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www.iluka.com
Iluka
Resources
Limited
2011
Annual Report
CREATE AND DELIVER VALUE FOR SHAREHOLDERS
Iluka Resources Limited ABN 34 008 675 018
Annual Report - 31 December 2011
Contents
Directors' Report
Remuneration Report
Corporate Governance
Financial Report
Directors' Declaration
Independent Auditor's Report to the Members
Five Year Physical and Financial Information
Statement of Shareholdings
Iluka and Mineral Sands Information
Corporate Information
Page
3
13
36
41
93
94
96
97
98
99
Iluka Resources Limited
Directors' Report
31 December 2011
Directors' Report
The Directors present their report on the group consisting of Iluka Resources Limited and the entities it controlled
at the end of, or during, the year ended 31 December 2011.
DIRECTORS
The following individuals were Directors of Iluka Resources Limited during the whole of the financial year and up
to the date of this report except as noted below:
G J Pizzey
G J Rezos
J A Seabrook
S J Turner
W G Osborn
D Robb
Mr Morley was a Director from the beginning of the financial year until his resignation on 25 May 2011.
PRINCIPAL ACTIVITIES
The company is the major producer of zircon globally and largest producer of the high-grade titanium dioxide
products of rutile and synthetic rutile, with operations in Australia and Virginia, USA.
The company has a royalty associated with a tier one iron ore operation - BHP Billiton’s Mining Area C province
in Western Australia.
SIGNIFICANT CHANGES
There were no significant changes in the state of affairs of the group during the financial year.
REVIEW OF OPERATIONS
Reported earnings
Iluka recorded a profit after tax for the year ended 31 December 2011 of $541.8 million, compared with $36.1
million for the previous corresponding period.
Mineral sands EBITDA (earnings before interest, tax, depreciation and amortisation) was $925.9 million, a 270.1
per cent increase compared with the previous corresponding period. Mineral sands EBIT increased to $737.3
million (2010: $31.6 million).
Mining Area C iron ore royalty earnings (MAC) increased by 16.1 per cent to $88.1 million as a result of a 3.2 per
cent increase in sales volumes and an 18.9 per cent increase in the average realised AUD iron ore price, offset
partially by capacity payments being $4.0 million lower than in the previous corresponding period.
Group EBIT (earnings before interest and tax) was $790.3 million, compared to $86.1 million in the previous
corresponding period.
Profit before tax was $760.7 million (2010: $39.9 million). A net tax expense of $218.9 million was recognised in
respect of the profit for the period, an effective tax rate of 28.8 per cent.
Basic earnings per share for the period were 130.1 cents compared to 8.6 cents in the previous corresponding
period. The number of shares on issue at 31 December 2011 of 418.7 million was unchanged during the period.
Free cash flow of $589.6 million, compared to $60.7 million in the previous corresponding period reflects a
combination of higher operating cash flows and lower capital expenditure. Operating cash flows increased to
$706.2 million from $163.6 million in the previous corresponding period.
Net cash at 31 December 2011 was $156.7 million, compared to net debt at 31 December 2011 of $312.6 million
and a gearing ratio (net debt/net debt + equity) of 21.8 per cent. Undrawn facilities at 31 December 2011 were
$405.6 million and cash at bank was $320.7 million.
3
Iluka Resources Limited
Directors' Report
31 December 2011
(continued)
REVIEW OF OPERATIONS (continued)
Dividend
Directors have determined a fully franked final dividend of 55 cents per share, payable on 5 April 2012 with a
record date of 9 March 2012.
Income statement analysis
$ million
Mineral sands revenue
Cash costs of production
Inventory movement
Restructure and idle capacity cash charges
Rehabilitation and holding costs for closed sites
Government royalties
Marketing and selling costs
Asset sales and other income
Product, technical development and major projects
Exploration expenditure
Mineral sands EBITDA
Depreciation and amortisation
Impairment reversal
Mineral sands EBIT
Mining Area C
Currency hedging and foreign exchange
Corporate and other costs
Group EBIT
Net interest costs and bank charges
Rehabilitation unwind and other finance costs
Profit before tax
Tax expense
Profit for the period (NPAT)
Average AUD/USD (cents)
Mineral sands operational results
2011
2010 % change
1,536.7
(628.9)
147.7
(8.5)
(36.2)
(25.2)
(34.5)
7.5
(13.7)
(19.0)
925.9
(224.2)
35.6
737.3
88.1
0.4
(35.5)
790.3
(8.0)
(21.6)
760.7
(218.9)
541.8
103.2
874.4
(543.8)
(2.9)
(13.2)
(10.4)
(17.1)
(24.1)
7.4
(5.6)
(14.5)
250.2
(218.6)
-
31.6
75.9
8.9
(30.3)
86.1
(30.9)
(15.3)
39.9
(3.8)
36.1
92.0
75.7
(15.6)
N/A
35.6
(248.1)
(47.4)
(43.2)
1.4
(144.6)
(31.0)
270.1
(2.6)
N/A
2,233.2
16.1
(95.5)
(17.2)
817.9
74.1
(41.2)
1,806.5
N/A
1,400.8
12.2
$ million
Eucla/Perth Basin
Murray Basin
Australia
United States
Exploration and other
Total
Revenue
EBITDA
EBIT
2011
2010
2011
2010
2011
2010
829.2
571.6
1,400.8
135.9
-
1,536.7
468.7
281.4
750.1
124.3
-
874.4
499.7
408.2
907.9
51.9
(33.9)
925.9
119.8
113.9
233.7
40.2
(23.7)
250.2
440.1
292.0
732.1
41.5
(36.3)
737.3
33.7
0.9
34.6
23.2
(26.2)
31.6
4
REVIEW OF OPERATIONS (continued)
Mineral sands production and sales volumes
Production (kt)
Zircon
Rutile
Synthetic rutile
Total Z/R/SR production
Ilmenite - saleable
Total saleable production volume
Ilmenite - upgraded to synthetic rutile
Cash costs of production ($m)
Unit cash cost per tonne of Z/R/SR produced ($/t)
Sales (kt)
Zircon
Rutile
Synthetic rutile
Total Z/R/SR sales
Ilmenite - saleable
Total sales volumes
Revenue ($m)
Unit revenue per tonne of Z/R/SR sold ($/t)
Iluka Resources Limited
Directors' Report
31 December 2011
(continued)
2011
2010 % change
601.5
281.3
285.7
1,168.5
459.7
1,628.2
201.9
412.9
250.1
347.5
1,010.5
469.0
1,479.5
215.9
628.9
538
543.8
538
514.5
265.9
257.7
1,038.1
570.9
1,609.0
478.7
240.0
362.5
1,081.2
373.7
1,454.9
1,536.7
1,480
874.4
809
45.7
12.5
(17.8)
15.6
(2.0)
10.1
(6.5)
(15.6)
-
7.5
10.8
(28.9)
(4.0)
52.8
10.6
75.7
82.9
Commentary in respect of the income statement analysis is provided below:
Mineral sands production
Overall production volumes of zircon, rutile, synthetic rutile (Z/R/SR) were 158.0 thousand tonnes (15.6 per cent)
higher than in the previous corresponding period. In addition to higher Z/R/SR overall tonnes, the increased
proportion of zircon (51.5 per cent compared to 40.9 per cent in the previous corresponding period) reflects a full
year of processing of zircon rich concentrate from the Jacinth deposit in South Australia.
Mineral sands revenue
Mineral sands revenue increased by $662.3 million (75.7 per cent) compared with the previous corresponding
period due mainly to significantly higher prices for all Z/R/SR products, together with an increase in the proportion
of zircon in the Z/R/SR sales mix. Australian dollar revenue was influenced adversely by a higher average
AUD:USD exchange rate of 103.2 cents compared to 92.0 cents in previous corresponding period.
Cash costs of production
Cash costs of production of $628.9 million were 15.6 per cent higher than the previous corresponding period,
however, the increase in cash costs was offset by increased production of Z/R/SR resulting in the unit cash cost
of production per tonne of Z/R/SR being unchanged at $538 per tonne.
Inventory movement
Inventory of concentrate and finished product has increased due to a scheduled build of concentrate stockpiles in
the Murray Basin prior to the planned transition to the Woornack, Rownack and Pirro (WRP) deposits in the first
half of 2012, reduced processing of concentrate at Narngulu in the fourth quarter associated with Iluka’s
production response to an anticipated short term softening in zircon demand and an increase of finished goods
stocks of $70.8 million which also includes the effect of slowing zircon sales volumes in the fourth quarter.
5
Iluka Resources Limited
Directors' Report
31 December 2011
(continued)
REVIEW OF OPERATIONS (continued)
Restructure and idle capacity cash charges
The charges relate to the impending change in operations in the Murray Basin (Victoria) from production at
Douglas and Kulwin to the WRP operation and the reversal of prior period charges which are no longer required
following the resumption of mining at Eneabba and continued production of synthetic rutile at Narngulu, both in
the Mid-West of Western Australia.
Rehabilitiation and holding costs for closed sites
The majority of the charge relates to a $33.9 million increase in the rehabilitation provision for the former
operation in Florida following a reassessment of the remaining work required. The balance of the charge relates
mainly to maintenance and other costs for closed sites in Western Australia, including the Eneabba mining and
the Narngulu synthetic rutile operations prior to their resumption in the fourth quarter. The charge in the previous
corresponding period was mainly for increased closure costs in Florida.
Government royalties and marketing costs
Government royalties increased with higher sales volumes and prices. Marketing and selling costs, including
fixed port charges, reflect higher sales volumes, increased marketing administration and transport costs for
material in overseas warehouses.
Product, technical development and exploration
The increased costs reflect the commitment to new product development, including research and development
activity in respect of new synthetic rutile products, and an increase in exploration activity in Australia and
overseas.
Depreciation and amortisation
The increase of $5.6 million reflects a full period charge for the Jacinth-Ambrosia and Kulwin operations that were
both commissioned during the previous corresponding period.
Impairment reversal
The amount relates to the depreciated value of impairment charges recognised in 2005 during development of
the Murray Basin operation and also for the Cataby deposit. The reversal reflects significant increases in forecast
product prices and an upgrade to the Cataby reserve announced in the fourth quarter.
Mining Area C
Iron ore sales volumes increased 3.2 per cent to 44.6 million dry metric tonnes. The average AUD realised price
upon which the royalty is payable increased by 18.9 per cent from the previous corresponding period. The EBIT
contribution of $88.1 million includes $1.0 million of annual capacity payments for production increases in the
year to 30 June (2010: $5.0 million) as production was stable following the expansion of the Area C operation by
BHP Billiton in early 2009 and the subsequent ramp-up in production volumes.
Currency hedging and foreign exchange
Currency hedging and foreign exchange reflects no hedge gains in the year, following the delivery of the final
hedge contracts in the previous corresponding period.
Corporate and other
Corporate costs were $5.2 million higher than the previous corresponding period, due mainly to increases in
remuneration incentive costs reflecting improved business performance and increased investment in human
resources to support the development of the group.
Interest and rehabilitation unwind
The decrease in net interest costs reflects lower drawn debt than the previous corresponding period, lower
margins payable on variable rate debt and a significant increase in cash held on deposit. Higher rehabilitation
unwind costs reflect changes in the timing of rehabilitation expenditure in future years.
6
Iluka Resources Limited
Directors' Report
31 December 2011
(continued)
REVIEW OF OPERATIONS (continued)
Tax expense
The income tax expense of $218.9 million is at an effective tax rate of 28.8 per cent, as the significance of lower
tax rates in the United States and additional tax deductions for research and development claims on the effective
rate reduces given the significant increase in pre-tax profits.
Balance sheet, cash flow and net cash/net debt
31 December 2011
Receivables
Inventories
Payables and accruals
Employee and other provisions
Rehabilitation provisions
Property, plant & equipment
Intangibles
Capital employed
Net tax liability (asset)
Net debt (cash)
Total equity
Net funding
E/PB
116.3
222.2
(49.6)
(10.8)
(293.4)
739.8
-
724.5
MB
101.9
189.5
(58.1)
(12.6)
(79.7)
645.9
-
786.9
US
14.1
14.4
(9.0)
(8.6)
(53.8)
36.4
-
(6.5)
MAC
18.9
-
-
-
-
-
6.7
25.6
Corp
4.9
-
(9.7)
(11.1)
-
8.3
-
(7.6)
Group
256.1
426.1
(126.4)
(43.1)
(426.9)
1,430.4
6.7
1,522.9
144.9
(156.7)
1,534.7
1,552.9
2010
164.8
257.6
(94.5)
(30.7)
(347.4)
1,425.0
7.1
1,381.9
(55.3)
312.6
1,124.6
1,381.9
Higher receivables are associated mainly with the significant increases in product prices during 2012.
Receivables from mineral sands sales of $213.2 million represents approximately 31 days sales, compared to 42
days for the previous corresponding period.
Higher inventories reflect an increase in stores (up $15.3 million to $43.0 million), concentrate stocks (up $82.5
million to $222.2 million) and finished product stocks (up $70.8 million to $160.9 million).
Higher stores inventory includes supplies of ilmenite from external sources that will be used for synthetic rutile
production. The higher concentrate value is associated with the stockpile of material to maintain output at the
Murray Basin operations during the transition to the Woornack, Rownack, Pirro (WRP) deposits in the first half of
2012.
Higher finished product stocks include the impact of lower zircon sales volumes in the fourth quarter combined
with high production volumes in the second half of 2011.
Higher rehabilitation provisions reflect the reassessment of the remaining work associated with the closure of
Florida and Kulwin and expansion at the new operations of WRP and Tutunup South
Property, plant and equipment values include the impact of the impairment reversals relating to Murray Basin
assets and the Cataby ore body and increases associated with mine closure activities.
Net cash of $156.7 million at 31 December 2011 includes $320.7 million of cash on hand.
The net tax liability represents mainly tax payable in Australia of $145.7 million, due in the first half of 2012. The
level of tax payable relative to the tax expense of $218.9 million reflects the utilisation of brought forward losses
in Australia and the United States.
7
REVIEW OF OPERATIONS (continued)
Movement in net cash (debt)
$ million
Opening net cash (debt)
Operating cash flow
MAC royalty
Exploration
Interest (net)
Tax
Capital expenditure
Asset sales
Share purchases
Free cash flow
Dividends
Net cash flow
Exchange revaluation of USD net debt
(Decrease)/increase in net cash (debt)
Closing net cash (debt)
Operating cash flow
Iluka Resources Limited
Directors' Report
31 December 2011
(continued)
2011
(312.6)
706.2
90.3
(23.6)
(10.9)
(12.5)
(142.5)
3.9
(21.3)
589.6
(117.0)
472.6
(3.3)
469.3
156.7
2010
(382.1)
163.6
63.9
(17.9)
(29.4)
(1.5)
(117.2)
9.0
(9.8)
60.7
-
60.7
8.8
69.5
(312.6)
Operating cash flow in 2011 reflects the significant increase in realised prices of all major products in the period
offset partially by a $226.1 million increase in working capital which in turn was due mainly to higher receivables,
reflecting higher sales prices and the timing of sales in the fourth quarter, higher inventory levels due to a build in
concentrate production in the Murray Basin in advance of the move to WRP deposits and lower zircon sales
volumes in the fourth quarter.
Mining Area C royalty
MAC cash flows in 2011 were higher than the previous corresponding period due to higher realised prices for iron
ore.
Capital expenditure
Capital expenditure of $142.5 million in the year was mainly for the development of the Tutunup South mine in
Western Australia, commissioned in June 2011 and for the WRP development in Murray Basin. Payments for
2010 included $81.5 million associated with the completion of construction and commissioning of the Kulwin and
Jacinth-Ambrosia projects.
Share purchases
On-market purchases associated with the group’s equity based incentive plans.
Dividends
A 2010 final dividend of 8 cents per share and a 2011 interim dividend of 20 cents per share, both unfranked,
were paid to shareholders on 6 April 2011 and 5 October 2011 respectively.
8
Iluka Resources Limited
Directors' Report
31 December 2011
(continued)
DIRECTORS' PROFILES
George John Pizzey, BE(Chem), FellDip(Management), FTSE, FAICD, FAIM, Chairman
Mr Pizzey was appointed to the Board in November 2005. He has extensive experience in mining and mineral
processing. Mr Pizzey was Chairman of Alcoa of Australia and held a number of senior executive positions with
Alcoa Inc (USA). He is Chairman of Alumina Limited and a director of Amcor Limited. He was formerly a Director
of St Vincent’s Medical Research Institute (retired November 2011) and Chairman of the London Metal Exchange
UK from 1997 to 2003.
Directorships of Listed Entities (last 3 years):
Alumina Limited (appointed June 2007)
Amcor Limited (appointed September 2003)
Gavin John Rezos, BA, LLB, B.Juris, MAICD
Mr Rezos was appointed to the Board in June 2006. He has extensive Australian and international investment
banking experience and is a former Investment Banking Director of the HSBC Group with regional roles during
his HSBC career based in London, Sydney and Dubai. Mr Rezos has held chief executive positions and
executive directorships of companies in the technology, energy and resources areas in the UK, US and
Singapore and was formerly a Director of Amity Oil NL (Antares). He is Chairman of Alexium International Group
Limited, a principal of Viaticus Capital Pty Ltd and a Director of Rowing Australia. Mr Rezos is a member of the
Audit and Risk Committee and the Remuneration and Nomination Committee.
Directorships of Listed Entities (last 3 years):
Alexium International Group Limited (appointed March 2010)
Niuminco Group Limited, formerly DSF International Holdings Limited (appointed November 2008, resigned 30
August 2011)
Jennifer Anne Seabrook, BCom, ACA, FAICD, Chairman of the Audit and Risk Committee
Ms Seabrook was appointed to the Board in May 2009. She is a special advisor to Gresham Partners Limited.
She is also a Director of Amcor Limited, Bank of Western Australia Limited, IRESS Market Technology Ltd and
Export Finance and Insurance Corporation. Ms Seabrook is a member of the Takeovers Panel (term ending on
31 March 2012) and a member of ASIC’s External Advisory Group. Ms Seabrook is Chairman of the Audit and
Risk Committee and a member of the Remuneration and Nomination Committee.
Directorships of Listed Entities (last 3 years):
IRESS Market Technology Limited (appointed August 2008)
Amcor Limited (appointed December 2011)
Stephen John Turner, BCom, ACA
Mr Turner was appointed to the Board in March 2010. He is a founder of the London Stock Exchange listed
company, International Ferro Metals Limited. He was the Chief Executive Officer of International Ferro Metals
Limited from 2002 to 2009 and continues as a Director of that company. He is also a director of South American
Ferro Metals Limited and Chairman of Vantage Goldfields Limited. Mr Turner has had responsibility for resource
projects in Australia, Africa and the Pacific Islands. He was a founding Director of the Australian subsidiary of
PSG Investment Group, a South African investment bank. He is an Australian Chartered Accountant. Mr Turner is
a member of the Audit and Risk Committee.
9
Iluka Resources Limited
Directors' Report
31 December 2011
(continued)
DIRECTORS' PROFILES (continued)
Stephen John Turner, BCom, ACA (continued)
Directorships of Listed Entities (last 3 years):
International Ferro Metals Limited (appointed January 2002)
South American Ferro Metals Limited (appointed November 2010)
Vantage Goldfields Limited (appointed October 2009)
Timpetra Resources Limited (appointed May 2010)
Wayne Geoffrey Osborn, DipEng, MBA, FTSE, MIE(Aust), FAICD, Chairman of the Remuneration and
Nomination Committee
Mr Osborn was appointed to the Board in March 2010. He is a former Managing Director of Alcoa of Australia
Limited. He is a Director of Leighton Holdings Limited, Wesfarmers Limited and Alinta Holdings Limited. Mr
Osborn is Chairman of Thiess Pty Limited (a wholly owned subsidiary of Leighton Holdings Limited), Chairman of
the Australian Institute of Marine Science and a Trustee of the Western Australian Museum. He was formerly a
Director of the Australian Business Arts Foundation and Vice President of the Chamber of Commerce and
Industry, Western Australia.
Directorships of Listed Entities (last 3 years):
Leighton Holdings Limited (appointed 6 November 2008)
Wesfarmers Limited (appointed 24 March 2010)
David Alexander Robb, BSc, GradDip (Personnel Administration), FAIM, FAICD, Managing Director
Mr Robb commenced as Managing Director on 18 October 2006. Mr Robb was previously Managing Director,
Wesfarmers Energy as well as executive director, Wesfarmers Limited. Prior to joining Wesfarmers he held
senior positions with British Petroleum in Australia and overseas, including chief executive responsibilities for a
national service business in the US; for oil, chemicals, consumer goods, marine and aviation businesses in
Malaysia and as Director responsible for oil marketing throughout South East Asia.
Directorships of Listed Entities (last 3 years):
Consolidated Rutile Limited (appointed 26 October 2006, resigned May 2009)
COMPANY SECRETARY
The Company Secretary is Mr C Wilson LLB. Mr Wilson was appointed to the position of Company Secretary in
2004. Before joining Iluka Mr Wilson held a range of legal and commercial roles at WMC Resources Limited and
prior to that worked as a solicitor with a major legal practice.
MEETINGS OF DIRECTORS
Board of Directors'
meetings
Audit and Risk Committee
meetings
Remuneration &
Nomination Committee
meetings
Number
attended Number held
Number
attended Number held
Number
attended Number held
9
9
2
9
9
9
9
9
9
2
9
9
9
9
-
5
2
5
5
-
-
-
5
2
5
5
-
-
-
4
-
4
4
-
4
-
4
4
4
-
4
D Robb
G J Rezos
D M Morley
J A Seabrook
S J Turner
G J Pizzey
W G Osborn
(i)
(ii)
(i) Mr Morley retired from the Board (and related committees) of Iluka Resources at the 2011 AGM.
(ii) Mr Pizzey attended the Audit & Risk Committee meetings by invitation only. He is not a member of the
Committee.
10
Iluka Resources Limited
Directors' Report
31 December 2011
(continued)
DIRECTORS SHAREHOLDING
Directors shareholding is set out in note 21.
REMUNERATION REPORT
The Remuneration Report is set out on pages 13 to 34.
INDEMNIFICATION AND INSURANCE OF OFFICERS
The company indemnifies all Directors of the company named in this report and current and former executive
officers of the company and its controlled entities against all liabilities to persons (other than the company or the
related body corporate) which arise out of the performance of their normal duties as Director or Executive Officer
unless the liability relates to conduct involving bad faith. The company also has a policy to indemnify the
Directors and Executive Officers against all costs and expenses incurred in defending an action that falls within
the scope of the indemnity and any resulting payments.
The terms of engagement of Iluka's external auditor includes an indemnity in favour of the external auditor. This
indemnity is in accordance with PricewaterhouseCoopers' standard Terms of Business and is conditional upon
PricewaterhouseCoopers acting as external auditor. Iluka has not otherwise indemnified or agreed to indemnify
the external auditors of Iluka at any time during the financial year.
During the year the company has paid a premium in respect of Director's and Executive Officers' insurance. The
contract contains a prohibition on disclosure of the amount of the premium and the nature of the liabilities under
the policy.
NON-AUDIT SERVICES
The company may decide to employ the auditor on assignments additional to their statutory audit duties where
the auditor's expertise and experience with the company and/or the group are important.
