Ann: Iluka Resources March 2017 Quarterly Production Report, page-10

UBS take:

Iluka Resources – 2017 gets off to a flying start: Better than expected production and sales. Iluka reported Z/R/SR production of 232kt, a strong result, +56% q/q & +53% y/y and well above UBSe of 179kt. The strong production levels reflect both the inclusion of Sierra Rutile volumes (acquired Dec 16) along with the lift in zircon production from Eucla Basin to meet demand and take back market share Iluka lost in 2016. Sales for the quarter (released only due to the strong lift period on period) were 203kt of Z/R/SR at a realised price of A$1,006/t. This compares to our estimate of 413kt for the half at ~A$1,011/t (we do not forecast qtly sales given they are not usually reported by Iluka). The MQ is generally a weak quarter for Iluka due to seasonality, so today's result signifies a strong start to 2017 in our view.A strong quarter for the balance sheet - $103m reduction net debt, $80m FCF. Iluka provided a positive update on the balance sheet. Net debt was reduced from $506m (31 Dec 16) to $403m (31 Mar 17) and compares to our 30 Jun 17 estimate prior to today of A$411m. What was impressive was that $80m of FCF was generated during the quarter compared to $65m for the entire 2016 year. The market has shown concern over the state of Iluka's balance sheet in the past and this result indicates a step in the right direction. We suspect some unwind of working capital and low capex spend to have driven strong FCF over the quarter given Cataby is yet to be Board approved (a $260m project with ~$170m spend in 2017 if approved soon). Iluka is standing firm with its customers and at this stage is avoiding to greenlight the Cataby project until an SR offtake price that generates a suitable return for Iluka investors can be negotiated.Favourable market conditions support this result. Iluka says the market is improving with the spot zircon price in Q2 17 above Iluka's Q1 17 contract (settled effective 15 Feb 17) and customers bringing forward both zircon and rutile shipments. Iluka is also seeing a shift back to premium zircon as market conditions improve. With realised pricing in line with expectations our 2017e earnings lift 7% but off a low base. We expect continued price momentum to support the stock.Valuation: NPV A$9.51ps (prev. A$9.41ps) DCF, 10% d.r. Our PT lifts to A$9.50ps (prev. A$9.40ps), in line with the lift in NPV.

Source: UBS