20
16
ANNUAL REPORT
DIRECTORS’
AND STATUTORY
INFORMATION
CREATING AND DELIVERING SHAREHOLDER VALUE
Iluka Resources Limited
31 December 2016
RESULTS FOR ANNOUNCEMENT TO THE MARKET
Provided below are the results for announcement
in accordance with Australian Securities
Exchange (ASX) Listing Rule 4.2A and Appendix 4E for the consolidated entity Iluka Resources Limited and its
controlled entities for the year ended 31 December 2016 (the 'financial year') compared with the year ended 31
December 2015 ('comparative year').
to the market
All currencies shown in this report are Australian dollars unless otherwise indicated.
Revenue from ordinary activities
Profit (loss) from ordinary activities after tax attributable to members
Net (loss) for the period attributable to members
Down 12.2% to $774.4m
Down 518.7% to -$224.0m
Down 518.7% to -$224.0m
Dividends
2016 final: nil
2016 interim: 3 cents per ordinary share (100% franked), paid in October 2016
2015 final: 19 cents per ordinary share (100% franked), paid in April 2016
2015 interim: 6 cents per share (100% franked), paid in September 2015
Key ratios
Basic (loss) earnings per share (cents)
Free cash flow per share (cents)
Return on Equity
Net tangible assets per share ($)
(i)
(ii)
2016
(53.6)
11.3
(17.1)
2.18
2015
12.8
37.0
3.8
3.31
(i) Free cash flow is determined as cash flow before refinance costs, proceeds/repayment of borrowings and dividends paid in
the year. 2016 free cash flow is stated before the acquisition cost of Sierra Rutile Limited of $375.4 million.
(ii) Calculated as Net Profit / (Loss) after Tax (NPAT) for the year as a percentage of average monthly shareholders equity over
the year.
The Company's Dividend Reinvestment Plan was suspended in late 2010 and remains suspended.
The commentary on the consolidated results and outlook are set out in the Operating and Financial Review
section of the Directors' Report.
Independent auditor's report
The Consolidated Financial Statements upon which this Appendix 4E is based have been audited.
Contents
Directors' Report, including:
- Operating and Financial Review
- Remuneration Report
Auditor's Independence Declaration
Financial Report
- Consolidated statement of profit or loss and other 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
Ore Reserves and Mineral Resources Statement
Shareholder Information
Share Registry Details
Corporate Information
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51
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100
101
109
116
117
118
Iluka Resources Limited
31 December 2016
Directors' Report
The directors present their report on the Group consisting of Iluka Resources Limited (the 'Company') and the
entities it controlled at the end of, or during, the year ended 31 December 2016.
OPERATING AND FINANCIAL REVIEW
ABOUT ILUKA
Iluka is a leading mineral sands company involved in mineral sands exploration, project development, operations
and marketing. Iluka has mineral sands mining, concentrating and processing operations in Australia and more
recently in Sierra Leone, following the acquisition of Sierra Rutile Limited ('SRL') in December 2016. Iluka has
conducted mining and processing operations in the United States of America for an extended period, most
recently in Virginia. Iluka idled these operations at the end of 2015 and, in an ASX release dated 31 January
2017, announced the closure and transition to rehabilitation status for these operations. Iluka is the largest global
producer of zircon and the second largest producer of titanium dioxide feedstocks, with a major position in the
high grade products of rutile and synthetic rutile. These products are used in a diverse range of applications from
consumer, industrial and manufacturing applications. The Company also has a royalty associated with BHP
Billiton’s Mining Area C iron ore operations in Western Australia.
Iluka’s objective is to create and deliver value for shareholders supported by values centred on Commitment,
Integrity and Responsibility. To facilitate this, a focus on environment, health and safety performance is
paramount, while the Company must continue to attract high quality people, provide training and growth
opportunities for existing employees, and maintain a commitment to diversity and sustainability principles.
Features of the Company’s business approach include the following:
Operations
• Over 60 years mineral sands exploration, mining, processing and metallurgy operational experience
• Highly skilled operators and extensive technical knowledge base in an industry with limited external technical
consulting resources
Flexible and integrated operating base
•
• Approach to match production to sales through the cycle, with ability to quickly adapt to changing market
conditions
Financial Focus
Focus on shareholder returns through the cycle
•
• Return on capital as an internal proxy for return on equity
•
• Maintain credit metrics that are broadly consistent with an investment grade credit profile, whilst balancing the
Track record of returning excess cash flow to shareholders
impact of commodity pricing and investment factors through the cycle
• Capital-efficient project development and growth
Sustainable Development Focus
• High standards in health, safety and environmental matters
• Sound planning, control and risk management systems
• Stakeholder relationships are key considerations
Customer Focus
Focus on customer benefits
Full range of titanium dioxide feedstock grades and zircon for all applications
•
•
• Global distribution network and logistics capabilities
• Reliable supplier with a strong balance sheet
• Consistent product quality and track record of delivering on promises
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Iluka Resources Limited
31 December 2016
Growth
Technically experienced in-house exploration team with a domestic and international programme
•
• New developments subject to strict financial return criteria and assessed against industry supply-demand
dynamics
Focus on product development and innovation and technology activities
•
Further information regarding Iluka’s operations can be found in the Iluka Review 2016.
BUSINESS STRATEGIES AND FUTURE PROSPECTS
Iluka maintains its commitment to a range of activities designed to generate future growth and deliver value for
shareholders. Its business approach has the following key elements:
flex operations in line with market demand;
continue market development through the cycle;
preserve/advance mineral sands growth opportunities;
•
•
•
• maintain credit metrics that are broadly consistent with an investment grade credit profile, whilst balancing the
impact of commodity pricing and investment factors through the cycle;
continue to evaluate/pursue corporate growth opportunities; and
act counter-cyclically where appropriate.
•
•
The future prospects of the Company are dependent on the execution of the Company’s business strategies and
operating and market demand/supply conditions for its principal products.
Following the appointment of Tom O'Leary as Managing Director and Chief Executive Officer in September 2016
and the completion of the acquisition of Sierra Rutile Limited on 7 December 2016, the Managing Director noted
that Iluka's priorities were:
•
•
•
•
•
the commencement of an effective integration process for Sierra Rutile;
completion of the five year corporate planning and 2017 budgetary process;
a detailed review of
operating regimes;
an assessment of the feasibility, attraction and timing of the expansion projects available to the Company;
and
a review of all non-production costs of the business to ensure a sustainable cost structure.
the existing production portfolio and projects, including assets, configurations and
Progress has been made in these areas and, on 31 January 2017, Iluka disclosed to the ASX a number of
measures implemented as part of the review of the business. These included asset impairments and increased
provisions for rehabilitation which were described in some detail in the release. The release also included an
update of various outcomes from what is referred to as a sustainable business review. These included a
reduction in non cash cost of production associated with approximately 90 positions being made redundant,
mainly in support roles. The release also contained details of the reclassification of certain Ore Reserves as
Mineral Resources and those reclassifications, as well as the reporting of the inaugural JORC 2012 compliant
Ore Reserves for Sierra Rutile, are reported in Iluka's Ore Reserves and Mineral Resources Statement which is
set out in pages 109 to 115.
In 2016, specific areas of strategy implementation included:
•
The acquisition of Sierra Rutile Limited (SRL) by means of a statutory merger of SRL with Iluka Investments
Limited (BVI), a wholly owned Iluka subsidiary for A$375.4 million and A$14.1 million in transaction costs.
Iluka also assumed SRL’s net debt of US$59.3 million (A$79.7 million);
• Continued flexing of production in light of market demand. In April 2016 Iluka suspended mining and
to allow the progressive draw down of
concentrate production at Jacinth-Ambrosia in South Australia,
concentrate held at site;
•
• Mining continued at Tutunup South in the south west of Western Australia with ilmenite from this mine, and
other sources, allowing a full year of production for the Company’s synthetic rutile kiln 2 in the south west;
The continuation of detailed feasibility studies on the Cataby project, Western Australia. This project, if
approved, has the ability to provide high quality chloride ilmenite feed to Iluka’s synthetic rutile kiln in the
south west of Western Australia, and thus extend the current production campaign. The development would
also provide an associated zircon and rutile production stream;
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Iluka Resources Limited
31 December 2016
•
•
•
investment
In this regard,
the year saw a significant
The completion of a definitive feasibility study for the Balranald deposit in New South Wales. The definitive
feasibility study included assessment of conventional mine development options, with detailed work
undertaken on a cross pit stacker concept. Associated work has included dewatering ore requirements with
hydrogeological modelling and testing. Work on a conventional development approach has ceased. In parallel
with the conventional development option, the Company has been evaluating, through full scale field trials, an
unconventional mining approach.
in trialling an
unconventional underground mining approach. The key potential benefit of the unconventional approach is a
lower capital-intensive development option, while allowing the deposit to be phased with potential flexibility in
operational settings. Evaluation of this mining approach has provided the Company with sufficient confidence
in terms of technical and commercial criteria, to commence detailed operational and financial planning for the
next phase of activities, subject to all necessary regulatory approvals and concluding the few remaining
stakeholder agreements;
Iluka completed a scoping study on the Sonoran, Atacama and Typhoon satellite deposits located in proximity
to the Jacinth-Ambrosia operation in the Eucla Basin. The pre-feasibility study had been completed previously
on Sonoran and Typhoon. Geological analysis and modelling has been completed. Given market conditions,
no further work is currently being undertaken on this project;
The potential for the development of the mineral sands deposit known as the Puttalam Quarry (PQ) continued
to be assessed. The PQ deposit is a large sulphate ilmenite deposit, located approximately 30 kilometres
north of the town of Puttalam in the North Western Province of Sri Lanka. PQ project work is focussed on
legal and investment terms for the development which involves securing surface access rights, ministerial and
other governmental approvals for any subsequent mining licence, reaching agreement with the Sri Lankan
in-country upgrading and Iluka’s ultimate percentage holding in
Government regarding the extent of
subsequent mining operations. A pre-feasibility study is currently being undertaken;
• Continued market development activities, including the development and launch of new products as well as
marketing efforts to secure future sales arrangements for Iluka’s high grade titanium feedstocks in China
associated with the development of chloride pigment production within this country;
The implementation of a zircon price increase in the third quarter,
US$50/tonne price increased advised to customers late in 2016, with effect from 15 February 2017; and
that was partially achieved, with a
•
• Proactive advancement of the Company’s sustainability and social responsibility performance and reputation,
including workforce capability and diversity, sustainable development practices and alignment to international
reporting frameworks.
Further detail surrounding the future prospects for Iluka are detailed in the Mineral Sands Projects section in the
Iluka Review 2016.
Innovation and technology
Iluka considers investment in mineral sands innovation and technology as important to: maximising the value
created from existing operations through production and recovery improvements; enabling the potential
commercialisation of non-conventional mineral sands deposits; introducing new products to enhance customers’
production processes; as well as supporting technical and commercialisation activities related to Metalysis
Limited. Metalysis has developed a single stage process for the transformation of various metal oxides into a
metallic powder form. The commercial production of titanium alloy powder direct from rutile and synthetic rutile
could lead to a material reduction in the cost of titanium metal and titanium metal alloys. Lower prices for titanium
metal alloys could dramatically expand the use of titanium metal, for example, replacing stainless steels and high
performance steel alloys in some sectors and opening up demand in other markets, such as in the manufacture
of automobiles. The equity capital injection by Iluka and UK based Woodford Patient Capital Trust in August 2016
(totalling approximately A$40 million) provides funding for the establishment of new research and development
facilities and for the development of a larger scale reactor.
In July 2014 Iluka entered into a Joint Development Agreement and Intellectual Property Agreement with Vale
S.A. for the staged evaluation and development of the major titanium mineral bearing deposit located at Tapira in
Minas Gerais State, Brazil. In December 2016, Iluka announced that the Joint Venture had been terminated. Iluka
and Vale have decided not to continue with further evaluation due to the inability to determine a method to
produce a market acceptable titanium dioxide feedstock using current conventional or alternative technological
routes.
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Iluka Resources Limited
31 December 2016
The Company has a dedicated team of industry and technical experts to further work in these areas, and
its
operates a Metallurgical Test Facility at Capel, Western Australia, as well as various laboratories at
operations.
BUSINESS RISKS AND MITIGATIONS
The identification and management of risk is fundamental to achieving Iluka’s objective. We are, therefore,
committed to managing risk in a proactive and effective manner.
Iluka’s Risk Management Policy is supported by a risk management
framework which is aligned to the
International Standard for risk management, ISO 31000:2009. This framework is being expanded to cover Iluka's
entry into new jurisdictions. It provides a whole of business approach to the management of risks and sets out the
process for the identification, management and reporting of risk to the achievement of our plans and objectives.
through the Board Charter, delegates responsibility for
The Board,
identifying and managing risks to
management. Management is required to report to the Board on those risks which could have a material impact
on the Company’s business. The Audit and Risk Committee assists the Board with regard to oversight of the
Company’s risk management practices.
Through its risk management framework Iluka seeks to:
•
•
•
•
•
•
embed a culture of risk awareness;
identify, assess and manage risks in a structured and systematic manner;
enable prudent risk taking in line with business objectives and strategies;
establish and monitor appropriate controls in line with business objectives and strategies;
ensure material business risks are effectively identified, communicated and appropriately elevated throughout
all levels of management to the Board; and
continue to fulfil governance requirements for risk management.
Iluka applied a structured and systematic approach to assess the consequence of risk in areas such as
environment; injury; illness; reputation; stakeholder; compliance; financial and Company objectives. Company
risks and how they are being managed, are reviewed by the Executive team regularly and reported to the Audit
and Risk Committee on a twice yearly basis.
Set out below are the key risk areas that could have a material impact on the Company. The nature and potential
impact of risks changes over time. The risks described below are not the only risks that Iluka faces, and whilst
every effort is made to identify and manage material risks, additional risks not currently known or detailed below
may also adversely affect future performance.
Sustaining operations risks
Maintaining a pipeline of mineral resources, mineral reserves and projects in order to sustain operations and
maintain business is a key focus for Iluka. The success of exploration activity and project delivery are critical to
sustain operations in a timely manner.
Product demand and price risks
The resources sector typically exhibits cyclicality. In 2016, Iluka operated in business conditions of lower than
typical demand for its products, with the Company’s approach in such conditions to adjust production in the
context of market demand and inventory levels. The prices for our products are also subject to these market
conditions generally.
Financial risks
Iluka faces risks relating to the cost of and access to funds, movement in interest rates and foreign exchange
rates (refer note 18). Iluka maintains policies which define appropriate financial controls and governance which
seek to ensure financial risks are fully recognised, managed and recorded in a manner consistent with:
the financial risk appetite and delegations as set by Iluka’s Board;
generally accepted industry practice and corporate governance standards; and
shareholder expectations of a mineral sands producer.
•
•
•
Iluka will consider hedging the AUD:USD foreign exchange exposure associated with contracted sales where the
US dollar price has been fixed.
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Iluka Resources Limited
31 December 2016
Any changes to, or material breaches of, Iluka's financial policies are reported to the Board.
Project development risks
Iluka regularly assesses its ability to enhance its production profile, or extend the economic life of deposits, by the
development of new deposits within its portfolio. A failure to develop and operate projects in accordance with
expectations could negatively impact results of operations and the Company’s financial position. Risks to major
development projects include the ability to acquire and/or obtain appropriate access to property, regulatory
approvals, supply chain risks, construction and commissioning risks. There are also technology and regulatory
risks regarding a new unconventional mineral sands mining approach planned for the Balranald deposit.
A structured capital process and project delivery framework is utilised to facilitate successful project development
and manage risks in bringing new projects into operation.
Growth risks
To ensure a sustainable business going forward, Iluka attempts to generate growth options through exploration,
innovation and appropriate external growth opportunities. The ability of Iluka to create and deliver value for
shareholders is to some extent dependent on successful growth strategies.
Evaluating growth opportunities requires prudent risk taking as part of a disciplined process of project selection
and interrogation to maximise the opportunity, achieve the desired outcomes, and manage the associated risks to
the Company. This includes applying the Company’s established disciplines and systems to evaluate growth
opportunities and assess their potential value and impact considering a range of modifying factors and
assumptions.
Country risk
Increasing international activities have increased Iluka’s exposure to country risks. The potential development of
regulatory regimes, difficulties in
international opportunities can be jeopardised by changes in fiscal or
interpreting or complying with local laws, material differences in sustainability standards and practices, or reversal
of current political, judicial or administrative policies. The acquisition of SRL also increases Iluka’s exposure to
the above risk areas within Sierra Leone.
Sierra Rutile integration risks
Prior to Iluka’s acquisition, SRL operated under different operational, legal and governance regimes. Sierra
Rutile’s full and integrated adoption of
Iluka’s governance standards, operational processes, and cultural
expectations cannot be instant at the time of settlement. Thus during the integration period, there is a risk that
Iluka identifies risks relating to the standard of internal governance, systems, processes, policies, practices, or
any related key controls which require material improvement to meet Iluka’s standards.
As further detailed in the Company’s 31 December 2016 Quarterly Production Report, Iluka has begun to
implement improvements outlined at the time of acquisition such as modifying the dry mining method to in-pit
mining units and slurry pumping to the wet concentrator plant, increasing throughput at Lanti, revising plant
designs for the current mining units, improving in mine pit de-watering and making improvements to the mineral
separation plant. A failure to fully integrate the operations of Sierra Rutile or a delay in the integration process,
could impose unexpected costs that may adversely affect the financial performance and position of Iluka.
Anti-bribery and corruption risk
Iluka’s business activities and operations are located in jurisdictions with varying degrees of political and judicial
stability, including some countries with a relatively high inherent risk with regards to bribery and corruption. This
exposes Iluka to the risk of unauthorised payments or offers of payments by employees, agents or distributors
that could be in violation of applicable anti-corruption laws. Risks also include possible delays or disruptions
resulting from a refusal to make so-called facilitation payments or any other form of benefit counter to Iluka policy
or applicable laws.
Iluka has a clear Anti-bribery and Corruption Policy, internal controls and procedures to protect against such risks
including training and compliance programs for its employees, agents and distributors. However, there is no
assurance that such controls, policies, procedures or programmes will protect Iluka from potentially improper or
criminal acts. Violations of anti-corruption laws or regulations may result in criminal or civil sanctions and adverse
publicity.
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Iluka Resources Limited
31 December 2016
Environmental standards risk
Mining operations, by their nature, can have a significant impact on the environment. Given this, Iluka is
committed to leading practice in environmental management as outlined in the Iluka Environment, Health and
Safety Policy.
Leading practice is based upon current community expectations, applicable legislation and regulatory standards,
all of which change over time. With increasing government and public sensitivity to environmental sustainability,
environmental regulation is becoming more stringent.
to increasing environmental
responsibility and liability, including laws and regulations dealing with air quality, water and noise pollution and
other discharges of materials into the environment, plant and wildlife protection, the reclamation and restoration
of certain of its properties, greenhouse gas emissions, the storage, treatment and disposal of wastes and the
effects of its business on the water table and groundwater quality. Sanctions for non-compliance with these laws
and regulations may include administrative, civil and criminal penalties, revocation of permits, reputational issues,
increased licence conditions and corrective action orders.
Iluka could be subject
Accidents, environmental incidents, the failure to comply with laws or regulations and real or perceived threats to
the environment or the amenity of local communities could result in a loss of Iluka’s ability to operate leading to
delays, disruption or the shut-down of exploration and production activities. Accidents, environmental incidents
and failures to comply with laws or regulations could also lead to fines, additional costs and adverse publicity.
There is a risk that historic operations or disposal methods by the Company or its predecessor companies,
although materially compliant with regulatory requirements at the time, may be subject to increased or new
environmental standards which require additional material remediation costs.
The Company monitors these risks on an ongoing basis as part of the ongoing remediation of its former mine
sites and operations.
Business interruption risks
Circumstances may arise which preclude sites from operating including natural disaster, material disruption to our
logistics, critical plant failure or industrial action. Iluka undertakes regular reviews for mitigation of property and
business continuity risks. Iluka also conducts planning and preparedness activities to ensure rapid and effective
response in the event of a crisis. Appropriate business plans, policies and training provides support to Iluka’s risk
mitigation activities.
Social licence to operate risks
An integral part of Iluka’s activities is maintaining a social licence to operate. Iluka’s safety, health, environmental,
people and stakeholder performance expectations are clearly articulated by our policies and is overseen by the
Board.
The Iluka Review 2016 contains further information on the Company’s 2016 operating conditions, as well as
elements of the business strategy. This document, as well as other Company information is available on Iluka’s
website www.iluka.com
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Iluka Resources Limited
31 December 2016
OVERVIEW OF RESULTS
During December 2016 Iluka acquired Sierra Rutile Limited (SRL), a large, long life rutile mining and processing
operation with material expansion options located in Sierra Leone. The results in the 2016 Annual Report include
SRL’s contribution from the acquisition date of 7 December 2016, reflecting 24 days of ownership by Iluka in
2016.
Iluka recorded a loss after tax for the year of $224.0 million, compared with a profit of $53.5 million for the
previous corresponding period. The 2016 loss was significantly impacted by several non-recurring adjustments
including an impairment charge of $140.7 million after tax and an increase in rehabilitation provision for closed
sites of $42.1 million after tax.
The non-cash impairment charge of $201.0 million pre-tax related to the following assets:
•
including the Douglas wet
in the Murray Basin of $156.0 million pre-tax,
idle and surplus equipment
concentrator, mining unit and other equipment, as well as the mining unit and wet concentrator utilised for the
Woornack, Rownack, Pirro deposits. In the case of this equipment, some was previously considered able to
be utilised for a Balranald conventional mine development, which has been passed over in favour of an
unconventional mining approach;
in the Murray Basin, Iluka is continuing with trialling and evaluating an unconventional, underground mining
approach for Balranald following the cessation of work associated with the conventional mine development.
As a consequence, $20.4 million of capitalised costs associated with feasibility work for the conventional
method have been impaired; and
$24.6 million related to exploration and evaluation assets previously capitalised, as well as mine reserves in
the Perth and Murray Basins have been impaired. This category includes a number of areas where no further
work is contemplated.
•
•
The increase in the rehabilitation provision predominantly relates to Iluka’s former operating assets in the United
States ($40.9 million), including Virginia which was idled at the end of 2015 and is now undergoing rehabilitation
as a closed site, and Florida, which was closed in 2009. The increase in rehabilitation provisions follows an
extensive review and relates to the refinement of estimates including the current scope of work and approach to
undertaking the work. In the second half of 2016, the focus of the US activities shifted from being an idled site
ready to restart should market conditions improve, to a permanently closed site, the primary purpose of which is
to rehabilitate in a cost effective and responsible manner. This clarification resulted in a number of costs
previously forecast as operating expenses, being incorporated into the costs of rehabilitating and holding the land
during rehabilitation.
Other key factors influencing Iluka’s result included:
•
•
•
•
•
•
•
lower weighted average received USD prices for zircon, down 19.6 per cent to US$773 per tonne from the
previous corresponding period of US$961 per tonne. The reduction is driven by a combination of lower
reference prices and a higher proportion of standard grade zircon and zircon in concentrate sales;
higher resource development costs, with costs of $79.4 million compared to $58.4 million in the previous
corresponding period, mainly due to costs associated with trialling an unconventional, underground mining
approach;
higher restructure and idle costs following the suspension of mining and concentrating at Jacinth Ambrosia in
April 2016 and the idling of the US operations in December 2015;
lower income received from the Mining Area C iron ore royalty (MAC), down $14.1 million year-on-year. No
capacity payments were received in 2016 (2015: $3.0 million) and the previous corresponding period
included a one-off receipt of US$8.0 million (A$10.4 million) following the modification to the royalty
agreement with BHP Billiton and its joint venture partners;
lower ilmenite revenues, down $47.9 million, reflecting higher internal usage of ilmenite for synthetic rutile
production and lower sales of remaining ilmenite inventory from the Virginia operations (idled December
2015);
transaction costs of $14.1 million associated with the SRL acquisition; offset by
no revisions in 2016 to the discount rate used to calculate the rehabilitation provisions (2015: $25.3 million).
In addition to the above factors, excluded from underlying Group EBITDA is the non-cash inventory movement of
$57.3 million (2015: $15.3 million). When inventory is built, both cash and non-cash production costs (i.e.
depreciation and amortisation) are capitalised to the balance sheet and do not impact earnings. When inventory
is drawn, the profit or loss is charged with the inventory movement, which reflects both the cash and non-cash
components.
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Iluka Resources Limited
31 December 2016
Iluka’s total higher value product sales of zircon, rutile and synthetic rutile (Z/R/SR) increased 7.2 per cent to
697.7 thousand tonnes compared to 651.0 thousand tonnes in 2015. Z/R/SR revenue was $696.8 million, down
5.8 per cent compared with the prior year (2015: $739.7 million) associated with lower received zircon prices over
the year. Mineral sands sales revenue, including ilmenite and by-products revenues, decreased 11.4 per cent to
$726.3 million (2015: $819.8 million). Revenue per tonne of Z/R/SR sold decreased by 12.1 per cent to $999 per
tonne (2015: $1,136 per tonne), as a result of lower weighted average received USD prices for zircon, and a
higher proportion of standard grade zircon and zircon in concentrate sales. Rutile prices were stable
year-on-year, with a slight increase in the weighted average received price in the fourth quarter. The AUD:USD
exchange rate averaged 74.4 cents (2015: 75.2 cents).
Total cash production costs, excluding ilmenite concentrate and by-product costs, decreased by 34.4 per cent to
$252.3 million (2015: $384.9 million), reflecting lower mining costs, following the suspension of mining and
concentrating activities at Jacinth-Ambrosia, South Australia in April 2016 and the cessation of the US operations
in December 2015. The only mining activity in Australia occurred at Tutunup South, with ilmenite used as
feedstock for SR kiln 2 which was in operation for the full year. Ilmenite concentrate and by-products costs were
comparable at $8.3 million (2015: $7.6 million).