The Board of Directors has considered the position and, in accordance with advice received from the Audit and
Risk Committee, is satisfied that the provision of the non-audit services is compatible with the general standard of
independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of
non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements
of the Corporations Act 2001 for the following reasons:
•
•
fees paid to external auditors for non-audit services for the 2011 year were within the Company policy;
and
none of the services undermine the general principles relating to auditor independence as set out in
APES 110 Code of Ethics for Professional Accountants.
A copy of the auditors' independence declaration as required under section 307C of the Corporations Act 2011 is
set out on page 35.
Fees were paid or payable during the year for non-audit services provided by the auditor of the parent entity, its
related practices and non-related audit firms is set out in note 22 of the financial report.
ENVIRONMENTAL REGULATIONS
The company's Australian operations are subject to various Commonwealth and State laws governing the
protection of the environment in areas such as air and water quality, wast emission and disposal, environmental
impact assessments, mine rehabilitation and access to, and use of, ground water. In particular, some operations
are required to be licensed to conduct certain activities under the environmental protection legislation of the state
in which they operate and such licenses include requirements specific to the subject site.
So far as the Director's are aware, there have been no material breaches of the company's licences and all
mining and exploration activities have been undertaken in compliance with the relevant environmental
regulations.
11
Iluka Resources Limited
Directors' Report
31 December 2011
(continued)
MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR
The Director's are not aware of any matter or circumstance not otherwise dealt with in the Directors' Report that
has or may significantly affect the operations of the economic activity, the results of those operations or the state
of affairs of the economic entity in subsequent financial years.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS
In the opinion of the Directors, likely developments in and expected results of the operations of the group have
been disclosed. Disclosure of further material relating to those matters could result in unreasonable prejudice to
the interests of the company and the group.
ROUNDING OF AMOUNTS
The company is of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments
Commission, relating to the 'rounding off' of amounts in the Directors' Report. Amounts in the Directors' Report
have been rounded off in accordance with that Class Order to the nearest hundred thousand dollars, or in certain
cases, to the nearest thousand dollars.
This report is made in accordance with a resolution of the Directors.
G J Pizzey
Chairman
Perth
22 March 2012
12
Iluka Resources Limited
Remuneration Report
31 December 2011
Remuneration Report
CONTENTS
The Remuneration Report is presented in the following sections:
SECTION 1
SECTION 2
SECTION 3
SECTION 4
SECTION 5
SECTION 6
SECTION 7
SECTION 8
SUMMARY
BOARD OVERSIGHT OF REMUNERATION
REMUNERATION PRACTICES
NON-EXECUTIVE DIRECTOR REMUNERATION
MANAGING DIRECTOR REMUNERATION
EXECUTIVE EMPLOYMENT AGREEMENTS
NON-EXECUTIVE DIRECTOR AND EXECUTIVE SHAREHOLDINGS
DETAILS OF STATUTORY REMUNERATION DISCLOSURES
SECTION 1: SUMMARY
1.1 Remuneration Principles
Iluka’s remuneration practices are designed to support the company’s objective - to create and deliver value for
shareholders. Iluka operates in a highly competitive market place for skilled people in the globally buoyant
resource industry. Accordingly, Iluka’s remuneration approach is focussed on attracting, retaining and motivating
employees and ensuring shareholder value creation and delivery over the medium term. As such, Iluka’s
remuneration policies are designed to achieve remuneration which is:
Market Competitive
•
fixed remuneration which reflects skills, experience and performance and which is comparable and
competitive within the resources sector
• an appropriate balance between fixed and variable (at risk) components of remuneration
Performance Based
•
•
focused on both short and long term business performance
reward for achievement aligned to company and individual performance
Aligned to Shareholder Returns
• objectives set that support business profitability, sustainability and growth and, thus, improved shareholder
returns
share ownership, including trailing exposure to company performance
•
Transparent
•
•
clear and concise disclosure that takes account of market practice
compliant with relevant legislative frameworks
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Remuneration Report
31 December 2011
(continued)
SECTION 1: SUMMARY (continued)
1.2 Components of Executive Remuneration
Executive remuneration is made up of fixed (TFR) and at risk (STIP and LTIP) components. A significant portion
of total remuneration is at risk.
Total Fixed Remuneration (TFR)
Competitively positioned to support attraction and retention strategies.
Short Term Incentive Plan (STIP)
Long Term Incentive Plan (LTIP)
1.3 2011 Overview
Strong link to financial performance and delivery of results requiring the
achievement of individual growth objectives and regional or group
profitability and sustainability targets before any award is payable.
The STIP is designed to incentivise applicable employees whilst
promoting equity ownership through an award partly in deferred equity.
Provides alignment with shareholder interests with incentives based on
Return on Equity (ROE) and Total Shareholder Return (TSR) over a
three year period.
The following explains how remuneration and incentive outcomes reflect company performance in 2011.
Fixed Remuneration
After a period in which neither the Non-Executive Directors, the Managing Director nor the Executives received
increases to base remuneration, the following increases occurred in 2011:
•
•
•
•
Non-Executive Director fees were increased effective 1 March 2011 as follows:
Board Chairman’s fees increased by 13.5 per cent; and
Board member fees increased by 25 per cent
•
•
The previous increase was almost three years prior on 1 July 2008;
the Managing Director’s fixed remuneration was increased by 16.6 per cent effective 1 January 2011
(the previous increase was three years prior on 1 January 2008);
Executive fixed remuneration was increased on average by 5.1 per cent effective 1 March 2011
(Executives did not receive salary increases in 2010); and
overall, the 2011 salary review process for general staff increased fixed remuneration on average by
4.8 per cent.
Fixed remuneration increases were based on individual performance and market alignment.
Performance Based Reward
For the 2010 performance year, the EBIT target was replaced with EBTIDA to provide an increased focus on
cash flow during a period of elevated company debt levels after the high capital expenditure in 2008 and 2009.
Profitability targets for the 2011 STIP were reviewed with the EBIT target reinstated to align with Iluka’s key
financial metrics.
In 2011, more challenging sustainability targets for Total Recordable Injury Frequency Rate and Severity Rate
were introduced in order to provide greater stretch in targeted safety performance.
Overall, Iluka’s production, product pricing and revenue significantly exceeded initial expectations resulting in
Iluka’s 2011 profitability outcomes exceeding stretch targets. As a consequence, the 2011 STIP delivered above
target awards to the Managing Director and Executives.
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Remuneration Report
31 December 2011
(continued)
SECTION 1: SUMMARY (continued)
Overall, the 2011 STIP outcome equated to an average payment of 83 per cent of maximum opportunity for all
executives (including the Managing Director) compared with an average payment of 92 per cent for the 2010
STIP.
Shareholder Alignment
The graph below shows Iluka’s share price performance compared with the Materials and the Midcap 50 Indices
over the corresponding four year period from 1 January 2008 to 31 December 2011.
2009 Long Term Incentive Plan
In respect of the TSR target for the 2009 LTIP (for which the performance period was 1 January 2009 to 31
December 2011), the company achieved a TSR of 286.3 per cent and a ranking at the 97th percentile of the
Materials Index and MidCap 50 comparator groups. Accordingly, share rights granted in respect of this
component of the 2009 LTIP vested in full.
ROE performance for the 2009 LTIP was 12.7 per cent against a Threshold target of 10 per cent and a Stretch
target of 14 per cent. Accordingly, 83.8 per cent of share rights granted in respect to this component of the 2009
LTIP vested.
This is the first time since the ROE performance measure was introduced in 2007 that an award has been made
in respect to the ROE component.
A total of 496,945 shares were awarded to participants under the 2009 LTIP.
Employee Share Plan
In 2011 the A$1,000 employee share plan was offered to eligible employees. Overall, a total of 573 (94 per cent)
of 610 eligible employees accepted the offer to participate in the plan.
A total of 42,975 shares were awarded to participants of the 2011 Employee Share Plan.
Employees who participate in the STIP or LTIP are not eligible to participate in the Employee Share Plan.
15
Iluka Resources Limited
Remuneration Report
31 December 2011
(continued)
SECTION 1: SUMMARY (continued)
Iluka Retention Plan
March 2008, the Board approved the introduction of a Retention Plan for certain individuals, including Executives,
identified as critical to business outcomes over the following three years. The aim of the Retention Plan was to
ensure continuity of management and retention of critical technical and functional expertise to support the
delivery of major projects and other growth strategies while the company had high debt levels and was
experiencing difficult market conditions for its products.
The Retention Plan offered participants a grant of share rights which vested in full at the conclusion of a three
year retention period.
For all but one individual, the various retention periods concluded in 2011. A total of 477,000 shares vested to
Executives on either 31 March 2011 or 31 May 2011. The market price for Iluka shares on 31 March 2008 and 31
May 2008 were $4.65 and $3.69 respectively.
1.4 Iluka's five year performance
Shareholder Returns
Assuming a holding period of five years to 31 December 2011, shareholders achieved total returns of 239 per
cent over that period on a pre-tax basis. This is illustrated in the chart below.
Source: Bloomberg and company reports
Note: Share prices used were on an adjusted basis.
A. A shareholder invests $5.92 to acquire one share on the last day of trading in 2006.
B.
In March 2008, the shareholder participates in the 4 for 7 rights issue at $2.55 per share. The shareholder
is issued an additional 0.57 shares for an outlay of $1.46.
C. Total amount invested is $7.38 (A+B).
D. As at 31 December 2011, share prices were $15.50. On a portfolio of 1.57 shares, the total portfolio is
valued at $24.36.
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Remuneration Report
31 December 2011
(continued)
SECTION 1: SUMMARY (continued)
E. Over the five year holding period, the shareholder was paid $0.22 per share dividends over its 1 share
portfolio during 2007, and $0.28 per share dividends over its 1.57 share portfolio in 2011 (totalling $0.44).
Total dividends paid on the portfolio were $0.66.
F. Total dollar returns as at 31 December 2011 were $25.02 (D+E), indicating a return of 239% over the 5
year period.
Note in this example, the number of shares issued under the rights issue have not been rounded.
Earnings over the same five year period are set out in the table below:
31 Dec 07
31 Dec 08
31 Dec 09
31 Dec 10
31 Dec 11
Net profit after tax ($ million)
Earnings per share (cents)
Closing share price ($)
Dividends paid (cents)
51.1
21.6
4.11
22
49.0
14.2
4.64
N/A
(82.4)
(20.2)
3.58
N/A
36.1
8.6
9.14
N/A
541.8
130.1
15.50
28
1.5 Executive Total Earnings in 2011
Details of the remuneration received by the Managing Director and Executives prepared in accordance with
statutory requirements and accounting standards are detailed on pages 30 to 34 of this Remuneration Report.
The table below sets out the total earnings for the Managing Director and Executives for 2011. These earnings
include cash salary and fees, superannuation, non-cash benefits received during the year and the full value of
incentive payments earned for which the performance period concluded in 2011. The table does not include
share based payments which reflect the accounting value for share rights granted in the current and prior years
which may or may not be realised as they are dependent on the achievement of performance hurdles.
Name
D Robb
C Cobb
A Tate5
H Umlauff
S Wickham
C Wilson
Base
$
Super-
annuation
$
Other1
$
2011 STIP2
$
$
2009 LTIP3
$
Retention
Plan4
$
2011 Total
Earnings
$
Cash
Restricted
Shares
Shares
Shares
1,703,271
585,458
588,402
546,942
604,882
454,660
46,202
49,541
19,832
49,225
15,487
24,718
46,364
36,020
-
4,741
4,741
6,833
872,890
243,318
222,133
210,918
251,428
192,095
872,889
405,635
222,133
210,917
419,156
192,094
1,566,501
-
515,753
602,408
456,243
468,771
-
-
1,595,280
844,240
567,440
1,508,560
5,108,117
1,319,972
3,163,533
2,469,391
2,319,377
2,847,731
1 Includes non-monetary benefits.
2 Represents the value of the 2011 STIP which was awarded partly in cash and partly in deferred equity in March 2012.
3 Represents the value of the 2009-11 LTIP award for which the performance period concluded 31 December 2011
calculated at the closing share price of $16.70 at the date of award (1 March 2012).
4 Represents the value of the Iluka Retention Plan award calculated at the closing share price of $13.84 at the date of
award (13 April 2011).
5 Represents the value of the Iluka Retention Plan award calculated at the closing share price of $15.64 at the date of
award (31 May 2011).
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Remuneration Report
31 December 2011
(continued)
SECTION 1: SUMMARY (continued)
1.6 Executive Total Earnings in 2010
The table below shows the total earnings for the Managing Director and Executives relating to the 2010
performance year for comparison purposes.
Name
D Robb4
P Beilby5,6
C Cobb
V Hugo
A Tate
H Umlauff
S Wickham
C Wilson
Base
$
Super-
annuation
$
Other1
$
2010 STIP2
$
Cash
$
Restricted
Shares
2008 LTIP3
$
Retention
Plan
$
2010 Total
Earnings
$
Shares
Shares
1,451,941
165,752
407,833
382,519
462,423
529,358
472,556
422,376
48,059
5,905
36,180
26,139
28,514
47,642
17,781
26,385
38,206
-
-
6,487
-
4,767
4,768
6,487
836,386
-
183,166
164,566
205,435
236,282
206,438
185,206
836,386
-
186,166
164,566
205,435
236,282
206,438
185,206
653,542
-
-
171,228
206,955
246,168
114,733
191,706
10,660,000 14,524,520
363,958
810,348
915,506
1,108,765
1,300,498
1,022,713
1,017,368
192,301
-
-
-
-
-
-
1 Includes non-monetary benefits.
2 Represents the value of the 2010 STIP which was awarded half in cash and half in deferred equity in March 2011.
3 Represents the value of the 2008-10 LTIP award for which the performance period concluded 31 December 2010
calculated at a share price of $10.66 being the volume weighted average price of shares traded over the five days
following the release of the 2010 full year results.
4 Represents the value of the Managing Director’s 2008-10 performance and retention plan award calculated at a share
price of $10.66 being the volume weighted average price of shares traded over the five days following the release of the
2010 full year results.
5 Ceased employment on 1 March 2010.
6 Represents the value of the retention plan award (awarded 1 March 2010) calculated at a share price of $3.67 being the
volume weighted average price of shares traded over the five days following the release of the 2009 full year results.
SECTION 2: BOARD OVERSIGHT OF REMUNERATION
The Remuneration and Nomination Committee (Committee) operates in accordance with its charter as approved
by the Board. The Committee is comprised solely of independent Non-Executive Directors and was chaired by Mr
Osborn in 2011.
The Committee’s responsibility is to provide assistance and recommendations to the Board in support of the
company’s objective of creating and delivering value for shareholders and in fulfilling its corporate governance
responsibilities relating to the following:
•
•
•
•
•
•
•
overall remuneration strategy of the company;
remuneration of non-executive Directors;
performance and remuneration of the Managing Director and key executives;
selection and appointment of, and succession planning for, non-executive Directors;
selection and appointment of, and succession planning for, the Managing Director;
succession planning for key roles; and
diversity strategy, policies and practices of the company.
The Committee also makes decisions on behalf of the Board where such authority has been expressly delegated
by the Board.
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31 December 2011
(continued)
SECTION 2: BOARD OVERSIGHT OF REMUNERATION (continued)
The Committee has the resources and authority appropriate to discharge its duties and responsibilities, including
the authority to engage external professionals on terms it determines to be appropriate. During 2011, external
advisers were engaged by the Committee and provided input on several matters relating to remuneration. These
advisers were:
•
•
Ernst & Young – were engaged to provide assistance in relation to executive remuneration including
market benchmarking data for Non-Executive Director and Managing Director Remuneration,
executive remuneration market trends, the design of the Managing Director’s Long Term Incentive
Deferred Plan and Iluka’s employee share plans; and
Jackson McDonald - were engaged to provide legal advice in respect of share plans and Executive
contracts.
SECTION 3: REMUNERATION PRACTICES
The remuneration of an Executive is linked to both annual business and individual performance outcomes and to
the company’s ability to create and deliver competitive levels of shareholder value, as defined by total
shareholder return (TSR) and return on equity (ROE), on a longer term basis.
In the interest of transparent reporting, Iluka discloses its ROE target range measure which forms part of the
LTIP.
Directors and Executives are prohibited from trading in financial products issued or created over the company’s
securities by third parties, and from trading in associated products and entering into transactions which operate to
limit the economic risk of their security holdings in the company. This prohibition extends to Directors and
Executives taking out margin loans on their holdings of Iluka securities.
3.1 Relationship between reward and performance
As discussed in detail in the "Performance and Incentive" section of this report (see page 20), the key
performance measures underlying the incentive plans in 2011 were:
•
•
STIP: Profitability (ROC, EBIT and NPAT), Sustainability (total recordable injury frequency rate,
severity rate and level two and above environmental incidents) and Growth (individual stretch
objectives).
LTIP: ROE and relative TSR.
Performance against each of the above measures determines the quantum of STIP and LTIP awards.
For the 2011 performance year, the STIP delivered above target awards to the Managing Director and
Executives reflecting, principally, the achievement of profitability objectives at stretch levels of performance.
3.2 Remuneration Structure
Remuneration for Executives comprises two components:
•
•
total fixed remuneration (TFR) which is made up of base salary and superannuation, together with
other salary sacrifice items such as novated leases and car parking. Employees are required to meet
any fringe benefits tax obligations applicable to salary sacrificed items; and
variable remuneration, being the STIP and LTIP, which is linked directly to performance of both the
company and the individual Executive and, as such, is deemed to be “at risk”.
The remuneration structure is designed to reflect an appropriate balance between fixed and variable
remuneration to ensure that Executive reward is aligned with the performance of the business.
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Remuneration Report
31 December 2011
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SECTION 3: REMUNERATION PRACTICES (continued)
3.3 Total Fixed Remuneration
Iluka’s TFR structure is assessed against the median level of the market as defined by a comparator group of
Australian companies within the resources market. Individual TFR is determined within an appropriate range
centred at the market median by referencing job evaluation data and individual experience and performance
levels of Executives. Allowance is also made for the competitive nature of the market for talent in the resources
sector.
3.4 Superannuation Benefits
Iluka has appropriate superannuation and pension arrangements in countries where it operates. In Australia, the
company contributes superannuation at the minimum required rate to each Executive’s nominated eligible fund.
Individuals may elect to make further voluntary contributions from pre-tax salary.
All Australian based employees (including Executives) are entitled to contribute to the Iluka Superannuation Plan.
The plan is administered by ING Australia Limited as part of a master trust of which over 90 per cent of
employees are members. The plan is primarily an accumulation style plan. A small number of employees have
retained membership in a defined benefit sub-plan, a legacy from the 1999 merger of Westralian Sands Limited
with RGC Limited. The defined benefit sub-plan is closed to new members. All Executives participate in the Iluka
Superannuation Plan or a fund of choice on an accumulation basis.
3.5 Remuneration Review
The company conducts a review of the remuneration of Executives and staff on an annual basis. Guidelines for
reviews are considered by the Board following recommendation by the Remuneration and Nomination
Committee. Review guidelines are based upon the outcomes of direct and related market review data and
external advice from the company’s remuneration advisers. All employees and Executives participate in an
objective setting and performance review process which is used in conjunction with market data to determine
appropriate remuneration recommendations.
Individual progress against objectives is reviewed throughout the performance year with formal reviews occurring
at half year and at the conclusion of the performance year.
Recommendations by the Managing Director for STIP and LTIP award outcomes and remuneration for
Executives are submitted to the Remuneration and Nomination Committee in February of each year. In respect of
all other eligible participants, a one up Manager approval process applies with final Managing Director approval
prior to any remuneration review being implemented.
3.6 Performance and Incentives
The current performance and incentive arrangements were introduced for the 2007 performance year. The
incentive arrangements comprise a Short Term Incentive Plan (STIP) and a Long Term Incentive Plan (LTIP).
These distinct plans balance the short and long term aspects of business performance, reflect market practice
and support business needs.
The incentive plans ensure a strong alignment between the incentive arrangements of Executives and the
creation and delivery of shareholder value and support Iluka’s aim of attracting, retaining and motivating
experienced employees.
The STIP and LTIP operate within the existing rules of the Directors, Executives and Employees Share
Acquisition Plan (DEESAP), as approved by shareholders at the company’s Annual General Meeting in May
1999.
At target levels of performance, the STIP generally represents two-thirds of potential variable remuneration, and
the LTIP generally represents one-third.
Only nominated Managers and Executives participate in the STIP and LTIP. The level of award opportunity is
determined by an individual’s role within the business and capacity to impact the results of the company. In 2012,
it is anticipated that 179 employees (representing 17 per cent of employees and including all Executives) will
participate in the STIP, and 106 employees (representing 10 per cent of employees and including all Executives)
will participate in the LTIP. In 2011, corresponding pecentages were 15 per cent and 9 per cent respectively.
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Iluka Resources Limited
Remuneration Report
31 December 2011
(continued)
SECTION 3: REMUNERATION PRACTICES (continued)
Objectives, measures and targets for both the STIP and the LTIP are set on an annual basis and are subject to
the approval of the Board.
Executive Incentive Opportunity
Plan
STIP
LTIP
Target (% of TFR)
Stretch (% of TFR)
60% to 90%
30%
90% to 120%
N/A
3.6.1 The Short-Term Incentive Plan (STIP)
The STIP aims to provide an incentive to participants whilst also promoting equity ownership by providing awards
partly in cash and partly in deferred equity.
The STIP is linked to Group and regional financial and operational performance and has a focus on return on
capital (ROC) as a key metric. A combination of financial and non-financial targets (including safety,
environmental and individual growth specific targets) are used to measure performance and determine outcomes
including:
•
•
•
Profitability - ROC and EBIT metrics reflect the organisational unit within which the individual is located
(for example, regional versus corporate roles) and are measured independently. All participants are
measured against Group NPAT;
Sustainability - metrics are Group targets except where best practice has been achieved by an
individual business unit in the prior year; and
Growth Targets – individual specific targets (eg delivery of a major project).
The weighting of the growth measure is typically set at 30 per cent. However the Board has discretion in each
year to vary the growth weighting for any individual within a range from 20 per cent to 40 per cent in line with the
company’s priorities for the year.
The process for the development and assessment of individual objectives is a rigorous one. Objectives are linked
to major business opportunities and risks as typically identified in Iluka’s Corporate Plan and to the priorities for
the relevant year. Specific and measurable deliverables and the timeframe for achievement are defined for each
objective. The deliverables and the timeframes are set at a stretch level of performance. Objectives are set in
conjunction with the Managing Director for all Executives, followed by review and approval by the Remuneration
and Nomination Committee. The process is designed to ensure a close alignment between the STIP and the
company’s objective of creating and delivering value for shareholders.
The STIP award is determined after the year-end. Profitability and sustainability performance must exceed the
threshold target before any award is made for these measures. Growth outcomes are based on an assessment
of the extent to which the individual’s objectives have been achieved. Outcomes are subject to rigorous one-up
Manager assessment and, for the Managing Director and Executives, assessment by the Board.
2011 STIP
The measures and weighting of objectives for the 2011 performance year were:
Profitability (ROC, EBIT and NPAT)
60 per cent
Sustainability (total recordable injury
frequency rate, severity rate and level 2
and above environmental incidents)
10 per cent
Growth (individual objectives)
30 per cent
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Remuneration Report
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(continued)
SECTION 3: REMUNERATION PRACTICES (continued)
STIP percentage payments to the Managing Director and Executives in 2011 were generally consistent with
those paid in 2010 reflecting sustained improvement in profitability, a strong relative share price performance and
the achievement of individual growth objectives.
