Iluka Resources Limited (ASX: ILU)- ASX-listed mineral sand miner warned the investors that the company could reduce the value of its underperforming Sierra Rutile (or SRL) operations by USD 290 million.
The company is undertaking an additional review to assess the carrying value of its SRL operations, which the company acquired three years back for USD 330 million. The assessment is further anticipated by the miner to include an impairment charge of USD 290 million.
Iluka delivered another setback to the shareholders after flagging a possible demerger with the iron ore giant- BHP Group Limited (ASX: BHP).
Apart from an impairment charge, the miner also anticipates a write-down of the Sierra Rutile operation deferred tax assets, which would accumulate around USD 115 million, and which further reflect a more conservative outlook over the prospect.
The carrying value of the remaining assets of the rutile prospect is anticipated by the company to be approx. USD 50 million, which company suggested as a function of lower than expected operational metrics.
The mineral sand explorer also suggested that it does not hold any development plans for the Sembehun deposit, which would make it more difficult to ascribe any meaningful value to the prospect during the impairment assessment.
However, the mineral sand miner mentioned that it is implementing various measures to drive production increases at SRL along with considering the development options for Sembehun deposit.
Development Pathway for the Sembehun deposit
Iluka is considering the development options for what is said to be on one of the largest and highest-quality known rutile deposits in the world and mentioned that the impairment charge would not impact the study work, which includes the identification and evaluation for optimum infrastructure, logistics, and mining technique.
The company has planned a field trial for the first half of the year 2020 and received encouraging results concerning the mining methods.
SRL operational Metrics
During the second half of the year 2019, the operational metrics reflected decent results; however, the results remained below the anticipation made by the company during the consideration of the original investment case.
Rutile production, which remained 93,000 tonnes till September, is further expected to be around 135,000 tonnes in 2019. Since the acquisition, SRL generated USD 71 million of operating cash flow, with the YTD operating cash flow of USD 36 million.
FY2020 Guidance for SRL
Iluka anticipates the rutile production to stand at 170 kilo tonnes, and with zircon production of 5 kilo tonnes, total Z/R production of 175 kilo tonnes. The ilmenite production is expected to stand at 70 kilo tonnes.
Over the cost counter, Iluka anticipates the cash costs to be around USD 125 million, and unit production cash cost to be at USD 715 per tonne Z/R.
The Initial Investment Case
Iluka secured the rutile assets for USD 330 million in December 2016 over the planned doubling of the dry mining operations at Lanti and Gangama. Apart from that, the investment case projected the Sembehun production capacity of 240,000 tonnes per annum.
The company expended about USD 75 million to increase the capacity at Gangama and Lanti along with an additional expenditure of USD 75 million as a sustaining capital.
On acquiring the operations, the company inherited tax losses that resulted in recognition of a deferred tax asset of USD 115 million.
In June 2019, IFC joined hands with the company via inking a strategic partnership in Sierra Leone with an initial investment of USD 20 million in SRL operations to acquire 3.57 per cent stake.
The Managing Director of the company- Tom O’Leary mentioned that the initial investment case or the strategic rationale behind the acquisition was that it would provide the company with a long-life asset over 20 years with an identified growth potential in production through expansion projects such as Sembehun.
Tom O’Leary also mentioned that while the 2019 production is improving following the completion of expansion projects, the production has still not led to the investment case, which remains a disappointing outcome, and the company remains committed to improving SRL’s existing operations.
The share of the company last traded at $9.335, down by 1.73 per cent against its previous close on ASX.
While Iluka is developing options for the exploration projects Gangama and Lanti, another mineral sands miner on ASX- Image Resources NL (ASX: IMA) identified 40km long mineralised shoreline.
Image Resources NL (ASX: IMA)
Image Resources is an ASX listed mineral sands mining company, and the operational portfolio of the company includes high-grade, zircon-rich Boonanarring Project in Perth.
The company recently conducted a drilling program to extend the mine-life at Boonanarring, which identified a new mineralised shoreline trend, parallel to the Boonanarring Ore Reserve area. Post considering the drill sample assays and ground-based magnetic survey; IMA anticipates the mineralisation to extend for up to 40 km.
The preliminary results of the drilling program resulted in the identification of a new mineralised shoreline, labelled as 50mRL Strandline.
The 50mRL Strandline, which is expected to extend up to 40 km, includes previously identified mineralisation in the western sections of Image’s Gingin South and Gingin North projects, and Boonanarring West mineralisation.
Image completed a 94-hole, 2,460m drill programme in the northern section of 50mRL Strandline, which identified two mineralized strands. The company also completed a 100m spaced detailed ground magnetic survey to map the mineralised strands in detail before going for infill of 70-holes totalling 2,100m in 2020.
The early drilling at the prospect intercepted 2m at 17.6 per cent HM from 16m, and the company has only received 20 per cent of the laboratory results.
Image now plans an extensive drilling programme of 528 holes (13,326m) over the most promising areas identified along the 50mRL Strandline.
The 50mRL Strandline intercepts so far as below:
(Source: Company’s Report)
The stock of the company last traded at $0.270, up by 1.88 per cent against its previous close on ASX.
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