On a unit basis, cash cost of production excluding ilmenite concentrate and by-products was $373 per tonne of
Z/R/SR, a 33.1 per cent decrease compared with the prior year (2015: $558 per tonne).
Unit cost of goods sold has reduced 10.2 per cent to $700 per tonne of Z/R/SR sold compared to $780 per tonne
in the previous corresponding period.
Mining Area C iron ore royalty earnings (MAC) decreased 23.0 per cent to $47.1 million (2015: $61.2 million).
MAC EBITDA was $47.5 million (2015: $61.6 million), with annual amortisation of $0.4 million. No capacity
payments were received in 2016 (2015: $3.0 million) and the previous corresponding period included a one-off
receipt of US$8.0 million (A$10.4 million) following the modification to the royalty agreement with BHP Billiton and
its joint venture partners.
During the year Iluka further increased its equity stake in Metalysis Limited to 28.1 per cent. Metalysis is a private
UK based entity that is developing a new technology for titanium metal powder production. The investment has
resulted in Metalysis becoming an associate and Iluka has commenced equity accounting from 18 February
2016. During the year, Iluka's share of the Metalysis earnings was a loss of $3.3 million and Iluka expects
Metalysis to report losses during the development phase of the technology.
Loss before tax was $277.7 million (2015: profit $86.6 million). A net tax benefit of $53.7 million (2015: expense
of $33.1 million) was recognised in respect of the loss for the year. The tax benefit relates mainly to the Group's
Australian earnings, with minimal benefits recognised for overseas losses.
Loss per share for the period was 53.6 cents compared to an earnings per share of 12.8 cents in the previous
corresponding period. The number of fully paid ordinary shares on issue at 31 December 2016 of 418.7 million
was unchanged during the year.
Iluka undertook a sustainable business review in the last quarter of 2016 to remove cost from the business, and
to ensure a more appropriate resourcing structure in the context of current business priorities and business
conditions. This has resulted in Iluka making the difficult decision to make approximately 90 roles redundant,
functions, and a number of exploration and other activities have either ceased or
largely within support
expenditure has been reduced. The total workforce at
the review was 814 with
approximately 440 roles in support functions, including resource development, corporate and marketing; being
the focus of the review. Redundancy and other associated costs were approximately $7 million, pre-tax.
the commencement of
Free cash flow of $47.3 million was $107.7 million lower than the previous corresponding period (2015: $155.0
million) largely reflecting lower operating cash flow (2016: $137.3 million compared to 2015: $222.2 million) and
$20.4 million lower receipts from MAC royalty. The free cash flow is noted before the acquisition of SRL, with an
acquisition cost of $375.4 million.
Capital expenditure of $82.5 million in the year (2015: $66.4 million) related to various major projects, including
Balranald (New South Wales) and Cataby (Western Australia), new earth moving equipment at SRL, combined
with land acquisitions and an increased equity stake in Metalysis Limited.
9
Iluka Resources Limited
31 December 2016
Net debt at 31 December 2016 was $506.3 million, with a corresponding gearing ratio (net debt/ net debt +
equity) of 31.5 per cent. This compares with net cash of $6.0 million at 31 December 2015. The increase in net
debt follows the acquisition of SRL, with the final consideration reflecting $375.4 million (£215.3 million) paid for
SRL equity and A$14.1 million of transaction costs. Iluka also assumed SRL’s net debt of US$59.3 million ($79.7
million). Undrawn facilities at 31 December 2016 were $404.2 million and cash and cash equivalents of $101.3
million. Net debt at 31 January 2017 was $441.8 million.
OTHER MATTERS
On 24 March 2014 Iluka became aware that a litigation funder proposed to fund claims that current or former
shareholders may have against the Company in respect of continuous disclosure obligations in 2012. The
potential applicants sought an order from the Federal Court for pre-action discovery which was dismissed in July
2015 and which subsequently appealed to the Full Federal Court. The Full Federal Court has not yet handed
down its decision. This is not considered a contingent liability.
DIVIDEND
investment opportunities, including Cataby and the Sierra Rutile
In the context of the Company’s potential
expansion options, Directors have determined no final dividend will be declared for 2016. Iluka’s interim dividend
was 3.0 cents per share, fully franked. The dividend payment in 2016 represents 27 per cent of free cash flow
generated. This is lower than the Iluka framework of a minimum of 40 per cent, but reflects the consideration of
potential investment requirements.
OVERVIEW OF SALES AND PRODUCTION
Sales (kt)
Zircon
Rutile
Synthetic rutile
Total Z/R/SR sales
Ilmenite - saleable
Total sales volumes
Z/R/SR revenue ($m)
Ilmenite and other revenue ($m)
Total mineral sands revenue ($m)
Revenue per tonne of Z/R/SR sold ($/t)
(i)
(ii)
Production (kt)
Zircon
Rutile
Synthetic rutile
Total Z/R/SR production
Ilmenite
Total production volume
HMC produced
HMC processed
Cash costs of production ($m)
Unit cash cost per tonne of Z/R/SR produced ($/t)
Unit cash cost per tonne of Z/R/SR produced excluding
by-products ($/t)
Unit costs of goods sold per tonne of Z/R/SR sold ($/t)
2016
338.8
172.1
186.8
697.7
17.7
715.4
696.8
29.5
726.3
999
347.1
117.6
210.9
675.6
329.4
1,005.0
395
967
260.6
386
373
700
2015 % change
346.2
133.6
171.2
651.0
299.8
950.8
739.7
80.1
819.8
1,136
388.6
136.5
164.9
690.0
466.1
1,156.1
1,137
1,206
392.5
569
558
780
(2.1)
28.8
9.1
7.2
(94.1)
(24.8)
(5.8)
(63.2)
(11.4)
(12.1)
(10.7)
(13.8)
27.9
(2.1)
(29.3)
(13.1)
(65.3)
(19.8)
(33.6)
(32.2)
(33.1)
(10.2)
(i) Mineral sands revenues include revenues derived from other materials not included in production volumes, including
activated carbon products and iron concentrate.
(ii) Calculated as revenue from the sale of zircon, rutile and synthetic rutile (Z/R/SR) products divided by Z/R/SR sales volumes.
10
Iluka Resources Limited
31 December 2016
Mineral sands sales volumes
Zircon sales decreased marginally by 2.1 per cent to 338.8 thousand tonnes (2015: 346.2 thousand tonnes). The
zircon market entered 2016 with demand characteristics similar to 2015. 2016 was the fourth consecutive year
Iluka’s sales volumes have been approximately 350 thousand tonnes, relative to higher sales levels in the
immediately preceding years. This steady sales profile was achieved in the context of new entrants bringing
approximately 150 thousand tonnes (net) into the market over the same period. A result has been some
diminution of Iluka’s market share as it has sought to exercise production flexibility and supply discipline. An
appropriate approach in Iluka’s view compared to pursuing volume or market share outcomes.
Combined sales volumes for the high grade titanium dioxide products of rutile and synthetic rutile for the full year
were up 17.7 per cent to 358.9 thousand tonnes (2015: 304.8 thousand tonnes). Rutile sales were 172.1
thousand tonnes (2015: 133.6 thousand tonnes), with SRL contributing 18.1 thousand tonnes in 2016. Market
conditions for pigment, the main end sector for the high grade feedstocks of rutile, synthetic rutile and slag,
improved dramatically towards the end of 2015 and continued to improve through 2016. Most of Iluka’s rutile and
synthetic rutile volumes in 2016 were contracted (volume and price). The weighted average rutile price Iluka
received over 2016 remained relatively stable compared with the 2015 average, although the Company achieved
price increases in the order of US$50/tonne for smaller lot supply into speciality markets, such as welding and
titanium sponge.
Iluka sold 17.7 thousand tonnes of ilmenite in 2016 (2015: 299.8 thousand tonnes), reflecting the idling of the US
operations and utilisation of Australian ilmenites as feedstock for SR production.
Mineral sands production
Total Z/R/SR production was 675.6 thousand tonnes, representing a 2.1 per cent decrease from the previous
corresponding period (2015: 690.0 thousand tonnes).
Lower production of zircon (down 10.7 per cent) reflects the Company’s intent to match production with demand.
Rutile production was 117.6 thousand tonnes or 13.8 per cent lower year-on-year, reflecting the Company’s
continued approach to allocate remaining rutile volumes following the completion of mining activities at the
Woornack, Rownack and Pirro deposits in Victoria in early 2015. SRL contributed 8.8 thousand tonnes of rutile
production. Synthetic rutile production, at 210.9 thousand tonnes, was 27.9 per cent higher than the previous
year (2015: 164.9 thousand tonnes) reflecting a full year of production from synthetic rutile kiln 2 in the south
west of Western Australia. This kiln re-commenced production in April 2015, fed by ilmenite predominantly from
the Tutunup South mine in Western Australia.
For the 12 months to 31 December, Iluka produced 394.8 thousand tonnes of heavy mineral concentrate (HMC)
and processed 967.0 thousand tonnes. This reflects the Company’s approach to draw-down concentrate held in
inventory. As announced on 16 February 2016, mining and concentrating activities at Jacinth-Ambrosia were
suspended on 15 April 2016 to allow the progressive draw down of HMC stockpiles held at site. Iluka expects the
period of mining and concentrating suspension to be for 18 to 24 months from April 2016, dependent on market
demand.
11
INCOME STATEMENT ANALYSIS
$ million
Z/R/SR revenue
Ilmenite and other revenue
Mineral sands revenue
Cash costs of production
Inventory movement - cash costs of production
Restructure and idle capacity charges
Government royalties
Marketing and selling costs
Asset sales and other income
Resource development costs
Corporate and other costs
Foreign exchange gain (loss)
Underlying mineral sands EBITDA*
Mining Area C EBITDA
Underlying Group EBITDA*
SRL transaction costs
Depreciation and amortisation
Inventory movement - non-cash production costs
Rehabilitation costs for closed sites
Share of Metalysis Ltd's losses (associate)
Impairment of assets
Group EBIT
Net interest and bank charges
Rehabilitation unwind, discount rate change and other finance costs
(Loss) profit before tax
Tax benefit (expense)
(Loss) profit for the period (NPAT)
Average AUD/USD (cents)
Iluka Resources Limited
31 December 2016
2016
2015 % change
696.8
29.5
726.3
(260.6)
(107.6)
(69.5)
(20.4)
(36.3)
(0.6)
(79.4)
(53.8)
4.9
103.0
47.5
150.5
(14.1)
(79.9)
(57.3)
(42.6)
(3.3)
(201.0)
(247.7)
(15.4)
(14.6)
(277.7)
53.7
(224.0)
74.4
739.7
80.1
819.8
(392.5)
9.6
(38.3)
(21.0)
(32.0)
1.4
(58.4)
(52.7)
(4.1)
231.8
61.6
293.4
-
(132.4)
(15.3)
(2.7)
-
-
143.0
(11.0)
(45.4)
86.6
(33.1)
53.5
75.2
(5.8)
(63.2)
(11.4)
33.6
n/a
(81.5)
2.9
(13.4)
n/a
(36.0)
(2.1)
n/a
(55.5)
(22.9)
(48.7)
n/a
39.7
(275.2)
(1,477.8)
n/a
n/a
n/a
(40.0)
67.8
n/a
n/a
n/a
(1.1)
* Underlying Group EBITDA excludes non-recurring adjustments including impairments, SRL transaction costs,
changes to rehabilitation provisions for closed sites. Underlying EBITDA also excludes Iluka's share of Metalysis
Ltd's losses, which are non-cash in nature.
Mineral sands operational results
$ million
Revenue
2016
Mineral Sands
EBITDA
2015
2016
2015
Group EBIT
2016
2015
Australia
United States
Sierra Rutile Limited
Resource development and support costs
Total
690.2
18.3
17.8
-
726.3
770.5
49.3
-
-
819.8
281.6
(35.4)
1.1
(144.3)
103.0
366.8
(6.9)
-
(128.1)
231.8
(52.7)
(76.3)
(0.9)
(117.8)
(247.7)
246.8
(34.5)
-
(69.3)
143.0
An overview of performance for Australian operations, United States operations and Sierra Rutile operations is
provided later in this report.
12
Iluka Resources Limited
31 December 2016
Commentary in respect of the income statement analysis is provided below.
Mineral sands revenue
Mineral sands sales revenue for the year was $726.3 million, a decrease of 11.4 per cent compared with the
previous corresponding period (2015: $819.8 million).
As noted, Z/R/SR sales volumes increased 7.2 per cent to 697.7 thousand tonnes (2015: 651.0 thousand
tonnes), which included 18.1 thousand tonnes of rutile sales from SRL; offset by a 12.1 per cent decrease in
revenue per tonne of Z/R/SR sold to $999 (2015: $1,136 per tonne) associated with lower received zircon prices
over the year. Ilmenite and by-product revenue was down 63.2 per cent to $29.5 million given the greater use of
internal ilmenite for upgrading to synthetic rutile and the closure of the US operations.
Cash costs of production
Cash costs of production were down $131.9 million from the prior year to $260.6 million (2015: $392.5 million).
Cash costs of production include $8.3 million of costs in relation to ilmenite concentrate and by-products (2015:
$7.6 million). The reduction in cash costs is driven by a number of factors including:
•
•
•
•
•
$79.5 million reduction in cash production costs in the US operations following the cessation of mining and
concentrating activities in December 2015;
the suspension of mining and concentrating activities at Jacinth-Ambrosia from April 2016, reducing costs by
$45.5 million from the previous corresponding period;
the cessation of mining and concentrating activities in the Murray Basin in March 2015 following the depletion
of the Woornack, Rownack, Pirro (WRP) deposit; partially offset by
a full year of synthetic rutile operations in 2016 following the restart of SR2 in March 2015; and
the acquisition of SRL in December 2016 which incurred $9.4 million of production costs in the 24 days Iluka
owned the operations in 2016.
Unit cash costs per tonne of Z/R/SR produced, excluding ilmenite concentrate and by-product costs, was $373
per tonne compared with $558 per tonne in 2015. Unit cash costs of Z/R/SR produced, including by-product
costs, was $386 per tonne of Z/R/SR (2015: $569 per tonne).
Inventory movement
Work in progress (WIP) inventory has decreased by $113.2 million as HMC processed of 967 thousand tonnes
exceeded HMC produced of 395 thousand tonnes. This draw-down in HMC inventory is consistent with Iluka’s
reduced production settings.
Finished product inventory also decreased by $35.6 million to $341.4 million due to sales of Z/R/SR exceeding
production by 22.1 thousand tonnes during the year. Inventory movements in the balance sheet include the
impacts of foreign currency translation for the US and SRL operations, which are accounted for within a foreign
currency translation reserve and not through the profit and loss account. The inventory movement noted above
also excludes the inventory acquired with SRL on 7 December 2016. SRL’s HMC produced and processed were
comparable in December and rutile sales exceeded production by 9.4 thousand tonnes.
Restructure and idle capacity cash charges
Restructure and idle capacity charges of $69.5 million (2015: $38.3 million) reflect costs incurred during periods
of no or restricted production. The increased costs reflect the change in operations with the suspension of mining
and concentrating at Jacinth-Ambrosia in April 2016 and the idling of the US operations in December 2015;
partially offset by the reactivation of the SR 2 kiln at Tutunup South in south west of Western Australia at the end
of the first quarter 2015.
13
Iluka Resources Limited
31 December 2016
Rehabilitation costs for closed sites
Rehabilitation costs for closed sites of $42.6 million (2015: $2.7 million credit) include changes in cost estimates
for rehabilitation work associated with closed sites, with US operations rehabilitation up $40.9 million. The
increase in rehabilitation provisions in the US follows an extensive review in the last 12 months and relates to the
refinement of estimates including the current scope of work, approach to undertaking the required work and a
change in methodology for calculating the amount of contingency. In the second half of 2016, the focus of the US
activities shifted from being an idled site ready to restart should market conditions improve, to a permanently
closed site, the primary purpose of which is to rehabilitate in a cost effective and responsible manner. This
clarification resulted in a number of costs previously forecast as operating expenses, being incorporated into the
provision estimate. The US rehabilitation provision at December 2016 is now $104.6 million (US$75.5 million).
Government royalties and marketing costs
Government royalties were comparable with the previous corresponding period at $20.4 million (2015: $21.0
million).
Marketing and selling costs
Marketing and selling costs of $36.3 million are 13.4 per cent higher than the previous corresponding period
(2015: $32.0 million) and reflect a number of small increases associated with SRL operations, redundancies and
insurance.
Resource development costs
Resource development costs were $21.0 million higher than the prior year reflecting increased investment in
trialling an unconventional underground mining approach, with expenditure of $36.0 million during the year (2015:
$15.0 million). Exploration expenditure decreased $2.7 million to $24.3 million.
Depreciation and amortisation
The decrease of $52.5 million to $79.9 million compared to the previous corresponding period (2015: $132.4
million) reflects no depreciation at WRP following cessation of mining in the first quarter of 2015. Depreciation
has also been suspended for mine specific plant at Jacinth-Ambrosia following the suspension of mining and
concentrating activities in April 2016. Depreciation has recommenced on mine specific equipment and mine
reserves associated with the restart of mining operations at Tutunup South and the restart of the SR 2 kiln during
the first half of 2015.
Iluka currently adopts a unit of production depreciation policy for all mine specific plant and mine reserves. All
other assets are depreciated using the straight line method. As a result, all mine specific plant, such as mining
units, concentrators and mineral separation plants, do not incur any depreciation charges when they are not in
use (i.e. when they are idle). Given Iluka’s approach to flexing production to meet market demand, sometimes for
extended periods, Iluka has decided to change its depreciation method to a straight line methodology for all mine
specific plant, with effect from 1 January 2017. This will result in additional depreciation charges of approximately
$12 million in 2017. Mine reserves will continue to be depreciated using units of production, consistent with
common industry practice.
14
Iluka Resources Limited
31 December 2016
Impairment
A review of the mineral sands mining and processing assets within the portfolio has been undertaken and several
decisions relating to carrying values have been made resulting in an impairment charge of $201.0 million. The
majority of the charge relates to idle and surplus equipment in the Murray Basin of $156.0 million, including the
Douglas wet concentrator, mining unit and other equipment, as well as the mining unit and wet concentrator
this equipment, some was previously
utilised for the Woornack, Rownack, Pirro deposits.
considered able to be utilised for a Balranald conventional mine development, which has been passed over in
favour of an unconventional mining approach. This has resulted in a further $20.4 million of capitalised costs
associated with feasibility work for the conventional method being impaired. The remaining idle assets that were
not designated for the Balranald conventional project, were previously a component of the Australian Cash
Generating Unit (CGU). These assets are now no longer expected to contribute to the future cash inflows of the
Group's operations predominantly due to the decline in zircon prices. In addition, an impairment charge of $24.6
million has been recorded in relation to exploration and evaluation assets previously capitalised, as well as mine
reserves in the Perth and Murray Basins. This category includes a number of areas where no further work is
contemplated.
In the case of
Mining Area C
Iron ore sales volumes decreased 2.2 per cent to 52.3 million dry metric tonnes (DMT) (2015: 53.5 DMT). The
average AUD realised price upon which the royalty is payable increased by 3.1 per cent from the previous
corresponding period. The EBIT contribution of $47.1 million (2015: $61.2 million) includes no annual capacity
payments for production increases in the year to 30 June (2015: $3.0 million). The previous corresponding period
also included a one-off receipt of US$8.0 million (A$10.4 million) following the modification to the royalty
agreement with BHP Billiton and its joint venture partners.
Corporate and other costs
Corporate costs were $1.1 million higher than the previous corresponding period, associated with redundancy
costs and the Managing Director transition, partially offset by lower costs in 2016 associated with the evaluation
of the potential acquisition of Kenmare Resources Plc.
Foreign exchange
Foreign exchange translation gains were $4.9 million compared to a net loss of $4.1 million in 2015.
Rehabilitation unwind
The reduction in the rehabilitation unwind costs from the previous corresponding period reflects the reduction in
the risk free discount rate used in the calculation of the net present value of the rehabilitation provisions from 4.7
per cent in 2015 to 3.0 per cent in 2016 in respect of closed sites in Australia. The 2015 cost includes a one-off
$25.3 million charge arising from the reduction in the risk free discount rate as at 31 December 2015.
Net interest and bank charges
Net interest and bank charges have increased $4.4 million from the previous corresponding period due to the
increase in net debt, mainly the result of the acquisition of SRL in December 2016. Net debt at 31 December
2014 was $59.0 million reducing to a net cash position of $6.0 million at 31 December 2015. As at 31 December
2016, net debt was $506.3 million.
Tax expense
The income tax benefit of $53.7 million on a loss before tax of $277.7 million reflects no tax benefit recognised in
respect of the following: US operating loss; international exploration expenditure; and SRL transaction costs.
These are partially offset by the benefit of research and development tax offsets.
15
MOVEMENT IN NPAT
Iluka Resources Limited
31 December 2016
Commentary in respect of each bar in the NPAT waterfall above is provided below:
Z/R/SR sales price (-ve $85 million)
Lower average USD prices for zircon compared to the previous corresponding period.
Average annual zircon prices were US$773 per tonne, a reduction of 19.6 per cent from the average achieved in
2015 (2015: US$961/t). Zircon prices reflect the weighted average price for zircon premium, zircon standard,
zircon in concentrate and zircon tailings. The prices for each product vary considerably, as does the mix of such
products sold period to period. The sales mix in 2016 was approximately 47 per cent premium product, 33 per
cent standard/universal grade with the remainder of zircon sold contained in concentrate. 2016 included a higher
proportion of standard grade zircon and zircon in concentrate sales than the previous corresponding period.
Rutile prices achieved an average US$716 per tonne, 0.7 per cent lower year-on-year (2015: US$721/t).
Weighted average prices reflect market conditions and product mix. Iluka’s synthetic rutile sales are, in large part,
underpinned by commercial off take arrangements. The terms of these arrangements, including the pricing
arrangements are commercial in confidence and as such not disclosed by Iluka.
Z/R/SR sales volumes (+ve $14 million)
The amount reflects the impact of higher Z/R/SR sales volumes, up 7.2 per cent from the previous corresponding
period, using the average margin achieved for Z/R/SR product sales in the current period.
Z/R/SR sales mix (-ve $2 million)
Z/R/SR sales mix is comparable to the previous corresponding period.
16
Iluka Resources Limited
31 December 2016
Z/R/SR foreign exchange (+ve $7 million)
The impact of a higher weighted average spot exchange rate of 74.4 cents applicable to Z/R/SR revenue
compared with the rate achieved in the previous corresponding period of 75.2 cents. Foreign exchange impacts
on operating costs, mainly those relating to the US and SRL operations, are included in the overall movement in
unit cost of goods sold. The variance also includes a foreign exchange translation gain of $4.9 million as opposed
to a translation loss of $4.1 million in 2015.
Ilmenite concentrate and other by-products (-ve $15 million)
Decreased volume of ilmenite sales and lower average realised prices as a result of changes in the ilmenite
product mix.
Z/R/SR unit cost of goods sold (+ve $15 million)
Lower unit costs of sales for Z/R/SR sold during the period reflects reducing unit cash costs of production
combined with a change in sales mix to include lower cost material.
Restructure and idle capacity (-ve $31 million)
The composition of these costs has changed with an increase in US idle costs following the cessation of mining
and concentrating in December 2015 and higher idle costs at Jacinth-Ambrosia following the suspension of
mining and concentrating activities in April 2016. These changes were offset by a reduction in Western Australia
following the recommencement of both mining and synthetic rutile production in March 2015.
Mineral sands other costs (-ve $67 million)
The higher costs were due to the increased rehabilitation provision for the US closed operations and increased
resource development costs predominantly associated with trialling an unconventional underground mining
approach.
Mining Area C (-ve $14 million)
Underlying iron ore royalties were comparable with the previous corresponding period, with a 3.1 per cent
increase in realised AUD iron ore prices offset by 2.2 per cent decline in sales volumes. No MAC annual capacity
payments were received in 2016 (2015: $3.0 million). Royalty and capacity payments are payable on dry metric
tonnes. The previous corresponding period also included a one-off receipt of US$8.0 million (A$10.4 million) as
referenced previously.
Corporate costs (-ve $15 million)
Corporate and other costs include $14.1 million in relation to one-off SRL transactions costs in 2016, which
accounts for the majority of the increase. The higher underlying corporate costs were due to increased costs
related to redundancy costs and Managing Director transition, partially offset by lower costs associated with the
evaluation of the potential acquisition of Kenmare Resources Plc.
Impairments (-ve $201 million)
The current year includes an impairment charge of $201.0 million recorded against the Australian operations
reflecting a significant reduction in carrying value for assets predominantly located in the Murray Basin.
Depreciation for idle assets (+ve $7 million)
Lower depreciation charges on idle equipment, with 2015 including $12 million for depreciation of idle equipment
in the Murray Basin following the conclusion of mining at WRP and a review of the assets conditions resulting in
accelerated depreciation.
Metalysis associate (-ve $3 million)
Iluka’s increased investment in Metalysis on 18 February 2016 has resulted in Iluka equity accounting from this
date. Iluka has recognised its share of Metalysis losses for the period of $3.3 million.
17
Iluka Resources Limited
31 December 2016
Interest and bank charges (-ve $4 million)
Interest costs increased due to higher average borrowing levels than in the previous corresponding period
following the acquisition of SRL in December 2016.