The STIP award is typically paid half in cash and half on a deferred basis in the form of ordinary restricted
shares. The Board has discretion to increase the proportion of deferred equity (reducing the cash component).
Fifty per cent of the restricted shares do not vest until one year after the end of the performance period, while the
remaining fifty per cent does not vest until two years after the end of the performance period. The mandatory
deferral also requires Executives to remain with the company and to continue to perform satisfactorily for the
shares to vest. As a consequence, Executives have a significant trailing exposure to their own and company
performance subsequent to the award. The deferred amount also supports Executive focus on both annual and
multi-year performance, as well as providing a retention element.
The process for determining the number of restricted shares to be awarded to each participant is determined by
dividing the dollar value of the deferred component by the Volume Weighted Average Price (VWAP) of Iluka
shares traded on the ASX over the five trading days following release of the company’s full year results for 2011.
3.6.2 The Long-Term Incentive Plan (LTIP)
The LTIP provides a grant of equity in the form of share rights for Iluka shares that vest after three years subject
to performance over a three year period.
The grant is split into two separate components, with one component (50 per cent) being assessed based on
ROE relative to an internal target and the other (50 per cent) based on TSR performance relative to a comparator
group consisting of companies which in 2010 comprised the Materials Index and the ASX Mid Cap 50 Index at
the commencement of the performance period (excluding property trusts and duplication). The two performance
measures are applied as follows:
Return on Equity component:
The ROE component of the LTIP grant vests based on a prospective three year average ROE performance
measure. Vesting occurs on a straight line basis for performance between Threshold and Target. Targets are set
giving consideration to:
•
•
•
the company’s ROE performance history;
planned strategic and business plan activity throughout the performance period; and
the performance of comparable companies.
Targets are reviewed annually and set for a forward three year period. It can be expected that as sustainable
performance improves, targets will be increased - within the bounds of feasible achievement - creating a
“staircase” effect over time. Similarly, because performance is measured over the three years as an average, a
failure to achieve targeted levels of performance in any one year increases the hurdle in the remaining years.
ROE targets for the 2010 and 2011 LTIP are shown in the table below:
LTIP Grant
2011 – 2013
2010 – 2012
Threshold
12%
10%
Target
20%
14%
The targets above may be compared with a three year history for Iluka (to 2010) in which the average ROE was
0.7 per cent, or with a three year average for the ASX 200 (less property trusts) of 15.3 per cent.
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Remuneration Report
31 December 2011
(continued)
SECTION 3: REMUNERATION PRACTICES (continued)
Total Shareholder Return component:
The TSR component of the LTIP grant vests based on TSR relative to a peer group of companies. In 2011,
following a review of Iluka’s combined Materials Index and Midcap 50 comparator group, a decision was made to
remove the Midcap 50 index and measure performance solely against the ASX 200 Materials Index. The ASX
200 Materials Index comparator group was chosen as it better reflects the companies that operate within the
same industry and with which Iluka competes for investment.
LTIP Vesting Schedule
The table below outlines the LTIP vesting schedule for the TSR and ROE component:
Measure
ROE
TSR
Total Grant
LTIP Vesting Schedule
Perfornmance Hurdle to
be achieved
Threshhold
Target
50th percentile
75th percentile
Percentage of total grant
that will vest
25%
50%
25%
50%
Maximum
percentage of total
grant
50%
50%
100%
Vesting occurs on a straight-line basis for performance between threshold and target for both measures.
All offers and details of the maximum allocation for the Managing Director and Executives are shown on page 33.
It should be noted that the maximum allocations listed are subject to the respective performance criteria. If at the
end of the performance period the performance criteria have not been met there will be no entitlement to shares.
2009 to 2011 LTIP
At the end of 2011, the 2009 LTIP grant completed its performance period (1 January 2009 to 31 December
2011). Performance was measured against both the ROE and relative TSR hurdles. Performance and resulting
vesting was as follows:
Component
Performance target
Actual performance
Implication for vesting
ROE (50%)
50% vesting for Threshold of
10% with full vesting at target of
14%
12.7%
83.8% of rights granted in
respect to the ROE component
will vest
Relative TSR
(50%)
50th percentile for 50% vesting
and 75th percentile for full
vesting
97th percentile
Full vesting of the TSR
component
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Remuneration Report
31 December 2011
(continued)
SECTION 3: REMUNERATION PRACTICES (continued)
3.6.3 Securities Trading
Iluka's policy in relation to employees holding Iluka securities is set out in the company's Securities Trading
Policy, which can be found on the company's website at www.iluka.com. The policy sets out the circumstances in
which employees may trade in company securities.
3.6.4 Employee Share Plan
The Board believes that strong employee alignment with shareholder outcomes is a vital element of high
performing companies that create and deliver value for shareholders. Put simply, the company wants all
employees to identify with shareholder returns. Accordingly, the company also operates an Employee Share Plan
under the rules of the Iluka Resources Limited Employee Share Plan (Employee Share Plan or Plan). The Board
may, from time to time, at its discretion, make written offers to participate in the Plan.
The Employee Share Plan was offered in respect to the 2007/2008 and 2008/2009 financial years but was
suspended for the 2009/2010 financial year as part of the company’s response to the global economic crisis.
In 2011, the Employee Share Plan was reinstated for the 2010/2011 financial year and offers were made to
eligible employees (permanent employees with a minimum of twelve months service, who do not participate in
the STIP) in Australia and the United States to receive ordinary shares in Iluka Resources Limited to the value of
A$1,000.
To satisfy the legislative requirements of both Australia and the United States, Australian employees received the
shares under a tax-exempt plan, with a three year sale restriction period (a holding lock is applied during the
restriction period). As US employees do not have access to a tax exemption plan, they were offered shares up to
A$1,000 through a grant of restricted shares. The shares will be held under the Plan rules with a restriction period
of three years. To enable US employees to receive a tax deferral, strict forfeiture conditions apply.
Of the 504 Australian employees eligible to participate, 482 (96 per cent) accepted the offer. In the US, 91 of 106
(86 per cent) employees participated. Overall, a total of 573 (94 per cent) of 610 eligible employees accepted the
offer at a cost of $568,559.
Shares acquired under the Employee Share Plan are not subject to performance conditions as the primary
objective of the Plan is to encourage share ownership by all employees.
Directors have decided that employees who would have been eligible to participate if a share offer had been
made for the 2009/2010 financial year wll be offered an award of 253 shares (being the equivalent of $1,000
worth of Iluka Shares based on the VWAP for March 2010) subject to a twelve month forfeiture and holding
condition.
3.6.5 Iluka Retention Plan
During 2007 and 2008, the resources sector experienced very high levels of competition for management and
technical talent, with resulting skill shortages and upward pressures on remuneration. These pressures were
particularly prevalent at the senior management level and for highly skilled professionals critical to business
operation.
The Board recognises that continuity of management and retention of key talent is critical to achieving the
successful delivery of major projects and other strategies in order to enhance shareholder returns. In that context,
the Board regularly reviews the market competitiveness of senior management remuneration and its ability to
retain senior management to achieve long term business objectives.
Consequently, in March 2008 the Board approved the introduction of a Retention Plan limited to certain
individuals identified as critical to business outcomes over the medium term.
The Retention Plan offered participants a grant of share rights to ordinary shares in Iluka Resources Limited
which vest in full at the conclusion of a three year retention period. The grant of share rights rather than a cash
payment provides a strong alignment of the interests of participants with those of shareholders.
Where a participant voluntarily ceases employment during the retention period, all share rights awarded under
the Retention Plan are forfeited.
24
Iluka Resources Limited
Remuneration Report
31 December 2011
(continued)
SECTION 3: REMUNERATION PRACTICES (continued)
Retention Plan share rights awarded to Executives are included as rights granted in the table on page 29.
In August 2009, the Board closed the Retention Plan.
SECTION 4: NON-EXECUTIVE DIRECTOR REMUNERATION
The remuneration of the Non-Executive Directors is determined by the Board on recommendation from the
Remuneration and Nomination Committee within a maximum aggregate amount approved by shareholders at an
Annual General Meeting. The current maximum amount of Non-Executive Directors’ fees as approved by
shareholders in May 2011 is $1.5 million. The total amount paid to Non-Executive Directors in 2011, including
superannuation, was $1,053,912.
In response to the company’s financial performance Non-Executive Directors elected in 2009 and 2010 to forgo
any increase in their fees. A review of Iluka’s Non-Executive Director fees was conducted by Ernst & Young in
2011. The review took into account the nature of the Director’s work, their responsibilities and survey data on
comparative companies. Details of Non-Executive Director fees in 2011 are as follows:
Non-executive director fees
Board Chairman (inclusive of Committee fees)
Board Member
Board Member Committee Fees
Audit and Risk Committee Chair
Remuneration and Nomination Committee Chair
Audit and Risk Committee Member
Remuneration and Nomination Committee Member
1 March 2011 to
31 Dec 2011
$ p.a
1 Jul 2008 to
28 Feb 2011
$ p.a
312,000
125,000
275,000
100,000
35,000
25,000
17,500
12,500
35,000
25,000
17,500
12,500
The minimum required employer superannuation contribution up to the statutory maximum is paid into each
Director’s nominated eligible fund and is in addition to the above fees. Based on the above fee structure, the
current total Non-Executive Director remuneration, assuming no changes to the Board, is $932,000 per annum,
excluding superannuation, or $1,003,575 including superannuation.
25
Iluka Resources Limited
Remuneration Report
31 December 2011
(continued)
SECTION 5: MANAGING DIRECTOR REMUNERATION
Following are the employment terms and conditions for the Managing Director, David Robb.
Total Fixed Remuneration
$1,750,000 for the year ended 31 December 2011.
2011 Short Term Incentive
90 per cent of TFR at target with up to 120 per cent of TFR for stretch performance
awarded 50 per cent as cash and 50 per cent as deferred equity.
Measure
Profitability (ROC, EBIT, NPAT)
Sustainability (total recordable injury frequency rate, severity rate,
level 2 and above notifications to government)
Growth (individual objectives)
Weighting
50 per cent
10 per cent
40 per cent
Individual objectives and related deliverables are set each year by the Board at what
is assessed to be a stretch level of performance. These objectives typically vary from
year to year in line with the company’s objective of creating and delivering value for
shareholders.
2011 Long Term Incentive
A grant of equity in the form of share rights of up to 30 per cent of TFR measured
over of a three year performance period.
Measure
ROE
TSR
Managing Director Retention Plan (2008 to 2010)
Weighting
50 per cent
50 per cent
Retention Offer and Outcome
The performance measure associated with the Managing Director’s Retention Plan
(MD Retention Plan), which was approved by shareholders at the 2008 Annual
General Meeting, required TSR of a minimum of 45 per cent over the three year
performance period from 1 January 2008. In terms of share price (i.e. absent any
other contributor to TSR such as dividends) full vesting of the Plan shares over the
three year period required Iluka’s share price to reach a minimum of $5.32 (calculated
on the volume weighted average price (VWAP) of shares traded over the five days
following the release of the 2010 financial results). The VWAP was calculated for the
five trading days from 25 February to 3 March 2011 inclusive. The resulting volume
weighted average share price of $10.66 exceeded the target of $5.32 by 100 per cent
and share price growth of 190 per cent for the performance period. Market
capitalisation of the company increased from $0.9 billion to $4.5 billion over the
relevant performance period.
Accordingly, Mr Robb was awarded 1,000,000 ordinary shares under the terms of the
MD Retention Plan on 4 March 2011.
Long Term Incentive Deferred Plan (2011 to 2013)
Retention Offer
Performance Period
Year 1
At the 2011 AGM, shareholders approved the following retention arrangements for Mr
Robb (referred to as the Long Term Incentive Deferred Plan or LTID Plan).
750,000 share rights offered in three tranches over a 3 year retention period with
each tranche being subject to performance criteria referable to Iluka’s TSR.
2011 Financial Year – performance measured from 4 March 2011 to the date 5
business days after announcement of the 2011 annual financial results.
26
Iluka Resources Limited
Remuneration Report
31 December 2011
(continued)
SECTION 5: MANAGING DIRECTOR REMUNERATION (continued)
Year 2
Year 3
2012 Financial Year – performance measured from the end of the Year 1
Performance Period to the date 5 business days after announcement of the 2012
annual financial results.
2013 Financial Year – performance measured from the end of the Year 2
Performance Period to the date 5 business days after announcement of the 2013
annual financial results.
Performance Hurdles
For each tranche of share rights there are TSR performance hurdles referable to
each performance period as detailed below.
- Tranche 1 450,000 Share Rights
A base tranche of 150,000 share rights each year that requires an absolute TSR of
12.5 per cent compounding over the three years.
- Tranche 2 150,000 Share Rights
A base tranche of 50,000 share rights each year that requires an absolute TSR of 15
per cent compounding over the three years.
- Tranche 3 150,000 Share Rights
A base tranche of 50,000 share rights each year that requires an absolute TSR of
17.5 per cent compounding over the three years.
Vesting Conditions
Vesting Date
Forfeiture
A tranche of share rights will vest on the Vesting Date if the absolute TSR
performance hurdle calculated over the Performance Period for that tranche is
achieved.
The share rights applicable to a Performance Period will also vest if the TSR
performance hurdle is not satisfied at the end of that Performance Period, but the
compound TSR performance hurdle for the subsequent Performance Period is
satisfied.
Subject to the performance criteria of each tranche being satisfied, share rights will
vest 12 months after the last day of the third Performance Period (ie February / March
2015).
All entitlements under the LTID Plan are forfeited if Mr Robb resigns prior to the end
of the three year retention period.
Full details of the Managing Director’s LTID Plan can be found on the
Remuneration section of Iluka’s website (www.iluka.com).
Termination Arrangements
At the 2011 AGM, shareholders approved the following termination payments which
may become payable to Mr Robb under the terms of the Executive Employment
Agreement entered into between Mr Robb and the Company on 11 April 2011.
With Notice
Without Notice
Employment can be terminated by the company during the contract period by giving
12 months notice or pay in lieu of notice plus the total incentive for performance at
target under the STIP and LTIP, pro-rata up to the end of the 12 month notice period.
All shares to which Mr Robb is entitled under the DEESAP will vest within three
months of termination.
In the case of misconduct and in certain other circumstances, employment can be
terminated without notice and with no entitlement to pro-rata long service leave or any
payment under any relevant incentive plan.
Voluntary Termination
Employment may be terminated by giving six months notice. Any pro-rata award
under the any relevant incentive plan will be at the discretion of the Board.
Termination for other reasons
* By Iluka on the ground of redundancy or by Mr Robb if, at the instigation of the
Board he suffers a material diminution in his status as Managing Director, by giving
12 months notice or shall pay an equivalent amount of TFR in lieu of notice.
* By Iluka if Mr Robb suffers illness, accident or other cause which renders him
unable to perform his duties, by giving Mr Robb 12 months’ notice or pay an
equivalent amount of TFR in lieu of notice.
27
Iluka Resources Limited
Remuneration Report
31 December 2011
(continued)
SECTION 5: MANAGING DIRECTOR REMUNERATION (continued)
Protection of Interests
* In the circumstances described above, Mr Robb will receive the total incentive for
performance at target under the STIP and LTIP, pro-rata up to the end of the 12
month notice period. All shares to which Mr Robb is entitled under the DEESAP will
vest within three months of termination.
Mr Robb is restrained from engaging in certain activities during his employment, and
for a period following termination of his employment, in order to protect Iluka’s
interests. The Executive Employment Agreement contains provisions relating to the
protection of confidential information and intellectual property.
SECTION 6: EXECUTIVE EMPLOYMENT AGREEMENTS
Remuneration and other terms of employment for the Managing Director and Executives are formalised in service
agreements. The Managing Director and Executives are employed on a rolling basis with no specified fixed
terms. The Managing Director and Executives are remunerated on a total fixed remuneration (TFR) basis,
inclusive of superannuation.
6.1 Executive Service Agreements
Major provisions of the agreements relating to Executives included in this Remuneration Report are set out
below.
Executive
Position
Termination Notice
Period by Iluka
Termination Notice
Period by
Employee
General Manager Sales & Marketing
C Cobb
Chief Financial Officer
A Tate
General Manager Project Management
H Umlauff
S Wickham General Manager Australian Operations
C Wilson
General Manager Corporate Services & Company
Secretary
3 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
Termination
Payments1
9 months
9 months
12 months
9 months
12 months
1 Termination payments (other than for gross misconduct) are calculated on current total fixed remuneration at date of
termination and are inclusive of the notice period.
28
Iluka Resources Limited
Remuneration Report
31 December 2011
(continued)
SECTION 7: NON-EXECUTIVE DIRECTOR AND EXECUTIVE SHAREHOLDINGS
7.1 Shareholdings
Name
Balance held at
1/1/11
Vesting of share
rights
Awarded as
Restricted Shares
Other changes
Balance held at
31/12/11
Number Of Shares
Non-executive directors
D M Morley1
W G Osborn
G J Pizzey
G J Rezos
J A Seabrook
S J Turner
Executive Director
D Robb
Executives
C Cobb
A Tate
H Umlauff
S Wickham
C Wilson
40,876
-
16,351
63,602
19,314
50,000
-
-
-
-
-
-
-
-
-
-
-
-
(40,876)
1,800
2,000
6,398
-
-
-
1,800
18,351
70,000
19,314
50,000
663,215
1,061,308
78,460
(914,455)
888,528
-
59,760
112,906
60,913
99,892
-
121,414
84,093
51,763
126,984
17,183
19,272
22,165
19,366
17,374
-
(137,000)
(61,000)
(46,973)
(148,650)
17,183
63,446
158,164
85,069
95,600
1 Shares and Share Rights are reversed to show a zero balance at 31 December on resignation as a director.
No shares were forfeited during the year
7.2 Share Rights
Number Of Share Rights
Balance held
at 1/1/11
Granted during
2011
Vested as
shares during
2011
Lapsed during
2011
Balance held at
31/12/111
Fair value of Share
Rights granted in
2011 ($)2
1,285,300
799,250
(1,061,308)
(8,265)
1,014,977
9,126,193
34,146
195,182
170,256
122,141
194,032
16,886
17,448
16,886
17,448
13,790
-
(121,414)
(84,093)
(51,763)
(126,984)
-
(2,722)
(3,180)
(2,408)
(2,474)
51,032
88,494
99,869
85,418
78,364
142,011
146,738
142,011
146,738
115,974
Name
Executive Director
D Robb
Executives
C Cobb
A Tate
H Umlauff
S Wickham
C Wilson
1 Balances for the Executive Director and the Executives include restricted shares which will vest in future periods subject
to legislative requirements.
2 Includes the fair value of share rights granted in 2011 in respect to the 2011 LTIP and Managing Director’s LTID.
Non-Executive Directors do not have any entitlement to share rights.
29
Iluka Resources Limited
Remuneration Report
31 December 2011
(continued)
SECTION 8: DETAILS OF STATUTORY REMUNERATION DISCLOSURES
Details of the remuneration of the Directors and other Key Management Personnel (as defined in AASB 124
Related Party Disclosures) of Iluka Resources Limited and the Iluka Resources Limited Group are set out in the
following tables. Other key management personnel of the company and the group are the Executives who have
authority for planning, directing and controlling the activities of the company and the group and include the five
highest paid employees required to be disclosed by the Corporations Act 2001.
KEY MANAGEMENT PERSONNEL – DIRECTORS
(i) Non-execuitve Directors
D M Morley
W G Osborn
G J Pizzey (Chairman)
G J Rezos
J A Seabrook
S J Turner
(ii) Managing Director and Chief Executive Officer
D Robb
All above persons were Director of Iluka Resources Limited for all of the financial year, as well as for the financial
year ended 31 December 2010 except for Mr Osborn and Mr Turner who commenced on 26 March 2010 and Mr
Morley retired on 25 May 2011.
2011 KEY MANAGEMENT PERSONNEL - EXECUTIVES
C Cobb
A Tate
H Umlauff
S Wickham
C Wilson
General Manager Sales and Marketing
Chief Financial Officer
General Manager Project Management
General Manager Australian Operations
General Manager Corporate Services and Company Secretary
In the tables below, which set out short term employment benefits, the amounts in the ”STIP cash” column are
dependent on the satisfaction of performance conditions as set out in the section headed “Short Term Incentive
Plan” above. Amounts in the ”Share Based Payments” column relate to the component of the fair value of awards
from prior years made under the various incentive plans attributable to the year measured in accordance with
AASB 2 Share Based Payments. All other elements of remuneration are not directly related to performance.
30
SECTION 8: DETAILS OF STATUTORY REMUNERATION DISCLOSURES (continued)
2011 Short Term Employee Benefits
Iluka Resources Limited
Remuneration Report
31 December 2011
(continued)
**STIP
Cash2
$
Non-monetary
Benefits
$
Other
$
Super-
annuation
$
**Share-based
Payments2,3
$
2011
Statutory
Total
$
Name
Base,
Committee,
Cash, Salary
& Fees1
$
Non-executive directors
D M Morley
W G Osborn
G J Pizzey
G J Rezos
J A Seabrook
S J Turner
60,076
145,833
305,833
150,833
161,373
138,333
Total
962,281
N/A
N/A
N/A
N/A
N/A
N/A
N/A
-
2,783
-
5,551
5,551
2,359
16,244
Executive Director
D Robb
1,703,271
872,890
46,364
Executives
*C Cobb
*A Tate
*H Umlauff
*S Wickham
*C Wilson
Total
585,458
588,402
546,942
604,882
454,660
243,318
222,133
210,918
251,428
192,095
2,780,344
1,119,892
36,020
-
4,741
4,741
6,833
52,335
N/A
N/A
N/A
N/A
N/A
N/A
N/A
-
-
-
-
-
-
-
5,407
13,125
16,306
13,575
14,524
12,450
75,387
N/A
N/A
N/A
N/A
N/A
N/A
N/A
65,483
161,741
322,139
169,959
181,448
153,142
1,053,912
46,202
2,638,048
5,306,775
49,541
19,832
49,225
15,487
24,718
193,745
220,675
235,818
242,911
204,351
1,108,082
1,051,042
1,047,644
1,119,449
882,657
158,803
1,097,500
5,208,874
1 STIP Cash includes cash that is sacrificed for the purchase of shares during the year up to the statutory maximum of
$5,000.
2 STIP Cash and share-based awards for 2011 were made in March 2012.
3 Includes negative amounts for the reversal of prior year charges for the ROE component of the 2008 and 2009 LTIP
which did not vest.
* 5 highest paid Executives of the Group, as required to be disclosed by the Corporations Act 2001.
