Iluka Resources shares slide on zircon alarm bells

Iluka Resources has warned of lower sales volumes of zircon, lower price realisations for the commodity and higher operating costs in the second half.

Shares in the company were off 55¢, or 6 per cent, to $8.07 at 8.25am.

The alert came after the mineral sands miner posted a 9 per cent lift in first-half profit to $137 million, citing higher sales prices across its product suite partially offsetting lower sales volumes.

Zircon and rutile prices were up 19 per cent and 22 per cent respectively in the first half while sales volumes were down 31 per cent.

The company also benefited from a 41 per cent increase in its Mining Area C royalty agreement with BHP to $41.2 million on the back of higher iron ore prices.

Iluka’s earnings result was also favourably impacted by a 9 per cent depreciation in the Australian dollar exchange rate.

The company slashed its interim dividend by 50 per cent to 5¢ a share.

Iluka managing director Tom O’Leary said while overall profit had increased, the global economic and political environment were headwinds as the company moved forward in 2019.

The company said an expected pick-up in zircon sales in the second half would not materialise with second half sales being in-line with the first half. It also expected a lower average realised price.

“Depreciation and amortisation outlook has been increased to $155 million from $135 million, due to increased depreciation costs following capital improvement works at Sierra Rutile,” Iluka noted.

“The combination of higher depreciation and amortisation, along with higher ilmenite feedstock costs from Cataby and a greater proportion of higher cost Sierra rutile as part of the product sales mix, have impacted unit cost of goods sold, with the outlook for 2019 unit cost of goods sold increasing to $840 per tonne from $765 per tonne.”