Rehabilitation unwind and other finance charges (+ve $31 million)
The decrease from the previous corresponding period largely reflects a one-off charge in 2015 of $25.3 million
due to a reduction in the risk free discount rate used in the calculation of
the
rehabilitation provisions in respect of closed sites in Australia.
the net present value of
Tax (+ve $87 million)
The variance reflects a decreased tax expense as a result of lower earnings and the benefit of higher research
and development tax offsets compared to the previous corresponding period.
BALANCE SHEET, CASH FLOW AND NET DEBT
Balance sheet by operation - $ million
31 December 2016
AUS
US
SRL
MAC
Corp
Group
Receivables
Inventories
Payables and accruals
Employee and other provisions
Rehabilitation provisions
Investment in Metalysis Limited
Property, plant & equipment
Intangibles
Capital employed
88.1
603.4
(48.1)
(11.9)
(388.1)
-
787.2
-
1,030.6
2.4
56.2
(10.2)
(13.8)
(103.7)
-
45.0
-
(24.1)
50.8
34.3
(31.7)
(3.2)
(36.3)
-
354.7
-
368.6
14.1
-
-
-
-
-
-
4.7
18.8
14.5
-
(26.0)
(12.0)
-
33.7
7.3
-
17.5
Net tax asset
Net debt
Total equity
Net funding
169.9
693.9
(116.0)
(40.9)
(528.1)
33.7
1,194.2
4.7
1,411.4
(197.9)
506.3
1,103.0
1,411.4
31 Dec
2015
108.9
811.8
(93.6)
(39.2)
(487.0)
22.7
1,069.8
5.1
1,398.5
(4.1)
(6.0)
1,408.6
1,398.5
The balance sheet composition has changed from that at 31 December 2015 as a result of the acquisition of SRL
in December 2016. The accounting treatment for the acquisition requires fair values to be ascribed to the assets
and liabilities of SRL and then consolidated into Iluka’s financial position. SRL is identified separately above and
highlights the changes in the balance sheet composition from the previous corresponding period.
Receivables are higher than the previous corresponding period, mainly due to the acquisition of SRL and the
assumption of their receivables. Iluka has continued to utilise a trade receivables purchase facility entered into in
late 2014 which enabled the earlier collection of $88.1 million of receivables at 31 December 2016 (31 December
2015: $75.0 million).
Inventories decreased by $117.9 million to $693.9 million. Lower inventories reflect the drawdown of work in
progress product (HMC) to $288.0 million (December 2015: $401.2 million) combined with a reduction in finished
product stocks to $341.4 million (2015: $377.0 million). During the year, Iluka produced 395 thousand tonnes of
HMC and processed 967 thousand tonnes. The draw down in HMC inventory is consistent with Iluka’s production
settings and demand-following approach, which are likely to see HMC and finished goods inventories reduce
materially within the next two years. Inventories include $219.9 million of predominantly HMC material classified
as non-current (2015: $317.9 million) and also $64.5 million of consumable stores (December 2015: $33.6
million).
18
Iluka Resources Limited
31 December 2016
Rehabilitation provisions have increased from the previous corresponding period despite active rehabilitation
throughout the year. The increase in the rehabilitation provision predominantly relates to Iluka’s former operating
assets in the United States, including Virginia which was idled at the end of 2015 and is now undergoing
rehabilitation as a closed site, and Florida, which was closed in 2009, with a total increase of $40.9 million for the
US. The increase in rehabilitation provisions in the US follows an extensive review in the last 12 months and
relates to the refinement of estimates including the current scope of work, approach to undertaking the required
work and a change in methodology for calculating the amount of contingency. In the second half of 2016, the
focus of the US activities shifted from being an idled site ready to restart should market conditions improve, to a
permanently closed site, the primary purpose of which is to rehabilitate in a cost effective and responsible
manner. This clarification resulted in a number of costs previously forecast as operating expenses, being
incorporated into the provision estimate. The US rehabilitation provision at December 2016 is now $104.6 million
(US$75.5 million).
During the year Iluka further increased its equity stake in Metalysis Limited to 28.1 per cent with a $12.1 million
investment in February 2016 and a further $6.9 million in July 2016. Metalysis Limited is a private UK based
entity that is developing a new technology for titanium metal powder production. The investment has resulted in
Metalysis becoming an associate and Iluka has commenced equity accounting from 18 February 2016. During
the year, Iluka’s share of the Metalysis earnings was a loss of $3.3 million and Iluka expects Metalysis to report
losses during the development phase of the technology.
Higher property, plant and equipment values reflect the acquisition of SRL, which is detailed in note 6. This is
offset partially by the impairment charge of $201.0 million for the Australian operations.
The increase in the Group's deferred tax asset from $17.8 million in 2015 to $185.6 million at 31 December 2016
predominantly relates to the recognition of a deferred tax asset for SRL's carried forward tax losses.
Net debt increased $512.3 million compared to the previous corresponding period mainly as a result of the
acquisition of SRL, with a purchase price of $375.4 million, transaction costs of $14.1 million plus the assumption
of SRL's net debt of $79.7 million. Free cash flow for the year was $47.3 million. Dividend payments were $92.1
million in respect of the 19 cent 2015 final dividend in April 2016 and the 3 cent 2016 interim dividend in October
2016. Currency translation impacts were predominantly $9.6 million on the USD component of net debt. Undrawn
facilities at 31 December 2016 were $404.2 million and cash and cash equivalents were $101.3 million.
19
Movement in net (debt) cash
$ million
Opening net (debt) cash
Operating cash flow
MAC royalty
Exploration
Interest (net)
Tax
Capital expenditure
Purchase of investment in Metalysis Limited
Asset sales
Share purchases for employee share schemes
Free cash flow
Dividends
Net cash flow
SRL acquisition cost
Net debt assumed on acquisition of SRL
Exchange revaluation of USD net debt
Amortisation of deferred borrowing costs
Decrease (increase) in net debt
Iluka Resources Limited
31 December 2016
Full Year
2015
1st Half
2016
2nd Half
2016
Full Year
2016
(59.0)
222.2
64.0
(27.7)
(10.5)
(18.5)
(62.3)
(4.1)
0.9
(9.0)
155.0
(79.5)
75.5
-
-
(8.1)
(2.4)
65.0
6.0
(124.1)
6.0
(15.5)
18.3
(10.7)
(4.9)
(10.3)
(16.7)
(12.1)
1.3
-
(50.6)
(79.5)
(130.1)
-
-
1.4
(1.4)
(130.1)
152.8
25.3
(14.0)
(9.1)
(3.5)
(47.0)
(6.7)
0.1
-
97.9
(12.6)
85.3
(375.4)
(79.7)
(11.0)
(1.4)
(382.2)
137.3
43.6
(24.7)
(14.0)
(13.8)
(63.5)
(19.0)
1.4
-
47.3
(92.1)
(44.8)
(375.4)
(79.7)
(9.6)
(2.8)
(512.3)
Closing net cash (debt)
6.0
(124.1)
(506.3)
(506.3)
Operating cash flow in the year of $137.3 million is lower than the previous corresponding period, reflecting the
lower mineral sands EBITDA.
MAC cash flows were $20.4 million lower than the previous corresponding period reflecting lower MAC royalty
income.
Iluka continued monthly tax instalments in Australia during the year. Iluka’s tax benefit in the year was $53.7
million, predominantly driven by the Australian impairment charge of $201.0 million, in comparison to net tax
payments of $13.8 million. The Group will claim a tax refund in 2017 of $12.4 million in relation to the 2016 tax
benefit.
Capital expenditure of $63.5 million in the year related to various major projects, including Cataby (Western
Australia), Balranald (New South Wales) as well as land acquisitions and the purchase of earth moving
equipment in Sierra Leone. In addition, Iluka increased its equity interest in Metalysis Limited for a cost of $19.0
million in the year taking the equity holding to 28.1 per cent.
The exchange revaluation of net debt
in the year predominantly reflects the re-translation of US dollar
denominated debt from an exchange rate of 72.8 cents at 31 December 2015 to 72.1 cents at 31 December
2016.
On 7 December 2016 Iluka completed the acquisition of SRL by means of a statutory merger of SRL with Iluka
includes the final
Investments Limited (BVI), a wholly owned Iluka subsidiary. The total
consideration for SRL equity of $375.4 million (£215.4 million), $14.1 million of transaction costs and interest
costs in relation to a deal contingent forward hedge contract of $2.1 million disclosed within interest costs.
transaction cost
20
REVIEW OF AUSTRALIAN OPERATIONS
Production volumes
Zircon
Rutile
Synthetic rutile
Total Z/R/SR production
Ilmenite
Total production volume
HMC produced
HMC processed
Unit cash cost of production - Z/R/SR *
Mineral sands revenue
Cash costs of production
Inventory movements - cash costs of production
Restructure and idle capacity charges
Government royalties
Marketing and selling costs
Asset sales and other income
EBITDA
Depreciation & amortisation
Inventory movements - non-cash production costs
Rehabilitation costs for closed sites
Impairment expense
EBIT
kt
kt
kt
kt
kt
kt
kt
kt
$/t
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Iluka Resources Limited
31 December 2016
2016
2015 % change
347.0
108.8
210.9
666.7
326.2
992.9
371
942
364
690.2
(242.5)
(88.2)
(38.8)
(19.7)
(18.3)
(1.1)
281.6
(74.3)
(57.3)
(1.7)
(201.0)
(52.7)
351.3
136.5
164.9
652.7
320.9
973.6
890
949
466
770.5
(304.3)
(31.4)
(29.3)
(21.0)
(16.4)
(1.3)
366.8
(129.7)
(15.3)
25.0
-
246.8
(1.2)
(20.3)
27.9
2.1
1.7
2.0
(58.3)
(0.7)
21.9
(10.4)
20.3
180.9
(32.4)
6.2
(11.2)
(15.4)
(23.2)
42.7
(274.5)
106.8
n/a
n/a
* Calculated as cash costs of production, including by-product costs divided by Z/R/SR production.
Total Z/R/SR production increased 2.1 per cent from the previous corresponding period reflecting a full year of
production from synthetic rutile kiln 2 in the south west of Western Australia. This kiln re-commenced production
in March 2015. Zircon production (including sales of zircon in concentrate recognised as production when sold)
was slightly lower, while rutile decreased 20.3 per cent reflecting the Company’s continued approach to allocate
rutile volumes in the context of the completion of mining activities in the Murray Basin.
Mineral sands revenue decreased 10.4 per cent. This was mainly due to lower zircon prices received year on
year and a reduction in ilmenite sales with some volumes prioritised as feedstock for synthetic rutile production.
Cash costs of production were 20.3 per cent lower than the previous corresponding period. The change reflects a
combination of factors including lower mining and concentrating costs due to the cessation of mining operations
at WRP in the Murray Basin in March 2015;
the suspension of mining and concentrating activities at
Jacinth-Ambrosia in April 2016; partially offset by a full year of costs at synthetic rutile kiln 2.
Unit cash costs of production per tonne of Z/R/SR declined due to the lower cash production costs associated
with the reduction in mining and concentrating activities.
The inventory movement (cash and non-cash) reflects both a drawdown of both HMC and finished goods stocks.
The increase of restructure and idle capacity charges compared to the previous corresponding period reflects
charges associated with the suspension of mining and concentrating at Jacinth-Ambrosia.
The reduction in depreciation charges reflects no deprecation at WRP following cessation of mining in the first
quarter of 2015 and the suspension of depreciation for mining and concentrating equipment at Jacinth-Ambrosia
associated with idling of activities in April 2016. This is partially offset by a full year of depreciation on mine
specific equipment and mine reserves associated with the restart of mining operations at Tutunup South and the
restart of the synthetic rutile kiln 2 in March 2015.
21
Iluka Resources Limited
31 December 2016
The variation in rehabilitation for closed sites reflects the review undertaken in 2015 that identified opportunities
to improve techniques applied to rehabilitation and resulted in a reduction in the obligation for closed sites of
$25.0 million.
Iluka undertook a review of the mineral sands mining and processing assets in the context of current business
priorities which resulted in non-cash impairments of $201.0 million. This included surplus and redundant
equipment in the Murray Basin of $156.0 million, $20.4 million of capitalised costs associated with feasibility work
for Balranald conventional mine development now ceased and $24.6 million related to exploration and evaluation
assets previously capitalised and other mine reserves in the Perth and Murray Basins.
REVIEW OF UNITED STATES OPERATIONS
Production volumes
Zircon
Ilmenite
Total production volume
HMC produced
HMC processed
Unit cash cost of production - saleable product *
Mineral sands revenue
Cash cost of production
Inventory movements - cash
Restructure and idle capacity charges
Marketing and selling costs
EBITDA
Rehabilitation costs for closed sites
EBIT
2016
2015 % change
-
-
-
-
-
-
18.3
(8.7)
(13.9)
(30.7)
(0.4)
(35.4)
(40.9)
(76.3)
37.3
145.1
182.4
247
257
484
49.3
(88.2)
41.0
(9.0)
-
(6.9)
(27.6)
(34.5)
n/a
n/a
n/a
n/a
n/a
n/a
(62.9)
90.1
133.9
(241.1)
n/a
413.0
(48.2)
(121.2)
kt
kt
kt
kt
kt
$/t
$m
$m
$m
$m
$m
$m
$m
$m
* Calculated as cash costs of production, including by-product costs divided by zircon and ilmenite production.
Zircon and ilmenite production ceased in December 2015 following the completion of mining at Brink and
Concord deposits in the US.
Lower sales revenue was largely due to decreased sales volumes.
Cash costs of production largely reflect activities associated with finished goods transport as all mining and
concentrating activities ceased in December 2015.
The inventory movement (cash and non-cash) reflects the draw down in finished goods through sales and
write-downs of certain inventory lines to their net realisable value.
Restructure and idle capacity charges reflect regional management, administration and holding costs, regional
asset care and maintenance costs plus feasibility costs associated with planned re-treatment and recovery of
zircon in concentrate from tailings stocks pre rehabilitation.
The provision for rehabilitation and closure activities was increased by $40.9 million. The increase related to the
Company’s former operating assets, including Virginia which was idled at the end of 2015 and is now undergoing
rehabilitation as a closed site, and Florida, which was closed in 2009. This followed an extensive review and
refinement of estimates including the current scope of work, approach to undertaking the required work and a
change in methodology for calculating the amount of contingency. In addition during the second half of 2016, the
focus of the US activities shifted from being an idled site ready to restart should market conditions improve, to a
permanently closed site, the primary purpose of which is to rehabilitate in a cost effective and responsible
manner. This clarification resulted in a number of costs previously forecast as operating expenses, being
incorporated into the provision estimate.
22
REVIEW OF SIERRA RUTILE OPERATIONS
Production volumes
Zircon
Rutile
Ilmenite
Total production volume
HMC produced
HMC processed
Unit cash cost of production - saleable product *
Mineral sands revenue
Cash cost of production
Inventory movements - cash
Government royalties
Marketing and selling costs
Asset sales and other income
EBITDA
Depreciation & amortisation
EBIT
Iluka Resources Limited
31 December 2016
2016
2015 % change
kt
kt
kt
kt
kt
kt
$/t
$m
$m
$m
$m
$m
$m
$m
$m
$m
0.1
8.8
3.2
12.1
23.3
24.6
777.0
17.8
(9.4)
(5.5)
(0.7)
(1.0)
(0.1)
1.1
(2.0)
(0.9)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
* Calculated as cash costs of production, including by-product costs divided by Z/R/SR and ilmenite production.
Iluka acquired SRL on 7 December 2016 and the above results represent SRL’s contribution from this date.
23
Iluka Resources Limited
31 December 2016
NON-IFRS FINANCIAL INFORMATION
This Annual Report uses non-IFRS financial
information including mineral sands EBITDA, underlying Group
EBITDA and Group EBIT, which are used to measure both Group and operational performance. A reconciliation
of non-IFRS financial information to profit (loss) before tax is provided below. Non-IFRS measures have not been
subject to audit.
31 December 2016
Mineral sands revenue
Mineral sands expenses
Mining Area C
Foreign exchange
Corporate costs
Underlying Group EBITDA
AUS
690.2
(408.6)
US
18.3
(53.7)
SRL
17.8
(16.7)
Exploration
& Other (i)
Corp
(95.4)
281.6
(35.4)
1.1
(95.4)
(2.0)
(3.2)
(40.9)
SRL transaction costs
Depreciation & amortisation
Inventory movement- non-cash
Rehabilitation for closed sites
Share of Metalysis Ltd's losses
Impairment
Group EBIT
(74.3)
(57.3)
(1.7)
(201.0)
(52.7)
(76.3)
(0.9)
(98.6)
(66.3)
Net interest costs
Rehabilitation unwind & other
Profit (loss) before tax
Segment result
(10.8)
(63.5)
(0.9)
(77.2)
(63.5)
(77.2)
(0.9)
(0.9)
(0.1)
(98.7)
(15.4)
(2.8)
(84.5)
AUS
770.5
-403.7
US
49.3
(56.1)
Exploration
& Other (i)
Corp
(71.4)
31 December 2015
Mineral sands revenue
Mineral sands expenses
Mining Area C
Foreign exchange
Corporate costs
Underlying Group EBITDA
366.8
(6.8)
(71.4)
Depreciation & amortisation
Inventory movement - non-cash
Rehabilitation for closed sites
Group EBIT
(129.7)
(15.3)
25.0
246.8
(27.7)
(34.5)
Net interest costs
Rehabilitation unwind & other
Profit (loss) before tax
Segment result
(42.0)
204.8
(1.0)
(35.5)
204.8
(35.5)
(2.3)
(73.7)
(73.7)
4.9
(53.8)
(48.9)
(14.1)
(3.3)
Mineral
sands
726.3
(574.4)
4.9
(53.8)
103.0
(14.1)
(79.5)
(57.3)
(42.6)
(3.3)
(201.0)
(294.8)
(15.4)
(14.6)
(324.8)
MAC Group
726.3
(574.4)
47.5
4.9
(53.8)
150.5
47.5
47.5
(14.1)
(79.9)
(57.3)
(42.6)
(3.3)
(201.0)
(247.7)
(15.4)
(14.6)
(277.7)
(0.4)
47.1
47.1
(141.6)
47.1
(94.5)
Mineral
sands
819.8
(531.2)
(4.1)
(52.7)
231.8
(132.0)
(15.3)
(2.7)
81.8
(11.0)
(45.4)
25.4
169.3
MAC
61.6
61.6
(0.4)
61.2
61.2
61.2
Group
819.8
(531.2)
61.6
(4.1)
(52.7)
293.4
(132.4)
(15.3)
(2.7)
143.0
(11.0)
(45.4)
86.6
230.5
(4.1)
(52.7)
(56.8)
(56.8)
(11.0)
(2.4)
(70.2)
(i) Comprises resource development costs ($79.4m), marketing and selling costs ($16.6m), offset by asset sales and other
income $0.6m.
(i) Comprises resource development costs ($58.4m), marketing and selling costs ($15.7m), offset by asset sales and other
income $2.7m.
24
Iluka Resources Limited
31 December 2016
REMUNERATION REPORT
The directors of Iluka Resources Limited (Iluka or Company) present this Remuneration Report (Report) for the year
ended 31 December 2016.
ABOUT THIS REPORT
This Report provides information about the remuneration of Iluka’s key management personnel (KMP), being its
executives with authority for planning, directing and controlling the activities of the Company (Executive KMP) and its
Non-executive Directors. The Report has been prepared in accordance with the Corporations Act 2001 (Cth) and
includes the following sections:
SECTION 1
Overview of 2016
Remuneration
This section of the Report provides a snapshot of key remuneration developments at
Iluka in 2016, as well as an overview of the total realised remuneration received by
Executive KMP for the relevant year.
SECTION 2
Remuneration at Iluka
This section gives an overview of Iluka’s remuneration principles and the process for
determining the structure of remuneration for Executive KMP. It also demonstrates
how the components of remuneration at Iluka are aligned with shareholder value-
creation by being linked to the Company’s performance.
SECTION 3
Executive Remuneration
This section outlines the remuneration structure and outcomes for Iluka’s Executive
KMP in 2016, being:
(cid:120)
T O’Leary – Managing Director and Chief Executive Officer (from
5 September 2016)
(cid:120) M Blackwell – Head of Marketing
(cid:120)
(cid:120)
(cid:120)
(cid:120)
S Hay – Head of Resource Development (from 1 March 2016)
D Warden – Chief Financial Officer & Head of Strategy and Planning
S Wickham – Chief Operating Officer Mineral Sands
D Robb – Managing Director and CEO (ceased 2 September 2016)
SECTION 4
Managing Director Transition
As announced on 29 June 2016, Tom O’Leary was appointed as Iluka’s Managing
Director and CEO during the year. This section outlines the terms of his appointment,
along with the contractual entitlements paid to the outgoing Managing Director and
CEO, David Robb.
SECTION 5
Non-executive Director
Remuneration
This section outlines the remuneration structure and fees paid to Iluka’s Non-
executive Directors in 2016, being:
X Liu – Independent Non-executive Director (from 19 February 2016)
J Ranck – Independent Non-executive Director
(cid:120) G Martin – Chairman, Independent Non-executive Director
(cid:120) M Bastos – Independent Non-executive Director
(cid:120)
(cid:120)
(cid:120) G Rezos – Independent Non-executive Director (ceased 14 December 2016)
(cid:120)
(cid:120) W Osborn – Independent Non-executive Director (ceased 18 May 2016)
J Seabrook – Independent Non-executive Director
SECTION 6
Statutory Remuneration
Disclosures
This section includes statutorily required remuneration disclosures for 2016, including
details of equity awards outstanding and Executive KMP and Non-executive Director
shareholdings in Iluka.
25
Iluka Resources Limited
31 December 2016
SECTION 1
OVERVIEW OF 2016 REMUNERATION
Iluka’s approach to remuneration is intended to ensure that remuneration received by Executive KMP is closely linked to
Iluka's performance and the returns generated for our shareholders. In 2016, the incentive outcomes for Executive KMP
were consistent with the overarching business conditions and shareholder returns described in this Annual Report.
1.1
Key developments in 2016
During 2016, the following developments occurred in relation to the Company's remuneration arrangements:
Managing Director
Transition
Review of incentive
arrangements
(cid:120) Mr O'Leary commenced his role as CEO of Iluka in September 2016 and was appointed
Managing Director in October 2016. Mr O’Leary will focus on delivering sustainable growth
for the long-term performance of the Company and generating returns for shareholders
through sound financial discipline.
(cid:120) A remuneration package was designed for Mr O’Leary to join Iluka which places a greater
emphasis on ‘at risk’ remuneration than Iluka previously had for its Managing Director and
CEO. This is intended to ensure alignment of Mr O’Leary’s interests with shareholders and
to emphasise long–term shareholder value-creation.
(cid:120) As part of his initial remuneration, Mr O’Leary was compensated for incentives forgone at
his previous employer as a result of his agreeing to join Iluka. These entitlements were
provided as deferred equity and are subject to performance hurdles.
(cid:120) A review of incentive arrangements for all Executive KMP was conducted in 2016 to ensure
KMP remuneration remains consistent with market expectations and the sustainable
generation of shareholder wealth.
(cid:120) As a consequence of this review, the long term incentive plan (LTIP) performance period
was extended from three years to four years to increase alignment with the Company's
longer-term strategic outcomes.
(cid:120) Moving to a four year performance period would have resulted in no LTIP being eligible for
vesting in 2018. To ensure Executive KMP continue to be incentivised in 2018, LTIP
awards granted in 2016 were structured to have two tranches (each equivalent to one
year’s LTIP award):
(cid:120)
(cid:120)
Tranche 1 having a three year performance period ending in 2018; and
Tranche 2 having a four year performance period ending in 2019.
Total Fixed
Remuneration (TFR)
(cid:120) A restructure of executive roles resulted in Simon Hay being appointed Head of Resource
Development, and his TFR was adjusted accordingly to reflect the promotion and change in
accountabilities.
(cid:120) No other changes to TFR were made during 2016. (Executive KMP have been excluded
from the annual salary review process since 2013.)
Short Term
Incentive Plan
(STIP)
(cid:120) The 2016 outcome equated to an average payment of 37 per cent of maximum opportunity
for Executive KMP (excluding the Managing Director and CEO, whose incentive outcomes
are discussed in Section 4 of this Report).
(cid:120) No payment was made for the profitability component of the STIP. (No payment has been
(cid:120)
made in relation to the profitability component of STIP since 2011.)
Individual performance measures for the STIP covered the evaluation and progression of
acquisitions and/or alliances with financial merit and strategic rationale, effective integration
of acquisitions, assessment of feasibility, attraction and timing of expansion projects,
continued flexing of production in light of market demand and continued market
development activities.
Long Term
Incentive Plan
(cid:120) The 2014 LTIP (performance period 1 January 2014 to 31 December 2016) did not vest.
26
Non–Executive
Directors
Remuneration
(cid:120) No changes were made to Non-executive Directors’ Board and Committee fees in 2016.
(cid:120) Base Non-executive Director fees have not been increased since 2011.
Iluka Resources Limited
31 December 2016
1.2
Total Realised Earnings for Executive KMP (non-IFRS)
This section uses non-IFRS information to explain the "actual pay" received by Executive KMP for 2016. This is a
voluntary disclosure intended to demonstrate the link between the remuneration received by Executive KMP and the
performance of Iluka over this same period. The information provided in the table below is shown on the following basis:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
“TFR” includes base salary earned in 2016, as well as superannuation for Australian employees.
"Other" payments include non-monetary benefits received in 2016, including car parking, spousal travel, any
relevant US expenses (such as social security payments) and termination entitlements (such as payment in lieu
of notice and accrued annual and long service leave).
“STIP” reflects the total STIP amount receivable by Executive KMP in respect of performance in 2016 (paid in
March 2017 following the release of annual results). As outlined below, STIP is awarded half in cash and half in
deferred equity (in the form of restricted shares). Restricted shares remain subject to continued service
conditions, with half released in 12 months and half released in 24 months.