** N/A denotes that Non-Executive Directors are not eligible for these arrangements.
31
Iluka Resources Limited
Remuneration Report
31 December 2011
(continued)
SECTION 8: DETAILS OF STATUTORY REMUNERATION DISCLOSURES (continued)
2010 Short Term Employee Benefits
Name
Base,
Committee,
Cash, Salary
& Fees1
$
Non-executive directors
R L Every4
D M Morley
W G Osborn5
G J Pizzey
G J Rezos
J A Seabrook
S J Turner6
106,944
136,237
90,456
217,262
124,763
121,951
89,828
Total
887,441
**STIP
Cash2
$
Non-monetary
Benefits
$
Other
$
Super-
annuation
$
**Share-based
Payments2,3
$
2010
Statutory
Total
$
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
7,794
6,076
-
-
-
-
-
13,870
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
5,421
12,150
8,141
13,123
11,229
10,976
8,085
69,125
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
120,159
154,463
98,597
230,385
135,992
132,927
97,913
970,436
Executive Director
D Robb
Executives
P Beilby3
*P Benjamin
V Hugo
C Cobb
*A Tate
*H Umlauff
*S Wickham
*C Wilson
Total
1,451,941
836,386
38,206
-
48,059
1,359,631
3,734,233
165,752
410,092
382,519
407,833
462,423
529,358
472,556
422,376
-
177,517
164,566
183,167
205,436
236,282
206,438
185,207
-
6,487
6,487
-
-
4,767
4,768
6,487
315,000
-
-
-
-
-
-
-
5,905
36,908
26,139
36,180
28,514
47,642
17,781
26,385
261,039
361,570
256,549
41,580
269,704
366,074
242,164
364,455
747,696
992,574
836,260
668,760
1,066,077
1,184,123
943,707
1,004,910
3,252,909
1,358,613
28,996
315,000
225,454
2,263,135
7,444,107
1 STIP Cash includes cash that is sacrificed for the purchase of shares during the year up to the statutory maximum of
$5,000.
2 STIP Cash and share-based awards for 2010 were made in March 2011.
3 Ceased employment 1 March 2010. “Other” relates to redundancy payment and statutory leave entitlements on cessation
of employment.
4 Retired on 20 May 2010.
5 Appointed 26 March 2010. No payments were made to WG Osborn as consideration for his appointment.
6 Appointed 26 March 2010. No payments were made to SJ Turner as consideration for his appointment.
* 5 highest paid Executives of the Group, as required to be disclosed by the Corporations Act 2001.
** N/A denotes that Non-Executive Directors are not eligible for these arrangements.
32
Iluka Resources Limited
Remuneration Report
31 December 2011
(continued)
SECTION 8: DETAILS OF STATUTORY REMUNERATION DISCLOSURES (continued)
SHARE-BASED COMPENSATION
STIP Restricted Shares awarded to the Managing Director and Executives yet to vest
Name
2009 STIP1
2010 STIP1
2011 STIP1
2009
2010
2011
Awarded %2
D Robb
C Cobb
A Tate
H Umlauff
S Wickham
C Wilson
70,689
-
17,772
24,722
19,718
16,153
78,460
17,183
19,272
22,165
19,366
17,374
52,331
24,319
13,317
12,645
25,129
11,516
29
-
30
35
37
30
93
97
92
91
92
92
83
90
80
78
90
87
1 STIP restricted share fair value determined independently using the Black-Scholes model that takes into account the
share price at grant date, the expected price volatility of the underlying share, the expected dividend yield and the risk
free discount rate for the vesting period. STIP restricted shares are awarded in March of the following year (eg 2011 STIP
Awards are made in March 2012).
2 The percentage achieved of the STIP maximum available incentive opportunity awarded for the financial year.
Maximum value of unvested restricted shares and share rights
Maximum value of restricted shares and share rights The maximum value of restricted shares and/or share rights
that will be recognised as share based payments in future years is set out below. The maximum value of those
restricted shares and/or rights yet to vest has been determined as the amount of the grant date fair value of the
share rights and/or shares that is yet to be expensed. No share and/or share rights will vest if the conditions are
not satisfied, hence the minimum value of the options yet to vest is nil.
Name
D Robb
C Cobb
A Tate
H Umlauff
S Wickham
C Wilson
2012
3,105,863
347,042
257,625
263,373
367,799
222,588
Maximum Value ($)
Vesting Year
2013
2014
2015
2,655,692
205,058
135,266
129,333
211,887
113,335
2,226,744
22,536
12,340
11,718
23,286
10,671
363,042
-
-
-
-
-
33
Iluka Resources Limited
Remuneration Report
31 December 2011
(continued)
SECTION 8: DETAILS OF STATUTORY REMUNERATION DISCLOSURES (continued)
Fair Value
The fair value of each restricted share or share right and the vesting year for each incentive plan is set out below.
Incentive Plan
Grant Date
Fair Value per Share or Right
at Grant Date
2009 LTIP
*2009 STIP (Tranche 2)
Retention Plan
2010 LTIP
*2010 STIP
LTID (Tranche 1)
LTID (Tranche 2)
LTID (Tranche 3)
2011 LTIP
*2011 STIP
January 2009
January 2010
2008
January 2010
January 2011
March 2011
March 2011
March 2011
January 2011
March 2012
4.06
3.57
2.80
3.09
9.14
11.81
11.49
11.16
8.41
16.68
Vesting Year
2012
2011 & 2012
2011 & 2012
2013
2012 & 2013
2015
2015
2015
2014
2013 & 2014
* Awards under these plans are restricted shares, all other plans grant share rights.
The fair value is calculated in accordance with the measurement criteria of Accounting Standard AASB 2 Share
Based Payments.
The fair value of restricted shares is determined to be the volume weighted average price 5 days after results are
announced to the market. The fair value is recognised as an expense through the income statement on a
straight-line basis between the grant date and the vesting date for each respective plan.
The fair value of share rights is independently determined using a Black-Scholes share right pricing model that
takes into account the exercise price, the term of the share right, the impact of dilution, the share price at grant
date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest
rate of the term of the share
right.
The fair value of share rights at grant date of the Long Term Incentive Plan (LTIP) is independently determined
using a Monte Carlo simulation to model Iluka share prices against the comparator group performance at vesting
date. The Monte Carlo method is a procedure for repeatedly sampling random movements in a stock’s price to
estimate the average or mean share price.
34
Iluka Resources Limited
Corporate Governance Statement
31 December 2011
Corporate Governance Statement
APPROACH TO CORPORATE GOVERNANCE
Iluka believes that the highest standards of corporate governance are essential in order to create and deliver
value for shareholders.
ASX CORPORATE GOVERNANCE RECOMMENDATIONS
Iluka considers that it meets each of the requirements of the Australian Securities Exchange (ASX) Corporate
Governance Council’s (Council) Corporate Principles and Recommendations (Second Edition) (Corporate
Principles).
The Governance section of the Iluka website www.iluka.com contains Iluka’s key corporate governance policy
documents. These include the:
•
•
•
•
•
•
•
•
Board Charter
Directors' Code of Conduct
Audit and Risk Committee Charter
Remuneration and Nomination Committee Charter
Employee Code of Conduct
Securities Trading Policy
Continuous Disclosure Policy
Whistleblower Policy
DIVERSITY
Iluka acknowledges the Council’s amendments to the Corporate Principles released on 30 June 2010 (Diversity
Principles). Iluka reports on compliance with the Diversity Principles in the Iluka Sustainability Report, which
forms part of the Iluka Review, under the heading People.
Iluka seeks to attract and retain the best people while building and maintaining a diverse, sustainable and high
achieving workforce. Iluka will continue to develop and implement programmes which foster workforce and Board
diversity.
ROLE AND RESPONSIBILITIES OF THE BOARD OF DIRECTORS
The Board operates in accordance with the broad principles set out in the Board Charter. The primary roles of the
Board are:
•
•
•
•
•
appointing and removing the Managing Director;
monitoring the performance of the Managing Director and the senior management group;
determining the strategic direction and financial objectives of Iluka and ensuring appropriate resources
are available to management;
monitoring the implementation and achievement of strategic and financial objectives; and
reporting to shareholders and the investment community on the performance of the company.
The Board delegates the implementation of corporate strategy and day to day management to senior
management, lead by the Managing Director.
BOARD MEMBERSHIP
Details of the members of the Board, their date of appointment, qualifications and experience are set out in the
Directors’ Report under the heading Directors. The Remuneration and Nomination Committee considers and
recommends potential Directors to the Board based on the skills and experience they are able to bring to the
Board. The Board seeks to ensure that its size and the blend of skills of the Directors are conducive to effective
discussion and efficient decision-making.
Iluka’s Constitution requires Directors to retire from office no later than the third Annual General Meeting following
their election or re-election. The Directors have adopted an internal guideline that the maximum preferred length
of service is ten years.
36
Iluka Resources Limited
Corporate Governance Statement
31 December 2011
(continued)
DIRECTOR INDEPENDENCE
The Board recognises the importance of independent judgement in the decision-making process. The Board’s
Charter expressly requires that the majority of the Board be comprised of independent Directors and that the
Chairman is an independent Director.
The Board Charter sets out the criteria for determining whether a non-executive director is independent. The
Board considers that all non-executive Directors are independent.
The Board assesses the independence of new Directors upon appointment and reviews the independence of
other Directors as appropriate.
MANAGING DIRECTOR
The Managing Director recommends policy, strategic direction and business plans for the Board’s approval and is
responsible for managing Iluka’s day to day activities.
The Managing Director is selected and appointed by the Board and is subject to an annual performance review
by the non-executive Directors.
CONFLICTS OF INTEREST
Each Director has an ongoing responsibility to:
•
•
disclose to the Board details of transactions or interests, actual or potential that may create a conflict
of interest; and
if requested by the Board, within a reasonable period, take necessary and reasonable steps to remove
any conflict of interest.
If a Director cannot or will not remove a conflict of interest then the Director must, in accordance with the
Corporations Act 2001, absent himself or herself from the room when discussion and/or voting occurs on matters
about which the conflict relates.
DIRECTOR EDUCATION
Directors undergo an induction process upon appointment which includes a detailed briefing on Iluka, meeting
key executives and touring operational sites. Thereafter, Directors undertake operational site visits and are
provided with regular updates and briefings on current and emerging issues relating to the company and the
industry.
Directors are encouraged to undertake continuing education relevant to the discharge of their duties. Iluka meets
reasonable costs of continuing Director education.
DIRECTORS' ACCESS TO INDEPENDENT ADVICE
A Director may, with prior written approval of the Chairman, obtain independent professional advice to assist the
Director in fulfilling their responsibilities. Iluka meets reasonable expenses incurred in obtaining that advice.
BOARD MEETINGS
In 2011, the Board met on nine occasions to conduct its duties. Eight were scheduled meetings and one was
called on an ad hoc basis to deal with specific business matters. One of the scheduled meetings was dedicated
primarily to strategic planning. The Chairman chaired all meetings.
The non-executive Directors periodically meet independent of management to discuss relevant issues.
Directors’ attendance at Board and Committee meetings are detailed on page 10 of this report.
37
Iluka Resources Limited
Corporate Governance Statement
31 December 2011
(continued)
COMPANY SECRETARY
Mr Cameron Wilson is Iluka’s Company Secretary. The Company Secretary is responsible for:
•
•
•
•
advising the Board on corporate governance matters;
management of the company secretarial function;
attending all Board and Board committee meetings and taking minutes; and
communication with the ASX.
COMMITTEES OF THE BOARD
The Board has established two committees: the Remuneration and Nomination Committee and the Audit and
Risk Committee. Each committee functions under a specific charter and is comprised wholly of independent,
non-executive Directors. The structure and membership of these committees are reviewed periodically. Each
committee reviews its charter on an annual basis. Unless expressly delegated by the Board to a committee, a
committee submits all decisions of that committee to the full Board as a recommendation to the Board.
REMUNERATION AND NOMINATION COMMITTEE
The Remuneration and Nomination Committee is responsible for providing assistance and recommendations to
the Board in relation to:
•
•
•
•
•
development, review and implementation of the remuneration strategy of Iluka;
remuneration of executives and non-executive Directors;
performance of the Managing Director and senior executives;
succession planning for key roles to ensure a diverse range of candidates; and
assessment, composition and succession of the Board.
The Remuneration and Nomination Committee’s consists of the following independent, non-executive Directors:
Mr Wayne Osborn (Chairman), Ms Jenny Seabrook, Mr Gavin Rezos and Mr John Pizzey. Details of Directors
attendance at Remuneration and Nomination Committee meetings are set out on page 10.
Comprehensive details of the processes and principles underlying the work of the Remuneration and Nomination
Committee are discussed in the Remuneration Report appearing on pages 13 to 34 of this Report.
For further information on the scope and responsibilities of the Remuneration and Nomination Committee, please
refer to the copy of the Remuneration and Nomination Committee Charter available in the Governance section of
the Iluka website.
AUDIT AND RISK COMMITTEE
The Audit and Risk Committee’s role is to assist the Board to fulfil its responsibilities in relation to Iluka’s
accounts, external reporting and risk. This is achieved by ensuring that appropriate processes are in place in
relation to:
•
•
•
•
•
the integrity of financial reporting;
the adequacy of the control environment;
the process for the management of risk;
the scope and performance of the internal audit function; and
the independence and performance of the external audit function.
The Audit and Risk Committee consists of the following independent, non-executive Directors: Mr Don Morley
(Chairman to 25 May 2011), Mr Gavin Rezos, Ms Jenny Seabrook (Chair from 25 May 2011) and Mr Stephen
Turner.
For further information on the scope and responsibilities of the Audit and Risk Committee, please refer to the
copy of the Audit and Risk Committee Charter available in the Governance section of the Iluka website.
38
Iluka Resources Limited
Corporate Governance Statement
31 December 2011
(continued)
BOARD AND COMMITTEE PERFORMANCE EVALUATION
The Board carries out an annual review of its performance in meeting key responsibilities. This review process,
which is periodically facilitated by external consultants, serves to identify any issues and initiatives for improving
the functioning and performance of the Board. This annual review was last undertaken December 2011.
Each of the Board’s committees also conducts an annual self-assessment of their performance in meeting their
key responsibilities. These reviews serve to identify strengths, weaknesses and areas for improvement. The
Remuneration and Nomination Committee and the Audit and Risk Committee completed their respective
self-assessments in December 2011.
CORPORATE REPORTING
The Managing Director and Chief Financial Officer have made the following certifications to the Board with
respect to the 2011 accounts:
•
•
that Iluka’s financial reports are complete and present a true and fair view, in all material respects, of
the financial condition and operational results of Iluka and group and are in accordance with relevant
accounting standards; and
that the above statement is founded on a sound system of risk management and internal compliance
and control, which implements the policies adopted by the Board, and that Iluka’s risk management
and internal control is operating efficiently and effectively in all material respects.
AUDIT FUNCTIONS
PricewaterhouseCoopers (PwC) is Iluka’s external audit provider. During 2011, Iluka complied with its internal
guidelines, which require the fees paid to external auditors for non-audit-related work to remain below 50 per cent
of the audit-related fees without pre-approval by the Audit and Risk Committee.
The external auditor will attend the Annual General Meeting and will be available to answer shareholder
questions about the conduct of the audit and the preparation and content of the audit report.
Iluka has an internal audit function that assists the Board by undertaking an objective evaluation of Iluka’s internal
control framework. The Audit and Risk Committee is responsible for approving the programme and scope of
internal audit reviews to be conducted each financial year. An assessment of the quality and focus of the internal
audit function is undertaken periodically as part of the review of Audit and Risk Committee effectiveness.
ETHICAL STANDARDS AND CONDUCT
Iluka has an Employee Code of Conduct, which identifies the standard of ethical conduct expected of Iluka
employees. In addition, the Board has specifically adopted a Director’s Code of Conduct, which establishes
guidelines for their conduct in carrying out their duties.
Iluka has also established a Whistleblower Policy to provide for the confidential reporting of issues of
unacceptable or undesirable conduct. The policy provides protection against reprisal to the whistleblower.
Copies of the Employee Code of Conduct, Director’s Code of Conduct and the Whistleblower Policy are located
in the Governance section of the Iluka website.
39
Iluka Resources Limited
Corporate Governance Statement
31 December 2011
(continued)
SECURITIES TRADING POLICY
Iluka has a policy on the trading of Iluka’s securities (shares, options, warrants, etc.) by Directors and employees.
The Board believes it is in the best interests of shareholders for Directors and employees to own shares in Iluka,
subject to strict controls and guidelines on share trading.
The Securities Trading Policy prohibits Directors and employees from trading in Iluka’s securities if they are in
possession of price-sensitive information, which is not generally available to the market. In addition to this
general prohibition, senior management and those employees involved in preparing Iluka’s statutory financial
information (Restricted Employees) and Directors are prohibited from trading in securities in Iluka during the
period from the end of half or full financial year and the release of the results for the relevant period.
Prior to trading in Iluka’s securities, Directors must seek approval from the Chairman and Restricted Employees
must seek approval from Company Secretary.
A copy of Iluka’s Securities Trading Policy is located in the Governance section of the Iluka website.
CONTINUOUS DISCLOSURE
Iluka has developed a comprehensive Continuous Disclosure Policy to ensure compliance with the disclosure
obligations under the Corporations Act and the ASX Listing Rules and to providing accurate information to all
shareholders and market participants. Iluka has established a Disclosure Committee comprising the Company
Secretary, Chief Financial Officer and the General Manager, Investor Relations. The Committee reports to the
Managing Director. The Committee’s responsibilities include determining if disclosure is required, ensuring the
Managing Director is advised of and approves all information disclosed to the market and ensuring the Board is
kept fully informed of the Disclosure Committee’s determinations and all information subsequently disclosed to
the market. The Company Secretary is convenor of the Disclosure Committee and has primary responsibility for
administration of the Continuous Disclosure Policy. The Company Secretary’s responsibilities include ensuring
compliance with Iluka’s continuous disclosure obligations and overseeing and co-ordinating information
disclosure to the ASX.
A copy of Iluka’s Continuous Disclosure Policy is available in the Governance section of the Iluka website.
SHAREHOLDER COMMUNICATION
Iluka is committed to providing accurate information to all shareholders and the market. Iluka communicates with
shareholders through releases to the ASX, Iluka’s website, information distributed direct to shareholders and the
general meetings of Iluka.
At the Annual General Meeting, shareholders elect the Directors and have the opportunity to express their views,
ask questions about company business and vote on items of business for resolution by shareholders.
More information on shareholder communication is contained in Iluka’s Continuous Disclosure Policy available in
the Governance section of the Iluka website.
40
Iluka Resources Limited ABN 34 008 675 018
Financial Report - 31 December 2011
Contents
Financial statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
Directors' declaration
Independent auditor's report to the members
Page
42
43
44
45
46
47
93
94
These financial statements are the consolidated financial statements of the group consisting of Iluka Resources
Limited and its subsidiaries. The financial statements are presented in the Australian currency.
Iluka Resources Limited is a company limited by shares, incorporated and domiciled in Australia. It's registered
office and principal place of business is:
Iluka Resources Limited
Level 23
140 St George's Terrace
Perth WA 6000
A description of the nature of the group's operations and its principal activities is included in the review of
operations and activities in the Directors' Report, both of which are not part of these financial statements.
The financial statements were authorised for issue by the Directors on 22 March 2012. The Directors have the
power to amend and reissue the financial statements.
Through the use of the internet, we have ensured that our corporate reporting is timely and complete. All press
releases, financial reports and other information are available at www.iluka.com
Revenue
Other income
Expenses
Interest and finance charges paid/payable
Rehabilitation and restoration unwind
Total finance costs
Profit before income tax
Income tax expense
Profit for the year attributable to owners
Iluka Resources Limited
Consolidated income statement
For the year ended 31 December 2011
Notes
5
6
7
7
8
2011
$m
2010
$m
1,631.4
964.1
7.9
(842.8)
(15.2)
(20.6)
(35.8)
760.7
(218.9)
541.8
9.0
(885.8)
(33.0)
(14.3)
(47.3)
39.9
(3.8)
36.1
Cents
Cents
Earnings per share attributable to ordinary equity holders
Basic earnings per share
Diluted earnings per share
28
28
130.1
129.4
8.6
8.6
The above consolidated income statement should be read in conjunction with the accompanying notes.
42
Iluka Resources Limited
Consolidated statement of comprehensive income
For the year ended 31 December 2011
Profit for the year
Other comprehensive income
Currency translation of US operation
Hedge of net investment in US operation, net of tax
Actuarial (losses) gains on defined benefit plans, net of tax
Changes in fair value of foreign exchange cash flow hedges, net of tax
Other comprehensive loss for the year
Notes
19(a)
19(a)
19(b)
2011
$m
541.8
(0.2)
0.4
(4.4)
-
(4.2)
2010
$m
36.1
(6.9)
6.7
0.6
(3.6)
(3.2)
Total comprehensive income for the year attributable to owners
537.6
32.9
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
43
ASSETS
Current assets
Cash and cash equivalents
Receivables
Inventories
Current tax receivable
Total current assets
Non-current assets
Inventories
Property, plant and equipment
Intangible assets
Deferred tax assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Payables
Interest-bearing liabilities
Provisions
Current tax liabilities
Total current liabilities
Non-current liabilities
Interest-bearing liabilities
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained profits (losses)
Total equity
Iluka Resources Limited
Consolidated balance sheet
As at 31 December 2011
Notes
2011
$m
2010
$m
9
10
11
11
12
13
14
15
16
17
16
17
14
18
19
19
320.7
256.1
376.2
0.5
953.5
49.9
1,430.4
6.7
13.3
1,500.3
30.1
164.8
201.0
-
395.9
56.6
1,425.0
7.1
55.3
1,544.0
2,453.8
1,939.9
136.7
-
82.0
145.7
364.4
164.0
377.7
13.0
554.7
919.1
103.7
29.5
54.9
-
188.1
313.3
313.9
-
627.2
815.3
1,534.7
1,124.6
1,102.0
16.4
416.3
1,534.7
1,108.3
20.4
(4.1)
1,124.6
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
44
Iluka Resources Limited
Consolidated statement of changes in equity
For the year ended 31 December 2011
Attributable to owners of
Iluka Resources Limited
Contributed
equity
$m
Reserves
$m
Retained
earnings
$m
Total
equity
$m
Balance at 1 January 2010
Adjustment on adoption of AASB 2008-8
Restated total equity at the beginning of the financial year
1,114.4
-
1,114.4
19.9
2.1
22.0
(39.0)
(2.1)
(41.1)
1,095.3
-
1,095.3
Notes
Profit for the year
Changes in fair value of foreign exchange hedges, net of tax
Currency translation of US operation
Hedge of net investment in US operation, net of tax
Actuarial gains on retirement benefit obligations, net of tax
Transfer of asset revaluation reserve
Other comprehensive income
Total comprehensive income
Transactions with owners in their capacity as owners:
Transfer of shares to employees
Purchase of treasury shares, net of tax
Share-based payments, net of tax
Balance at 31 December 2010
Profit for the year
Currency translation of US operation
Hedge of net investment in US operation, net of tax
Actuarial losses on retirement benefit obligations, net of tax
Other comprehensive income
Total comprehensive income
Transactions with owners in their capacity as owners:
Transfer of shares to employees, net of tax
Purchase of treasury shares, net of tax
Share-based payments, net of tax
Dividends paid
-
-
-
-
-
-
-
-
-
36.1
36.1
(3.6)
(6.9)
6.7
-
(0.3)
(4.1)
-
-
-
0.6
0.3
0.9
(3.6)
(6.9)
6.7
0.6
-
(3.2)
(4.1)
37.0
32.9
1.1
(7.2)
-
(6.1)
(1.1)
-
3.6
2.5
-
-
-
-
-
(7.2)
3.6
(3.6)
1,108.3
20.4
(4.1)
1,124.6
-
-
-
-
-
-
-
541.8
541.8
(0.2)
0.4
-
0.2
-
-
(4.4)
(4.4)
(0.2)
0.4
(4.4)
(4.2)
0.2
537.4
537.6
8.5
(14.8)
-
-
(6.3)
(8.5)
-
4.3
-
(4.2)
-
-
-
(117.0)
(117.0)
-
(14.8)
4.3
(117.0)
(127.5)
19
19
19
19
19
18
18
19
19
19
19
18
18
19
19
Balance at 31 December 2011
1,102.0
16.4
416.3
1,534.7
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
45
Iluka Resources Limited
Consolidated statement of cash flows
For the year ended 31 December 2011
Notes
2011
$m
2010
$m
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Income taxes paid
Exploration expenditure
Mining Area C royalty receipts
Net cash inflow from operating activities
Cash flows from investing activities
Payments for property, plant and equipment
Sale of property, plant and equipment
Net cash outflow from investing activities
Cash flows from financing activities
Repayment of borrowings
Proceeds from borrowings
Purchase of treasury shares
Dividends paid
Net cash outflow from financing activities
27
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at 1 January
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at 31 December
9
1,455.2
(749.0)
706.2
5.1
(16.0)
(12.5)
(23.6)
90.3
749.5
(142.5)
3.9
(138.6)
(312.7)
130.7
(21.3)
(117.0)
(320.3)
290.6
30.1
-
320.7
940.4
(776.8)
163.6
1.1
(30.5)
(1.5)
(17.9)
63.9
178.7
(117.2)
9.0
(108.2)
(116.4)
-
(9.8)
-
(126.2)
(55.7)
86.3
(0.5)
30.1
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
46
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
Contents of the notes to the financial statements
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
Summary of significant accounting policies
Critical accounting estimates and judgements
Financial risk management
Segment information
Revenue
Other income
Expenses
Income tax
Cash and cash equivalents
Receivables
Inventories
Property, plant and equipment
Intangible assets
Deferred tax
Payables
Interest-bearing liabilities
Provisions
Contributed equity
Reserves
Dividends
Key Management Personnel
Remuneration of auditors
Retirement benefit obligations
Contingent liabilities
Commitments
Controlled entities and deed of cross guarantee
Reconciliation of profit after income tax to net cash inflow from operating activities
Earnings per share
Share-based payments
Parent entity financial information
Related party transactions
Page
48
59
60
63
66
66
67
68
69
69
69
70
71
72
73
73
75
76
77
78
79
82
82
86
87
88
90
90
91
92
92
47
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
1 Summary of significant accounting policies
The principal accounting policies adopted in the preparation of these consolidated financial statements are set
out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The
financial statements are for the group consisting of Iluka Resources Limited and its subsidiaries.
