Goldmans: Bottom line was that ILU have reported $503m of...

Goldmans:


Bottom line was that ILU have reported $503m of revenue for 1H17 and $200m of cash production costs which provides for a better margin than we had forecast (GSe $441m of revenue and $192m of costs).

Importantly the operation in Sierra Leone is improving. The asset produced 43kt of rutile, up 21% on Q1 and above our 36kt estimate. The ability for ILU to continue to lift volumes and improve the cost and capex profile in Sierra Leone will, we believe, be crucial to the cashflow and thus long term balance sheet outlook for the company.

Production for the quarter:

• Zircon 92.8kt vs GSe at 99kt
• Rutile 82kt vs GSe 81kt
• Synthetic Rutile 46kt vs GSe 50kt
• Average revenue per tonne sold A$1036 vs GSe A$1005

With a US$130/t increase in zircon prices for 2H17 announced previously and a US$70-100/t increase for uncontracted rutile volumes, the remainder of the year will be a positive one for ILU in our view. However we retain our Neutral rating on Iluka from a valuation perspective. Our 12-month target price of A$8.00 is based on a methodology consistent with what we use for ILU’s mining peers – a 50:50 split of NPV and EV/EBITDA (average of FY17E/FY18E EBITDA). We use an 8x EV/EBITDA multiple for ILU, a premium to its mining peers, to reflect the more industrial like nature of its product. Last close: A$8.98