“LTIP” reflects LTIP awards from prior years which reached the end of their performance period and vested in
2016. It does not include 2016 LTIP awards which will vest in future years if performance conditions are met.(cid:3)
Name
TFR
$
Other
$
STIP
$
Managing Director
T O'Leary
Executive KMP
M Blackwell3
S Hay4
D Warden
S Wickham
Former Managing Director
Cash
Restricted
Shares
456,061
4,335
-
-
718,128
437,500
660,000
732,720
60,844
11,085
11,356
4,980
112,984
90,016
109,890
125,343
112,984
90,016
109,890
125,343
LTIP1,2
$
Shares
Total
Earnings
$
-
-
-
-
-
460,396
1,004,940
628,616
891,136
988,386
D Robb
Total
1,354,231
1,851,727
1,800,000
-
673,165
5,679,123
4,357,868
1,944,262
2,238,233
438,232
673,165
9,651,760
1 The value of the 2014-16 LTIP award for D Robb was calculated at the closing share price of $6.24 at the date of vesting (2
September 2016).
2 Includes the pro-rata 2016-18 LTIP award for D Robb settled in cash in 2016 (see Section 4 of this Report for more details).
3 M Blackwell is based in the US and receives a USD denominated salary. M Blackwell’s earnings have been converted from USD to
AUD for 2016 using the 2016 YTD average foreign exchange rate of 0.7444.
4 S Hay was appointed to his current role and became a KMP on 1 March 2016. Remuneration disclosures reflect the period he was a
KMP.
27
SECTION 2
REMUNERATION AT ILUKA
2.1
Remuneration governance and principles
The following diagram outlines the governance framework in place at Iluka for setting remuneration for the Company’s
KMP and other employees. It also includes the key remuneration principles which underlie Iluka’s remuneration
governance framework and practices.
Iluka Resources Limited
31 December 2016
2.2
Components of Executive KMP remuneration
Executive remuneration is comprised of both fixed and "at risk" components. The table below describes each of the
components making up each Executive KMP’s total remuneration package:
28
The following diagram sets out the mix of fixed and "at risk" remuneration for Executive KMP in the 2016 Financial Year:
Iluka Resources Limited
31 December 2016
Mr O’Leary’s remuneration mix for his initial year is heavily weighted towards “at risk” remuneration in the form of
performance based equity grants. This mix will transition next year (and in following years) to more closely align with the
mix for other members of the Executive KMP. Mr O'Leary did not receive an STIP award for 2016 and therefore he
received no "at risk" cash component in 2016. Details of remuneration paid to Mr Robb on his cessation as Managing
Director and CEO are contained in Section 4 of this Report.
2.3
Equity related remuneration policies
Iluka has a number of Company policies in place, designed to support and reinforce the remuneration principles and
structure outlined in Section 2.1 of this Report. These policies include the following:
29
2.4
Link between performance and reward
The following section sets out details of Iluka’s financial performance and shows how the Company's performance and
shareholder returns are reflected in incentive outcomes received by Executive KMP.
Shareholder returns
The table below illustrates shareholder returns over the one, three and five year periods to 31 December 2016.
Iluka Resources Limited
31 December 2016
Initial Investment of 1 share ($)
Closing Share Price ($)
Share Price Change (per cent)
Aggregate Dividends1 ($)
Dividend (ROI) (per cent)
Total Return (per cent)
5 years to
31 Dec 2016
3 years to
31 Dec 2016
1 year to
31 Dec 2016
15.50
7.27
(53)
1.46
9
(44)
8.63
7.27
(16)
0.51
6
(10)
6.13
7.27
19
0.22
4
22
1 Dividends over the five-year period to 31 December 2016 comprised of 2011 final dividend (55 cps franked), 2012 interim dividend (25
cps franked), 2012 final dividend (10 cps franked), 2013 interim dividend (5 cps franked), 2013 final dividend (4 cps franked), 2014
interim dividend (6 cps franked), 2014 final dividend (13 cps franked), 2015 interim dividend (6 cps franked), 2015 final dividend (19 cps
franked) and 2016 interim dividend (3 cps franked).
Company performance
The table below provides key performance metrics for 2016 and the prior four financial years.
Net profit/(loss) after tax ($ million)
Underlying EBITDA margin (per cent)
Free Cash Flow ($ million)
Earnings per share (cents)
Closing share price ($)1
Dividends paid (cents)
Franking credit level (per cent)
Average AUD:USD spot exchange rate (cents)
Revenue per tonne Z/R/SR sold ($/t)
1 Starting share price on 1 January 2012 was $15.50.
2012
363.2
63.2
81.2
87.1
9.02
80
100
103.6
1,991
2013
18.5
38.3
(27.5)
4.4
8.63
15
100
96.8
2014
(62.5)
35.3
196.3
(15.0)
5.95
10
100
90.3
2015
2016
53.5
35.8
155.0
12.8
6.13
19
100
75.2
(224.0)
20.7
47.3
(53.3)
7.27
22
100
74.4
999
1,173
1,030
1,136
Over the five years to 31 December 2016 84 per cent of the Company’s Free Cash Flow (FCF) in total has been paid to
shareholders in dividends. Total incentives awarded under the STIP and LTIP over the corresponding period is 11.9 per
cent of FCF.
30
LTIP vesting outcomes and link to performance
The graph below shows Iluka’s share price performance relative to the vesting outcome executives have experienced
over the five-year period. The incentive outcomes are consistent with Company performance and shareholder outcomes
over the period.
Iluka Resources Limited
31 December 2016
20.00
15.00
10.00
5.00
$
e
c
i
r
P
e
r
a
h
S
0.00
2/01/2012
LTIP Vesting Outcomes and Iluka Share Price History
100%
100%
31%
32%
0%
LTIP: 2010
2/01/2013
to 31/12/2012
LTIP: 2011
2/01/2014
to 31/12/2013
LTIP: 2012
2/01/2015
to 31/12/2014
LTIP: 2013
2/01/2016
to 31/12/2015
LTIP: 2014
to 31/12/2016
1.2
1
0.8
0.6
0.4
0.2
0
31
Iluka Resources Limited
31 December 2016
SECTION 3
EXECUTIVE REMUNERATION
The remuneration of Executive KMP is linked to both annual business and individual performance outcomes and to the
Company’s ability to create and deliver sustainable levels of shareholder value. The terms of the incentive awards for
Executive KMP are summarised below. Further details in relation to the Managing Director's remuneration is detailed
separately in Section 4 of this Report.
3.1
Short Term Incentive Plan
The STIP aims to provide an incentive to participants whilst driving shareholder value creation and promoting equity
ownership by providing awards partly in cash and partly in deferred equity. The structure of Iluka’s STIP is as follows:
STIP opportunity
Performance targets
The award opportunity is based on a percentage range of each participant’s TFR
and is determined by an individual’s role within the business and capacity to
impact the results of the Company.
Executive KMP targets are 60 per cent of TFR, with stretch set at 90 per cent of
TFR. The Managing Director and CEO, Mr O'Leary, did not receive an STIP
award for 2016 but will be eligible to participate in the STIP in future years.
The PPC approves STIP performance targets annually having regard to Iluka's
Corporate Plan, business conditions and market and shareholder expectations.
Performance targets include three elements that align with Iluka's strategy, being
Profitability, Sustainability and Growth.
Profitability measures typically consist of return on capital and net profit
after tax metrics with the third element varying between an earnings
measure and a cash flow measure depending on the current stage of the
cycle and what is considered most appropriate at the given time.
Sustainability targets relate to safety and environmental objectives and are
set based on a combination of industry best practice and continual
improvement versus the prior year performance.
Growth objectives are individual objectives that advance the Company’s
longer term prospects and are set at a stretch level. Individual Growth
objectives are linked to major business opportunities and risks from the
Corporate Plan and business priorities for the year ahead.
Vesting outcomes
For the Profitability and Sustainability STIP performance measures, a threshold,
target and stretch goal is set at the start of the performance year. STIP outcomes
are calculated according to the following schedule:
Performance Level
STI Outcome (% Target)
Threshold
Target
Stretch
0%
100%
150% (maximum)
A sliding scale operates between threshold and target, and between target and
stretch.
For individual Growth objectives, full vesting only occurs if there is a stretch level
of performance.
Performance assessment
STIP outcomes are determined after the end of the relevant performance year.
Outcomes are subject to rigorous one up assessment and, for the former
Managing Director and Executive KMP, assessment by the Board. There is no re-
testing of the STIP performance targets.
Payment timing
Payments are made in March following end of each performance year.
32
STIP deferral
Iluka Resources Limited
31 December 2016
Fifty per cent of the STIP award for Executive KMP is deferred into restricted
shares. The Board can also make offers with an increased deferred proportion
(thereby reducing the cash component). Restricted shares are granted for nil
consideration.
Half of the restricted shares vest one year after the grant date, while the
remaining half vest two years after the grant date. Executive KMP must remain
employed by the Company on the relevant vesting date for the shares to be
released.
The number of restricted shares awarded to each participant is based on "face
value" and 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.
Voting rights and dividends
Participants receive dividends and are entitled to exercise voting rights attaching
to the restricted shares.
Cessation of employment
Change of control
Board discretion
If a participant resigns or is dismissed for cause all of their restricted shares will
be forfeited, unless the Board determines otherwise. If a participant ceases
employment due to circumstances such as redundancy or retirement the
restricted shares will be released on the original vesting date subject to the
original conditions, unless the Board determines otherwise. If a participant
ceases employment due to death or total and permanent disablement, all of their
restricted shares will be released, unless the Board determines otherwise.
In the event of a takeover or other transaction that in the Board’s opinion should
be treated as a change of control event, the Board has a discretion to determine
that vesting of some or all of the restricted shares be accelerated.
Where the Board exercises its discretion under the STIP, for example in relation
to cessation of employment or a change of control, the Board will consider all
relevant factors at the time, which the Board expects will include the participant's
performance against the performance targets and the proportion of the
performance period that has elapsed.
3.2
2016 STIP Outcomes
Set out below is commentary on the performance outcome for each component of the 2016 STIP:
Rationale for inclusion
Performance outcome and commentary
Strategic
Driver
STIP
Measures
Profitability
(50% weighting)
Return on
Capital (ROC)
Reflects how efficiently Iluka
utilises capital to generate
earnings and is the ‘internal
surrogate’ for ROE.
Below threshold performance
The result for the year of negative 18.3 per cent
(2015: 6.8 per cent) was adversely impacted by
$201.0 million of pre-tax impairment charges
predominantly in respect of idle assets in the
Murray Basin, Australia and a $42.6 million
increase in rehabilitation provision for closed sites
predominately associated with the US operations.
Capital employed has remained relatively stable
across the year. The decrease arising from the
impairments and rehabilitation adjustments noted
above has been largely offset by the acquisition of
Sierra Rutile Ltd in December 2016.
Below threshold performance
Iluka’s free cash flow was $47.3 million with a
reduction of $107.7 million from the previous
corresponding period largely due to the decline in
zircon prices and increased expenditure in trialling
an unconventional underground mining approach.
Free Cash
Flow (FCF)
Reflects the cash generation
of Iluka, with higher FCF
allowing more dividends to be
paid and/or greater investment
in sustaining and growing the
business while maintaining a
conservatively geared balance
sheet.
33
Net Profit After
Tax (NPAT)
Reflects the profit made by
Iluka and the resulting impact
on returns generated for
shareholders.
Growth
(40% weighting)
Individual
objectives
Objectives reflect individual
roles and are linked to major
business opportunities and the
management of key risks as
identified in Iluka’s five-year
Corporate Plan, as well as the
priorities for the relevant year.
Iluka Resources Limited
31 December 2016
Below threshold performance
Iluka recorded a loss after tax for the year of
$224.0 million, compared with a profit of $53.5
million for the previous corresponding period. The
2016 loss was significantly impacted by several
non-recurring adjustments including a non-cash
impairment charge of $140.7 million after tax and
an increase in rehabilitation provision for closed
sites of $42.1 million after tax. The poor result was
further compounded by a 20 per cent reduction in
the weighted average price received for zircon
compared to the previous corresponding period.
At target performance
Targeted progress was achieved in relation to the
following areas:
(cid:120)
of
an
commencement
completion of the Sierra Rutile Limited merger
and
effective
integration process;
continued flexing of production in light of
market demand;
continued detailed feasibility studies on the
Cataby project, completion of a definitive
feasibility study for the Balranald deposit and
pre-feasibility study on the Puttalam Quarry
deposit in Sri Lanka;
continued market development activities
including development and launch of new
products;
proactive advancement of the Company’s
sustainability
responsibility
performance and reputation.
social
and
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Sustainability
(10% weighting)
Total
Recordable
Injury
Frequency
Rate (TRIFR)
Providing a safe workplace for
all employees is an integral
part of Iluka’s corporate
objective and values.
Level 3 &
above
environmental
incidents
Iluka has a strong commitment
to ensuring that its activities do
not have an adverse impact on
the environment.
Areas in which less than targeted progress was
achieved included:
(cid:120)
discovery of major new minerals sands ore
bodies.
Below threshold performance
In 2016 TRIFR of 4.4 (rolling 12-month average to
31 December 2016) was achieved, a 34 per cent
reduction on the 2015 outcome. Despite the
improvement in performance the result fell below
the threshold performance level.
Above stretch performance
Above stretch performance level maintained with
an improvement on 2015 levels (11 incidents in
2016 compared with 14 incidents in 2015.
34
The following chart provides a comparison between the maximum STIP opportunity for Executive KMP and the actual
amounts which were awarded in 2016 and 2015. The current Managing Director and CEO was not a participant in the
2016 STIP and the outgoing Managing Director's incentive outcome is detailed in Section 4 of this Report.
Iluka Resources Limited
31 December 2016
3.3
Long Term Incentive Plan
Iluka’s LTIP is designed to focus executives’ attention on sustainable long-term growth and align the interests of
executives with those of shareholders. Key details of the LTIP are set out in the table below:
LTIP opportunity
The award opportunity is determined by an individual’s role within the business and capacity
to impact the results of the Company.
Instrument
In 2016, the maximum LTIP opportunity for the Managing Director and CEO was 120 per cent
of TFR, and for other Executive KMP was 60 per cent of TFR.
The LTIP is awarded in share rights that entitle participants to acquire fully-paid ordinary
shares in the Company on vesting and, where relevant, exercise of those rights. Rights are
granted for nil consideration and no price is payable on exercise of those rights. Share rights
do not attract dividends and do not carry voting rights prior to vesting and, where relevant,
exercise.
Performance hurdles Return on equity (ROE) - 50% of LTIP award
Half of the award is tested against a ROE hurdle which is measured over a four year
performance period with vesting occurring on a straight line basis for performance between
Threshold and Target.
Targets reflect expectations of the Company’s position within the mineral sands industry, the
industry business cycle, Corporate Plan and budget business performance expectations. ROE
is averaged over the four years, so a failure to achieve targeted levels of performance in any
one year increases the level of ROE required in the remaining years to achieve vesting.
The table below discloses the threshold and target ROE performance hurdles.
LTIP grant
2016 – 2019
2016 – 2018
2015 – 2017
2014 – 2016
Threshold
10%
10%
10%
10%
Target
14%
14%
14%
14%
35
Iluka Resources Limited
31 December 2016
Relative total shareholder return (TSR) - 50% of LTIP award
The remaining half of the award is assessed based on a relative TSR hurdle, which is also
measured over four years. The TSR component vests based on Iluka's TSR relative to a
comparator group of companies. The S&P/ASX 200 Materials Index is used as the
comparator group, since it reflects the companies that operate within the same industry as
Iluka and with which Iluka competes for investment and talent.
A relative TSR hurdle is used as opposed to an absolute TSR hurdle, in recognition of the fact
that Iluka and many of its peers operate in cyclical markets. This creates incentives for
executives to continue to grow the business and look to the future at all points in the cycle.
Vesting outcomes
Vesting occurs on a straight-line basis for performance between threshold and target (ROE
measure) and the 50th percentile and 75th percentile (TSR measure) based on the below
vesting schedule:
Measure
ROE
TSR
Performance level to be
achieved
Below threshold
Threshold
Target or above
Below 50th percentile
50th percentile
75th percentile or above
Total Grant (Maximum award)
Percentage of
total grant that
will vest
0%
25%
50%
0%
25%
50%
Maximum
percentage of
total grant
50%
50%
100%
If the performance hurdles have not been met at the end of the four-year performance period,
the share rights will automatically lapse.
Performance against the ROE and relative TSR hurdles is assessed following the end of the
performance period and release of Iluka's full year audited results. There is no re-testing of
performance hurdles.
If an executive resigns or is dismissed for cause all of their unvested rights will lapse, unless
the Board determines otherwise. If an employee ceases employment due to any other
circumstances (including death, total and permanent disability, redundancy or retirement), the
Board has discretion how to treat any unvested rights and may determine that some or all of
the rights lapse, vest or stay on foot.
Performance
assessment
Cessation of
employment
Change of control
In the event of a takeover or other transaction that in the Board’s opinion should be treated as
a change of control event, the Board has a discretion to determine that vesting of some or all
of the share rights be accelerated.
Board discretion
Where the Board exercises its discretion under the LTIP, for example in relation to cessation
of employment or a change of control, the Board will consider all relevant factors at the time,
which the Board expects will include Iluka’s performance against the performance hurdles
and the proportion of the performance period that has elapsed.
Transition to four
year performance
period
As discussed above, following a review of Iluka’s incentive plans in 2016, the Company
decided to move from a three year performance period to a four year performance period to
increase alignment with the Company's longer-term strategic outcomes.
To ensure that there is an LTIP award capable of vesting each year, the 2016 LTIP awards
for Executive KMP (other than the incoming Managing Director and CEO) were structured to
have two equal tranches, each worth 60% of the Executive KMP’s TFR with performance
periods of three and four years, respectively. Both tranches are subject to the same
performance hurdles and were made on the terms set out above (except for the differing
performance periods). The Managing Director and CEO, Mr O'Leary, received an LTIP award
with only one tranche measured over a performance period of four years and three months.
Details of Mr O'Leary's incentive awards are contained in Section 4 of this Report.
36
Iluka Resources Limited
31 December 2016
3.4
2014 LTIP outcomes
At the end of 2016, the 2014 LTIP award completed its performance period (1 January 2014 to 31 December 2016).
Performance was measured against both the ROE and relative TSR hurdles as follows. There was no vesting of the
2014 LTIP award and no shares were awarded to participants:
Component
Performance target
Actual performance
Implication for vesting
ROE (50%)
Relative TSR (50%)
(S&P/ASX 200 Materials
Index)
50% vesting for Threshold
of 10% with full vesting at
target of 14%
50% vesting for 50th
percentile and full vesting
for 75th percentile
-5.8 per cent
17.6th percentile
Nil vesting of the
ROE component
Nil vesting of the
TSR component
3.5
Executive employment agreements
Executive KMP are employed on terms set out in individual employment agreements. The employment agreements
continue on a rolling basis and do not contain a fixed term. Key terms of the agreements are as follows:
Executive
Position
Termination Notice
Period by Iluka or
Employee
Termination Payments1
T O'Leary
Managing Director and Chief Executive
Officer
6 months
6 months
D Warden
Chief Financial Officer and Head of
Strategy and Planning
3 months
3 months
M Blackwell
Head of Marketing, Mineral Sands
3 months
6 months
S Wickham
Chief Operating Officer, Mineral Sands
3 months
6 months
S Hay
Head of Resource Development
3 months
3 months
1 Termination payments (other than for gross misconduct) are calculated based on TFR at date of termination and are provided in
addition to the notice period or payment in lieu of notice.
Iluka may terminate Executive KMP’s employment agreements without notice and without providing payment in lieu of
notice where there is gross misconduct or other grounds for summary dismissal.
37
Iluka Resources Limited
31 December 2016
SECTION 4
MANAGING DIRECTOR TRANSITION
4.1
New Managing Director and CEO – T O'Leary
The material terms of Mr O'Leary's employment agreement are set out in Section 3.5 of this Report and were announced
to the market on 29 June 2016. Mr O'Leary commenced with the following remuneration entitlements:
(cid:120)
(cid:120)
$1,400,000 TFR per annum, subject to annual review by the Board each year;
2016 LTIP award valued at 120 per cent of TFR made on the terms described in Section 3.3 of this Report, however
performance for the 2016 LTIP will be measured over four years and three months starting 1 October 2016. Mr
O’Leary’s remuneration has been structured to provide a greater emphasis on ‘at risk’ remuneration, particularly with
respect to his LTIP award value. This reflects the Board’s intention to ensure that Iluka’s Managing Director and
CEO’s incentives are closely aligned with long-term shareholder value creation.
(cid:120) Compensation for foregone incentives in the form of a Long Term Deferred Rights (LTDR) grant. The LTDR share
rights granted have a total face value of $3,252,000 and vesting is subject to satisfaction of performance hurdles.
Half the LTDR will be tested against a ROE hurdle and the other half will be tested against relative TSR. The award
is in consideration of Mr O’Leary joining Iluka and thereby forfeiting benefits that he may have become entitled to at
his previous employer. The terms of the LTDR awards are intended to be no more favourable than the incentives
which Mr O’Leary forfeited at his previous employer.
The diagram below illustrates the performance periods over which the LTIP and LTDR awards will be measured and will
be eligible for vesting. This staggered approach is designed to promote sustained value creation for shareholders:
Mr O'Leary was not eligible for a 2016 STIP award, but will be eligible to participate in the STIP in future years.
4.2
Former Managing Director and CEO – D Robb
The following arrangements were made in accordance with approval obtained from shareholders at the 2011 AGM and
Mr Robb’s employment agreement.
Notice Period
At the Board’s request, Mr Robb worked out 3.5 months of his notice period to assist with transition
arrangements to the new Managing Director and CEO. A cash payment of $1,419,178 was made in
lieu of the balance of his notice entitlement of 12 months.
2016 STIP
2016 LTIP
2015 LTIP
2014 LTIP
Protection of
Interests
Mr Robb was entitled to receive his short term incentive at target in relation to the 2016 financial
year. This award was $1,800,000.
Share rights awarded to Mr Robb under the 2016 LTIP (three year tranche), 2015 LTIP and 2014
LTIP were vested on a pro rata basis, except for the four-year tranche of Mr Robb’s 2016 LTIP
which lapsed.
Mr Robb is restrained from engaging in certain activities for a period of one year following cessation
of his employment. Mr Robb's employment agreement contains provisions relating to the protection
of confidential information and intellectual property. No additional payment was required in relation
to this restraint.
38
Iluka Resources Limited
31 December 2016
SECTION 5 NON-EXECUTIVE DIRECTOR REMUNERATION
The remuneration of the Non-executive Directors is determined by the Board on recommendation from the People and
Performance Committee within the maximum aggregate amount approved by shareholders at Iluka's Annual General
Meeting. The current cap on Non-executive Directors’ fees (including superannuation) as approved by shareholders in
May 2015 is $1.8 million. The total amount paid to Non-executive Directors in 2016 (including superannuation) was
$1,310,908. Non-executive Directors do not receive any performance-based remuneration.
Recognising the additional workload and duties associated with Gavin Rezos’ appointment to the Board of Metalysis Ltd,
the Board has approved fees of GBP45,000 per annum to be paid to Mr Rezos in addition to his Iluka Resources Board
member and Committee fees. There has been no other adjustment to Non-executive Director fees since March 2011.
Details of Non-executive Director fees in 2016 are as follows:
Non-executive Director base fees
Board Chairman (inclusive of Committee fees)
Board Member
Board Member Committee fees
Audit and Risk Committee Chair
Audit and Risk Committee Member
People and Performance Committee Chair
People and Performance Committee Member
Other related entity Board fees
Metalysis Board member
$312,000
$125,000
$35,000
$17,500
$25,000
$12,500
GBP45,000
The minimum required employer superannuation contribution up to the statutory maximum is paid into each Non-
executive Director’s nominated eligible fund and is in addition to the above fees.
39
Iluka Resources Limited
31 December 2016
SECTION 6
STATUTORY REMUNERATION DISCLOSURES
Details of the remuneration of the KMP, prepared in accordance with the requirements of the Corporations Act 2001
(Cth) and the relevant Australian Accounting Standards, are set out in the following tables.
6.1
Non-executive Director Statutory Remuneration Disclosures
Name
Year
Board, Committee
Fees
Non-Monetary
Benefits
Superannuation
Statutory Total
G Martin
M Bastos
X Liu1
W Osborn2
J Ranck
G Rezos3
J Seabrook
Total
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
$
312,000
312,000
142,500
142,500
143,541
-
57,386
150,000
161,029
141,875
209,193
243,603
172,500
172,500
1,198,149
1,162,478
$
-
-
-
-
8,053
-
-
-
8,463
-
-
-
-
-
16,516
-
$
19,462
19,229
13,538
13,538
13,636
-
5,452
14,250
15,298
13,478
12,469
14,448
16,388
16,388
96,243
91,331
$
331,462
331,229
156,038
156,038
165,230
-
62,838
164,250
184,790
155,353
221,662
258,051
188,888
188,888
1,310,908
1,253,809
1 X Liu was appointed on 19 February 2016.
2 W Osborn retired on 18 May 2016.
3 G Rezos retired on 14 December 2016. Fees include fees paid in relation to Metalysis Ltd and have been converted from GBP to AUD
for 2016 using the 2016 YTD average foreign exchange rate of 0.5511 and for 2015 using the 2015 YTD average foreign exchange rate
of 0.4917.