(a) Basis of preparation
These general purpose financial statements have been prepared in accordance with Australian Accounting
Standards, other authoritative pronouncements of the Australian Accounting Standards Board (AASB), Urgent
Issues Group Interpretations and the Corporations Act 2001. The consolidated financial statements of Iluka
Resources Limited also comply with International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB). These financial statements have been prepared under the
historical cost convention except for financial assets and liabilities which are required to be measured at fair
value.
(b) Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Iluka Resources
Limited (company or parent entity) as at 31 December 2011 and the results of all subsidiaries for the year then
ended. Iluka Resources Limited and its subsidiaries together are referred to in this financial report as the group.
Subsidiaries are all entities (including special purpose entities) over which the group has the power to govern the
financial and operating policies, generally accompanying a shareholding of more than one-half of the voting
rights. The existence and effect of potential voting rights that are currently exercisable or convertible are
considered when assessing whether the group controls another entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are
de-consolidated from the date that control ceases.
Intercompany transactions, balances and unrealised gains on transactions between group companies are
eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of
the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the group.
The group's Employee Share Schemes are administered through a trust. This trust is consolidated, as the
substance of the relationship is that the trust is controlled by the group. Shares in Iluka Resources Limited held
by the trust are disclosed as treasury shares in the consolidated financial statements and deducted from
contributed equity.
(c) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision maker. The chief operating decision maker has been identified as the Managing Director.
(d) Revenue recognition
Mineral sands
Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue
are net of returns, trade allowances, duties and taxes paid.
Product sales are recognised as revenue when there has been a passing of risk to a customer, and;
•
•
•
the product is in a form suitable for delivery and no further processing is required by, or on behalf of,
the group;
the quantity, quality and selling price of the product can be determined with reasonable accuracy; and
the product has been despatched to the customer and is no longer under the physical control of the
group, or the customer has formally acknowledged legal ownership of the product including all inherent
risks, albeit that the product may be stored in facilities the group controls. These products are clearly
identifiable and ready for delivery to the buyer at the time the sale is recognised.
48
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
1 Summary of significant accounting policies (continued)
(d) Revenue recognition (continued)
Gains and losses, including premiums paid or received, in respect of forward sales, options and other deferred
delivery arrangements which hedge anticipated revenues from future production, are deferred and included in
sales revenue in accordance with note 1(l).
Mining Area C royalty income and amortisation of royalty asset
Royalty income is recognised on an accrual basis. Royalty income is received on a quarterly basis and any under
or over accrual applicable to previously recognised royalty income is adjusted for based on the receipt of the
royalty income entitlement. The royalty entitlement asset is an intangible asset and is amortised on a straight-line
basis over its estimated useful life of 25 years, of which 17 years is remaining.
Interest income
Interest income is recognised in the income statement as it accrues, using the effective interest method.
(e)
Income tax
Current income tax
Current tax assets and liabilities for the current and prior year are measured at the amount expected to be
recovered from or paid to the taxation authorities based on the current year’s taxable income. The tax rates and
tax laws used are those that are enacted or substantively enacted by the reporting date in the countries where
the group operates and generates taxable income.
Deferred income tax
Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of
assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them:
• arise from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business
combination and that, at the time of the transaction, affects neither accounting nor taxable profit or loss;
• are associated with investments and loans in controlled entities and the timing of the reversal of the
temporary difference can be controlled and it is probable that the temporary difference will not reverse in
the foreseeable future.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is
probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the
asset is realised or the liability settled, based on tax rates (and laws) that have been enacted or substantively
enacted at the reporting date.
Current and deferred taxes attributable to amounts recognised directly in equity are also recognised directly in
equity and not in the income statement.
Deferred tax assets and liabilities are offset only if a legally enforceable right exists to set off current tax assets
against current tax liabilities and the deferred tax assets and liabilities relate to the same taxation authority.
(f) Goods and Services Tax (''GST'')
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred
is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the
asset or as part of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of
GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the
consolidated balance sheet.
49
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
1 Summary of significant accounting policies (continued)
(f) Goods and Services Tax (''GST'') (continued)
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or
financing activities which are recoverable from, or payable to the taxation authority, are presented as operating
cash flows.
(g) Business combinations
The purchase method of accounting is used to account for all business combinations regardless of whether
equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares
issued or liabilities incurred or assumed at the date of exchange. Acquisition related costs are expensed as
incurred.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted
to their present value as at the date of exchange. The discount rate used is the entity's incremental borrowing
rate at which a similar borrowing could be obtained from an independent financier under comparable terms and
conditions.
Costs relating to the acquisition of new areas of interest are capitalised as either exploration and evaluation
expenditure, development properties or mine properties depending on the stage of development reached at the
date of acquisition. Refer to note 1(n) for more information.
(h) Cash and cash equivalents
For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held
at call with financial institutions, other short-term, highly liquid investments with original maturities of three months
or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of
changes in value, and bank overdrafts. Bank overdrafts are shown within interest-bearing liabilities in current
liabilities on the balance sheet.
(i) Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less
provision for doubtful debts. Trade and other receivables are generally due for settlement no more than 90 days
from the date of recognition.
Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are
written off. A provision for doubtful receivables is established when there is objective evidence that the group will
not be able to collect all amounts due according to the original terms of the receivables. The amount of the
provision is the difference between the asset's carrying amount and the present value of estimated future cash
flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not
discounted if the effect of discounting is immaterial. The amount of the provision is recognised in the income
statement.
(j)
Inventories
Inventories are valued at the lower of weighted average cost and estimated net realisable value.
Weighted average cost includes direct costs and an appropriate portion of fixed and variable overhead
expenditure, including depreciation and amortisation.
Net realisable value is the amount estimated to be obtained from sale in the normal course of business, less any
anticipated costs of completion and the estimated costs necessary to make the sale.
Consumable stores include ilmenite acquired from third parties, coal and other inputs to the synthetic rutile
process.
A regular and ongoing review is undertaken to establish the extent of surplus obsolete or damaged stores, which
are then valued at estimated net realisable value.
50
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
1 Summary of significant accounting policies (continued)
(j)
Inventories (continued)
Inventories expected to be sold within twelve months after the balance sheet date are classified as current
assets, all other inventories are classified as non-current assets.
(k) Foreign currency translation
(i) Functional and presentation currency
The consolidated financial statements are presented in Australian dollars, which is Iluka Resources Limited's
functional and presentation currency.
(ii) Transactions and balances
Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses, including those from the translation at balance
date of foreign currency denominated monetary assets and liabilities, are recognised in profit or loss, except
when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.
The fair value of any forward exchange contracts entered into is determined using forward exchange market
rates at the balance sheet date.
(iii) Group companies
The results and financial position of the United States (US) entities that have a US dollar functional currency are
translated into AUD as follows:
• assets and liabilities are translated at the exchange rate at balance date;
•
• all resulting exchange differences are recognised in the foreign currency translation reserve within other
income and expenses for each month are translated at average exchange rates; and
comprehensive income.
(l) Derivatives and hedging activities
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are
subsequently remeasured to their fair value at balance date. The method of recognising the resulting gain or loss
depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being
hedged. The group designates certain derivatives as either: (1) hedges of the fair value of recognised assets or
liabilities or a firm commitment (fair value hedge); (2) hedges of highly probable forecast transactions (cash flow
hedges); or (3) hedges of a net investment in a foreign operation (investment hedges).
At the inception of the transaction, the group documents the relationship between hedging instruments and
hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions.
The group also documents its assessment, both at transaction inception and on an ongoing basis, of whether the
derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting
changes in fair values or cash flows of hedged items.
(i) Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow
hedges is recognised in equity in the hedging reserve. The gain or loss relating to the ineffective portion is
recognised immediately in the income statement.
Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item affects
profit or loss (for instance when the forecast receipt that is hedged takes place). However, when the forecast
transaction that is hedged results in the recognition of a non-financial asset (for example, inventory) the gains
and losses previously deferred in equity are included in the measurement of the initial cost or carrying amount of
the asset.
When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for
hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised
when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer
expected to occur, the cumulative gain or loss that was reported in equity is immediately reclassified to profit or
loss.
51
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
1 Summary of significant accounting policies (continued)
(l) Derivatives and hedging activities (continued)
(ii) Net investment hedges
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges.
Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity.
The gain or loss relating to the ineffective portion is recognised immediately in profit or loss as other income.
Gains and losses accumulated in equity are reclassified to profit or loss on disposal of the foreign operation.
(iii) Derivatives that do not qualify for hedge accounting
For derivatives that do not qualify for hedge accounting, changes in the fair value are recognised immediately in
profit or loss.
(m) Loans and receivables
Loans and receivables are included in current assets, except for those with maturities greater than 12 months
after the balance sheet date, which are classified as non-current assets.
(n) Exploration, evaluation and development expenditure
Exploration and evaluation expenditure is accumulated separately for each area of interest in accordance with
AASB 6 Exploration for and Evaluation of Mineral Resources. Such expenditure comprises net direct costs and
an appropriate portion of related overhead expenditure.
Expenditure is carried forward when incurred in areas for which the group has rights of tenure and where
economic mineralisation is indicated, but activities have not yet reached a stage which permits a reasonable
assessment of the existence or otherwise of economically recoverable ore reserves and active and significant
operations in relation to the area are continuing. Each such project is regularly reviewed. If the project is
abandoned or if it is considered unlikely the project will proceed to development, accumulated costs to that point
are written off immediately.
Each area of interest is limited to a size related to a known mineral resource capable of supporting a mining
operation.
Identifiable exploration assets acquired from another mining company are recognised as assets at their cost of
acquisition.
Projects are advanced to development status when it is expected that accumulated and future expenditure on
development can be recouped through project development or sale. Capitalised exploration is transferred to Mine
Reserves once the related ore body achieved JORC reserve status (reported in accordance with JORC, 2004)
and has been included in the life of mine plan.
All of the above expenditure is carried forward up to commencement of operations at which time it is amortised in
accordance with the policy stated in note 1(o).
(o) Property, plant and equipment
Land and buildings are shown at historical cost, less subsequent depreciation for buildings. Land is not
depreciated. All other property, plant and equipment is stated at historical cost less depreciation. Historical cost
includes expenditure that is directly attributable to the acquisition of the items. The cost also includes the present
value of the estimated costs of dismantling and removing the asset and restoring the site on which it is located.
Direct costs associated with the commissioning of plant and equipment are capitalised and included in property,
plant and equipment. Pre-commissioning costs in testing the processing plant are also capitalised.
Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate,
only when it is probable that future economic benefits associated with the item will flow to the group and the cost
of the item can be measured reliably. As set out in note 1(v), in the case of provisions for assets which remain in
use, adjustments to the carrying value of the provision are offset by a change in the carrying value of the related
asset.
52
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
1 Summary of significant accounting policies (continued)
(o) Property, plant and equipment (continued)
Depreciation and amortisation of mine buildings, reserves and development and mine specific machinery and
equipment is provided for over the life of the relevant mine or asset, whichever is the shorter. Mine specific
machinery and equipment refers to machinery and equipment for which the economic useful life cannot extend
beyond the life of its host mine. Depreciation and amortisation of mine buildings, reserves and development and
other non-mine specific plant and equipment is determined on a straight-line basis as the consumption of
economic benefits is not expected to vary over the operational life of the asset. Depreciation of mine specific
plant is determined on a unit of production basis to more appropriately match depreciation charges with expected
pattern of consumption of economic benefit of the asset. The basis of depreciation of each asset is reviewed
annually and changes to the basis of depreciation are made if the straight line or units of production basis is no
longer considered to represent the expected pattern of consumption of economic benefits. The expected useful
lives are as follows:
- Mine buildings
- Mine specific machinery and equipment
- Mine specific plant
- Reserves and development
- Other non-mine specific plant and equipment
the shorter of applicable mine life and 25 years
the applicable mine life
units of production
the applicable mine life
3-25 years
The reserves and life of each mine and the remaining useful life of each class of asset are reassessed at regular
intervals and the depreciation rates adjusted accordingly.
(p) Maintenance and repairs
Certain items of plant used in the primary extraction, separation and secondary processing of extracted minerals
are subject to a major overhaul on a cyclical basis. Costs incurred during such overhauls are characterised as
either in the nature of capital or in the nature of repairs and maintenance. Work performed may involve:
(i)
the replacement of a discrete sub-component asset, in which case an asset addition is recognised and the
book value of the replaced item is written off; and
(ii) demonstrably extending the useful life or functionality of an existing asset, in which case the relevant cost
is added to the capitalised cost of the asset in question.
Costs incurred during a major cyclical overhaul which do not constitute (i) or (ii) above, are written off as repairs
and maintenance as incurred. Costs qualifying for capitalisation under (i) or (ii) above are subsequently
depreciated in accordance with note 1(o).
General repairs and maintenance which are not characterised as part of a major cyclical overhaul are expensed
as incurred.
(q) Non-current assets constructed by the group
The cost of non-current assets constructed by the group includes the cost of all materials used in construction,
direct labour on the project, project management costs, borrowing costs incurred during construction of assets
with a construction period greater than twelve months and an appropriate proportion of variable and fixed
overheads.
Borrowing costs included in the cost of non-current assets are those costs that would have been avoided if the
expenditure on the construction of the assets had not been made and are capitalised in accordance with the
policy stated in note 1(u).
53
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
1 Summary of significant accounting policies (continued)
(r) Recoverable amount of non-current assets
Depreciable assets that are subject to amortisation are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for
the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the
higher of an asset's fair value less costs to sell (FVLCS) and value-in-use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (Cash
Generating Units (refer note 2)). Non-financial assets that suffered an impairment are reviewed for possible
reversal of the impairment at each reporting date.
(s) Trade and other payables
These amounts represent liabilities for goods and services provided to the group prior to the end of the financial
year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition.
The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash
flows at the current market interest rate that is available to the group for similar financial instruments.
(t) Borrowings
Borrowings are initially recognised at cost, net of transaction costs incurred and are subsequently measured at
amortised cost. Any difference between the net proceeds and the redemption amount is recognised in profit or
loss over the period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of
the liability for at least 12 months after the balance sheet date.
(u) Borrowing costs
Borrowing costs include interest on borrowings, including amounts paid or received on interest rate swaps,
amortisation of deferred borrowing costs, and finance lease charges.
Borrowing costs are recognised as expenses in the period in which they are incurred, except where they are
included in the costs of qualifying assets which take more than 12 months to prepare for their intended use.
The capitalisation rate used to determine the amount of borrowing costs to be capitalised is the weighted average
interest rate applicable to the entity's outstanding borrowings during the year. No borrowing costs were
capitalised in 2011 or 2010.
(v) Rehabilitation and mine closure costs
The group has obligations to dismantle, remove, restore and rehabilitate certain items of property, plant and
equipment.
The cost of an asset includes the present value of the estimated costs of dismantling and removing the asset and
restoring the site on which it is located.
A provision is raised for the present value of the estimated cost of settling the rehabilitation and restoration
obligations existing at balance date. Those costs that relate to rehabilitation and restoration obligations arising
from the production process are recognised in production costs.
As the value of the provision represents the discounted value of the present obligation to restore, dismantle and
rehabilitate, the increase in the provision due to passage of time is recognised as a finance cost.
The provisions are reassessed at least annually. A change in any of the assumptions used to determine the
provisions could have a material impact on the carrying value of the provision. In the case of provisions for assets
which remain in use, adjustments to the carrying value of the provision are offset by a change in the carrying
value of the related asset. Where the provisions are for assets no longer in use or for obligations arising from the
production process, any adjustment is reflected directly in profit or loss.
54
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
1 Summary of significant accounting policies (continued)
(w) Employee benefits
(i) Wages and salaries, annual leave and sick leave
Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave
expected to be settled within 12 months of the reporting date are recognised as current payables.
Non-accumulating sick leave, parental leave and other ex-gratia leave is recognised as an expense when taken.
(ii) Long service leave
The liability for long service leave is recognised in the provision for employee benefits and measured as the
present value of expected future payments to be made in respect of services provided by employees up to the
reporting date. Consideration is given to expected future wage and salary levels, experience of employee
departures and periods of service. Expected future payments are discounted using market yields at the reporting
date on national government bonds with terms to maturity and currency that match, as closely as possible, the
estimated future cash outflows.
(iii) Termination benefits
Liabilities for employee termination benefits associated with restructurings are brought to account when a
detailed restructuring plan has been developed.
(iv) Retirement benefit obligations
The group has a defined benefit section and an accumulation type benefits section of the ING Master Trust in
Australia, as well as separate defined benefit plans for US employees. The defined benefit plans provide defined
lump sum benefits based on years of service and final average salary. The accumulation type benefits section
receives fixed contributions from group companies and the group's legal or constructive obligation is limited to
these contributions.
A liability or asset in respect of defined benefit superannuation plans is recognised in the balance sheet and is
measured as the present value of the defined benefit obligation at the reporting date, plus actuarial gains (less
actuarial losses), less the fair value of the superannuation fund’s assets at that date and any unrecognised past
service cost. The present value of the defined benefit obligation is based on expected future payments which
arise from membership of the fund to the reporting date, calculated annually by independent actuaries using the
projected unit credit method. Consideration is given to expected future wage and salary levels, experience of
employee departures and periods of service.
Expected future payments are discounted using market yields at the end of the reporting period on national
government bonds with terms to maturity and currency that match, as closely as possible, the estimated future
cash outflows.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are
charged or credited to other comprehensive income in the period in which they occur.
Past service costs are recognised immediately in profit or loss, unless the changes to the superannuation fund
are conditional on the employees remaining in service for a specified period of time (the vesting period). In this
case, the past service costs are amortised on a straight-line basis over the vesting period.
Future taxes that are funded by the group and are part of the provision of the existing benefit obligation (e.g.
taxes on investment income and employer contributions) are taken into account in measuring the net liability or
asset.
Contributions to the accumulation fund are recognised as an expense as they become payable.
(v) Share-based payments
Share-based compensation benefits are provided to employees via incentive plans, the Directors', Executives
and Employees Share Acquistion Plan and the Employee Share Ownership scheme. Information relating to these
schemes is set out in note 29 with additional information in the Remuneration Report.
55
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
1 Summary of significant accounting policies (continued)
(w) Employee benefits (continued)
The fair value of entitlements offered has been determined by the Directors, in accordance with the measurement
criteria of AASB 2 Share-based Payment.
The fair value of shares is determined to be the volume weighted average price five days after results are
announced to the market. The fair value is recognised as an expense through profit or loss on a straight-line
basis between the grant date and the vesting date for each respective plan.
The fair value of share rights is independently determined using a Black-Scholes share right pricing model that
takes into account the exercise price, the term of the share right, the impact of dilution, the share price at grant
date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest
rate of the term of the share right. The fair value of the Long Term Incentive Plan (LTIP) is independently
determined using a Monte Carlo simulation to model Iluka Resources Limited's predicted share prices against the
comparator group performance at vesting date.
A credit to the share-based payments expense arises where unvested entitlements lapse on resignation or the
non-fulfilment of market vesting conditions.
Shares provided to employees under the Employee Share Ownership scheme are purchased on-market, with the
purchase cost being recognised as an employee benefits expense.
(x) Leases
Leases in which a significant portion of the risks and rewards of ownership are not transferred to the group as
lessee are classified as operating leases (refer to note 25). Payments made under operating leases (net of any
incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the
lease. The group only has operating leases.
(y) Contributed equity
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in
proportion to the number of and amounts paid on the shares held. On a show of hands, every holder of ordinary
shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled
to one vote.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction,
net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options for the
acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration.
(z) Dividends
Provision is made for the amount of any dividend declared on or before the end of the financial year but not
distributed at the balance sheet date.
(aa) Earnings per share
(i) Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company,
excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary
shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the
year and excluding treasury shares.
(ii) Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into
account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary
shares including share rights, and the weighted average number of shares assumed to have been issued for no
consideration in relation to dilutive potential ordinary shares.
56
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
1 Summary of significant accounting policies (continued)
(ab)Rounding of amounts
The company is of a kind referred to in Class Order 98/100, issued by the Australian Securities and Investments
Commission, relating to the "rounding off" of amounts in the financial statements. Amounts in the financial
statements have been rounded off in accordance with that Class Order to the nearest hundred thousand dollars,
or in certain cases, the nearest thousand dollars and the nearest dollar.
(ac) Parent entity financial information
The financial information for the parent entity, Iluka Resources Limited, disclosed in note 30 has been prepared
on the same basis as the consolidated financial statements, except as set out below.
Investments in subsidiaries
Investments in subsidiaries are accounted for at cost.
Tax consolidation legislation
Iluka Resources Limited and its wholly-owned Australian controlled entities have implemented the tax
consolidation legislation as of 1 January 2004. On adoption of the tax consolidation legislation, the entities in the
tax consolidation group entered into a tax sharing agreement which limits the joint and several liability of the
wholly-owned entities in the case of a default by the head entity, Iluka Resources Limited.
