoming more ‘business as usual’ in Australia: infection risk minimisation and business continuity efforts now focussed on continuous improvement rather than implementing new measures. Given shifting emphasis of the response to the pandemic, Iluka’s attention is being directed at working through a range of potential scenarios considering longer term settings. 
• Sierra Leone has far fewer reported cases (less than 10) of COVID-19 and the pandemic is at an earlier stage there than in other countries. While Sierra Rutile remains operational, the country has closed its borders.   
• In the company’s 2019 Full Year Results on 20 February, Iluka foreshadowed potential impacts of COVID-19 on global demand and its markets. Given continued uncertainty in relation to the impacts and duration of the pandemic, the company has today withdrawn its 2020 guidance. 
• Intention remains to undertake the demerger of the royalty business in 2020. 
• There is no further update to the timeline for the demerger at this stage, given the impact of travel and social distancing restrictions currently in place around the world on the practicalities of executing a demerger process.
• The demerger will proceed when it is practicable to do so, and the company will update the market in due course.
• Seasonally low period for zircon sales has been exacerbated by widespread factory shutdowns that occurred in China in January and February.
• Pace at which factories re-open and the Chinese economy normalises will be important influences on zircon sales for the remainder of the year, as will impacts on downstream zircon customers located in Europe, including Italy and Spain, where the pandemic has hit especially hard. 
• The take-or-pay offtake agreements in place for Iluka’s high grade titanium feedstock production (rutile and synthetic rutile) provide a high degree of revenue certainty for sales of the company’s titanium dioxide feedstocks

...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:

Iluka Full Year Results to 31 December 2019

Annual Report 2019 including Appendix 4E

Iluka 2019 Full Year Results Presentation Slide Pack

Intention to demerger Iluka's royalty business

2019 Corporate Governance Statement and Appendix 4G

Community disruption at Sierra Rutile Operations

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:

Intention to demerger Iluka's royalty business

21-Aug-2019:  Iluka FY2019 H1 Results (Iluka's FY runs from Jan to Dec):

Iluka Half Year Results to 30 June 2019

Iluka 2019 Half Year Results Slide Pack

Iluka 2019 Half Year Report (4D)

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):

1. Divesting (selling) the royalty, which would likely result in a large special dividend to Iluka shareholders;
2. Spinning off the royalty into another seperate listed business - which would result in Iluka shareholders being given shares in that new business, which they could sell or keep as they wish; or
3. Keeping the royalty as a passive source of income that is entirely independent from their mineral sands business.

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.

24 July 2019:  Quarterly Review 30 June 2019

24 July 2019:  Eneabba Mineral Sands Recovery Proj-Upd Mineral Resource Est

31-May-2019:  

Morgan Stanley rates ILU as Overweight

Morgan Stanley considers the potential finalisation of the acquisition of a 10% equity stake in Sierra Rutile by the International Finance Corp is a positive. This would add significant local knowledge to an operation that has suffered from an expected 40-60% increase in capital expenditure and unlawful strike actions.

The investment by the IFC is predicated on the company jointly investing in the expansion of future production through the Sembehun project and progressing the project would be a tick of approval for the economics, in the broker's view.

Overweight rating and Attractive industry view maintained. Target is $11.25.

Target price is $11.25 Current Price is $9.91 Difference: $1.34
If ILU meets the Morgan Stanley target it will return approximately 14% (excluding dividends, fees and charges).

Current consensus price target is $10.56, suggesting upside of 6.5% (ex-dividends)

The company's fiscal year ends in December.

Forecast for FY19:

Morgan Stanley forecasts a full year FY19 dividend of 12.00 cents and EPS of 101.00 cents.
At the last closing share price the estimated dividend yield is 1.21%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 9.81.

How do these forecasts compare to market consensus projections?

Current consensus EPS estimate is 92.1, implying annual growth of 27.6%.

Current consensus DPS estimate is 22.4, implying a prospective dividend yield of 2.3%.

Current consensus EPS estimate suggests the PER is 10.8.

Forecast for FY20:

Morgan Stanley forecasts a full year FY20 dividend of 12.00 cents and EPS of 95.00 cents.
At the last closing share price the estimated dividend yield is 1.21%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 10.43.

How do these forecasts compare to market consensus projections?

Current consensus EPS estimate is 100.1, implying annual growth of 8.7%.

Current consensus DPS estimate is 25.3, implying a prospective dividend yield of 2.6%.

Current consensus EPS estimate suggests the PER is 9.9.

17-May-2019:  Presentation to TZMI Ti02 Congress (New York) "Value For Customers – Value For Investors"

15-May-2019:  Presentation to BoAML Conference (Barcelona)  (2019 Bank of America Merrill Lynch Global Metal, Mining and Steel Conference, Presenter: Tom O’Leary, Managing Director, Iluka Resources).

13-Nov-2019:  Presentation to TZMI Congress 2019 - Singapore

31 Oct 2019:  Review of Mineral Sands Operations & Mining Area C Royalty

This may result in the Mining Area C (MAC) iron ore royalty being spun out into a seperate listed entity - or a range of other possibilties (including leaving the current structure as is), and this review would please SNC (Sandon Capital) who are activist investors on the ILU register who have been pushing for this outcome.  In this announcement, Iluka have said:

• BHP has stated that, with the development of South Flank, the intended capacity from the expanded MAC hub will be 145 million wet metric tonnes per annum and is expected to produce at close to capacity from 2023 onwards. This is expected to translate to an increase in annual iron ore production within the MAC royalty area from approximately 55 million dry metric tonnes per annum (dmtpa) to 135 dmtpa or more from 2023 onwards.
• Since BHP announced approval of the development of South Flank, it has progressed to 50% complete as at 30 September 2019.
• On completion of South Flank, the expected increase to annual iron ore production from the royalty area has the potential to materially increase the cash flows generated from MAC, and in turn its value to Iluka shareholders. MAC’s earnings contribution to Iluka will ultimately be dependent on a range of factors including iron ore pricing and the USD:AUD exchange rate. 

Clearly, the expected income from their MAC royalty is expected to more than double from 2023 onwards, which is very significant.

Disclosure:  I have a decent position in ILU.