40
6.2
Executive KMP Statutory Remuneration Disclosures
Name
Year
STIP
Cash2
$
Non-
Monetary
Benefits3
$
TFR1
$
Executive Directors
T O'Leary7
2016
456,061
2015
-
-
-
4,335
-
Termination
benefits4
$
-
-
D Robb8
2016
1,354,231 1,800,000
46,746
2,081,693
2015
1,993,953
499,500
20,677
Other Executive KMP
M Blackwell9
2016
717,356
112,984
2015
710,012
118,217
-
-
S Hay10
D Warden
S Wickham
2016
2015
2016
2015
2016
2015
437,500
90,016
11,085
-
-
-
660,000
109,890
11,356
634,949
103,950
-
732,720
125,343
728,442
141,836
4,980
5,978
-
-
-
-
-
-
-
-
Iluka Resources Limited
31 December 2016
Other5
$
Share Based
Payments2, 6
$
Statutory
Total
$
-
-
-
-
60,779
70,855
-
-
-
-
-
-
338,178
798,574
-
864,961
936,627
323,065
238,432
155,024
-
373,462
263,708
341,733
248,483
-
6,147,631
3,450,757
1,214,184
1,137,516
693,625
-
1,154,708
1,002,607
1,204,776
1,124,739
Total
2016
4,357,868 2,238,233
78,502
2,081,693
2015
4,067,356
863,503
26,655
-
60,779
70,855
2,396,423
11,213,498
1,687,250
6,715,619
1 Includes base salary and superannuation for Australian employees.
2 STIP Cash and Share Based Payments for 2016 will be made in March 2017.
3 Includes non-monetary benefits which consist of car parking and spouse travel.
4 Includes cessation entitlements relating to payment in lieu of notice, accrued leave entitlements and the settlement of the 2016 LTIP
award for D Robb.
5 Includes US social security expenses for M Blackwell.
6 Amounts relate to the fair value of awards from prior years made under various incentive plans attributable to the year measured in
accordance with AASB 2 Share Based Payments.
7 T O’Leary became a KMP on 5 September 2016. Remuneration disclosures reflect the period he was a KMP.
8 D Robb ceased to be a KMP on 2 September 2016. Remuneration disclosures reflect the period he was a KMP.
9 M Blackwell's earnings have been converted from USD to AUD for 2016 using the 2016 YTD average foreign exchange rate of 0.7444
and for 2015 using the 2015 YTD average foreign exchange rate of 0.7521.
10 S Hay became a member of KMP on 1 March 2016. Remuneration disclosures reflect the period he was a KMP.
6.3
Share–based Compensation
STIP Restricted Shares
Name
2014 STIP1
2015 STIP1
2016 STIP1,2
Awarded %3
2014
2015
2016
M Blackwell
S Hay
D Warden
S Wickham
6,220
2,545
5,499
7,319
18,664
6,697
15,678
21,392
15,541
12,382
15,116
17,241
31
33
31
34
37
37
35
43
35
39
37
38
1 STIP restricted share fair value is determined as the volume weighted average price of ordinary shares over the five trading days
following the release of the Company’s annual results. STIP restricted shares are awarded in March of the following year (e.g. 2016
STIP awards will be made in March 2017).
2 Represents the estimated number of restricted shares to be awarded under the 2016 STIP calculated using the closing share price of
$7.27 at 1 January 2017.
3 The percentage achieved of the STIP maximum incentive opportunity awarded for the financial year.
41
Share Rights
Number of share rights
Name
Balance at
1 January
2016
Granted
during
20161
Vested /
exercised
into shares
in 2016
Lapsed
during
20162
Balance at
31 December
2016
Executive directors
Iluka Resources Limited
31 December 2016
Value of share rights
Value of rights
granted in
2016
$
Value of rights
vested /
exercised into
shares in 2016
$
T O’Leary
D Robb3
-
758,304
-
-
758,304
3,520,991
-
200,667
180,982
(144,846)
(236,813)
-
-
921,207
Other Executive KMP
M Blackwell
84,376
134,716
S Hay
34,461
95,016
D Warden
131,563
119,450
S Wickham
99,193
132,660
(4,638)
(1,656)
(5,764)
(6,518)
(9,656)
(3,447)
204,798
124,374
(12,001)
233,248
(13,570)
211,765
687,725
485,057
609,792
677,229
33,162
11,840
41,213
46,604
1 Share rights granted in respect of the 2016 LTIP and 2016 LTDR which forms part of share based payments for 2016 to 2019
inclusive.
2 Share rights which lapsed during 2016 relate to the 2013 LTIP award and the 2015 and 2016 LTIP awards for the former Managing
Director.
3 D Robb ceased to be a member of KMP on 2 September 2016. The closing balance reflects this date.
Fair Value
The fair value of each restricted share or share right and the vesting year for each incentive plan is set out below.
The maximum value of restricted shares and/or share rights yet to vest is not able to be determined as it is dependent on
satisfaction of service and performance conditions and Iluka’s future share price. The minimum value of unvested
restricted shares and/or share rights is nil.
Incentive Plan
Grant Date
2014 LTIP
2014 STIP1
2015 LTIP
2015 STIP1
2016 LTIP Tranche 1
2016 LTIP Tranche 2
2016 STIP1,3
2016 LTDR
January 2015
March 2015
March 2015
March 2016
May 2016
May 2016
March 2017
October 2016
2016 LTIP (MD grant)
October 2016
Fair Value per
Share or Right at
Grant Date2
$
Vesting Year
Expiry year4
7.12
7.66
5.88
6.63
5.14
5.07
7.27
4.68
4.57
2017
2016 & 2017
2018
2017 & 2018
2019
2020
2018 & 2019
2017, 2018 & 2019
2021
–
–
–
–
2026
2026
–
2026
2026
1 Awards under these plans are restricted shares; all other plans grant share rights.
2 The fair value is calculated in accordance with the measurement criteria of Accounting Standard AASB 2 Share Based Payments.
3 Represents the estimated fair value of the 2016 STIP award for which the performance period concluded on 31 December 2016
calculated using the closing share price of $7.27 at 1 January 2017. The actual value will be calculated as the volume weighted average
price of ordinary shares over the five trading days following the release of the Company’s 2016 annual results.
4 Rights granted from 2016 onwards are not automatically exercised and must be exercised by the executive KMP before the expiry
date. Rights that are not exercised by the expiry date are automatically exercised by this date. No amounts are payable on exercise of
the rights.
42
Iluka Resources Limited
31 December 2016
6.4
KMP shareholdings
Shareholdings of Executive KMP and their related parties
Name
Balance held at
1 January 2016
Number of shares
Vesting of share
rights pursuant
to LTDR and
LTIP
Awarded as
Restricted
Shares pursuant
to STIP
Other changes
Balance held at
31 December
2016
Executive directors
T O’Leary1
D Robb2
Other Executive KMP
-
-
-
-
-
912,202
144,846
75,334
(53,209)
1,079,173
M Blackwell
S Hay3
D Warden
S Wickham
52,718
-
35,768
107,980
4,638
1,656
5,764
6,518
18,664
6,697
15,678
21,392
(6,000)
42,253
(7,377)
70,020
50,606
49,833
(22,110)
113,780
1 T O’Leary was appointed to his current role and became a member of KMP on 5 September 2016.
2 D Robb ceased to be a member of KMP on 2 September 2016. The closing balance reflects this date.
3 S Hay was appointed to his current role and became a member of KMP on 1 March 2016. Other changes include shares held prior to
KMP appointment.
Shareholdings of Non-executive Directors and their related parties
Name
G Martin
M Bastos
X Liu3
W Osborn4
J Ranck
G Rezos5
J Seabrook
Balance held at
1 January 2016
20,000
6,000
-
19,000
7,100
75,000
19,314
Number of shares1
Net movement
-
5,000
-
-
2,900
-
-
Balance held at
31 December 20162
20,000
11,000
-
19,000
10,000
75,000
19,314
1 Shares may be held directly or through a nominee or agent (e.g. family trust).
2 No shares were forfeited during the year.
3 X Liu was appointed a Non-executive Director on 19 February 2016.
4 W Osborn retired on 18 May 2016. The closing balance reflects this date.
5 G Rezos retired on 14 December 2016. The closing balance reflects this date.
6.5
Transactions with Key Management Personnel
During the financial year there were no product or services purchases by KMP from the Group (2015: nil) and there are
no amounts payable at 31 December 2016 (2015: nil).
There have been no loans to KMP during the financial year (2015: nil).
43
DIRECTORS
The following individuals were directors of Iluka Resources Limited during the whole of the financial year and up
to the date of the report, unless otherwise stated:
Iluka Resources Limited
31 December 2016
G Martin
M Bastos
X Liu (appointed 19 February 2016)
T O'Leary (appointed 13 October 2016)
W Osborn (retired 18 May 2016)
J Ranck
G Rezos (retired 14 December 2016)
D Robb (retired 2 September 2016)
J Seabrook
DIRECTORS' PROFILES
Greg Martin
BEc, LLB, FAIM, MAICD
57
Chairman and Non-executive Director
January 2013
Yes
Name:
Qualifications:
Age:
Role:
Appointed:
Independent:
Current positions:
• Chairman of the Board
• Nominations Committee - Chairman
• Audit and Risk Committee - Member
• People and Performance Committee - Member
Relevant skills and experience:
Mr Martin has over 35 years’ experience in the energy, utility and infrastructure sectors, having spent 25 years
with The Australian Gas Light Company Ltd (AGL), including five years as CEO and Managing Director. After
leaving AGL, Greg was CEO of
the infrastructure division of Challenger Financial Services Group and,
subsequently, Managing Director of Murchison Metals Limited.
Other relevant directorships and offices (current and recent):
• Santos Limited - Non-executive Director (current)
• Prostar Investments (Australia) Pty Ltd - Chairman (current)
• Sydney Desalination Plant Pty Limited - Chairman (current)
• Western Power Corporation - Deputy Board Chair (current)
• Spark Infrastructure Group - Non-executive Director (effective 1 January 2017)
Tom O'Leary
LLB, BJuris
53
Managing Director and Chief Executive Officer
October 2016
No
Name:
Qualifications:
Age:
Role:
Appointed:
Independent:
Relevant skills and experience:
Mr O’Leary was previously Managing Director of Wesfarmers Chemicals, Energy and Fertilisers division having
been appointed to the role in 2010. Tom joined Wesfarmers in 2000 in a Business Development role and was
then appointed to Managing Director, Wesfarmers Energy, in 2009. Prior to joining Wesfarmers, Tom worked in
London for 10 years in finance law, investment banking and private equity. Tom holds a law degree from The
University of Western Australia and has completed the Advanced Management Program at Harvard Business
School.
44
Iluka Resources Limited
31 December 2016
Other relevant directorships and offices (current and recent):
• Clontarf Foundation - Director (current)
• Edith Cowan University Council - Member (current)
James (Hutch) Ranck
BSE (Econ), FAICD
68
Non-executive Director
January 2013
Yes
Name:
Qualifications:
Age:
Role:
Appointed:
Independent:
Current positions:
• People and Performance Committee - Chairman
• Audit and Risk Committee - Member
• Nominations Committee - Member
Relevant skills and experience:
Mr Ranck has held senior management positions with DuPont, both in Australia and international in finance,
chemicals, pharmaceuticals and agriculture for over 30 years. Hutch also served as a Director of DuPont’s Hong
Kong based subsidiary, Titanium Technologies, for seven years. Hutch retired as Managing Director of DuPont
Australia and New Zealand and Group Managing Director of DuPont ASEAN in May 2010.
Other relevant directorships and offices (current and recent):
• Elders Limited - Chairman (current)
• CSIRO - Non-executive Member of the Board (current)
Jenny Seabrook
BCom, FCA, FAICD
60
Non-executive Director
May 2008
Yes
Name:
Qualifications:
Age:
Role:
Appointed:
Independent:
Current positions:
• Audit and Risk Committee - Chairman
• Nominations Committee - Member
• People and Performance Committee - Member
Relevant skills and experience:
In Ms Seabrook’s executive career, she worked at senior levels in chartered accounting, capital markets and
investment banking businesses. Jenny is currently a Special Advisor to Gresham Partners Limited. She was
formerly a member of the Takeovers Panel (2000 - 2012) and her previous non-executive directorships include:
Export Finance and Insurance Corporation; Amcor Limited; Bank of Western Australia Ltd; West Australian
Newspapers Holdings Limited; Australian Postal Corporation; AlintaGas; and Western Power Corporation.
Other relevant directorships and offices (current and recent):
• MMG Limited - Non-executive Director (current)
• IRESS Limited - Non-executive Director (current)
• Western Australian Treasury Corporation - Non-executive Director (current)
• Australian Rail Track Corporation - Non-executive Director (current)
Name:
Qualifications:
Age:
Role:
Appointed:
Independent:
Marcelo Bastos
Mechanical Engineering (UFMG), MBA (FDC-MG), MAICD
54
Non-executive Director
February 2014
Yes
45
Iluka Resources Limited
31 December 2016
Current positions:
• Audit and Risk Committee - Member
• Nominations Committee - Member
Relevant skills and experience:
Mr Bastos is the Chief Operating Officer of the global resources company, MMG Limited, with responsibility for
operations in three continents. Marcelo has extensive experience in major projects development and operation,
and company management in the metals and mining industry (iron ore, gold, copper, nickel and coal sectors).
Marcelo has served as the Chief Executive Officer of BHP Billiton Mitsubishi Alliance (BMA), as President of
Nickel West of BHP Billiton Limited, President and Chief Operating Officer of Cerro Matoso and Nickel Americas
of BHP Billiton, and also had a 19-year career with Vale (CVRD) in senior management and operational
positions, the last of those as Director of Non Ferrous operations. Marcelo is a former Non-executive Director of
Golding Contractors Pty Ltd. He is also a former Member of the Chamber of Minerals and Energy of Western
Australia and served as Vice President of the Queensland Resources Council.
Other relevant directorships and offices (current and recent):
• MMG Limited - Chief Operating Officer (current)
Xiaoling Liu
PhD, BEng, GAICD, FAusIMM
60
Non-executive Director
February 2016
Yes
Name:
Qualifications:
Age:
Role:
Appointed:
Independent:
Current positions:
• Audit and Risk Committee - Member
• Nominations Committee - Member
Relevant skills and experience:
Dr Liu is a former President and Chief Executive Officer of Rio Tinto Minerals. Over Xiaoling’s 26 years with the
Rio Tinto Group she held various positions in smelting operation management through to President and CEO of
Rio Tinto Minerals. Prior to joining Rio Tinto, she worked as a Research Fellow of City University (London).
Xiaoling’s previous Non-executive Director
the California Chamber of
Commerce; Vice President of the Board of Australian Aluminium Council; and member of the University Council
of the University of Tasmania.
roles included: Board member of
Other relevant directorships and offices (current and recent):
• Newcrest Mining Limited - Non-executive Director (current)
• Melbourne Business School - Non-executive Director (current)
Retirements during 2016
During 2016, David Robb retired as Managing Director, and Wayne Osborn and Gavin Rezos retired as
independent, Non-executive Directors of the Company.
David Robb, BSc, GradDip (Personnel Administration), FAIM, FAICD
Mr Robb was appointed to the Board in October 2006 after his appointment as Managing Director and CEO of
the Company.
David retired as Managing Director on 2 September 2016.
Wayne Osborn, DipEng, MBA, FTSE, FAICD
Mr Osborn was appointed to the Board in March 2010. He served as Chairman of the People and Performance
Committee and was a member of the Company’s Nominations Committee.
Wayne retired as an independent, Non-executive Director on 18 May 2016.
46
Iluka Resources Limited
31 December 2016
Gavin Rezos, BA, LLB, BJuris, MAICD
Mr Rezos was appointed to the Board in June 2006. He served on the Company’s Nominations Committee and
People and Performance Committee.
Gavin retired as an independent, Non-executive Director on 14 December 2016.
MEETINGS OF DIRECTORS
In 2016, the Board met on 12 occasions, of which 7 meetings were scheduled. In addition to these meetings, the
Board spent two days primarily focused on strategic planning. The Chairman chaired all the meetings. The
Non-executive Directors periodically met independent of management to discuss relevant issues. Directors’
attendance at Board and committee meetings during 2016 is detailed below:
DIRECTORS SHAREHOLDING
Directors shareholding is set out in the Remuneration Report, section 6.4.
47
Iluka Resources Limited
31 December 2016
EXECUTIVE TEAM PROFILES
Matthew Blackwell, B Eng (Mech), Grad Dip (Tech Mgt), MBA, MAICD, MIEAust
Head of Marketing, Mineral Sands
Mr Blackwell
joined Iluka in 2004 as President of US Operations. He has had responsibilities for Land
Management and as General Manager, USA, before being appointed Head of Marketing, Mineral Sands in
February 2014. Prior to joining Iluka, Mr Blackwell was Executive Vice President of TSX listed Asia Pacific
Resources and based in Thailand. He also held positions with WMC Resources and Normandy Poseidon. Mr
Blackwell has more than 20 years' experience in the resources industry including senior positions in project
management, maintenance, production and business development.
Rob Hattingh, MSc (Geochem)
Chief Executive Officer, Sierra Rutile
Mr Hattingh joined Sierra Rutile in November 2016 from Iluka Resources where he held the position of General
Manager Innovation, Sustainability and Technology. Mr Hattingh has more than 25 years’ experience in the
mineral sand industry in a number of roles. He was Principal Environmental Scientist at Richards Bay Minerals in
South Africa and worked in senior roles at Exxaro Resources (now Tronox) where he was responsible for
technical disciplines for a number of years. In 2008, Mr Hattingh joined Iluka Resources in Perth where he held
management roles in the fields of hydrogeology, metallurgy, sustainability and business development.
Simon Hay, BSc (Hons), MAppSc, Grad Dip (Mgmt), MAICD
Head of Resource Development
Mr Hay joined Iluka in 2009 as Manager, South West Operations based in Capel. Mr Hay then moved to the
Marketing function and served as Iluka's Country Manager for China and then General Manager Zircon Sales
based in Singapore. He was appointed to his current role as Head of Resource Development in March 2016.
Prior to joining Iluka, Mr Hay worked at Mt
Isa Mines, WMC Resources and BHP Billiton in the fields of
metallurgy, projects and operations management in base metals.
Douglas Warden, BCom, CA, MBA, GAICD
Chief Financial Officer and Head of Strategy and Planning
Mr Warden joined Iluka in 2003 and held a number of senior financial and commercial roles before leaving the
Company in 2007. Since returning to Iluka in 2009, Mr Warden has held a number of roles including, Head of
Resource Development, General Manager Business Development and General Manager Exploration. He was
appointed to his current role as Chief Financial Officer and Head of Strategy and Planning in June 2015. Mr
Warden has previously been CFO at Summit Resources Limited and Jabiru Metals Limited and began his career
in corporate finance and insolvency with Ernst & Young and KPMG.
Steven Wickham, Assoc Dip in Mechanical Engineering
Chief Operating Officer, Mineral Sands
Mr Wickham is a mechanical engineer with extensive experience in senior and executive roles in Australia and
South Africa in the manufacturing and mining sectors. Prior to joining Iluka in 2007, he was Chief Executive
Officer of Ticor South Africa and Managing Director of Australian Zircon.
Cameron Wilson, LLB, GAICD
Head of Integration
Mr Wilson joined Iluka in late 2004 as Chief Legal Counsel and Head of Corporate Acquisitions. He was
appointed to his current role as Head of Integration in December 2016. Prior to joining Iluka, Mr Wilson worked in
a range of legal and commercial roles with WMC Resources. He has specialised in mining, corporate and general
commercial law for most of his professional career.
Sue Wilson, B Juris, LLB, FGIA, FICSA, FAICD
General Counsel and Company Secretary
Ms Wilson joined Iluka in December 2016. She was previously the Head of Company Secretariat at South32
following the demerger from BHP Billiton. She was also General Counsel and Company Secretary and a member
of the executive team at Bankwest and HBOS Australia. Prior to joining Bankwest, Ms Wilson was a partner of
law firm Parker & Parker (now part of Herbert Smith Freehills). She is currently the Pro Chancellor and a member
of the Council at Curtin University, Chairman of the WA State Council of the Governance Institute of Australia and
a former non-executive director of Western Power.
48
Iluka Resources Limited
31 December 2016
COMPANY SECRETARY
Ms Sue Wilson is the Company Secretary of the Company. Ms Wilson was appointed to the position of Company
Secretary in December 2016. Mr Cameron Wilson was the former Company Secretary up to the appointment of
Ms Sue Wilson. Refer to the previous section for Ms Wilson’s profile.
Mr Nigel Tinley BBus CPA GAICD also acts as Company Secretary for the Company. Mr Tinley was appointed to
the position of Joint Company Secretary in 2013 and prior to that he held senior positions in Finance and Sales
and Marketing. Before joining Iluka in 2006, Mr Tinley held a range of accounting, financial and commercial roles
over his 18 years with BHP Billiton Limited (and former BHP Limited) both in Australia and internationally.
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 directors' 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.
ENVIRONMENTAL REGULATIONS
The Group'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, waste 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 directors are aware, there have been no material breaches of the Group's licences and all mining
and exploration activities have been undertaken in compliance with the relevant environmental regulations.
NON-AUDIT SERVICES
The Group may decide to employ the external auditor, PricewaterhouseCoopers on assignments additional to
their statutory audit duties where the auditor's expertise and experience with 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 external 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 2016 year were within the Group 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 51.
Fees that were paid or payable during the year for non-audit services provided by the auditor of the parent entity,
its network firms and non-related audit firms is set out in note 22 on page 85 of the financial report.
49
Iluka Resources Limited
31 December 2016
MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR
The directors 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 entity, the results of those operations or the state of affairs of
the 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 in the Operating and Financial Review on page 2. Disclosure of further material relating to those
matters could result in unreasonable prejudice to the interests of the Group.
CORPORATE GOVERNANCE STATEMENT
The Company’s Corporate Governance Statement for the year ended 31 December 2016 may be accessed from
the Company’s website at http://www.iluka.com/about-iluka/governance.
ROUNDING OF AMOUNTS
The Company is of a kind referred to in "ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument
2016/191", issued by the Australian Securities and Investments Commission, relating to the 'rounding off' of
amounts in the Directors' Report and accompanying Financial Report. Amounts in the Directors' Report have
been rounded off in accordance with that Rounding Instrument to the nearest hundred thousand dollars, or in
certain cases, to the nearest dollar.
This report is made in accordance with a resolution of the directors.
G Martin
Chairman
T O'Leary
Managing Director
23 February 2017
50
Auditor’s Independence Declaration
As lead auditor for the audit of Iluka Resources Limited for the year ended 31 December 2016, I
declare that to the best of my knowledge and belief, there have been:
a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Iluka Resources Limited and the entities it controlled during the
period.
Justin Carroll
Partner
PricewaterhouseCoopers
Perth
23 February 2017
PricewaterhouseCoopers, ABN 52 780 433 757
Brookfield Place, 125 St Georges Terrace, PERTH WA 6000, GPO Box D198, PERTH WA 6840
T: +61 8 9238 3000, F: +61 8 9238 3999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
51
Iluka Resources Limited ABN 34 008 675 018
Financial Report - 31 December 2016
Contents
Financial statements
Consolidated statement of profit or loss and other 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
53
54
55
56
57
100
101
These financial statements are the consolidated financial statements of the Group consisting of Iluka Resources
Limited and its subsidiaries (the Group). The financial statements are presented in the Australian currency.
Iluka Resources Limited is a company limited by shares, incorporated and domiciled in Australia. Its 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 operating and
financial review section of the Directors' Report, which is not part of these financial statements.
The financial statements were authorised for issue by the directors on 23 February 2017. 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 ASX
releases, financial reports and other relevant information are available at www.iluka.com
52
Iluka Resources Limited
Consolidated statement of profit or loss
and other comprehensive income
For the year ended 31 December 2016
Notes
2016
$m
2015
$m
Revenue
Other income
Expenses
Share of losses of investments accounted for using the equity method
Interest and finance charges paid/payable
Rehabilitation and restoration unwind
Total finance costs
(Loss) profit before income tax
Income tax benefit (expense)
(Loss) profit for the year attributable to owners
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Currency translation of foreign operations
Hedge of net investment in foreign operation, net of tax
Items that will not be reclassified to profit or loss
Actuarial gains (losses) on defined benefit plans, net of tax
Share of other comprehensive income of associates accounted for using
the equity method
Total other comprehensive income for the year, net of tax
Total comprehensive (loss) income for the year attributable to
owners
5
20
7
21
17(d)
9
24
24
24
24
774.4
882.2
5.5
(1,023.7)
(3.3)
(18.8)
(11.8)
(30.6)
2.7
(741.1)
-
(14.2)
(43.0)
(57.2)
(277.7)
86.6
53.7
(224.0)
(33.1)
53.5
15.2
(5.8)
0.3
(4.7)
5.0
2.0
(1.4)
0.8
-
1.4
(219.0)
54.9
Cents
Cents
(Loss) earnings per share attributable to ordinary equity holders
Basic (loss) earnings per share
Diluted (loss) earnings per share
8
8
(53.6)
(53.6)
12.8
12.8
The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes.