(ad)New accounting standards and interpretations
Certain new accounting standards and interpretations have been published that are not mandatory for 31
December 2011 reporting periods. The group’s assessment of the impact of those new standards and
interpretations considered relevant to the group is set out below. The group does not intend to early adopt any of
the new standards or interpretations.
(i) AASB Interpretation 20 Stripping Costs in the Production Phase of Surface Mine and AASB 2011-12
Amendments to Australian Standards arising from Interpretation 20 (effective 1 January 2013)
Interpretation 20 sets out the accounting for overburden waste removal (stripping) costs in the production phase
of a mine. It states that these costs can only be recognised as an asset if they can be attributed to an identifiable
component of the ore body, can be measured reliably and it is probable that future economic benefits will flow to
the entity. The costs will be amortised over the life of the identified ore body. The group has not yet determined
the extent of impact, if any, on the amounts recognised in the financial statements.
(ii) AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements, AASB 12 Disclosure of Interests
in Other Entities, revised AASB 127 Separate Financial Statements and AASB 128 Investments in
Associates and Joint Ventures and AASB 2011-7 Amendments to Australian Accounting Standards arising
from the Consolidation and Joint Arrangements Standards (effective 1 January 2013)
This suite of five new and amended standards addresses the accounting for joint arrangements, consolidated
financial statements and associated disclosures.
• AASB 10 introduces a new definition of control of an entity, which widens the scope of the standard. It also
introduces new disclosure requirements for interests in other entities.
• AASB 11 classifies a joint arrangement as either a joint operation or a joint venture, based on the
contractual rights and obligations of that joint arrangement. It also requires a joint venture to be accounted
for using the equity method.
• AASB 12 includes all of the disclosures that are required related to an entity’s involvement with other
entities as reported under AASB 10 and AASB 11. Other entities would include subsidiaries, joint
arrangements, associates and structured entities.
• AASB 127 now deals solely with separate financial statements.
• Amendments to AASB 128 provide clarification that an entity continues to apply the equity method and
does not remeasure its retained interest as part of ownership changes where a joint venture becomes an
associate, and vice versa. The amendments also introduce a “partial disposal” concept.
57
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
1 Summary of significant accounting policies (continued)
(ad)New accounting standards and interpretations (continued)
Application of AASB 10, AASB 11, AASB 127 and AASB 128 are not expected to have a material impact on the
entity’s financial statements. Application of AASB 12 will not affect any of the amounts recognised in the financial
statements but may impact the type of information disclosed.
(iii) AASB 9 Financial Instruments, AASB 2009-11 Amendments to Australian Accounting Standards arising from
AASB 9 and AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9
(December 2010) (effective from 1 January 2015)
AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets
and financial liabilities. The group has not yet determined the extent of the impact, if any.
(iv) AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards
arising from AASB 13 (effective 1 January 2013)
AASB 13 establishes a single source of guidance for determining the fair value of assets and liabilities. It includes
guidance on how to determine fair value and expands the disclosure requirements for all assets and liabilities
carried at fair value. The new standard it not expected to have a material affect on the entity’s financial
statements.
(v) AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management
Personnel Disclosure Requirements (effective 1 July 2013)
These amendments remove the individual key management personnel disclosure requirements from AASB 124
Related Party Disclosures. While this will reduce the disclosures that are currently required in the notes to the
financial statements, it will not affect any of the amounts recognised in the financial statements.
58
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
2 Critical accounting estimates and judgements
(a) Critical accounting estimates and assumptions
The group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by
definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are
discussed below.
Estimates and judgements are continually evaluated and are based on historical experience and other factors,
including expectations of future events that may have a financial impact on the entity and that are believed to be
reasonable under the circumstances.
Impairment of assets
(i)
The recoverable amount of each Cash Generating Unit (CGU) is determined as the higher of value-in-use and
fair value less costs to sell. Where there is no binding sale agreement, fair value less costs to sell is based on the
best information available to reflect the amount the group could receive for the CGU in an arms length transaction
and has been estimated on the basis of discounted present value of the future cash flows.
The estimates of future cash flows for each CGU are based on significant assumptions including:
•
•
•
•
•
•
estimates of the quantities of mineral reserves and ore resources for which there is a high degree of
confidence of economic extraction and the timing of access to these reserves and ore resources;
future production levels and the ability to sell that production;
future product prices based on the group's assessment of short and long term prices for each of the
key products;
future exchange rates for the Australian dollar compared to the US dollar using external forecasts by
recognised economic forecasters;
future cash costs of production, sustaining capital expenditure, rehabilitation and mine closure; and
the asset specific discount rate applicable to the CGU.
Given the nature of the group's mining activities, future changes in assumptions upon which these estimates are
based may give rise to material adjustments to the current or prior years. This could lead to a reversal of part, or
all, of impairment charges recorded in the current or prior years, or the recognition of additional impairment
charges in the future.
Due to the nature of the assumptions and their significance to the assessment of the recoverable amount of each
CGU, relatively modest changes in one or more assumptions could require a material adjustment (negative or
positive) to the carrying value of the related non-current assets within the next reporting period.
The inter-relationships of the significant assumptions upon which estimated future cash flows are based,
however, are such that it is impracticable to disclose the extent of the possible effects of a change in a key
assumption in isolation.
On the basis of the policy set out in note 1(r), prior year impairments of $35.6 million (2010: $nil) were reversed
during the year (refer to note 7). The amount relates to the depreciated value of impairment charges recognised
in 2005 during development of the Murray Basin operation and also for the Cataby deposit. The reversal reflects
significant increases in forecast product prices and an upgrade to the Cataby reserve. The recoverable amount
was determined using fair value less cost to sell (FVLCS).
Following these reversals, a total of $136.7 million (2010: $177.9 million) of impairments from prior periods
remain, all of which are attributable to the Mine Reserves and Development component of Property Plant and
Equipment. The prior impairments may be subject to reversal in the event of the ore bodies to which they relate
being re-instated in the group's mine plans.
59
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
2 Critical accounting estimates and judgements (continued)
(a) Critical accounting estimates and assumptions (continued)
(ii) Rehabilitation and mine closure provisions
These provisions represent the discounted value of the present obligation to restore, dismantle and rehabilitate
certain items of property, plant and equipment. The discounted value reflects a combination of management's
assessment of the nature and extent of the work required, the future cost of performing the work required, the
timing of the cash flows and the discount rate. The discount rate applied to the future rehabilitation cash flows
was 6.0 per cent (2010: 6.0 per cent).
The total rehabilitation and mine closure provision of $426.9 million (2010: $347.4 million) includes $243.1 million
(2010: $192.4 million) for assets no longer in use or for obligations arising from production process outputs.
Changes to the provisions for assets no longer in use are charged to profit or loss and amounted to $34.8 million
(2010: $8.5 million). The charges are reported within rehabilitation and holding costs for closed sites in note 7.
The majority of the charge relates to a $33.9 million increase in the rehabilitation provision for the former
operation in Florida following a reassessment of the remaining work required. The balance of the charge relates
mainly to maintenance and other costs for closed sites in Western Australia, including the Eneabba mining and
the Narngulu synthetic rutile operations prior to their resumption in the fourth quarter of 2011.
3 Financial risk management
The group's activities expose it to a variety of financial risks: market risk (including currency risk and interest rate
risk), credit risk and liquidity risk. The group's overall risk management program focuses on the unpredictability of
financial markets and seeks to minimise potential adverse effects on the financial performance of the group.
Financial risk management is managed by a central treasury department under policies approved by the Board of
Directors.
(a) Market risk
(i) Foreign exchange risk
Foreign exchange risk arises when commercial transactions and recognised assets and liabilities are
denominated in a currency other than Australian dollars.
The group operates internationally and is exposed to foreign exchange risk arising predominantly from currency
exposures to the US dollar. Balance sheet translation risk is managed by borrowing in US dollars to provide a
hedge for the net US dollar investment in the US operation and the US dollar receivables from Australian sales.
The table below summarises financial assets and liabilities denominated in foreign currencies that give rise to an
accounting exposure in profit or loss that form part of the balance sheet carrying values, expressed in US dollars.
Cash and cash equivalents
Receivables
Payables
Interest-bearing liabilities, net of swap
31 December
2011
USD
$m
31 December
2010
USD
$m
1.2
200.3
(6.6)
(110.0)
84.9
1.3
123.1
(2.6)
(115.0)
6.8
60
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
3 Financial risk management (continued)
(a) Market risk (continued)
Group Sensitivity
The average US dollar exchange rate applied during the year was 1.0323 (2010: 0.9200). The US dollar spot rate
at 31 December 2011 was 1.0152 (31 December 2010: 1.0176).
At 31 December 2011, if the foreign currency exchange rates strengthened/(weakened) against the functional
currency by 10 per cent (2010: 10 per cent), with all other variables held constant, the group's post-tax profit for
the year would have increased by $8.3 million/decreased by $6.7 million (2010: increased $4.2 million/decreased
$3.4 million), mainly as a result of foreign exchange gains/losses on translation of US dollar denominated trade
receivables, payables and borrowings.
Equity would have decreased $1.5 million/increased $1.3 million (2010: decreased $3.4 million/increased $2.8
million) if the foreign currency exchange rates strengthen/(weakened) against the functional currency by 10 per
cent (2010: 10 per cent), arising mainly from US dollar debt designated as a net investment hedge of the US
operation.
Interest rate risk
(ii)
Interest rate risk arises from the group’s borrowings and cash deposits. When managing interest rate risk the
group seeks to mitigate the interest rate exposure attributable to borrowings by utilising a blend of floating and
fixed rate debt. During 2011 and 2010, the group's borrowings at variable rates were denominated in Australian
dollars and US dollars.
As at 31 December 2011 all outstanding term deposits had a maturity of less than 90 days.
Borrowings at variable rates expose the group to cash flow interest rate risk, while borrowings at fixed rates
expose the group to fair value interest rate risk.
The group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss,
and the group does not designate derivatives (interest rate swaps) as hedging instruments under a fair value
hedge accounting model.
At 31 December 2011, if interest rates for the full year were -/+ 1 per cent from the year-end rate with all other
variables held constant, post-tax profit for the year would have been $1.1million lower/higher (2010: $2.1 million
higher/lower), as a result of moving from a net debt position to a net cash position. The sensitivity is based on net
debt at 31 December 2011 assuming that the net debt balance stays constant throughout the year.
(b) Credit risk
Credit risk arises from cash and cash equivalents, as well as credit exposure to customers.
The group has policies in place to ensure that sales of products and services are made to customers with an
appropriate credit history. The group also maintains an insurance policy to assist in managing the credit risk of its
customers and therefore has no significant concentrations of credit risk. Of the total receivables balance of
$215.5 million, $156.2 million is covered by an insurance policy and $8.6 million by letters of credit. Of the
amount covered by insurance, the maximum amount that can be claimed is $57.0 million. These receivables are
considered low risk. Derivative counterparties and cash transactions are limited to high credit quality financial
institutions and policies limit the amount of credit exposure to any one financial institution.
The group has policies in place to ensure that cash deposits are held with counterparties with an appropriate
credit rating. Credit exposure limits are approved by the Board based on credit and sovereign ratings.
(c) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash or undrawn credit facilities to meet the
operating requirements of the business. This is managed through committed undrawn facilities as shown in note
16 and prudent cash flow management.
61
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
3 Financial risk management (continued)
(c) Liquidity risk (continued)
Maturities of financial liabilities
The tables below analyse the group financial liabilities and net settled derivative financial instruments into
maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The
amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months
equal their carrying balances as the impact of discounting is not significant. The fair value of interest rate swaps
is calculated as the present value of the estimated future cash flows.
Weighted
average rate
Less than
1 year
$m
Between
1 and 2
years
$m
Between
2 and 5
years
$m
Total
contractual
cash flows
$m
Carrying
amount
liabilities
$m
%
1.3
5.0
1.1
3.1
4.2
88.9
58.9
147.8
-
21.3
21.3
90.0
83.3
173.3
88.7
76.6
165.3
At 31 December 2011
Non-derivatives
Interest-bearing variable rate
Interest-bearing fixed rate
Total non-derivatives
Derivatives
Interest rate swaps (net receivable)
0.7
0.3
-
1.0
-
At 31 December 2010
Non-derivatives
Interest-bearing variable rate
Interest-bearing fixed rate
Total non-derivatives
Derivatives
4.8
6.2
11.5
34.9
46.4
11.5
3.1
14.6
241.1
80.2
321.3
264.1
118.2
382.3
238.9
106.1
345.0
Interest rate swaps (net receivable)
1.2
1.2
0.5
2.9
-
62
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
4 Segment information
(a) Description of segments
Operating segments are reported in a manner that is consistent with the internal reporting provided to the
Managing Director, who is considered the chief operating decision maker, for the purpose of making decisions
regarding the allocation of resources and the monitoring of performance. Cash, debt and tax balances are
managed at a group level together with exploration and other corporate activities and are not allocated to
segments. The segments are unchanged from those at 31 December 2010, except for the introduction of
Australia (AUS), being an aggregate of Eucla/Perth Basin (E/PB) and Murray Basin (MB).
Eucla/Perth Basin (E/PB) comprises the integrated mineral sands mining and processing operations in Western
Australia and South Australia. Material is mined from various deposits in the South West and Mid West of
Western Australia (Perth Basin), together with the Jacinth-Ambrosia deposit in South Australia (Eucla Basin)
which was commissioned in 2010. The mined material is processed predominantly at facilities in the South West
and Mid West of Western Australia to produce saleable products.
Murray Basin (MB) comprises the integrated mineral sands mining and processing operations in Victoria,
including the Murray Basin Stage 2 development which was commissioned in 2010.
Australia (AUS) The mineral sands operations in Australia have become increasingly integrated over the past
two years and are now managed as a single operation. Accordingly, operational performance of the Eucla/Perth
Basin and Murray Basin operations are reported as a combined Australia segment.
United States (US) comprises the integrated mineral sands mining and processing operations in Virginia.
Mining Area C (MAC) comprises a deferred consideration iron ore royalty interest over certain mining tenements
in Australia operated by BHP Billiton Iron Ore.
Where finished product capable of sale to a third party is transferred between operating segments, the transfers
are made at arms length prices. No such transfers were made in 2011 or 2010. Any transfers of intermediate
products between operating segments are made at cost.
(b) Segment information
2011
E/PB
$m
MB
$m
AUS
$m
US
$m
MAC
$m
Total
$m
Total segment sales to external customers
829.2
571.6
1,400.8
135.9
-
1,536.7
Total segment result
421.0
291.7
712.7
40.3
88.1
841.1
Segment assets
Segment liabilities
1,078.3
937.3
2,015.6
64.9
25.6
2,106.1
353.7
150.4
504.1
71.4
Additions to property, plant and equipment
and other non-current segment assets
72.7
115.0
187.7
1.4
Depreciation and amortisation expense
64.0
147.4
211.4
10.4
0.4
222.2
63
-
-
575.5
189.1
-
-
452.3
80.1
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
4 Segment information (continued)
(b) Segment information (continued)
2010
E/PB
$m
MB
$m
AUS
$m
US
$m
MAC
$m
Total
$m
Total segment sales to external customers
468.7
281.4
750.1
124.3
-
874.4
Total segment result
21.8
(0.9)
20.9
22.7
75.9
119.5
Segment assets
Segment liabilities
981.4
771.8
1,753.2
63.3
27.7
1,844.2
343.1
71.8
414.9
37.4
Additions to property, plant and equipment
and other non-current segment assets
45.9
23.3
69.2
10.9
Depreciation and amortisation expense
86.1
113.0
199.1
17.0
0.4
216.5
Segment revenue is derived from sales to external customers domiciled in various geographical regions.
Details of segment revenue by location of customers are as follows:
Asia
Europe
North America
Australia
Other Countries
Segment sales to external customers
Hedging gains
Sale of goods
Notes
5
2011
$m
745.5
442.6
327.1
2.0
19.5
1,536.7
-
1,536.7
2010
$m
386.3
178.2
216.2
44.2
49.5
874.4
12.2
886.6
Revenue of $195.7 million is derived from one external customer from all mineral sands segments, which
individually accounts for greater than 10 per cent of segment revenue (2010: revenues of $168.7 million was
derived from one external customer from all mineral sands segments).
64
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
4 Segment information (continued)
(b) Segment information (continued)
Segment result is reconciled to the profit before income tax as follows:
Segment result
Hedging gains
Interest income
Other income
Marketing and selling
Corporate and other costs
Depreciation
Product and technical development
Exploration and evaluation
Interest and finance charges
Net foreign exchange gains (losses)
Ineffective gains of changes in fair value of cash flow hedges
Profit before income tax
2011
$m
841.1
-
6.2
3.9
(6.9)
(35.5)
(2.4)
(11.9)
(19.0)
(15.2)
0.4
-
760.7
Total segment assets and total segment liabilities are reconciled to the balance sheet as follows:
Segment assets
Corporate assets
Cash and cash equivalents
Deferred tax assets
Current tax receivable
Total assets as per the balance sheet
Segment liabilities
Corporate liabilities
Deferred tax liabilities
Current tax liabilities
Interest-bearing liabilities
Total liabilities as per the balance sheet
2,106.1
13.2
320.7
13.3
0.5
2,453.8
575.5
20.9
13.0
145.7
164.0
919.1
2010
$m
119.5
12.2
1.1
1.8
(5.4)
(30.3)
(2.5)
(5.7)
(14.5)
(33.0)
(4.9)
1.6
39.9
1,844.2
10.3
30.1
55.3
-
1,939.9
452.3
20.3
-
-
342.7
815.3
65
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
5 Revenue
Sales revenue
Sale of goods
Other revenue
Mining Area C royalty income
Interest
6 Other income
Net gain on sale of land
Net gain on disposal of property, plant and equipment
Sundry income
Net ineffective gains from changes in fair value of cash flow hedges
Foreign exchange gains
2011
$m
2010
$m
1,536.7
886.6
88.5
6.2
94.7
76.3
1.1
77.4
1,631.4
964.1
2011
$m
1.9
1.0
4.6
-
0.4
7.9
2010
$m
0.8
3.3
3.3
1.6
-
9.0
66
7 Expenses
Expenses
Cash costs of production
Depreciation/amortisation
Inventory movement
Cost of sales of goods
Restructure and idle capacity charges
Rehabilitation and holding costs for closed sites
Impairment reversal
Government royalties
Marketing and selling costs
Technical support, product development and major projects
Exploration expenditure
Corporate and other costs
Net foreign exchange losses
Expenses include:
Defined contribution superannuation
Defined benefits superannuation
Employee benefits (excluding share-based payments)
Writedown of year end stores inventory to net realisable value
Share-based payments
Operating leases
Finance Costs
Interest charges
Bank fees and similar charges
Amortisation of deferred borrowing costs
Rehabilitation and restoration unwind
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
Notes
2011
$m
2010
$m
2(a)
628.9
224.6
(147.7)
705.8
8.5
36.2
(35.6)
25.2
34.5
13.7
19.0
35.5
-
842.8
8.4
0.6
115.8
3.5
7.7
9.1
543.8
219.0
2.9
765.7
13.2
10.4
-
17.1
24.1
5.6
14.5
30.3
4.9
885.8
9.8
0.6
127.0
0.4
3.6
8.1
12.1
2.1
1.0
20.6
35.8
(1,023.8)
29.7
2.3
1.0
14.3
47.3
(1,082.6)
67
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
8 Income tax
(a)
Income tax expense
Current tax
Deferred tax
Over-provided in prior years
Notes
14
(b) Numerical reconciliation of income tax expense to prima facie tax payable
Profit before income tax expense
Tax at the Australian tax rate of 30% (2010: 30%)
Tax effect of amounts not deductible (taxable) in calculating taxable income:
Australian research and development and investment allowance
US tax concessions
Other items
Difference in overseas tax rates
Over-provision in prior years
Income tax expense
(c) Tax expense relating to items of other comprehensive income
Changes in fair value of foreign exchange cash flow hedges
Currency translation of US operation
Actuarial gains/(losses) on retirement benefit obligation
(d) Tax losses
2011
$m
156.6
66.3
(4.0)
218.9
760.7
228.2
(1.3)
(1.6)
0.9
226.2
(3.3)
(4.0)
218.9
-
0.1
1.1
1.2
2010
$m
-
7.6
(3.8)
3.8
39.9
12.0
(2.7)
-
0.2
9.5
(1.9)
(3.8)
3.8
1.5
0.7
-
2.2
Unused capital losses for which no deferred tax asset has been recognised are approximately $87.7 million
(2010: $94.7 million) (tax at the Australian rate of 30%: $26.3 million (2010: $28.4 million)). The benefit of these
unused capital losses will only be obtained if sufficient future capital gains are made and the losses remain
available under tax legislation.
(e) Franking Credits
Franking credits available for future years based on a tax rate of 30 per cent are $145.7 million (2010: $nil based
on a tax rate of 30 per cent). These amounts include franking credits that will arise from the payment of current
income tax in Australia as provided for in these financial statements.
68
9 Cash and cash equivalents
Cash at bank and in hand
Deposits at call
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
2011
$m
15.9
304.8
320.7
2010
$m
28.2
1.9
30.1
Cash and deposits are at floating interest rates between 0.0 per cent and 5.93 per cent (2010: 0.0 per cent and
4.25 per cent) on US dollar and Australian dollar denominated deposits, at a weighted average interest rate of
5.66 per cent (2010: 2.49 per cent).
10 Receivables
Trade receivables
Other receivables
Mining Area C royalty receivable
Prepayments
2011
$m
215.5
13.5
18.8
8.3
256.1
2010
$m
130.9
6.5
20.6
6.8
164.8
No trade receivables are impaired. $13.1 million are overdue, of which $7.6 million are less than 28 days
overdue. Due to the short term nature of these receivables, their carrying amount approximates fair value.
11 Inventories
Current
Consumable stores
Work in progress
Finished goods
Total current inventories
Non-current
Work in progress
All inventories are held at cost.