53
Iluka Resources Limited
Consolidated balance sheet
As at 31 December 2016
ASSETS
Current assets
Cash and cash equivalents
Receivables
Inventories
Current tax receivables
Total current assets
Non-current assets
Investments accounted for using the equity method
Available-for-sale financial assets
Property, plant and equipment
Deferred tax assets
Intangible asset - MAC Royalty
Inventories
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Payables
Current tax payable
Provisions
Total current liabilities
Non-current liabilities
Interest-bearing liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
(Accumulated losses) retained profits
Total equity
Notes
2016
$m
2015
$m
17
12
13
21
14
23
5(b)
13
15
16
17
16
19
24
24
101.3
169.9
474.0
12.4
757.6
33.7
-
1,194.2
185.5
4.7
219.9
1,638.0
55.0
108.9
493.9
12.2
670.0
-
22.7
1,069.8
17.8
5.1
317.9
1,433.3
2,395.6
2,103.3
125.9
-
44.3
170.2
607.6
514.8
1,122.4
1,292.6
103.5
25.9
57.4
186.8
49.0
458.9
507.9
694.7
1,103.0
1,408.6
1,117.2
32.2
(46.4)
1,103.0
1,112.7
23.1
272.8
1,408.6
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
54
Iluka Resources Limited
Consolidated statement of changes in equity
For the year ended 31 December 2016
Balance at 1 January 2015
Profit for the year
Other comprehensive income
Other 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
space
Balance at 31 December 2015
(Loss) profit for the year
Other comprehensive income
Total comprehensive income
Notes
24
24
19(b)
19(b)
24
24
24
24
Transactions with owners in their capacity as owners:
Share-based payments, net of tax
Dividends paid
Transfer of shares to employees, net of tax
24
24
19(b)
space
Balance at 31 December 2016
Attributable to owners of
Iluka Resources Limited
Contributed
equity
$m
Other
reserves
$m
Retained
earnings
$m
Total
equity
$m
1,114.4
22.8
297.4
1,434.6
-
-
-
4.3
(6.3)
0.3
-
(1.7)
-
-
-
53.5
1.4
54.9
53.5
1.4
54.9
(4.3)
-
4.6
-
0.3
-
-
-
(79.5)
(79.5)
-
(6.3)
4.9
(79.5)
(80.9)
1,112.7
23.1
272.8
1,408.6
-
-
-
-
-
4.5
4.5
-
8.1
8.1
(224.0)
(3.1)
(227.1)
(224.0)
5.0
(219.0)
5.5
-
(4.5)
1.0
-
(92.1)
-
(92.1)
5.5
(92.1)
-
(86.6)
1,117.2
32.2
(46.4) 1,103.0
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
55
Iluka Resources Limited
Consolidated statement of cash flows
For the year ended 31 December 2016
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Operating cash flow
.
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
Purchase of shares in Metalysis Limited
SRL acquisition cost
Net cash outflow from investing activities
Cash flows from financing activities
Repayment of borrowings
Proceeds from borrowings
Purchase of treasury shares
Dividends paid
Debt refinance costs
Net cash inflow (outflow) from financing activities
Net increase (decrease) in cash and cash equivalents
.
Cash and cash equivalents at 1 January
SRL cash acquired
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of year
Notes
2016
$m
2015
$m
715.4
(578.1)
137.3
0.7
(14.7)
(13.8)
(24.7)
43.6
128.4
(63.5)
1.4
(19.0)
(375.4)
(456.5)
(210.1)
662.5
-
(92.1)
(0.5)
359.8
31.7
55.0
13.9
0.7
101.3
814.2
(592.0)
222.2
0.8
(11.3)
(18.5)
(27.7)
64.0
229.5
(62.3)
0.9
(4.1)
-
(65.5)
(253.3)
131.9
(9.0)
(79.5)
(2.0)
(211.9)
(47.9)
101.3
-
1.6
55.0
11
21
6
10
6
17
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
56
Iluka Resources Limited
31 December 2016
Contents of the notes to the financial statements
Basis of preparation
1. Reporting entity
2. Basis of preparation
3. Critical accounting estimates and judgements
Performance for the year
4. Segment information
5. Revenue
6. Business Combination
7. Expenses
8. Earnings per share
9.
10. Dividends
11 Reconciliation of profit (loss) after income tax to net cash inflow from operating activities
Income tax
Operating assets and liabilities
Inventories
12. Receivables
13.
14. Property, plant and equipment
15. Payables
16. Provisions
Capital structure and finance costs
17. Net cash (debt) and finance costs
18. Financial risk management
19. Contributed equity
Other notes
20. Other income
21.
Investments in associates
22. Remuneration of auditors
23. Deferred tax
24. Reserves and retained earnings
25. Share-based payments
26. Commitments
27. Retirement benefit obligations
28. Key Management Personnel
29. Controlled entities and deed of cross guarantee
30. Parent entity financial information
31. Contingent liabilities
32. Related party transactions
33. New accounting standards and interpretations
57
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58
58
58
60
62
62
64
65
66
68
69
70
71
71
71
72
73
77
77
78
79
80
83
83
83
84
85
86
87
88
90
91
92
93
96
97
97
98
Iluka Resources Limited
31 December 2016
Notes to the financial statements
The notes include information which is required to understand the financial statements and is material and
relevant
Information is
considered relevant and material if:
to the operations and the financial position and performance of
the Iluka Group.
• The amount is significant due to its size or nature;
• The amount is important in understanding the results of the Group;
• It helps to explain the impact of significant changes in the Group's business; or
• It relates to an aspect of the Group's operations that is important to its future performance.
The notes are organised into the following sections:
• Basis of preparation;
• Performance for the year;
• Operating assets and liabilities;
• Capital structure and finance costs;
• Other notes.
A brief explanation of each section is included under each section.
Basis of preparation
This section of the financial report sets out the Group’s accounting policies that relate to the financial statements
as a whole. Where an accounting policy is specific to one note, the policy is described in the note to which it
relates. This section also sets out information related to critical accounting estimates and judgements applied to
these financial statements.
1 Reporting entity
Iluka Resources Limited (Company or parent entity) is domiciled in Australia. The financial statements are for the
Group consisting of Iluka Resources Limited and its subsidiaries. A list of the Group's subsidiaries is provided in
note 29.
2 Basis of preparation
These general purpose financial statements have been prepared in accordance with Australian Accounting
Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) and the
Corporations Act 2001. Iluka Resources Limited is a for-profit entity and is primarily involved in mineral sands
exploration, project development, operations and marketing.
Iluka Resources Limited had to change some of its accounting policies as the result of new or revised accounting
standards which became effective for the annual reporting period commencing on 1 January 2016, which are
detailed in note 33. The adoption of these amendments did not have any impact on the current period or any prior
period and is not likely to affect future periods.
The consolidated financial statements of
Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
Iluka Resources Limited also comply with International Financial
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.
(a) Principles of consolidation
(i) Subsidiaries
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Iluka Resources
Limited as at 31 December 2016 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.
58
Iluka Resources Limited
31 December 2016
Subsidiaries are all entities controlled by the Group. The Group controls an entity when it is exposed to, or has
rights to, variable returns through its power over the entity. The financial statements of subsidiaries are included
in the consolidated financial statements from the date on which control commences until the date on which
control ceases. Accounting policies of subsidiaries are changed where necessary to ensure consistency with the
policies adopted by the Group.
Iluka Resources Limited acquired Sierra Rutile Limited ('SRL') on 7 December 2016. The results of SRL are
included in the consolidated financial statements for the 24 days from 7 December 2016 to 31 December 2016.
Intercompany transactions and 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.
The Group accounts for business combinations using the acquisition method when control is transferred to the
Group. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at
the date of exchange. Transaction costs are expensed as incurred, except if related to the issue of debt or equity
securities.
(ii) Associates
Associates are all entities over which the Group has significant influence but not control or joint control. This is
generally the case where the Group holds between 20.0% and 50.0% of the voting rights. Investments in
associates are accounted for using the equity method of accounting from the date on which the investee
becomes an associate.
Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to
recognise the Group's share of the post-acquisition profits or losses of the investee in profit or loss, and the
Group's share of movements in other comprehensive income of the investee in other comprehensive income.
Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying
amount of the investment.
When the Group's share of losses in an equity-accounted investment equals or exceeds its interest in the entity,
including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has
incurred obligations or made payments on behalf of the other entity.
Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the
extent of the Group's interest in these entities. Unrealised losses are also eliminated unless the transaction
provides evidence of an impairment of the asset transferred. Accounting policies of equity accounted investees
have been changed where necessary to ensure consistency with the policies adopted by the Group.
The carrying amount of equity-accounted investments is tested for impairment in accordance with the policy
described in note 14.
(iii) Employee Share Trust
The Group's Employee Share Schemes are administered through the Iluka Director’s Executives and Employees
Share Acquisition Trust (the trust). This trust is consolidated, as the substance of the relationship is that the trust
is controlled by the Group. Shares in the Company held by the trust are disclosed as treasury shares in the
consolidated financial statements and deducted from contributed equity, net of tax.
(b) Foreign currency translation
(i) Functional and presentation currency
The consolidated financial statements are presented in Australian dollars, which is the Company's functional and
presentation currency.
(ii) Transactions and balances
Where Group companies based in Australia transact in foreign currencies, these transactions are translated into
Australian dollars using the exchange rate on that day. Foreign currency monetary assets and liabilities are
translated to Australian dollars at the reporting date exchange rate. Non-monetary assets and liabilities that are
measured at fair value in a foreign currency are translated to Australian dollars at the exchange rate when the fair
value was determined. Foreign currency differences are generally recognised in profit or loss. Non-monetary
items that are measured based on historical cost in a foreign currency are not re-translated.
59
Iluka Resources Limited
31 December 2016
(iii) Group companies
The financial position of foreign operations is translated into Australian dollars at the exchange rates at the
reporting date. The income and expenses of foreign operations for each month are translated into Australian
dollars at average exchange rates. Foreign currency differences are recognised in other comprehensive income
and accumulated in the foreign currency translation reserve.
(iv) Hedge of net investment in foreign operations
The Group had US dollar denominated borrowings that were used to hedge against translation differences arising
from assets held by the Group's SRL operations (see note 4 for more information about these assets). The US
dollar denominated borrowings used to hedge the US operations were repaid in June 2015.
that these borrowings did not exceed the net assets of
To the extent
foreign currency
differences arising on the translation of these borrowings were recognised in other comprehensive income and
accumulated in the foreign currency translation reserve. Any remaining differences were recognised in profit or
loss. If these operations were to be disposed of (in full or in part), the relevant amount in the foreign currency
translation reserve would be transferred to profit or loss as part of the gain or loss on disposal.
these operations,
(c) 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.
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.
(d) Determination of financial instrument fair values
For financial instruments measured and carried at fair value, the Group uses the following valuation methods:
Level 1 : the fair value is calculated using quoted prices in active markets;
Level 2 : the fair value is estimated using inputs other than quoted prices included in Level 1 that are observable
for the asset or liability, either directly (as prices) or indirectly (derived from prices);
Level 3 : the fair value is estimated using inputs for the asset or liability that are not based on observable market
data.
The valuation technique used for the Group's financial instruments are detailed within the relevant note.
(e) Rounding of amounts
The Company is of a kind referred to in Rounding Instrument 2016/191, 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 Rounding Instrument to the nearest hundred
thousand dollars, or in certain cases, the nearest thousand dollars and the nearest dollar.
3 Critical accounting estimates and judgements
The Group makes estimates and assumptions concerning the future in applying its accounting policies. 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 underlying assumptions are reviewed on an ongoing basis, with revisions recognised in the period
in which the estimates are revised and future periods affected.
60
Iluka Resources Limited
31 December 2016
Impairment of assets
(i)
In accordance with the Group’s accounting policy set out in note 14 non-current assets are assessed for
impairment when there is an indication that their carrying amount may not be recoverable. The recoverable
amount of each Cash Generating Unit (CGU) is determined as the higher of value-in-use and fair value less costs
of disposal estimated on the basis of discounted present value of the future cash flows (a level 3 fair value
estimation method). Assets that are not currently in use and not scheduled to be brought back into use (idle
assets) are considered on a standalone basis.
The estimates of discounted 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
recognised economic forecasters;
successful development and operation of new mines, consistent with latest forecasts;
future cash costs of production, sustaining capital expenditure, rehabilitation and mine closure; and
the asset specific discount rate applicable to the CGU.
forecasts by
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 in future periods. This could lead to a reversal of part, or all, of
impairment charges recorded in the current or prior years, or the recognition of new impairment charges in the
future.
(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. Changes to one or more of these assumptions is likely to result in
a change to the carrying value of the provision and the related asset (for open sites), or a change to profit or loss
(for closed sites) in accordance with the Group's accounting policy stated in note 16. In 2016, the rehabilitation
provision increased by $44.8 million as a result of changes to estimates to $528.1 million, of which $42.6 million
was charged to profit or loss account in respect of closed sites.
(iii) Net realisable value and classification of product inventory
The Group’s assessment of the net realisable value and classification of its inventory holdings requires the use of
estimates, including the estimation of the relevant future product price and the likely timing of the sale of the
inventory.
Total inventory at 31 December 2016 was $693.9 million (2015: $811.8 million). During the year, inventory write
downs of $5.4 million occurred for work in progress or finished goods (2015: nil). If finished goods future selling
prices were five per cent lower than expected, an inventory write down of $1.2 million would be required at 31
December 2016.
Inventory of $219.9 million (2015: $317.9 million) was classified as non-current as it is not expected to be sold
within 12 months of the balance sheet date. See note 13 for further details.
(iv) SRL acquisition purchase price allocation
Business combinations (acquisitions of subsidiaries) are accounted for using the acquisition method. The
consideration transferred for the acquisition of a subsidiary comprises the fair value of the assets transferred,
liabilities incurred and the equity interests issued by the Group.
61
Iluka Resources Limited
31 December 2016
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with
limited exceptions, measured initially at their fair values at the acquisition date. The financial assets and liabilities
acquired are assessed for appropriate classification and designation in accordance with the contractual terms,
economic conditions, the Group’s accounting policies and other pertinent conditions as at the acquisition date.
Under the acquisition method, the Group has up to 12 months post the acquisition date to finalise the fair value of
identifiable assets and liabilities.
Acquisition-related costs are expensed as incurred.
(v) Deferred tax asset recognition
Deferred income tax assets are recognised for all deductible temporary differences, carried forward unused tax
assets and unused tax losses. Deferred tax assets are based on tax laws (and tax rates) that have been enacted
or substantively enacted at the balance sheet date.
The Group has recognised a deferred tax asset in relation to unused tax losses for SRL of $187.4 million as part
of the purchase price allocation. Deferred tax assets are not discounted and represent the face value of the
losses expected to be utilised.
Deferred tax assets have been recognised to the extent that their recovery is probable, having regard to the
availability of sufficient taxable temporary differences relating to the same tax authority and the same taxable
entity, the projected future taxable income of these taxable entities and after taking account of specific risk factors
that are expected to affect the recovery of these assets.
Performance for the year
This section focuses on the results and performance of the Group. This covers both profitability and the resultant
return to shareholders via earnings per share combined with cash generation and the return of cash to
shareholders via dividends.
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 have changed from those reported at 31 December 2015 as the Sierra Rutile operations acquired
during 2016 are now represented as the Sierra Rutile segment. There have been no other changes to the
existing segments reported at 31 December 2015.
Australia (AUS) comprises the integrated mineral sands mining and processing operations in Victoria, Western
Australia and South Australia. Material
is mined from various deposits in Western Australia (Perth Basin),
together with the Jacinth-Ambrosia deposit in South Australia (Eucla Basin) and several deposits in Victoria
(Murray Basin). The mined material is processed predominantly at Mineral Separation Plants in the South West
and Mid West of Western Australia and the Murray Basin to produce saleable products. The processing activities
in Western Australia also include the Group’s synthetic rutile kilns.
Sierra Rutile (SRL) comprises the integrated mineral sands mining and processing operations in Sierra Leone.
United States (US) comprises mineral sands processing operations in Virginia and rehabilitation obligations in
both Virginia and Florida. Mining and processing activities were idled in Virginia in December 2015.
Mining Area C (MAC) comprises a deferred consideration iron ore royalty interest over certain mining tenements
in Australia operated by BHP Billiton Iron Ore.
62
Where finished product capable of sale to a third party is transferred between operating segments, the transfers
are made at arm's length prices. Any transfers of intermediate products between operating segments are made at
cost. During 2016, no finished product was transferred between operating segments (2015: nil).
Iluka Resources Limited
31 December 2016
(b) Segment information
2016
Total segment sales to external customers
Total segment result
Segment assets
Segment liabilities
Depreciation and amortisation expense
Impairment of assets
Additions to non-current segment assets
2015
Total segment sales to external customers
Total segment result
Segment assets
Segment liabilities
Depreciation and amortisation expense
Additions to non-current segment assets
AUS
$m
US
$m
SRL
$m
690.2
(63.5)
1,478.6
448.2
74.3
201.0
39.4
AUS
$m
770.5
204.8
1,837.8
476.2
129.7
56.3
18.3
(77.2)
103.6
127.6
-
-
9.8
US
$m
49.3
(35.5)
119.0
111.5
-
26.4
17.8
(0.9)
439.7
71.2
2.0
-
2.3
SRL
$m
-
-
-
-
-
-
MAC
$m
-
47.1
18.8
-
0.4
-
-
MAC
$m
-
61.2
15.3
-
0.4
-
Total
$m
726.3
(94.5)
2,040.7
647.0
76.7
201.0
51.5
Total
$m
819.8
230.5
1,972.1
587.7
130.1
82.7
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:
China
Asia excluding China
Europe
Americas
Other countries
Sale of goods
2016
$m
252.4
61.5
232.0
65.8
114.6
726.3
2015
$m
291.4
102.3
215.4
135.9
74.8
819.8
Revenue of $175.1 million and $84.1 million was derived from two external customers of the mineral sands
segments, which individually account for greater than 10 per cent of the total segment revenue (2015: revenues
of $110.0 million, $98.0 million and $87.1 million from three external customers).
Segment result is reconciled to the profit before income tax as follows:
63
Segment result
Interest income
Other income
Marketing and selling
Corporate and other costs
Depreciation
Resource development
Interest and finance charges
Net foreign exchange losses
SRL transaction costs
Metalysis losses
(Loss) profit before income tax
2016
$m
(94.5)
0.6
0.6
(16.7)
(53.8)
(3.2)
(79.4)
(18.8)
4.9
(14.1)
(3.3)
(277.7)
Total segment assets and total segment liabilities are reconciled to the balance sheet as follows:
Segment assets
Corporate assets
Cash and cash equivalents
Current tax receivable
Deferred tax assets
Total assets as per the balance sheet
Segment liabilities
Corporate liabilities
Current tax payable
Interest-bearing liabilities
Total liabilities as per the balance sheet
5 Revenue
Sales revenue
Sale of goods
Other revenue
Mining Area C royalty income
Interest
Iluka Resources Limited
31 December 2016
2015
$m
230.5
0.8
2.7
(15.8)
(52.7)
(2.3)
(58.4)
(14.1)
(4.1)
-
-
86.6
1,972.1
46.2
55.0
12.2
17.8
2,103.3
587.7
32.1
25.9
49.0
694.7
2,040.7
55.7
101.3
12.4
185.5
2,395.6
647.0
38.0
-
607.6
1,292.6
2016
$m
2015
$m
726.3
819.8
47.5
0.6
48.1
61.6
0.8
62.4
774.4
882.2
64
Iluka Resources Limited
31 December 2016
(a) Sale of goods - Mineral sands
The Group sells mineral sands under a range of International Commercial Terms. Product sales are recognised
as revenue when the Group has transferred both the significant risks and rewards of ownership and control of the
products sold, and the amount of revenue can be measured reliably. The passing of risk to the customer occurs
when the product has been dispatched to the customer and is no longer under the physical control of the Group,
or when the customer has formally acknowledged its legal ownership of the product including all inherent risks.
Where the sold product continues to be stored in facilities the Group controls, it is clearly identified and available
to the buyer.
Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue
are net of rebates, sales commissions, duties and other taxes.
(b) 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.
Included in Mining Area C iron ore royalty earnings (MAC) in 2015 was a one-off receipt of US$8.0 million
(A$10.4 million) following the modification to the royalty agreement with BHP Billiton and its joint venture
partners.
The royalty entitlement asset is an intangible asset and is amortised on a straight-line basis ($0.4 million per
year) over its estimated useful life of 25 years, of which 12 years is remaining (2015: 13 years remaining). The
carrying value of the asset at 31 December 2016 is $4.7 million (2015: $5.1 million).
(c)
Interest income
Interest income is recognised in profit or loss as it accrues, using the effective interest method.
6 Business combination
On 7 December 2016, Iluka completed the acquisition of Sierra Rutile Limited (‘SRL’) by means of a statutory
merger of SRL with Iluka Investments Limited (BVI), a wholly owned Iluka subsidiary. Iluka Investments (BVI)
Limited acquired 100.0 per cent of the issued share capital of SRL for 36 British pence cash per share, totalling
£215.3 million (A$375.4 million). Iluka assumed SRL’s net debt of US$59.3 million (A$79.7 million), and has since
repaid this from its own facilities.
SRL is a large, long life rutile mining and processing operation with material expansion options based in Sierra
Leone. It provides the Group with a quality mineral sands operation to continue to service the high grade titanium
dioxide feedstock market. Combined with Iluka’s existing operations and internal projects, SRL also provides
increased portfolio flexibility in relation to Iluka’s internal production options and capital expenditure.
The SRL merger extends Iluka’s resource base and provides access to a major global source of rutile. Iluka
believes that the combination of the experience and capabilities of SRL personnel with Iluka’s mineral sands
operational and technical experience, gained across multiple ore bodies and processing facilities over many
years, will enhance the operational performance of SRL.
At 31 December 2016, the acquisition accounting balances recognised are provisional due to ongoing work
finalising valuations and tax related matters which may impact acquisition accounting entries.
The provisional fair value of the identifiable assets acquired and liabilities recognised at the date of acquisition
are:
65
Assets
Cash and cash equivalents
Receivables
Inventories
Property, plant and equipment
Deferred tax assets
Total assets
Liabilities
Payables
Current tax payable
Interest-bearing liabilities
Provisions
Total liabilities
Net assets acquired
space
Outflow of cash to acquire subsidiary, net of cash acquired
Cash consideration paid
Acquisition-related costs
Less: cash acquired
Net cash outflow on acquisition
Iluka Resources Limited
31 December 2016
A$m
13.9
17.1
41.4
350.2
122.0
544.6
(32.1)
(4.0)
(93.5)
(39.6)
(169.2)
375.4
375.4
14.1
(13.9)
375.6
The acquired business contributed revenues of $17.8 million and net loss of $0.9 million to the Group for the
period from 7 December 2016 to 31 December 2016. This is disclosed in note 4.
If the acquisition had occurred on 1 January 2016, consolidated pro-forma revenue for the year ended 31
December 2016 would have been $882.7 million. It is not practicable to determine the profit of the Group had the
combination taken place at 1 January 2016, as the fair value of the identifiable assets and liabilities is not known
at that date.
Acquisition-related costs of $14.1 million have been recognised in expenses in the income statement and in
operating cash flows in the statement of cash flows for the year ended 31 December 2016. In addition a further
$2.1 million has been recognised in relation to the time value of money for the deal contingent hedge entered into
for the cash paid on acquisition of SRL. The $2.1 million interest charge is shown in interest and finance charges
in the income statement and in interest paid for the consolidated statement of cash flows.
7 Expenses
Expenses
Cash costs of production
Depreciation and amortisation
Inventory movement - cash costs of production
Inventory movement - non-cash production costs
Cost of goods sold
Notes
7(a)
7(b)
2016
$m
252.3
71.3
107.6
57.3
488.5
2015
$m
384.9
117.1
(9.6)
15.3
507.7
66
Ilmenite concentrate and by-product costs
Depreciation - idle and corporate assets
Restructure and idle capacity charges
Rehabilitation costs for closed sites
Impairment of assets
Transaction costs
Government royalties
Marketing and selling costs
Corporate and other costs
Resource development costs
Foreign exchange losses (net)
Net loss on disposal of property, plant and equipment
Notes
7(c)
7(d)
7(e)
Iluka Resources Limited
31 December 2016
2016
$m
2015
$m
8.3
8.6
69.5
42.6
201.0
14.1
20.4
36.3
53.8
79.4
-
1.2
1,023.7
7.6
15.3
38.3
2.7
-
-
21.0
32.0
52.7
58.4
4.1
1.3
741.1
(1,219.6)
(935.0)
(a) Cash costs of production
Cash costs of production include costs for mining and concentrating; transport of heavy mineral concentrate;
mineral separation; synthetic rutile production; externally purchased ilmenite and production overheads. This
category also includes landowner royalty payments, but excludes Australian State and Sierra Leone Government
royalties which are reported separately.
(b) Cost of goods sold
Cost of goods sold is the inventory value of each tonne of finished product sold. All production is added to
fixed and variable overhead
inventory at cost, which includes direct costs and an appropriate portion of
expenditure, including depreciation and amortisation, allocated on the basis of relative sales value. The inventory
value recognised as cost of goods sold for each tonne of finished product sold is the weighted average value per
tonne for the stockpile from which the product is sold.
Inventory movement represents the movement in balance sheet inventory of work in progress and finished
goods, including the non-cash depreciation and amortisation components and movement in the net realisable
value adjustments.
(c)
Ilmenite concentrate and by-product costs
Ilmenite and by-product costs of $8.3 million (2015: $7.6 million) include by-product costs such as for iron
concentrate processing, activated carbon and wet high intensity magnetic separation (WHIMS) ilmenite transport
costs.
(d) Restructure and idle capacity charges
Iluka
Idle capacity charges reflect ongoing costs incurred during periods of no or restricted production.
suspended mining and concentrating activities at Jacinth-Ambrosia in April 2016. In 2015, Iluka concluded mining
at Woornack, Rownack, Pirro (WRP) deposit in Murray Basin, Victoria and also idled mining and processing
activities in Virginia in December 2015 resulting in restructure costs of $3.6 million being recognised during 2015.
Liabilities for employee termination benefits associated with restructuring activities are recognised when the
Group is demonstrably committed to terminating the employment of current employees according to a detailed
formal plan without possibility of withdrawal and there is no further service required. Where further service is
required to be eligible for the benefit, the liability is recognised over the relevant service period.
67
Iluka Resources Limited
31 December 2016
(e) Rehabilitation costs for closed sites
These costs include adjustments to the rehabilitation provision for closed sites which are expensed in accordance
with the policy described in note 16 arising from the annual review. The US operations and Australian operations
incurred a $40.9 million increase and $1.7 million increase respectively in rehabilitation estimates for closed sites
following an annual assessment of the scope of work, the costs to undertake the work and when the work will be
completed.
(f) Other required disclosures
Expenses also include the following:
Defined contribution superannuation
Defined benefits superannuation
Employee benefits (excluding share-based payments)
Share-based payments
Exploration expenditure (included in Resource development expenses)
Operating leases
Inventory write downs - finished goods and WIP
Inventory write downs - consumable stores
8 Earnings per share
Basic (loss) earnings per share (cents)
Diluted (loss) earnings per share (cents)
2016
$m
2015
$m
8.5
2.9
130.4
8.5
24.3
11.5
5.4
4.4
8.6
0.6
134.5
5.7
27.0
11.4
-
6.1
(195.9)
(193.9)
2016
Cents
(53.6)
(53.6)
2015
Cents
12.8
12.8
Earnings per share (EPS) is the amount of post-tax earnings or loss attributable to each share.
Basic EPS is calculated on the loss for the period attributable to equity owners of ($224.0) million (2015: profit of
$53.5 million) divided by the weighted average number of shares on issue during the year, excluding treasury
shares, being 418,027,206 shares (2015: 417,769,922 shares).
Diluted EPS takes into account the dilutive effect of all outstanding share rights vesting as ordinary shares. The
weighted average share rights outstanding of 2,455,958 (2015: 1,665,469 share rights) would be anti-dilutive in
2016 as they would reduce the loss per share and therefore have not been included in the calculation of diluted
EPS. In 2015 the weighted average share rights outstanding was included in the diluted EPS calculation.
68
Iluka Resources Limited
31 December 2016
9 Income tax
(a)
Income tax expense
Income tax expense comprises current and deferred tax and is recognised in profit or loss, as disclosed in (a)
below, except to the extent that it relates to items recognised directly in equity or other comprehensive income as
disclosed in (c) below.
Current tax
Deferred tax
Under (over) provided in prior years
Notes
23
2016
$m
(5.0)
(50.8)
2.1
(53.7)
2015
$m
43.9
(8.8)
(2.0)
33.1
The income tax expense or revenue for the period is the tax payable on the current period’s taxable income
based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and
liabilities attributable to temporary differences and to unused tax losses. The current tax charge is calculated
using the tax rates and tax laws enacted or substantively enacted at the reporting date in the countries where the
Group operates and generates taxable income. Deferred taxes are explained in more detail in note 23.
(b) Numerical reconciliation of income tax expense to prima facie tax payable
(Loss) profit before income tax expense
Tax at the Australian tax rate of 30% (2015: 30%)
Tax effect of amounts not deductible (taxable) in calculating taxable income:
Research and development credit
Tax losses not recognised by overseas operations
Non-assessable income
Non-deductible expenses
Other items
Difference in overseas tax rates
Under (over) provision in prior years
Income tax (benefit) expense
(c) Tax expense relating to items of other comprehensive income
Hedge of net investments in foreign operations
Actuarial gains (losses) on retirement benefit obligation
(277.7)
(83.3)
(5.5)
26.8
-
6.1
-
(55.9)
0.1
2.1
(53.7)
86.6
26.0
(2.9)
8.5
(1.1)
3.3
(0.8)
33.0
2.1
(2.0)
33.1
331.5
(119.7)
(2.5)
0.2
(2.3)
(0.6)
0.2
(0.4)
69
Iluka Resources Limited
31 December 2016
(d) Tax losses
No tax benefits have been recognised in respect of exploration activities of overseas operations as their recovery
is not currently considered probable.
The idling of the US operations at the end of 2015 means that US state tax losses are not considered probable of
recovery. Unrecognised US state tax losses for which no deferred tax asset has been recognised are US$161.7
million at 31 December 2016 (31 December 2015: US$173.0 million).
Unused capital
losses for which no deferred tax asset has been recognised are approximately $92.7 million
(2015: $92.7 million) (tax at the Australian rate of 30%: $27.9 million (2015: $27.9 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.
10 Dividends
Final dividend
for 2015 of 19 cents per share, fully franked
for 2014 of 13 cents per share, fully franked
Interim dividend
for 2016 of 3 cents per share, fully franked
for 2015 of 6 cents per share, fully franked
2016
$m
79.5
-
79.5
12.6
-
12.6
92.1
2015
$m
-
54.4
54.4
-
25.1
25.1
79.5
Since balance date the directors have determined no final 2016 dividend is payable (2015 final dividend: 19
cents, fully franked).
The Company has a dividend reinvestment plan (DRP) which was suspended in 2010 until further notice.
(a) Franking credits
The balance of franking credits available for future years is $88.5 million (2015: $103.0 million). This balance is
based on a tax rate of 30 per cent (2015: 30 per cent). This amount includes franking credits that will be reduced
by the receipt of the tax refund of $6.1 million following the lodgement of the 2017 income tax return for the
Australian tax consolidated group (2015: $25.9 million additional franking credits).
70
11 Reconciliation of (loss) profit after income tax to net cash inflow from operating
activities
Iluka Resources Limited
31 December 2016
(Loss) profit for the year
Depreciation and amortisation
Exploration capitalised
Net (loss) gain on disposal of property, plant and equipment
Exchange translation differences on USD denominated debt
Rehabilitation and mine closure provision discount unwind
Rehabilitation discount rate change
Non-cash share-based payments expense
Amortisation of deferred borrowing costs
Equity accounted share of losses
Impairment of assets
Non-cash rehabilitation for closed sites
Change in operating assets and liabilities
(Increase) / decrease in receivables
Decrease / (increase) in inventories
(Increase) / decrease in net current tax asset
Increase in net deferred tax
Decrease in payables
Decrease in provisions
Net cash inflow from operating activities
2016
$m
(224.0)
79.9
0.3
(1.2)
9.6
11.8
-
8.5
2.8
3.3
201.0
42.6
(30.7)
158.6
(28.1)
(43.0)
(14.7)
(48.3)
128.4
2015
$m
53.5
132.4
(1.7)
1.3
8.1
17.7
25.3
5.7
2.4
-
-
2.7
(10.2)
3.1
17.0
(0.8)
(6.5)
(20.5)
229.5
Operating assets and liabilities
This section shows the assets used to generate the Group’s trading performance and the liabilities incurred as a
result. Liabilities relating to the Group’s financing activities are addressed in the Capital structure and finance
costs section on page 78.
12 Receivables
Trade receivables
Mining Area C royalty receivable
Other receivables
Prepayments
2016
$m
107.9
14.1
18.3
29.6
169.9
2015
$m
79.5
10.2
10.1
9.1
108.9
Trade receivables are recognised initially at the value of the invoice sent to the customer and subsequently at the
amount considered recoverable. Trade receivables are generally due for settlement within 60 days of the invoice
being issued (2015: 45 days). The Group sells mineral sands to substantially all its customers on credit terms.
Sales are generally denominated in US dollars. Revenue is recognised using spot exchange rates on the date of
sale, with trade receivables being translated at the spot exchange rate at balance date and translation differences
accounted for in line with the Group’s accounting policy (refer note 2(b)(ii)).
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 sufficient evidence that the Group will
not be able to collect all amounts due.
71
Iluka Resources Limited
31 December 2016
At 31 December 2016, no trade receivables were impaired (2015: nil). There was $30.0 million overdue (2015:
$15.8 million), of which $13.0 million were less than 28 days overdue (2015: $10.9 million). Due to the short term
nature of the Group’s receivables, their carrying value is considered to approximate fair value.
(a) Trade receivables purchase facilities
Iluka has a trade receivables purchase facility (31 December 2015: two facilities) for the sale of eligible trade
receivables. Under the agreement Iluka transfers the majority of the risks and rewards of ownership, including
both the credit risk (subject to a maximum first loss) and late payment risk.
Iluka maintains an insurance policy to assist in managing the credit risk of its customers. The credit insurance
policy is a separate instrument to the receivables and reduces the exposure to credit risk. The trade receivables
balance of $107.9 million excludes $88.1 million (31 December 2015: excludes $75.0 million) of receivables sold
under the trade receivables purchase facility. Iluka has assigned a portion of the insurance policy to the supplier
of the trade receivables purchase facility but retains credit risk up to a maximum loss of $13.7 million per annum
(2015: $3.4 million). An asset for the loss amount has been recognised within other receivables offset by a
corresponding continuing involvement liability in other payables (refer note 15).
(b) Credit risk
At 31 December 2016 the trade receivables balance was $107.9 million, with $30.8 million covered by credit risk
insurance and a further $8.2 million by letters of credit. As a result, the Group had total uninsured receivables of
$68.8 million as at 31 December 2016 (31 December 2015: $nil). The uninsured exposure arises due to sales
made in excess of some customers’
individual credit insurance limit set within Iluka’s trade credit insurance
policy. This is due to amendments in the customer’s shipping schedule and credit terms. Subsequent to 31
December 2016, the Group has secured an increase of $37.4 million for a customers' individual credit insurance
limit, which reduced the uninsured receivables balance noted at 31 December 2016 to $31.2 million. SRL
receivables of $20.6 million are not currently covered by Iluka's insurance policies and are included in the
uninsured receivables balance noted above. The total uninsured exposure has reduced to $3.1 million at the date
of signing this report.
13 Inventories
Current
Work in progress
Finished goods
Consumable stores
Total current inventories
Non-current
Work in progress
Finished goods
Total non-current inventories
2016
$m
2015
$m
113.1
296.4
64.5
474.0
174.9
45.0
219.9
93.3
367.0
33.6
493.9
307.9
10.0
317.9
Inventories are valued at the lower of weighted average cost and estimated net realisable value. Work in
progress and finished goods inventory of $594.3 million is carried at cost and $35.1 million finished goods
inventory is carried at net realisable value (2015: all work in progress and finished goods inventory was carried at
cost).
There are separate inventory stockpile values for each product, including HMC and other intermediate products,
at each inventory location.
72
Iluka Resources Limited
31 December 2016
Weighted average cost
fixed and variable overhead
expenditure, including depreciation and amortisation. As a result of mineral sands being co-products from the
same mineral separation process, costs are allocated to inventory on the basis of the relative sales value of the
finished goods produced. No cost is attributed to by-products, except direct costs.
includes direct costs and an appropriate portion of
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, including royalties.
Consumable stores include ilmenite acquired from third parties, flocculant, coal, diesel and warehouse stores. 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. Consumables stores incurred a charge of $4.4 million during
the year to record them at net realisable value (2015: $6.1 million).
Inventories expected to be sold (or consumed in the case of stores) within twelve months after the balance sheet
date are classified as current assets, all other inventories are classified as non-current assets.
14 Property, plant and equipment
At 1 January 2015
Cost
Accumulated depreciation*
Opening written down value
Additions
Disposals
Depreciation and amortisation
Foreign exchange translation
Transfers/reclassifications
Closing written down value
At 31 December 2015
Cost
Accumulated depreciation*
Closing written down value
Year ended 31 December 2016
Additions
SRL acquisition
Disposals
Depreciation and amortisation
Foreign exchange translation
Impairment of assets
Closing written down value
At 31 December 2016
Cost
Accumulated depreciation*
Closing written down value
Land &
Buildings
$m
Plant,
Machinery &
Equipment
$m
Mine
Reserves &
Development
$m
Exploration
&
Evaluation
$m
129.5
(36.8)
92.7
30.9
(0.8)
(2.3)
1.3
-
121.8
1,993.7
(1,234.5)
759.2
18.7
-
(84.1)
-
-
693.8
162.5
(40.7)
121.8
2,001.2
(1,307.4)
693.8
15.8
25.1
(1.5)
(2.5)
0.9
(1.3)
158.3
8.1
108.6
(0.6)
(62.1)
1.4
(154.1)
595.1
925.7
(700.3)
225.4
33.8
(1.1)
(45.6)
-
0.1
212.6
961.0
(748.4)
212.6
28.3
216.5
-
(14.8)
2.8
(30.7)
414.7
42.0
(2.1)
39.9
1.9
(0.2)
-
0.1
(0.1)
41.6
43.6
(2.0)
41.6
-
-
(0.3)
-
(0.3)
(14.9)
26.1
Total
$m
3,090.9
(1,973.7)
1,117.2
85.3
(2.1)
(132.0)
1.4
-
1,069.8
3,168.3
(2,098.5)
1,069.8
52.2
350.2
(2.4)
(79.4)
4.8
(201.0)
1,194.2
201.6
(43.3)
158.3
1,986.9
(1,391.8)
595.1
974.9
(560.2)
414.7
43.1
(17.0)
26.1
3,206.5
(2,012.3)
1,194.2
* Accumulated depreciation includes cumulative impairment charges
73
Iluka Resources Limited
31 December 2016
(a) Property, plant and equipment
Property plant and equipment is stated at cost less accumulated depreciation and impairment charges. Cost
includes:
•
•
•
•
expenditure that is directly attributable to the acquisition of the items;
direct costs associated with the commissioning of plant and equipment, including pre-commissioning costs in
testing the processing plant;
if the asset is constructed by the Group, the cost of all materials used in construction, direct labour on the
project, project management costs and unavoidable borrowing costs incurred during construction of assets
with a construction period greater than twelve months and an appropriate proportion of variable and fixed
overheads; and
the present value of the estimated costs of dismantling and removing the asset and restoring the site on
which it is located.
As set out in note 16, in the case of rehabilitation 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. Total additions in
the year include $2.2 million (2015: $24.2 million) related to changes in the rehabilitation provision (refer note 16),
including $nil in relation to changes in the discount rate (2015: $21.3 million).
(b) 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. General repairs and maintenance which are not characterised as part of a major
cyclical overhaul are expensed as incurred.
(c) Depreciation and amortisation
Depreciation is provided to expense the cost of property, plant and equipment over its estimated useful life on
either a straight line or units of production basis. Units of production depreciation is calculated using the quantity
of heavy mineral concentrate extracted from the applicable mine or processed through the mine specific plant as
a percentage of the total quantity of heavy mineral concentrate planned to be extracted/processed in the current
and future periods based on life of mine plans. 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 for
the main categories of assets are as follows:
Land
-
- Mine buildings
- Mine specific machinery and equipment
- Mine specific plant
- Mine reserves and development
- Other non-mine specific plant and equipment
not depreciated
the shorter of applicable mine life and 25 years
the applicable mine life
units of production
units of production
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 on a prospective basis.
74
Iluka Resources Limited
31 December 2016
(i) Revision of depreciation methods effective 1 January 2017
The depreciation method for mine specific plant will be revised effective 1 January 2017 from units of production
to straight line so as to more appropriately match depreciation charges with the expected pattern of consumption
of economic benefit of the asset. The change in method has the biggest impact on idle assets and reflects the
expected duration of use and physical deterioration of assets and the impact of future technical or commercial
obsolescence.
Assets depreciated on a unit of production basis in 2016 with a carrying value at 31 December 2016 of $136.9
million (parent $25.0 million) are subject to the change in method. The change is expected to result in an
increase in depreciation in 2017 for those assets of $12.0 million compared to the units of production charge
incurred in 2016.
(d) Assets not being depreciated
Included in plant, machinery and equipment, mine reserves and development and land and buildings are
amounts totalling $2.6 million, $2.2 million and $0.6 million respectively (2015: $20.9 million, $1.0 million and $0.7
million respectively) relating to assets under construction which are currently not being depreciated as the assets
are not ready for use.
In addition, within property, plant and equipment, excluding exploration assets, are amounts totalling $331.2
million (2015: $303.6 million) which have not been depreciated in the year as mining of the related area of
interest has not yet commenced or the asset is currently idle. The Group has impaired idle plant, machinery and
equipment of $186.1 million at year-end, reducing the idle assets to $145.1 million at 31 December 2016. These
assets will recommence depreciating from 1 January 2017 per the depreciation method change from units of
production to straight line noted above.
(e) Exploration, evaluation and development expenditure
Exploration and evaluation expenditure is accumulated separately for each area of interest. 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, 2012)
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 reserves and development depreciation policy noted in (c) above.
(f)
Impairment
Property, plant and equipment is reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment charge 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 of disposal (FVLCD) and value-in-use. For the purposes of assessing impairment, operating
assets are grouped at the lowest levels for which there are separately identifiable cash flows (Cash Generating
Units).
75
Iluka Resources Limited
31 December 2016
Assets that are not currently in use and not scheduled to be brought back in to use (idle assets) are considered
on a standalone basis. Indicators of impairment may include significant changes in business performance or
future operating plans along with changes in technology. Assets that have suffered an impairment charge are
reviewed for possible reversal of the impairment at each reporting date.
Iluka determined that an impairment trigger had occurred for the Australian Cash Generating Unit (CGU) as a
result of a decline in zircon prices. In addition, the Group identified certain idle assets in Australia which are no
longer expected to contribute to the future cash inflows of the Group’s operations and have been removed from
the CGU and considered on a standalone basis. Iluka did not identify any impairment triggers for either the US or
Sierra Rutile operations.
Iluka recorded an impairment charge of $201.0 million for the year ended 31 December 2016. The impairment
charge related to the following standalone assets:
(i) Murray Basin property, plant and equipment
Idle and surplus equipment in the Murray Basin of $155.5 million, including the Douglas wet concentrator, mining
unit and other equipment, as well as the mining unit and wet concentrator utilised for the Woornack, Rownack,
Pirro deposits. In the case of this equipment, some was previously considered able to be utilised for a Balranald
conventional mine development, which has been passed over in favour of an unconventional mining approach.
The recoverable amount was determined as $nil based on its FVLCD at the time of impairment.
(ii) Balranald conventional mine development costs
In the Murray Basin, Iluka is continuing with trialling and evaluating an unconventional, underground mining
approach for Balranald following the cessation of work associated with the conventional mine development. As a
consequence, $20 million of capitalised costs associated with feasibility work for the conventional method have
been impaired. The recoverable amount was determined as $nil based on its FVLCD at the time of impairment.
(iii) Exploration and evaluation assets and mine reserves
$25 million related to exploration and evaluation assets previously capitalised, as well as mine reserves in the
Perth and Murray Basins have been impaired. This category includes a number of areas where no further work is
contemplated. The recoverable amount was determined as $nil based on its FVLCD at the time of impairment.
The impairment in the Murray Basin leaves a remaining carrying value for property, plant and equipment of $216
million, of which $144 million relates to the Hamilton mineral separation plant. This plant processes heavy mineral
concentrate from Victoria, as well as heavy mineral concentrate from Jacinth-Ambrosia in South Australia.
Dependent upon a commercial development decision for the Balranald deposit, the plant will be used to process
concentrate from that development.
Basis of fair value measurements
The fair value measurement is categorised as a Level 3 fair value based on the inputs in the valuation technique.
In determining the FVLCD a nominal post tax discount rate of 10 per cent was applied to the post tax cash flows
expressed in nominal terms. The key assumptions used for commodity prices are comparable to independent
industry forecasts, and foreign exchange and inflation rates are aligned with current economic forecast rates.
The fair value measurement for idle assets is determined as the potential scrap value less any costs of
dismantling and site removal. All idle assets were determined to have a $nil value.
76
15 Payables
Trade payables
Accrued expenses
Other payables
Annual leave payable
Government royalties payable
Iluka Resources Limited
31 December 2016
2016
$m
45.1
52.9
13.9
8.5
5.5
125.9
2015
$m
33.7
46.8
3.8
9.8
9.4
103.5
Trade payables are recognised at
the invoice received from the supplier. The amounts are
unsecured and are usually paid in accordance with vendor specific payment terms. Due to the short term nature
of the Group’s trade payables, their carrying value is considered to approximate fair value.
the value of
16 Provisions
Current
Rehabilitation and mine closure
Employee benefits - long service leave
Workers compensation and other provisions
Non-current
Rehabilitation and mine closure
Employee benefits - long service leave
Retirement benefit obligations
Other provisions
Notes
27
2016
$m
30.1
10.9
3.3
44.3
498.0
3.3
11.9
1.6
514.8
2015
$m
42.5
12.1
2.8
57.4
444.5
3.7
10.7
-
458.9
The movements in each class of provision, other than employee related liabilities, is set out below:
Rehabilitation
and mine
closure
$m
Notes
Other
provisions
$m
7
14
17(d)
487.0
42.6
34.9
2.2
1.5
11.8
(51.9)
-
528.1
2.8
-
1.8
-
-
-
(1.1)
1.4
4.9
Movements in provisions
Balance at 1 January
Change in provisions - charge for closed sites
SRL acquisition
Change in provision - additions to property plant and equipment
Foreign exchange rate movements
Rehabilitation and mine closure provision discount unwind
Amounts spent during the year
Change in provision - other
Balance at 31 December
77
Iluka Resources Limited
31 December 2016
(a) Rehabilitation and mine closure
The Group has obligations to dismantle and remove certain items of property, plant and equipment and to restore
and rehabilitate the land on which they sit.
A provision is raised for the estimated cost of settling the rehabilitation and restoration obligations existing at
balance date, discounted to present value using an appropriate pre-tax discount rate.
Where the obligation is related to an item of property, plant and equipment, its cost includes the present value of
the estimated costs of dismantling and removing the asset and restoring the site on which it is located. Costs that
relate to obligations arising from waste created by the production process are recognised as production costs in
the period in which they arise.
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
increase in the provision associated with discounting for closed sites is recognised as a finance cost in note
17(d).
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, such as mines and processing
sites that have been closed, any adjustment is reflected directly in profit or loss.
The total rehabilitation and mine closure provision of $528.1 million (2015: $487.0 million) includes $374.5 million
(2015: $373.4 million) for assets no longer in use. Changes to the provisions for assets no longer in use are
charged/credited directly to profit or loss. A review of cost estimates resulted in a charge of $42.6 million (2015:
charge of $2.7 million) which is reported within the expense item Rehabilitation costs for closed sites in note 7.
There was a change in discount rate in 2015 which resulted in a charge of $25.3 million which is reported within
the finance costs item Rehabilitation discount rate changes in note 17(d). There was no change to the discount
rate in 2016.
(b) Employee benefits
The employee benefits provision relates to long service leave entitlements measured as the present value of
expected future payments to be made in respect of services provided by employees up to the reporting date,
discounted using market yields at the reporting date on corporate bonds with terms to maturity and currency that
match, as closely as possible, the estimated future cash outflows. Liabilities for annual leave are included in
payables in note 15.
The current provision represents amounts for vested long service leave for which the Group does not have an
unconditional right to defer settlement, regardless of when the actual settlement is expected to occur. However,
based on past experience, the Group does not expect all employees to take the full amount of accrued leave or
require payment within the next 12 months.
Capital structure and finance costs
This section outlines how the Group manages its capital and related financing costs.
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 calculated as a net debt / (net debt + equity). The
Group manages funds on a Group basis with all funds being drawn by the parent entity.
78
17 Net cash (debt) and finance costs
Cash and cash equivalents
Cash at bank and in hand
Total cash and cash equivalents
Non-current interest-bearing liabilities (unsecured)
Multi Optional Facility Agreement
Deferred borrowing costs
Total interest-bearing liabilities
Net cash (debt)
(a) Cash and cash equivalents
Iluka Resources Limited
31 December 2016
2016
$m
101.3
101.3
611.2
(3.6)
607.6
607.6
(506.3)
2015
$m
55.0
55.0
54.9
(5.9)
49.0
49.0
6.0
Cash and cash equivalents include cash on hand and deposits held at call with financial institutions with original
maturities of three months or less.
Cash and deposits are at floating interest rates between 0.0 per cent and 2.45 per cent (2015: 0.0 per cent and
2.95 per cent) on Australian and foreign currency denominated deposits.
(b) Interest-bearing liabilities
Interest-bearing liabilities are initially recognised at fair value less directly attributable transaction costs, with
subsequent measurement at amortised cost using the effective interest rate method. Under the amortised cost
method the difference between the amount initially recognised and the redemption amount is recognised in profit
or loss over the period of the borrowings on an effective interest basis.
Interest-bearing liabilities are classified as current liabilities unless the Group has an unconditional right to defer
settlement for at least 12 months after the balance sheet date.
A description of each of the facilities is provided below.
(i) Multi Optional Facility Agreement
The Multi Optional Facility Agreement (MOFA) comprises a series of five year unsecured bilateral revolving credit
facilities with several domestic and foreign institutions, totalling A$1,015.4 million (2015: A$1,010.0 million) of
which A$175.0 million expires in 2017 (2015: A$175.0 million), A$102.0 million expires in 2019 (2015: $260.0
million), A$579.0 million expires in 2020 (2015: $575.0 million) and A$159.4 million expires in 2021 (2015: nil).
Drawings under the MOFA at 31 December 2016 were A$611.2 million (2015: A$54.9 million). Undrawn MOFA
facilities at 31 December 2016 were A$404.2 million (2015: A$955.0 million).
(c)
Interest rate exposure
Of the above interest-bearing liabilities, $611.2 million is subject to an effective weighted average floating interest
rate of 2.7 per cent (2015: interest-bearing liabilities of $54.9 million at 2.0 per cent). The contractual repricing
date of all of the floating rate interest-bearing liabilities at the balance date is within one year.