69
2011
$m
2010
$m
43.0
172.3
160.9
376.2
27.8
83.1
90.1
201.0
49.9
56.6
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
12 Property, plant and equipment
Land &
Buildings
$m
Notes
Plant,
Machinery
&
Equipment
$m
Mine
Reserves &
Development
$m
Exploration
&
Evaluation
$m
Major Project
Developments
$m
Total
$m
At 1 January 2010
Cost
Accumulated depreciation*
Opening written down value
Additions
Disposals
Depreciation/amortisation
Foreign exchange
differences
Transfers/reclassifications
Closing written down value
At 31 December 2010
Cost
Accumulated depreciation
Closing written down value
Year ended 31 December
2011
Opening written down value
Additions
Disposals
Impairment reversal
Depreciation/amortisation
Foreign exchange
differences
Transfers/reclassifications
Closing written down value
At 31 December 2011
Cost
Accumulated depreciation*
Closing written down value
7
85.0
(9.2)
75.8
2.1
(4.8)
(2.7)
(0.1)
20.8
91.1
1,439.4
(815.4)
624.0
27.6
(0.3)
(125.0)
(5.7)
452.2
972.8
754.7
(493.4)
261.3
37.4
-
(88.5)
(0.3)
126.5
336.4
103.1
(12.0)
91.1
1,729.9
(757.1)
972.8
642.0
(305.6)
336.4
91.1
2.4
(1.0)
2.6
(2.8)
-
-
92.3
972.8
84.8
(1.6)
21.8
(105.4)
(0.1)
10.0
982.3
107.0
(14.7)
92.3
1,836.5
(854.2)
982.3
336.4
103.7
-
11.2
(115.8)
-
(4.2)
331.3
741.0
(409.7)
331.3
20.4
-
20.4
6.9
(1.4)
-
-
(1.2)
24.7
24.7
-
24.7
24.7
5.8
-
-
(0.2)
-
(5.8)
24.5
24.7
(0.2)
24.5
585.1
-
585.1
2,884.6
(1,318.0)
1,566.6
13.2
-
-
87.2
(6.5)
(216.2)
-
(598.3)
-
(6.1)
-
1,425.0
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,499.7
(1,074.7)
1,425.0
1,425.0
196.7
(2.6)
35.6
(224.2)
(0.1)
-
1,430.4
2,709.2
(1,278.7)
1,430.4
* includes cumulative impairment charges
Assets in the course of construction
Included in property, machinery and equipment and mine reserves and development are amounts totalling $75.5
million and $22.7 million respectively (2010: $6.5 million and $12.1 million respectively) relating to assets under
construction which are currently not being depreciated as the assets are not ready for use.
Assets not being depreciated
Included in mine reserves and development are amounts totalling $98.4 million (2010: $50.1 million) which have
not been depreciated as mining of the related area of interest has not yet commenced.
70
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
12 Property, plant and equipment (continued)
Project development expenditure
This category was used to capture the costs relating to the Murray Basin Stage 2 and Jacinth-Ambrosia projects
which involved significant levels of capital expenditure for the group at the time of their development. Both of
these projects were commissioned during 2010. Expenditure on all other capital projects in 2010 and 2011 are
classified within the other categories of property, plant and equipment and form part of additions; this approach is
expected to be applied to future capital expenditure except in the instance of a significant project.
Rehabilitation
Additions in plant, machinery and equipment and mine reserves and development also reflect changes in the
provision for rehabilitation and mine closure totalling $51.1 million (refer to note 17).
13 Intangible assets
MAC royalty asset
Cost
Accumulated amortisation
Net written down value
2011
$m
10.0
(3.3)
6.7
2010
$m
10.0
(2.9)
7.1
71
14 Deferred tax
Deferred tax asset amounts recognised in profit or loss
Employee benefits
Rehabilitation provisions
Tax revenue losses
Other
Gross deferred tax assets
Deferred tax asset amounts recognised directly in equity
Share issue costs
Actuarial losses on retirement benefit obligations
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
2011
$m
2010
$m
6.9
126.8
-
3.9
137.6
1.0
1.1
2.1
6.3
101.6
62.4
6.6
176.9
1.7
-
1.7
Amount offset to deferred tax liabilities pursuant to set-off provision
Net deferred tax assets
(126.4)
13.3
(123.3)
55.3
Deferred tax liability amounts in profit or loss
Depreciation/amortisation
Foreign currency exchange
Receivables
Inventory
Other
Gross deferred tax liabilities
Amount offset to deferred tax assets pursuant to set-off provision
Net deferred tax liabilities
Movements:
Balance at 1 January
Credited to the income statement
Over provision in prior years
Charged directly to equity
Cash payment of franking deficits tax
Balance at 31 December
(103.5)
(6.1)
(6.2)
(21.6)
(2.0)
(139.4)
126.4
(13.0)
55.3
(66.3)
3.7
7.6
-
0.3
(103.7)
(3.6)
(6.4)
(7.2)
(2.4)
(123.3)
123.3
-
53.7
(7.6)
2.9
4.8
1.5
55.3
Deferred tax assets of $17.7 million (2010: $77.0 million) and deferred tax liabilties of $25.3 million (2010: $19.6
million) are expected to be recovered in less than 12 months.
72
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
2011
$m
47.1
59.5
10.3
19.8
136.7
2010
$m
36.0
51.3
9.1
7.3
103.7
2011
$m
2010
$m
-
29.5
88.7
76.6
(1.3)
164.0
238.9
76.6
(2.2)
313.3
-
76.6
445.0
49.3
570.9
-
76.6
88.7
-
165.3
356.3
49.3
405.6
29.5
76.6
445.0
39.3
590.4
29.5
76.6
238.9
-
345.0
206.1
39.3
245.4
15 Payables
Trade payables
Accrued expenses
Employee benefits
Royalties payable
16 Interest-bearing liabilities
Current
Senior Notes 1996
Non-current
Syndicated Term Loan Facility
Senior Notes 2003
Deferred borrowing costs
(a) Financing arrangements
Total Facilities
Senior Notes - 1996 (i)
Senior Note - 2003 (ii)
Syndicated Term Loan Facility (iii)
Working Capital Facility (iv)
Used at balance date
Senior Notes - 1996
Senior Notes - 2003
Syndicated Term Loan Facilitity
Working Capital Facility
Unused at balance date
Syndicated Term Loan Facility
Working Capital Facility
73
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
16 Interest-bearing liabilities (continued)
(i) Senior Notes - 1996 Series
The final tranche of US$30.0 million matured in December 2011 and was repaid.
(ii) Senior Notes - 2003 Series
The remaining notes have an average fixed interest rate of 5.3 per cent and mature in two tranches; being June
2013 US$40.0 million and June 2015 US$20.0 million.
The translation exposure on the June 2013 US$40 million notes has been eliminated through a cross currency
swap at AUD/USD 0.7025. The cross currency swap also converts the fixed USD interest payments of 5.25 per
cent to an AUD variable interest rate exposure. As at 31 December 2011, the cross currency swap bears a
variable interest rate of 4.9 per cent (2010: 5.7 per cent). The swap requires settlement of interest receivable and
payable on a semi-annual basis on dates which coincide with the interest payable dates on the underlying notes.
(iii) Syndicated Term Loan Facility
The Syndicated Term Loan Facility matures in March 2013, with the facility reducing to $345 million in March
2012. As at 31 December 2011, $88.7 million was outstanding at an average interest rate of 1.3 per cent (2010:
$238.9 million at 4.8 per cent).
(iv) Working Capital Facility
This is a multi currency facility which requires the company to have sufficient credit risk insurance to enable it to
be drawn. The facility matured on 12 March 2012. Drawings under the facility are at the discretion of the working
capital facility provider based on the acceptance of credit insured receivables.
(b) Interest rate risk exposure and maturities of interest bearing liabilities
2011
Interest-bearing liabilities
Interest rate swaps (notional principal)
2010
Interest-bearing liabilities
Interest rate swaps (notional principal)
Effective floating
average interest
rate
%
Floating
interest rate
$m
1 year or less
$m
1 to 5 years
$m
Fixed interest rate
1.3
4.9
4.8
5.7
88.7
56.9
145.6
238.9
56.9
295.8
-
-
-
29.5
-
29.5
76.6
(56.9)
19.7
76.6
(56.9)
19.7
Total
$m
165.3
-
165.3
345.0
-
345.0
The contractual repricing date of the floating rate interest-bearing liabilities at the balance dates will be reset
within one year or less.
74
17 Provisions
Current
Employee benefits (a)
Rehabilitation and mine closure
Other provisions (b)
Non Current
Employee benefits
Rehabilitation and mine closure
Retirement benefit obligations
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
Notes
23
2011
$m
9.0
60.7
12.3
82.0
3.9
366.2
7.6
377.7
2010
$m
7.4
40.2
7.3
54.9
3.3
307.2
3.4
313.9
(a) The current provision for employee benefits represents amounts for which the group does not have an
unconditional right to defer settlement. The group does not expect a significant amount of the provision will
be paid in the next 12 months.
(b) Other provisions relate mainly to costs for transition from existing to new operations, which includes
redundancy costs.
Movements in provisions
Balance at 1 January
Change in provisions - closed sites
Change in provisions - additions to property, plant & equipment
Foreign exchange rate movements
Rehabilitation and restoration unwind expense
Amounts used during the year
Additional provisions recognised
Unused amounts reversed
Balance at 31 December
Rehabilitation
and mine
closure
$m
Notes
Other
provisions
$m
7
12
7
347.4
34.8
51.1
(0.3)
20.6
(26.7)
-
-
426.9
7.3
-
-
-
-
-
9.9
(4.9)
12.3
75
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
18 Contributed equity
(a) Share capital
Ordinary shares - fully paid
Treasury shares
2011
Shares
2010
Shares
418,701,360
(2,269,590)
416,431,770
418,701,360
(3,220,149)
415,481,211
2011
$m
1,120.0
(18.0)
1,102.0
2010
$m
1,120.0
(11.7)
1,108.3
(b) Movements in ordinary share capital
There have been no movements in share capital since 7 May 2009.
(c) Treasury shares
Treasury shares are shares in Iluka Resources Limited held for the purpose of issuing shares under the
Directors, Executives and Employees Share Acquisition Plan.
Balance at 1 January 2010
Acquisition of shares, net of tax
Employee share issues, net of tax
Balance at 31 December 2010
Acquisition of shares, net of tax
Employee share issue, net of tax
Balance at 31 December 2011
(d) Dividend reinvestment plan
Number of
shares
1,904,380
1,721,133
(405,364)
3,220,149
1,498,791
(2,449,350)
2,269,590
$m
5.6
7.2
(1.1)
11.7
14.8
(8.5)
18.0
The company has a dividend reinvestment plan (DRP). Under the plan, the Directors can invite eligible holders of
ordinary shares to elect to have all or part of their dividend entitlements satisfied by the issue of new ordinary
shares rather than by being paid in cash. In 2010, the DRP was suspended until further notice.
(e) Capital risk management
The group's objectives when managing capital are to safeguard its ability to continue as a going concern, so that
it can continue to provide returns to shareholders and benefits for other stakeholders and to maintain an efficient
capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
The group monitors capital on the basis of the level of return on capital and also the level of net cash/debt and
compliance with bank covenants, including the gearing ratio. The group manages funds on a group basis with all
funds being drawn by the parent entity.
76
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
19 Reserves
(a) Reserves
Asset revaluation reserve
Share-based payments reserve
Foreign currency translation reserve
Movements:
Asset revaluation reserve
Balance at 1 January
Transfer to retained earnings on disposal
Deferred tax
Balance at 31 December
Share-based payments reserve
Balance at 1 January
Transfer of shares to employees, net of tax
Share-based payments, net of tax
Balance at 31 December
Foreign currency translation
Balance at 1 January
Translation differences of US operation
Hedge of net investment in US operation, net of tax
Deferred tax
Balance at 31 December
(b) Retained earnings
Movements in retained earnings were as follows:
Balance at 1 January
Net profit for the year
Dividends paid
Actuarial (losses)/gains on retirement benefit obligation, net of tax
Transfer from asset revaluation reserve, net of tax
Balance at 31 December
77
2011
$m
16.0
2.7
(2.3)
16.4
16.0
-
-
16.0
6.9
(8.5)
4.3
2.7
(2.5)
(0.3)
0.4
0.1
(2.3)
2011
$m
(4.1)
541.8
(117.0)
(4.4)
-
416.3
2010
$m
16.0
6.9
(2.5)
20.4
16.3
(0.4)
0.1
16.0
4.4
(1.1)
3.6
6.9
(2.3)
(7.6)
6.7
0.7
(2.5)
2010
$m
(41.1)
36.1
-
0.6
0.3
(4.1)
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
19 Reserves (continued)
(c) Nature and purpose of reserves
(i) Asset revaluation reserve
The asset revaluation reserve records revaluations of non-current assets prior to the adoption of AIFRS.
Transfers are made to retained earnings on disposal of previously revalued assets.
(ii) Share-based payments reserve
The employee share-based payments reserve is used to recognise the fair value of equity instruments granted
but not yet issued to employees under the group's various equity-based incentive schemes.
(iii) Foreign currency translation reserve
Exchange differences arising on translation of the net investment in foreign operations, including US dollar
denominated debt used as a hedge of the net investment, are taken into the foreign currency translation reserve
net of applicable income tax, as described in Note 1(k). US$20.0 million of debt (2010: US$50.0 million) is
designated as a hedge of the net investment in the US operations at balance date. The reserve is recognised in
profit or loss when the net investment is disposed of.
20 Dividends
(a) Ordinary shares
Final dividend
for 2010 of 8 cents per share, unfranked
Interim dividend
for 2011 of 20 cents per share, unfranked
2011
$m
33.5
83.7
117.2
2010
$m
-
-
-
(b) Dividends not recognised at the end of the reporting period
In addition to the above dividends, since year end the Directors have determined a final dividend of 55 cents per
share, fully franked (2010: 8 cents, unfranked). The dividend is payable on 5 April 2012 for shareholders on the
register as at 9 March 2012. The aggregate amount of the proposed dividend is $230.3 million.
(c) Franked dividends
The impact on the franking account of the dividend recommended by the Directors since the end of the reporting
period, but not recognised as a liability at the reporting date, will be a reduction in the franking account balance of
$98.7 million (2010: $nil) from $145.7 million (refer note 8(e)) to $47.0 million.
78
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
21 Key Management Personnel
(a) Key Management Personnel
Key Management Personnel of the group comprise Director's of Iluka Resources Limited as well as other specific
employees of the group who met the following criteria: "personnel who have authority and responsibility for
planning, directing and controlling the activities of the group, either directly or indirectly."
Key Management Personnel - Directors
The following persons were Directors of Iluka Resources Limited during the financial year:
(i) Managing Director and Chief Executive Officer
D Robb
(ii) Non-execuitve Directors
D M Morley
W G Osborn
G J Pizzey (Chairman)
G J Rezos
J A Seabrook
S J Turner
All above persons were Director of Iluka Resources Limited for all of the financial year, as well as for the financial
year ended 31 December 2010 except for Mr Osborn and Mr Turner who commenced on 26 March 2010 and Mr
Morley retired on 25 May 2011.
(b) Key Management Personnel - Employees other than Directors (The Executives)
C Cobb
A Tate
H Umlauff
S Wickham
C Wilson
General Manager Sales and Marketing
Chief Financial Officer
General Manager Project Management
General Manager Australian Operations
General Manager Corporate Services and Company Secretary
2011 Key Management Personnel Compensation
The company has taken advantage of the relief provided by the Corporations Regulation 2M.6.04 and has
transferred the detailed remuneration disclosures to the Remuneration Report. The relevant information can be
found in the Remuneration Report on pages 13 to 34.
2011
Non-executive Directors
Executive Director
Executives
Total
Short term
benefits
$
978,525
2,622,525
3,952,571
7,553,621
Post
employment
benefits
$
Share-based
Payments
$
Termination
benefits
$
Total
$
75,387
46,202
158,803
280,392
-
2,638,048
1,097,500
3,735,548
-
-
-
-
1,053,912
5,306,775
5,208,874
11,569,561
79
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
21 Key Management Personnel (continued)
(b) Key Management Personnel - Employees other than Directors (The Executives) (continued)
2010
Non-executive Directors
Executive Director
Executives
Total
Short term
benefits
$
901,311
2,326,533
4,640,518
7,868,362
Post
employment
benefits
$
Share-based
Payments
$
Termination
benefits
$
Total
$
69,125
48,059
225,454
342,638
-
1,359,631
2,263,135
3,622,766
-
-
315,000
315,000
970,436
3,734,223
7,444,107
12,148,766
The numbers of shares in the company and share rights for ordinary shares in the company are set out below for
each Key Management Personnel, including their personally related entities. No shares were granted as
compensation during the reporting period.
Share rights and shareholdings of Key Management Personnel
Name
Balance held at
1/1/11
Vesting of share
rights
Awarded as
Restricted Shares
Other changes
Balance held at
31/12/11
Number Of Shares
Non-executive directors
D M Morley1
W G Osborn
G J Pizzey
G J Rezos
J A Seabrook
S J Turner
Executive Director
D Robb
Executives
C Cobb
A Tate
H Umlauff
S Wickham
C Wilson
40,876
-
16,351
63,602
19,314
50,000
-
-
-
-
-
-
-
-
-
-
-
-
(40,876)
1,800
2,000
6,398
-
-
-
1,800
18,351
70,000
19,314
50,000
663,215
1,061,308
78,460
(914,455)
888,528
-
59,760
112,906
60,913
99,892
-
121,414
84,093
51,763
126,984
17,183
19,272
22,165
19,366
17,374
-
(137,000)
(61,000)
(46,973)
(148,650)
17,183
63,446
158,164
85,069
95,600
1 Shares and Share Rights are reversed to show a zero balance at 31 December on resignation as a director.
No shares were forfeited during the year
80
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
21 Key Management Personnel (continued)
(b) Key Management Personnel - Employees other than Directors (The Executives) (continued)
Number Of Share Rights
Balance held
at 1/1/11
Granted during
2011
Vested as
shares during
2011
Lapsed during
2011
Balance held at
31/12/111
Fair value of Share
Rights granted in
2011 ($)2
1,285,300
799,250
(1,061,308)
(8,265)
1,014,977
9,126,193
34,146
195,182
170,256
122,141
194,032
16,886
17,448
16,886
17,448
13,790
-
(121,414)
(84,093)
(51,763)
(126,984)
-
(2,722)
(3,180)
(2,408)
(2,474)
51,032
88,494
99,869
85,418
78,364
142,011
146,738
142,011
146,738
115,974
Name
Executive Director
D Robb
Executives
C Cobb
A Tate
H Umlauff
S Wickham
C Wilson
1 Balances for the Executive Director and the Executives include restricted shares which will vest in future periods subject
to legislative requirements.
2 Includes the fair value of share rights granted in 2011 in respect to the 2011 LTIP and Managing Director’s LTID
Non-Executive Directors do not have any entitlement to share rights.
(c) Transactions with Key Management Personnel
There were no transactions that were required to be disclosed which occurred between the group and Key
Management Personnel that were outside of the nature described below:
(a) occurrence was within a normal employee, customer or supplier relationship on terms and conditions no
more favourable than those it is reasonable to expect the group would have adopted if dealing at arms
length with an unrelated individual;
information about these transactions does not have the potential to adversely affect the decisions about
the allocation of scarce resources made by users of the financial report, or the discharge of accountability
by the Key Management personnel; and
the transactions are trivial or domestic in nature.
(b)
(c)
Therefore, specific details of other transactions with Key Management Personnel are not disclosed.
81
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
22 Remuneration of auditors
During the year the following fees were paid or payable for services provided by the auditor of the parent entity,
its related practices and non-related audit firms:
(a) PricewaterhouseCoopers Australia
(i) Audit and other assurance services
Audit and review of financial statements
Other assurance services
Total remuneration for assurance services
(ii) Taxation services
Tax compliance and advisory services
(iii) Other services
Compliance and advisory services
Advice on accounting matters
Total remuneration for other services
2011
$000
548
30
578
68
3
-
3
2010
$000
550
107
657
27
61
4
65
Total remuneration of PwC Australia
649
749
(b) Related practices of PricewaterhouseCoopers Australia
(i) Audit and other assurance services
Audit and review of financial statements
23 Retirement benefit obligations
(a) Superannuation plan
Australia
10
50
All employees of the group who do not elect an alternate fund under the Superannuation Fund Choice Legislation
are entitled to benefits on leaving service, retirement, disability or death from the Iluka Section of the ING Master
Trust, a sub-plan of the ING Masterfund. Within the Iluka Plan (the plan) the vast majority of members are entitled
to accumulation (that is, defined contribution) benefits only. The plan also provides defined lump sum and
pension benefits based on years of service and final average salary for a small number of members. The
accumulation contribution section receives fixed contributions from group companies.The group's legal or
constructive obligation is limited to these contributions.
82
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
23 Retirement benefit obligations (continued)
USA
All employees of the United States (US) operations are entitled to benefits from the US operations' pension plans
on retirement, disability or death. The US operations have two defined benefit plans and one defined contribution
plan. One of the defined benefit plans provides a monthly benefit based on a set amount per month per year of
service. The other defined benefit plan provides a monthly benefit based on average salary and years of service.
The defined contribution plan receives an employee's elected contribution and an employer's match-up to a fixed
percentage. The entity's legal or construction obligation is limited to these contributions.
The following sets out details in respect of the defined benefit sections only of the Australian and US plans.
(b) Balance sheet amounts
Defined benefit plan obligation - present value
Defined benefit fund plan assets - fair value
Net liability in the balance sheet
Present value of the defined benefit obligation, which is partly funded:
Balance at 1 January
Current service cost
Interest cost
Contributions by plan participants
Actuarial losses/gains
Exchange rate changes
Benefits paid
Balance at 31 December
Fair value of plan assets:
Balance at 1 January
Expected return on plan assets
Actuarial (gains)/losses
Exchange rate changes
Contributions by group companies
Contributions by plan participants
Benefits paid
Balance at 31 December
2011
$m
22.6
(15.0)
7.6
17.5
0.4
0.9
0.1
3.5
1.4
(1.2)
22.6
14.1
1.0
(1.1)
0.9
1.2
0.1
(1.2)
15.0
2010
$m
17.5
(14.1)
3.4
19.7
0.5
1.0
0.1
(0.3)
(1.7)
(1.8)
17.5
15.0
0.9
0.4
(1.3)
0.8
0.1
(1.8)
14.1
83
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
23 Retirement benefit obligations (continued)
(b) Balance sheet amounts (continued)
The major categories of plan assets are as follows:
Cash
Equity instruments
Debt instruments
Property
Other assets
2011
$m
0.3
8.3
5.2
0.1
1.1
15.0
The assets are invested with professional investment managers. The number of shares, if any, of Iluka
Resources Limited held by the managers is decided solely by the investment managers.
(c) Amounts recognised in profit or loss
Current service cost
Interest cost
Expected return on plan assets
Total included in employee benefits expense
Actual return on plan assets
(d) Amounts recognised in other comprehensive income
Actuarial (loss)/gain recognised in the year
Cumulative actuarial (losses)/gains recognised in other comprehensive income
(e) Principal actuarial assumptions
2011
$m
0.4
0.9
(1.0)
0.3
(0.1)
2011
$m
(4.4)
7.7
The principal actuarial assumptions used (expressed as weighted averages) were as follows:
2010
$m
0.4
8.8
3.7
0.2
1.0
14.1
2010
$m
0.5
1.0
(0.9)
0.6
1.4
2010
$m
0.6
12.1
84
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
23 Retirement benefit obligations (continued)
(e) Principal actuarial assumptions (continued)
Australia
Discount rate
Expected return on plan assets
Future salary increases
USA
Discount rate
Expected return on plan assets
Future salary increases
2011
%
2010
%
3.1
5.0
3.5
4.5
6.9
3.5
4.7
5.0
3.5
6.0
7.5
3.5
The expected rate of return on plan assets has been based on historical and future expectations of returns for
each of the major categories of asset classes as well as the expected and actual allocation of plan assets to
these major categories.
(f) Employer contributions
Australia
Employer contributions to the defined benefit section of the Plan are based on recommendations by the Plan's
actuary.
The objective of funding is to ensure that the benefit entitlements of members and other beneficiaries are fully
funded by the time they become payable. To achieve this objective, the actuary has adopted a method of funding
benefits known as the aggregate funding method. This funding method seeks to have benefits funded by means
of a total contribution which is expected to be a constant percentage of members' salaries over their working
lifetimes.
Using the funding method described above and particular actuarial assumptions as to the defined benefits plan's
future experience, the actuary recommended payment of employer contributions ranging between 12.5 per cent
and 12.9 per cent (2010: 12.5 per cent to 12.9 per cent) of salaries, dependent of the defined benefit category of
membership.
An actuarial valuation of the Plan for financial statement disclosure purposes has been performed as at 31
December 2011. The funding valuation for regulatory purposes is performed annually on 30 June, coinciding with
the Fund's annual review date. The Plan has 12 months to finalise the valuation and as such the 30 June 2011
valuation, is currently under way. The economic assumptions being used by the actuary to make funding
recommendations are, for defined benefit members: a long term investment earning rate of 5.0 per cent (2010:
5.0 per cent) (net of fees and taxes), a salary increase rate of 3.5 per cent (2010: 3.5 per cent) and a pension
indexation rate of 1.5 per cent (2010: 1.5 per cent). As at 31 December 2011 only 5 active members remain in
the plan.
USA
Employer contributions to the defined benefit section of the plan are based on recommendations by the plan's
actuary.
85
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
23 Retirement benefit obligations (continued)
(f) Employer contributions (continued)
The objective of funding is to ensure that the benefit entitlements of members and other beneficiaries are fully
funded by the time they become payable. To achieve this objective, the actuary has adopted a method of funding
benefits known as the Projected Unit Credit (PUC) method. Under the PUC method, unfunded past service is
amortised over 10 years and future benefit accruals are funded during participants' working lifetime with cost
varying based on the age of participants. Actuarial gains/losses are amortised over 5 years.
Using the funding method described above and particular actuarial assumptions as to the defined benefits plans
future experience, payments of US$0.8 million (2010: US$0.6 million) for the salaried defined benefit plan and
US$0.2 million (2010: US$0.1 million) for the hourly defined benefit plan were made.
Total employer contributions expected to be paid by the group for the year ending 31 December 2012 are US$1.2
million.
(g) Net financial position of plans
The net financial position of the plans based on information supplied from the plans' actuarial advisiors are
Australia deficit $0.4million (2010: surplus $0.4 million) and US deficit $7.2 million (2010: deficit $3.8m). A net
deficit of $7.6 million (2010: deficit $3.4 million) is included in non-current provisions (refer note 17).
(h) Historic summary
Defined benefit plan obligation
Defined benefit plan assets
Deficit
24 Contingent liabilities
2011
$m
22.6
(15.0)
7.6
2010
$m
17.5
(14.1)
3.4
2009
$m
19.7
(15.0)
4.7
2008
$m
27.6
(16.2)
11.4
2007
$m
20.4
(17.9)
2.5
Bank guarantees
The group has negotiated a number of bank guarantees in favour of various government authorities and service
providers to meet its obligations under exploration and mining tenements. At 31 December 2011, the total value
of performance commitments and guarantees was $106.0 million (2010: $103.6 million).
Native title
There is some risk that native title, as established by the High Court of Australia's decision in the Mabo case,
exists over some of the land over which the group holds tenements or over land required for access purposes. It
is impossible at this stage to quantify the impact, if any, which these developments may have on the operations
of the group.
Other claims
In the course of its normal business, the group occasionally receives claims arising from its operating activities. In
the opinion of the Directors, all such matters are covered by insurance or, if not covered, are without merit or are
of such a kind or involve such amounts that would not have a material adverse effect on the operating results or
financial position of the group if settled unfavourably.
86
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
25 Commitments
(a) Capital commitments
Amounts contracted for and payable within 1 year
(b) Exploration and mining lease commitments
Commitments in relation to leases contracted for at reporting date but not
recognised as liabilities payable:
Within one year
Later than one year but not later than five years
Later than five years
2011
$m
11.5
22.0
42.3
54.8
119.1
2010
$m
9.9
22.9
42.2
59.1
124.2
These costs are discretionary. If the expenditure commitments are not met then the associated exploration and
mining leases may be relinquished.
(c) Lease commitments
Commitments for minimum lease payments in relation to non-cancellable
operating leases are payable as follows:
Within one year
Later than one year but not later than five years
Later than five years
(d) Other commitments
Commitments for payments in relation to non-cancellable contracts are payable
as follows:
Within one year
Later than one year but not later than five years
Later than five years
13.6
16.4
0.6
30.6
18.8
27.7
4.7
51.2
30.2
66.6
9.7
106.5
41.3
122.4
20.0
183.7
The commitments include $95.9 million (2010: $170.7 million) in respect of the group for term contracts for coal,
gas, electricity and water used in the production process.
87
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
26 Controlled entities and deed of cross guarantee
The following companies are all incorporated in Australia and are parties to a Deed of Cross Guarantee (the
Deed) under which each company guarantees the debts of the others: Iluka Resources Limited, Westlime (WA)
Limited, Ilmenite Pty Limited, Southwest Properties Pty Limited, Western Mineral Sands Pty Limited, Yoganup
Pty Limited, Iluka Corporation Limited, Associated Minerals Consolidated Limited, Iluka Administration Limited,
Iluka Consolidated Pty Limited, Iluka Exploration Pty Limited, Gold Fields Asia Limited, Iluka International
Limited, NGG Holdings Limited, Iluka Midwest Limited, Western Titanium Limited, The Mount Lyell Mining and
Railway Company Limited, Renison Limited, Iluka Finance Limited, The Nardell Colliey Pty Limited, Glendell Coal
Limited, Lion Properties Pty Limited, Basin Minerals Limited, Basin Minerals Holdings Pty Limited, Basin
Properties Pty Limited, Swansands Pty Limited and Iluka (Eucla Basin) Pty Limited.
By entering into the Deed, the wholly-owned entities represent a closed group and have been relieved from the
requirements to prepare a Financial Report and Directors' Report under Class Order 98/1418 (as amended by
Class Order 98/2017) issued by the Australian Securities and Investments Commission. The closed group is also
the extended closed group.
In addition to the members of the extended closed group, the Iluka group also includes the following Australian
companies: Ashton Coal Interests Pty Ltd (Iluka interest 93.4 per cent) and Iluka International (Brazil) Pty Ltd
(Iluka interest 100.0 per cent). The group's activities in the US are undertaken by Iluka Resources Inc, which is
100 per cent owned.
Condensed income statement of Extended Closed Group
Revenue from ordinary activities
Expenses from ordinary activities
Finance costs
Income tax (expense)/benefit
Profit for the year
Condensed statement of comprehensive income
Profit for the year
Other comprehensive income
Changes in fair value of foreign exchange cash flow hedges, net of tax
Actuarial gains/(losses) on defined benefit plans, net of tax
Total other comprehensive income
Total comprehensive income for the year
Summary of movements in consolidated retained earnings
2011
$m
1,530.7
(741.2)
(34.6)
(211.7)
543.2
2010
$m
840.4
(769.6)
(46.9)
2.7
26.6
543.2
26.6
-
(0.8)
(0.8)
542.4
(3.6)
0.6
(3.0)
23.6
Retained earnings at the beginning of the financial year
14.7
(11.9)
Profit for the year
Dividends paid
Retained earnings at the end of the financial year
543.2
(117.0)
440.9
26.6
-
14.7
88
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
2011
$m
303.9
241.9
361.9
907.7
0.5
49.9
41.5
1,401.0
6.7
-
1,499.6
2010
$m
19.2
156.0
193.9
369.1
15.3
56.6
42.4
1,389.1
7.1
44.8
1,555.3
2,407.3
1,924.4
118.0
-
73.1
145.7
336.8
164.0
331.6
13.3
508.9
845.7
96.1
29.5
41.7
-
167.3
313.3
297.9
-
611.2
778.5
1,561.6
1,145.9
1,102.0
18.7
440.9
1,561.6
1,108.3
22.9
14.7
1,145.9
26 Controlled entities and deed of cross guarantee (continued)
Condensed balance sheet of Extended Closed Group
Current assets
Cash and cash equivalents
Receivables
Inventories
Total current assets
Non-current assets
Receivables
Inventories
Other financial assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Payables
Interest-bearing liabilities
Provisions
Current tax liabilities
Total current liabilities
Non-current liabilities
Interest-bearing liabilities
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained profits
Total equity
89
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
27 Reconciliation of profit after income tax to net cash inflow from operating activities
Profit for the year
Depreciation and amortisation
Exploration capitalised
Net gain on disposal of property, plant and equipment
Net exchange differences and other
Rehabilitation and restoration unwind
Non-cash share-based payments expense
Amortisation of deferred borrowing costs
Impairment reversal
Non-cash rehabilitation expense for closed sites
Change in operating assets and liabilities
Increase in receivables
(Increase) decrease in inventories
Decrease in derivatives
Decrease in net deferred tax
Increase (decrease) increase in payables
Increase in provisions
Increase in net current tax liability
Net cash inflow from operating activities
28 Earnings per share
(a) Basic and diluted earnings per share
Basic earnings per share
Diluted earnings per share
(b) Reconciliation of earnings used in calculating earnings per share
Profit attributable to owners used in calculating basic earnings per share
2011
$m
541.8
224.6
(5.2)
(2.9)
2.7
20.6
6.0
1.0
(35.6)
34.6
(92.4)
(168.6)
-
59.5
9.9
6.7
146.8
749.5
2011
Cents
130.1
129.4
2011
$m
541.8
2010
$m
36.1
219.0
(4.3)
(4.1)
(5.2)
14.3
4.1
1.0
-
-
(62.0)
2.6
10.8
4.5
(38.7)
0.6
-
178.7
2010
Cents
8.6
8.6
2010
$m
36.1
Weighted average number of ordinary shares used as the denominator in
calculating basic earnings per share
Weighted average share rights outstanding
Weighted average number of ordinary shares and potential ordinary shares
used as the denominator in calculating diluted earnings per share
416,421,427
2,352,602
418,701,360
3,697,667
418,774,029
422,399,027
90
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
29 Share-based payments
The share-based payment expense recognised in profit or loss of $7.7 million (2010: $3.6 million) results from
several schemes summarised below. Further information on each scheme is contained in the Remuneration
Report.
Fair
value
Shares /
Rights at
Expense
2011
Shares /
Rights at
Expense
2010
Schemes
Grant date
2010 STIP (i)
2009 STIP (i)
2008 STIP (i)
2011 LTIP - TSR (ii)
2011 LTIP - ROE (ii)
2010 LTIP - TSR (ii)
2010 LTIP - ROE (ii)
2009 LTIP - TSR (ii)
2009 LTIP - ROE (ii)
2008 LTIP (iii)
Iluka Retention Plan (iv)
MD Retention Share Rights (v)
MD LTID (v)
$1,000 Employee Share Scheme (vi)
Total share-based payments
Jan-11
Jan-10
Jan-09
Jan-11
Jan-11
Jan-10
Jan-10
Jan-09
Jan-09
Jan-08
2008
Jan-06
Mar-11
Oct-11
Vesting
date
Jan-12/13
Jan-11/12
Jan-10/11
Jan-14
Jan-14
Jan-13
Jan-13
Jan-12
Jan-12
Jan-11
2011
Mar-11
Feb-15
Oct-11
$
31 Dec 11
9.14
3.58
4.66
7.37
9.44
2.59
3.58
3.49
4.64
2.93
2.8
1.00
11.62
-
368,654
152,361
-
151,076
151,076
350,019
350,019
272,598
272,598
-
11,000
-
750,000
-
$m
2.5
0.3
-
0.4
0.5
0.3
0.4
0.3
0.1
-
0.4
0.1
1.8
0.6
7.7
31 Dec 10
-
310,979
337,690
-
-
376,509
376,509
276,459
276,459
583,112
808,000
1,000,000
-
-
$m
-
0.9
0.8
-
-
0.3
0.4
0.2
0.3
(0.8)
1.0
0.5
-
-
3.6
(i) The Short Term Incentive Plan (STIP) equity component comprises two equal tranches which vest one and
two years respectively after grant date.
(ii) The Long Term Incentive Plan (LTIP) comprises two equal tranches which vest three years after grant
date. The Total Shareholder Return (TSR) tranche is based on market performance and no adjustments
are made for share rights that do not vest due to the non-fulfilment of vesting conditions. The Return on
Equity (ROE) tranche is based on internal performance measures. Non-vesting rights for this tranche are
credited to the share-based payments expense. The expense for the 2009 LTIP ROE tranche includes a
reversal for the portion of the share rights outstanding at 31 December 2011 that did not vest.
(iii) The 2008 LTIP expense was a net credit in 2010 as no share rights vested for the ROE and the reversal of
prior period charges exceeded the 2010 expense for the TSR tranche.
(iv) The Iluka Retention Plan share rights were offered on various dates with the majority offered in March
2008 at $4.09 per share, with a vesting date of March 2011. The fair value of $2.80 per share right relates
to the outstanding rights at 31 December 2011.
(v) Full details of the Managing Director's Retention Share Rights that vested in March 2011 and the
Managing Director's Long Term Incentive Deferred (LTID) share rights granted in March 2011 and
approved by shareholders at the 2011 AGM are set out in the Remuneration Report. The fair value of
$11.62 per right is the weighted average for all share rights in the LTID.
(vi) A total of 42,975 shares were issued under the plan to participating employees. Each participant was
issued with shares worth $1,000 based on a volume weighted average market price of $13.23 for the five
days prior to the start of the offer period.
91
Iluka Resources Limited
Notes to the consolidated financial statements
31 December 2011
(continued)
2011
$m
2010
$m
383.6
1,996.7
2,380.3
491.4
642.3
1,133.7
66.3
2,267.1
2,333.4
68.3
1,096.0
1,164.3
1,246.6
1,169.1
1,120.0
17.6
109.0
1,246.6
199.7
199.7
1,120.0
21.7
27.4
1,169.1
(12.2)
(15.8)
30 Parent entity financial information
(a) Summary financial information
Balance sheet
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Shareholders' equity
Contributed equity
Reserves
Retained earnings
Profit or loss for the year
Total comprehensive income
(b) Profit for the year
Profit for the year inlcudes dividends received from controlled entities of $200.0 million (2010: $nil).
(c) Contingent liabilities of the parent entity
The parent had contingent liabilities for performance commitments and guarantees of $28.6 million as at 31
December 2011 (2010: $29.0 million).
(d) Contractual commitments for the acquisition of property, plant or equipment
As at 31 December 2011, the parent entity had contractual commitments for the acquisition of property, plant or
equipment totalling $0.9 million (2010: $6.5 million).
31 Related party transactions
Disclosures relating to related party transactions are set out in the notes to which they relate. For disclosures
relating to Directors and Key Management Personnel refer to Note . Details of material controlled entities are set
out in Note 26. The ultimate Australian controlling entity and the ultimate parent entity in the wholly-owned group
is Iluka Resources Limited.
92
In the Directors' opinion:
Iluka Resources Limited
Directors' declaration
31 December 2011
(a)
(b)
(c)
the financial statements and notes set out on pages 47 to 92 are in accordance with the Corporations Act
2001, including:
(i)
complying with Accounting Standards and other mandatory professional reporting requirements
as detailed above, and the Corporations Regulations 2001; and
giving a true and fair view of the group's financial position as at 31 December 2011 and of its
performance for the financial year ended on that date, and
(ii)
there are reasonable grounds to believe that the company will be able to pay its debts as and when they
become due and payable, and
at the date of this declaration, there are reasonable grounds to believe that the members of the extended
closed group identified in note 26 will be able to meet any obligations or liabilities to which they are, or
may become, subject by virtue of the deed of cross guarantee described in note 26.
The Directors have been given the declarations by the chief executive officer and chief financial officer required
by section 295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
G J Pizzey
Chairman
D Robb
Managing Director
Perth
22 March 2012
93
Five Year Physical and Financial Information
Production volumes (kt)
- Zircon
- Rutile
- Synthetic rutile
- Ilmenite saleable
- Ilmenite upgradable
Average AUD:USD spot exchange rate (cents)
AUD:USD range (cents)
Summary financials
Revenue from operations (excluding hedging)
Group EBITDA
- Mineral Sands EBITDA
- Mining Area C EBITDA
- Other EBITDA
Depreciation and amortisation
Net interest and finance charges
Income tax (expense) benefit
NPAT
Operating cash flow
Capital expenditure
Net cash (debt)
Capital and dividends
Ordinary shares on issue (millions)
Dividends per share (cents)
Franking level (per cent)
Opening year share price ($)
Closing year share price ($)
Financial Ratios
Basic earnings per share (cents)
Free cash flow ($m)1
Free cash flow per share (cents)
Return on shareholders' equity (per cent)2
Return on capital (per cent)
Gearing (net debt/net debt + equity) (per cent)
2011
2010
2009
2008
2007
601.5
281.3
285.7
459.7
201.9
103.2
110.29 /
95.31
1,536.7
979.3
925.9
88.5
(35.1)
(224.6)
(29.6)
(218.9)
541.8
706.2
(142.5)
156.7
418.7
75.0
73.3
9.14
15.50
130.1
589.6
140.6
42.5
54.9
N/A
412.9
250.1
347.5
469.0
215.9
92.0
81.23 /
101.76
874.4
305.1
250.2
76.3
(21.4)
(219.0)
(46.2)
(3.8)
36.1
163.6
(117.2)
(312.6)
418.7
8.0
0
3.58
9.14
8.6
60.7
14.5
3.2
5.0
21.8
263.1
141.4
405.0
342.1
496.7
79.3
62.91 /
93.68
576.0
99.6
75.6
50.2
(9.5)
(176.6)
(22.7)
61.5
(82.4)
83.9
(521.6)
(382.1)
418.7
N/A
N/A
4.64
3.58
(8.7)
(209.8)
(50.1)
(7.5)
(9.6)
25.9
385.1
140.1
467.3
586.2
641.0
85.4
60.38 /
98.05
894.8
274.6
186.3
56.8
(47.0)
(161.7)
(35.6)
7.7
77.5
226.4
(198.4)
(215.7)
380.7
N/A
N/A
4.11
4.64
17.8
420.7
110.5
7.9
7.9
17.4
513.8
216.1
526.6
931.7
702.5
83.9
76.98 /
93.25
897.9
287.7
230.6
19.9
18.1
(148.0)
(59.2)
(20.1)
51.1
178.6
(118.2)
(598.1)
242.2
10.0
100.0
5.94
4.11
21.6
32.9
13.6
6.8
7.6
44.3
Financial Position as at 31 December
Total assets
Total liabilities
Net assets
Shareholders' equity attributable to members of Iluka Resources
Net tangible asset backing per share ($)
2,453.8
(919.1)
1,534.7
1,534.7
3.65
1,939.9
(815.3)
1,124.6
1,124.6
2.54
2,098.4
(1,003.1)
1,095.3
1,095.3
2.46
2,058.1
(1,020.1)
1,038.0
979.8
2.61
1,868.0
(1,116.4)
751.6
683.6
3.00
1 Free cash flow is determined as cash flow before dividends paid in the year
2 Calculated as Net Profit After Tax (NPAT) for the year as a percentage of the average monthly shareholders equity over
the year
96
Statement of Shareholdings
as at 21 March 2012
Number of holders of shares
Number of shares on issue
Iluka Resources Limited
Statement of Shareholdings
31 December 2011
22,872
418,701,360
Voting rights, on a show of hands, are one vote for every registered holder and on a poll, are one vote for each
share held by registered holders.
Distribution of Shareholdings
Shareholding
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Number of shareholders holding less than a marketable parcel (less than $500)
Number of holders
13,352
8,762
704
39
15
746
Substantial Shareholders
Name
BlackRock Investment Management (Australia) Limited
M&G Investment Management Limited, London
FMR LLC & FIL
National Australia Bank Limited
Top 20 Shareholders (Nominee Company Holdings)
Name
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
National Nominees Limited
Citicorp Nominees Pty Limited
Cogent Nominees Pty Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited
AMP Life Limited
HSBC Custody Nominees (Australia) Limited
Australian Reward Investment Alliance
Iluka Administration Limited
Australian Foundation Investment Company Limited
Argo Investments Limited
R O Henderson (Beehive) Pty Limited
Cogent Nominees Pty Limited
UBS Nominees Pty Ltd
Queensland Investment Corporation
UBS Nominees Pty Ltd
UBS Wealth Management Australia Nominees Pty Ltd
Number of share in which a
relevant interest is held
44,369,327
36,765,206
25,748,097
21,622,548
Number of shares
134,885,514
94,035,443
73,936,232
14,258,555
11,994,554
6,932,511
5,140,193
3,701,250
3,239,132
3,134,779
2,092,886
1,743,178
1,700,000
1,500,000
1,116,000
998,996
918,578
844,004
657,000
603,356
% Holding
10.60
8.78
6.15
5.16
% Holding
32.22
22.46
17.66
3.41
2.86
1.66
1.23
0.88
0.77
0.75
0.50
0.42
0.41
0.36
0.27
0.24
0.22
0.20
0.16
0.14
97
Iluka and Mineral Sands Information
For more information on Iluka Resources and the mineral sands sector, please refer to the
Iluka website (www.iluka.com) and the following publications:
2011 Annual Report
•
includes detailed financials, corporate governance statement and remuneration report,
Key Physical and Financial Parameters 2012
•
Iluka provides information of expected financial and physical trends in the business
Mineral Sands Marketing Briefing Session (November 2011)
Minerals Sands Technical Information
Briefing Papers
Virtual Mine Site Tours
•
•
Murray Basin, Victoria
Jacinth-Ambrosia, South Australia
2012 Calendar
24 February
9 March
5 April
12 April
21 May 9:30am WST
23 May 9:30am WST
12 July
23 August
11 October
31 December
Announcement of Full Year Financial Results
Record date for Full Year Dividend
Full Year Dividend payment date
March Quarter Production Report
Closure of acceptances of proxies for AGM
Annual General Meeting – Perth
June Quarter Production Report
Announcement of Half Year Financial Results
September Quarter Production Report
Financial Year End
All dates are indicative and subject to change. Shareholders are advised to check with the company to confirm
timings.
98
Corporate Information
Company Details
Ilua Resources Limited
ABN: 34 008 675 018
Registered Office
Level 23, 140 St George’s Terrace
Perth WA 6000
Postal Address:
GPO Box U1988
Perth WA 6845 Australia
Telephone: +61 8 9360 4700
Facsimile: +61 8 9360 4777
Website: www.iluka.com
This site contains information on Iluka’s products, marketing, operations, ASX releases, financial and quarterly
reports. It also contains links to other sites, including the share registry.
Share Registry Inquiries
Shareholders who require information about their shareholdings, dividend payments or related administrative
matters should contact the company’s share registry:
Computershare Investor Services Pty Limited
Level 2, 45 St Georges Terrace
Perth WA 6000
Telephone: +61 3 9415 4801 or 1300 733 043
Facsimile: +61 8 9323 2033
Postal Address:
GPO Box D182
Perth WA 6840
Website: www.computershare.com
Each inquiry should refer to the shareholder number which is shown on issuer-sponsored holding statements and
dividend statements.
Dividends
Iluka recommenced dividend payments with the 2010 full year results. Iluka has suspended its dividend
reinvestment plan.
Investor Relations Inquiries
For shareholder, potential investor and media inquiries of the company (non shareholding related), please
contact:
Dr Robert Porter
General Manager, Investor Relations
robert.porter@iluka.com
99
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Iluka
Resources
Limited
2011
Annual Report
CREATE AND DELIVER VALUE FOR SHAREHOLDERS