79
(d) Finance costs
Interest charges on interest-bearing liabilities
Bank fees and similar charges
Amortisation of deferred borrowing costs
Rehabilitation and mine closure provision discount unwind
Rehabilitation discount rate changes
Total finance costs
Iluka Resources Limited
31 December 2016
2016
$m
14.7
1.3
2.8
11.8
-
30.6
2015
$m
11.2
0.6
2.4
17.7
25.3
57.2
(i) Amortisation of deferred borrowing costs
Fees paid on establishment of borrowing facilities are recognised as transaction costs and amortised over the
period to which the facility relates. Transaction costs of $2.0 million associated with the additional facility and
extension of the MOFA were incurred and capitalised in 2015.
(ii) Rehabilitation and mine closure provision discount unwind
Rehabilitation and mine closure unwind represents the cost associated with the passage of time. Rehabilitation
provisions are recognised as the discounted value of the present obligation to restore, dismantle and rehabilitate
the site; with changes associated with discounting for closed sites being recognised as a finance cost in
accordance with the policy described in note 16(a).
18 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.
(a) Market risk
Market risk is the risk that changes in market prices - such as foreign exchange rates and interest rates - will
affect the Group’s income or value of its holdings of financial instruments.
(i) Foreign exchange risk
Foreign exchange risk arises from future commercial
denominated in a currency that is not the entity's functional currency.
transactions and recognised assets and liabilities
The Group operates internationally and is exposed to foreign exchange risk arising predominantly from currency
exposures to the US dollar which is the currency the Group’s sales are generally denominated in. The Group has
operations in Sierra Leone, which have a USD functional currency, and the balance sheet translation risk is
managed by designating some borrowing in US dollars as a hedge against the net US dollar investment in SRL
operation (translation differences are taken to the foreign currency translation reserve). Other US dollar
borrowings act as a ‘natural’ hedge against movements in US dollar receivables from Australian sales (translation
differences taken to the profit or loss).
The Group's exposure to USD foreign currency risk (by entities which have an Australian dollar functional
currency) at the end of the reporting period, expressed in Australian dollars, was as follows:
Cash and cash equivalents
Receivables
Payables
Interest-bearing liabilities
80
2016
$m
25.8
99.1
(27.4)
(411.9)
(314.4)
2015
$m
11.2
74.7
(21.6)
(54.9)
9.4
Iluka Resources Limited
31 December 2016
The Group's balance sheet exposure to other foreign currency risk is not significant.
(ii) Group sensitivity
The average US dollar exchange rate during the year was 0.7444 (2015: 0.7521). The US dollar spot rate at 31
December 2016 was 0.7214 (31 December 2015: 0.7279). Based on the Group's net financial assets at 31
December 2016, the following table demonstrates the estimated sensitivity to a -/+ 10 per cent movement in the
US dollar spot exchange rate, with all other variables held constant, on the Group's post-tax profit (loss) for the
year and equity:
31 December 2016
31 December 2015
-10%
Strengthen
+10%
Weaken
Profit (loss)
$m
7.5
0.7
Equity
$m
(32.1)
0.0
Profit (loss)
$m
(6.2)
(0.7)
Equity
$m
26.3
0.0
(iii) Interest rate risk
Interest rate risk arises from the Group’s borrowings and cash deposits. During 2016 and 2015, the Group's
borrowings at variable rates were denominated in Australian dollars and US dollars. At 31 December 2016, if
variable interest rates for the full year were -/+ 1 per cent from the year-end rate with all other variables held
constant, pre-tax profit for the year would have moved as per the table below.
31 December 2016
31 December 2015
+1%
$m
2.2
0.5
-1%
$m
(2.2)
(0.5)
The sensitivity is calculated using the average debt position for the year ended 31 December 2016. The interest
charges in note 17(d) of $14.7 million (2015: $11.2 million) reflect interest-bearing liabilities in 2016 that range
between $49.0 million and $607.6 million (2015: $49.0 million and $223.8 million).
(b) Credit risk
Credit risk arises from cash and cash equivalents held with financial institutions, as well as credit exposure to
customers.
The Group has policies in place to ensure that credit sales are only 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.
Further details are set out in note 12.
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's policy is to ensure that cash deposits are held with counterparties with a minimum A-/A3 credit
rating. Credit exposure limits are approved by the Board based on both credit and sovereign ratings.
(c) Liquidity risk
Liquidity risk is the risk the Group will not be able to meet its financial obligations as they fall due. Liquidity risk
management involves maintaining sufficient cash on hand or undrawn credit facilities to meet the operating
requirements of the business. This is managed through committed undrawn facilities under the MOFA (refer note
17(b)(i)) of $404.2 million at balance date as well as cash and cash equivalents of $101.3 million and prudent
cash flow management.
81
Iluka Resources Limited
31 December 2016
(d) Maturities of financial liabilities
The tables below analyse the Group's interest-bearing liabilities into maturity groupings based on the remaining
period at the reporting date to the contractual maturity date. For the MOFA, the contractual maturity dates are
dates which range from 2017 to 2021 and, contractual cash flows are until the next contractual re-pricing date
which are all within one year. 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. All
other financial liabilities are due within 12 months (refer note 15).
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
%
2.7
125.9
2.8
128.7
-
-
-
-
611.2
611.2
125.9
614.0
739.9
125.9
611.2
737.1
Weighted
average rate
Less than 1
year
Between
1 and 2
years
Between
2 and 5
years
Total
contractual
cash flows
Carrying
amount
liabilities
$m
$m
$m
$m
$m
At 31 December 2016
Non-derivatives
Payables
Interest-bearing variable rate
Total non-derivatives
At 31 December 2015
Non-derivatives
Payables
Interest-bearing variable rate
Total non-derivatives
2.0
103.5
0.2
103.7
-
-
-
-
54.9
54.9
103.5
55.1
158.6
103.5
54.9
158.4
82
19 Contributed equity
(a) Share capital
Ordinary shares - fully paid
Treasury shares - net of tax
Iluka Resources Limited
31 December 2016
2016
Shares
2015
Shares
418,701,360
(466,050)
418,235,310
418,701,360
(1,194,708)
417,506,652
2016
$m
1,120.0
(2.8)
1,117.2
2015
$m
1,120.0
(7.3)
1,112.7
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. There have been no movements in fully paid ordinary shares since 7
May 2009.
(b) Treasury shares
Treasury shares are shares in Iluka Resources Limited acquired on market and held for the purpose of issuing
shares under the directors, Executives and Employees Share Acquisition Plan and the Employee Share Plan.
Number of
shares
825,110
1,044,355
(674,757)
1,194,708
-
(728,658)
466,050
2016
$m
0.6
4.9
5.5
$m
5.6
6.3
(4.6)
7.3
-
(4.5)
2.8
2015
$m
2.7
-
2.7
Opening balance at 1 January 2015
Acquisition of shares, net of tax
Employee share issues, net of tax
Balance at 31 December 2015
Acquisition of shares, net of tax
Employee share issues, net of tax
Balance at 31 December 2016
Other notes
20 Other income
Commissions and other sundry income
Foreign exchange gains
83
Iluka Resources Limited
31 December 2016
21 Investments in associates
The Group's increased investment in Metalysis Limited on 18 February 2016 has resulted in Metalysis Limited
becoming an associate of Iluka effective from this date. Iluka now equity accounts the investment from 18
February 2016 under the 'cost of each purchase' method. Metalysis Limited is a private UK based entity that is
developing a new technology for titanium metal powder production. The Group further increased its investment in
Metalysis Limited in July 2016 to a 28.1 per cent shareholding. No dividends were received from Metalysis
Limited during the year (2015: nil). A reconciliation of movements in the account is detailed below.
(a) Movements in carrying amounts
Fair value of available for sale investment at 31 December 2015
Restatement of investment in associate at cost on 18 February 2016
Increased investment (commenced equity accounting)
Share of losses relating to previously held interest recognised in equity
Further increase in investment
Share of losses of investment accounted for using the equity method recognised
in the consolidated statement of profit or loss and other comprehensive income
Carrying amount at the end of the financial year
2016
$m
-
22.7
12.1
(4.7)
6.9
(3.3)
33.7
2015
$m
22.7
-
-
-
-
-
22.7
(b) Summarised financial information of associates
Metalysis Limited has a year end of 31 March. Iluka uses the Metalysis management accounts to equity account
the investment. Based on this information, Iluka has recorded a loss after tax of $3.3 million. Iluka had an
investment of 26.0 per cent from 18 February 2016 to 14 July 2016 at which point it increased to 28.1 per cent.
No adjustments to the Metalysis accounts were required as Metalysis complies with International Financial
Reporting Standards.
The table below represents summarised financial
December 2016:
information for Metalysis Limited for the year ended 31
Financial information for the year ended
31 December 2016:
Liabilities
$m
Revenues
$m
Assets
$m
Loss
$m
Metalysis Limited
36.3
(4.3)
0.7
(14.4)
84
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:
Iluka Resources Limited
31 December 2016
(a) PricewaterhouseCoopers Australia
Audit and other assurance services
Audit and review of financial statements*
Other assurance services
Tax and other services
Tax compliance and advisory services
Other compliance and advisory services
Total remuneration
(b) Network firms of PricewaterhouseCoopers Australia
Audit and review of financial statements*
Other compliance and advisory services
2016
$000
2015
$000
615
5
620
6
50
56
676
102
11
113
537
13
550
12
5
17
567
24
9
33
(c) Non-PricewaterhouseCoopers audit firms
Audit and review of financial statements*
268
-
Summary of total fees disclosed above:
Audit and review of financial statements*
Other assurance services
Tax compliance and advisory services
Other compliance and advisory services
985
5
6
61
1,057
561
13
12
14
600
* Included in the remuneration of auditors are the annual costs incurred by Sierra Rutile Limited. Iluka has only
recognised a portion of these costs within the Group profit or loss account, pro-rated in relation to Iluka's period of
ownership. Full annual costs are disclosed to assist users of accounts.
85
23 Deferred tax balances
Deferred tax asset:
Deferred tax asset amounts recognised in profit or loss
Employee benefits
Rehabilitation provisions
Tax losses recognised on acquisition of SRL
Tax losses - other
R&D offset
Foreign currency exchange
Inventory
Other
Gross deferred tax assets
Iluka Resources Limited
31 December 2016
2016
$m
2015
$m
6.6
127.2
187.4
6.8
21.9
5.1
7.0
6.5
368.5
7.4
136.2
-
-
-
4.3
-
5.9
153.8
Amount offset to deferred tax liabilities pursuant to set-off provision
Net deferred tax assets
(183.0)
185.5
(136.0)
17.8
Deferred tax asset amounts recognised directly in equity
Nil
-
-
Deferred tax liability:
Deferred tax liability amounts in profit or loss
Depreciation and amortisation
Receivables
Inventory
Other
Gross deferred tax liabilities
Amount offset to deferred tax assets pursuant to set-off provision
Net deferred tax liabilities
Deferred tax liability amounts recognised directly in equity
Treasury shares
Movements in net deferred tax balance:
Balance at 1 January
Credited to the income statement
Charged to the income statement - US
Under provision in prior years
DTA recognition on SRL acquisition
Charged directly to equity
Balance at 31 December
(151.9)
(4.3)
(26.6)
(0.2)
(183.0)
183.0
-
(1.2)
(1.2)
17.8
50.8
-
(10.9)
125.8
2.0
185.5
(98.7)
(3.2)
(33.8)
(0.3)
(136.0)
136.0
-
(3.1)
(3.1)
13.3
7.2
1.6
(7.6)
-
3.3
17.8
86
Iluka Resources Limited
31 December 2016
Deferred income tax is provided on all temporary differences at the balance sheet date between accounting
carrying amounts and the tax bases of assets and liabilities.
Deferred income tax liabilities are recognised for all taxable temporary differences, other than for the exemptions
permitted under accounting standards.
Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax
assets and unused tax losses, to the extent it is probable that taxable profit will be available to utilise these
deductible temporary differences, other than for the exemptions permitted under accounting standards. The
carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent
that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income
tax asset to be utilised.
Deferred income 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 is settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted at the balance sheet date.
The net deferred tax asset of $185.5 million includes an amount of $125.8 million representing the value of
carried forward losses incurred by SRL. The net deferred tax asset also includes $10.8 million in relation to the
US operations, which is in respect of rehabilitation provisions where deductions for future payments can be
carried back against US taxable income for 10 years.
Income taxes relating to items recognised directly in equity are recognised in equity and not in the income
statement.
Deferred tax assets and deferred tax 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 taxable entity
and the same taxation authority.
Deferred tax asset recognition is a critical accounting estimate detailed in note 3(v).
24 Reserves and retained earnings
Asset revaluation reserve
Balance at 1 January
Transfer to retained earnings on disposal
Balance at 31 December
blank
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
blank
Foreign currency translation
Balance at 1 January
Currency translation of US operation
Currency translation of SRL
Translation differences on other foreign operations
Hedge of net investment in SRL
Hedge of net investment in US operation
Deferred tax
Balance at 31 December
blank
Total reserves
blank
87
Notes
24(a)
24(b)
24(c)
2016
$m
13.1
(1.3)
11.8
(2.1)
(4.5)
5.5
(1.1)
12.1
1.5
13.9
(0.2)
(8.3)
-
2.5
21.5
32.2
2015
$m
13.7
(0.6)
13.1
(2.4)
(4.3)
4.6
(2.1)
11.5
2.2
-
(0.2)
-
(2.0)
0.6
12.1
23.1
Retained earnings
Balance at 1 January
Net profit (loss) for the year
Dividends paid
Actuarial gains (losses) on retirement benefit obligation, net of tax
Associates conversion to equity accounting share of losses
Transfer from asset revaluation reserve
Balance at 31 December
(a) Asset revaluation reserve
Iluka Resources Limited
31 December 2016
272.8
(224.0)
(92.1)
0.3
(4.7)
1.3
(46.4)
297.4
53.5
(79.5)
0.8
-
0.6
272.8
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.
(b) 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. On settlement of the
share-based payment by the issue of equity instruments to employees, the cost of the on-market acquisition, net
of tax, is transferred from treasury shares (refer note 19(b)) to the share based payment reserve.
(c) 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 2(b)(iv). In 2016, US$297.0 million was designated as a hedge
of the net investment in SRL. In 2015, US$20.0 million was designated as a hedge of the net investment in the
US operations until repayment in June 2015. The reserve is recognised in profit or loss when the net investment
is disposed of.
25 Share-based payments
Share-based compensation benefits are provided to employees via incentive plans, the Director's, Executives
and Employees Share Acquisition Plan, the Equity Incentive Plan and the Employee Share Plan. Information
relating to these schemes is set out in the Remuneration Report.
The fair value of shares granted is determined based on market prices at grant date, taking into account the
terms and conditions upon which those shares were granted. 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 Monte Carlo simulation 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 - TSR tranche) and Long Term Deferred Rights
(LTDR - TSR tranche) also take into account the Company'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 the vesting conditions that do not relate to market performance. Payroll tax payable on the grant
of restricted shares or share rights is recognised as a component of the share-based payments expense when
paid.
The share-based payment expense recognised in profit or loss of $8.5 million (2015: $5.7 million) results from
several schemes summarised below.
88
Grant
date
Vesting
date
Mar-17 Mar-18/19
Mar-16 Mar-17/18
Mar-15 Mar-16/17
Mar-14 Mar-15/16
Mar-13 Mar-14/15
Oct-16
May-16
May-16
Feb-15
Feb-14
Feb-13
Jan-12
Oct-16
May-16
May-16
Feb-15
Feb-14
Feb-13
Mar-11
Mar-21
Mar-20
Mar-19
Mar-18
Mar-17
Mar-16
Mar-15
Mar-21
Mar-20
Mar-19
Mar-18
Mar-17
Mar-16
Mar-15
Oct-16 Mar-18/19/20
Iluka Resources Limited
31 December 2016
Fair
value
Shares /
Rights at
Expense
2016
Shares /
Rights at
Expense
2015
$
31 Dec 16
$m
31 Dec 15
$m
7.27
6.63
7.66
9.44
10.20
3.71
4.27
4.27
5.02
5.74
7.72
-
-
-
-
-
126,688
321,643
321,643
308,153
129,058
-
11.07
-
5.42
5.86
6.01
6.74
8.49
9.89
11.62
4.68
5.90
5.90
126,687
321,664
321,664
308,153
129,058
-
-
504,929
-
-
2.2
1.2
0.8
0.1
-
-
0.4
0.6
0.7
0.4
0.4
-
-
0.6
0.8
0.9
1.1
-
-
0.3
0.5
-
8.5
-
-
296,670
181,509
-
-
-
-
466,308
224,567
185,909
-
-
-
-
446,308
224,567
185,909
-
-
-
-
-
-
1.6
0.9
0.1
-
-
-
0.7
0.4
0.4
0.1
-
-
-
1.3
0.6
(1.2)
0.3
-
0.5
-
5.7
Schemes
STIP (i)
2016
2015
2014
2013
2012
LTIP - TSR (ii)
2016 Current MD Grant
2016
2016
2015
2014
2013
2012
LTIP - ROE (ii)
2016 Current MD Grant
2016
2016
2015
2014
2013
Former MD LTID (iii)
Current MD LTDR (iv)
Employee Share Plan (v)
Restricted Share Plan (vi)
(i) Short Term Incentive Plan (STIP)
The fair value of the STIP is determined as the volume weighted average price of ordinary shares over the five
trading days following the release of the Company’s annual results.
(ii) Long Term Incentive Plan (LTIP)
The fair value at grant date for the 2016 LTIP takes into account the exercise price of $nil, the share price at
grant date of $6.00, the expected price volatility of the share price (based on historical volatility), the expected
dividend yield of 2.42% and the risk free rate of return of 1.78%. The fair value of the TSR tranche also takes into
account the Company’s predicted share prices against the comparator group performance at vesting date.
Prior year expenses related to rights that do not vest for the Return on Equity (ROE) tranche are credited to the
share-based payments expense.
The fair value at grant date for the Managing Director's LTIP takes into account the exercise price of $nil, the
share price at grant date of $6.27, the expected price volatility of the share price (based on historical volatility),
the expected dividend yield of 3.47% and the risk free rate of return of 1.57%. The fair value of the TSR tranche
also takes into account the Company’s predicted share prices against the comparator group performance at
vesting date.
(iii) Former Managing Director's Long Term Incentive Deferred (LTID) share rights
The LTID plan performance period ended on 1 March 2014. Of the 750,000 share rights offered, 250,000 vested
in March 2015 based on the Company’s financial performance over the three year period.
89
Iluka Resources Limited
31 December 2016
Full details of the 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.
(iv) Managing Director's Long Term Deferred Rights (LTDR)
The fair value at grant date for the Managing Director's LTDR takes into account the exercise price of $nil, the
share price at grant date of $6.27, the expected price volatility of the share price (based on historical volatility),
the expected dividend yield of 3.47% and the risk free rate of return of 1.53%. The fair value of the TSR tranche
also takes into account the Company’s predicted share prices against the comparator group performance at
vesting date.
Full details of the LTDR granted in October 2016 are set out in the Remuneration Report. The fair value of $4.68
per right is the weighted average for all share rights in the LTDR.
(v) Employee share plan
A total of 85,007 (2015: 59.143) shares were issued to eligible employees who participated in the plan. Each
participant was issued with shares worth $1,000 based on a volume weighted average market price of $5.90
(2015: $8.36) for the five days following the close of the offer period.
(vi) Restricted share plan
A total of 33,800 restricted shares were issued to four eligible employees who participated in the plan. Each
participant was issued with shares worth $50,000 based on a volume weighted average market price of $5.90 for
the five days following the close of the offer period.
26 Commitments
(a) 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
2016
$m
2015
$m
17.9
41.3
49.6
108.8
22.7
39.0
54.6
116.3
These costs are discretionary. If the expenditure commitments are not met then the associated exploration and
mining leases may be relinquished.
(b) 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
12.6
15.7
0.6
28.9
17.7
13.0
0.4
31.1
The Group leases various storage facilities, offices, mining equipment and motor vehicles under non-cancellable
operating leases expiring within 1 to 10 years with varying terms.
90
(c) Capital commitments
Capital expenditure contracted for and payable within one year of the reporting date, but not recognised as
liabilities are $5.7 million (2015: $6.1 million). All of the commitments relate to the purchase of property, plant and
equipment.
Iluka Resources Limited
31 December 2016
27 Retirement benefit obligations
(a) Superannuation plan
(i) Australia
the Group who do not elect an alternate fund under the Superannuation Fund Choice
All employees of
Legislation have access to benefits on leaving service, retirement, disability or death from the Iluka Resources
Superannuation Plan, a sub-plan of Plum Superannuation Fund. Employees accumulation superannuation plans
receive fixed contributions from Group companies. The Group's legal or constructive obligation is limited to these
contributions.
During the year Iluka also provided defined lump sum and pension benefits based on years of service and final
average salary for a small number of members (defined benefits plan). Iluka has closed the defined benefits plan
to new members. There is currently only one pensioner remaining in this plan.
(ii) 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 one defined benefit plan and one defined contribution
plan. The 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 constructive obligation is limited to these contributions.
(iii) SRL
SRL does not operate any retirement benefit plan for its employees. For employees of the Sierra Leone based
subsidiary, the Group makes a contribution of 10% of the employees' basic salary to the National Social Security
and Insurance Trust ("NASSIT") for payment of pension to staff on retirement. These employees also contribute
5% of their basic salary to NASSIT.
The Sierra Leone based subsidiary also provides for end-of-term benefits based on the provisions contained in
the collective bargaining agreements negotiated with the trade unions representing the relevant employees.
These benefits are paid to employees falling under this category when they leave the Group. The retirement
benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation in
relation to this agreement.
The following sets out details in respect of the defined benefit sections only for Australia, US and SRL. The
expense recognised in relation to the defined contribution plans is disclosed in note 7(f).
(b) Financial position
The net financial position of the Group’s defined benefit plans based on information supplied from the plans'
actuarial advisors are, for the Australian plan a surplus $0.4 million (2015: surplus $0.4 million), for the US plan a
deficit of $12.2 million (2015: deficit $11.1 million) and for SRL a deficit of $2.9 million (2015: not applicable). A
net deficit of $14.7 million (2015: deficit $10.7 million) is included in non-current provisions in note 16. The table
below provides a summary of the net financial position at 31 December for the past five years.
91
Iluka Resources Limited
31 December 2016
Defined benefit plan obligation
Plan assets
Deficit
2016
$m
(35.0)
20.3
(14.7)
2015
$m
(31.1)
20.4
(10.7)
2014
$m
(29.5)
19.3
(10.2)
2013
$m
(20.5)
16.7
(3.8)
2012
$m
(22.8)
14.2
(8.6)
(c) Defined benefits superannuation expense
In 2016, $2.9 million (2015: $0.6 million) was recognised in expenses for the year in respect of the defined benefit
plans (refer note 7(f)).
Iluka ceased mining activities in the US at the end of 2015, resulting in a curtailment event for the defined benefit
US pension plan. Employees impacted by the restructure remain members of the plan. This resulted in a
curtailment credit of A$1.1m, included within the above net expense for 2015. There was no curtailment credit
incurred in 2016.
Also included within the above defined benefits expense for 2015 are settlement losses of $0.1 million in respect
of the Australian plan where all the active members converted to accumulation benefits and some pensioners
commuted their pension into a cash lump sum. There were no settlement losses for 2016.
Other disclosures in respect of retirement benefit obligations required by AASB 119 are not included in the
financial report as the directors do not consider them to be material to an understanding of the financial position
and performance of the Group.
28 Key Management Personnel
(a) Key Management Personnel
Key Management Personnel of the Group comprise directors 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."
(i) Key Management Personnel compensation
Detailed information about the remuneration received by each key management person is provided in the
Remuneration Report on pages 25 to 43.
The below provides a summary:
Short term benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payments
Total
2016
$000
7,835
211
-
2,082
2,396
12,524
2015
$000
6,464
156
-
-
1,774
8,394
(b) Transactions with Key Management Personnel
There were no transactions between the Group and Key Management Personnel that were outside of the nature
described below:
(i)
(ii)
(iii)
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 discharge of
accountability by the Key Management personnel; and
the transactions are trivial or domestic in nature.
the financial
report, or
92
Iluka Resources Limited
31 December 2016
29 Controlled entities and deed of cross guarantee
The consolidated financial statements incorporate the following principal subsidiaries:
Controlled entities
* Iluka Resources Limited (Parent Company)
* Westlime (WA) Limited
* Ilmenite Proprietary Limited
* Southwest Properties Pty Ltd
* Western Mineral Sands Proprietary Limited
* Yoganup Pty Ltd
* Iluka Corporation Limited
* Associated Minerals Consolidated Ltd
* Iluka Royalty Holdings Limited
* Iluka Consolidated Pty Limited
* Iluka Exploration Pty Limited
* Iluka (Eucla Basin) Pty Ltd
* Gold Fields Asia Ltd
* Iluka International Limited
* NGG Holdings Ltd
* Iluka Midwest Limited
* Western Titanium Limited
* The Mount Lyell Mining and Railway Company Limited
* Renison Limited
* Iluka Finance Limited
* The Nardell Colliery Pty Ltd
* Glendell Coal Ltd
* Lion Properties Pty Limited
* Basin Minerals Limited
* Basin Minerals Holdings Pty Ltd
* Basin Properties Pty Ltd
* Swansands Pty Ltd
* Iluka International (UAE) Pty Ltd
* Iluka International (Lanka) Pty Ltd
* Iluka International (China) Pty Ltd
* Iluka International (Brazil) Pty Ltd
* Iluka Share Plan Holdings Pty Ltd
* Iluka International (Netherlands) Pty Ltd
* Iluka Royalty (MAC) Pty Limited
(i) * Iluka International (ERO) Pty Ltd
(ii) * Iluka International (West Africa) Pty Ltd
Ashton Coal Interests Pty Limited
Iluka International Coӧperatief U.A.
Iluka Investments 1 B.V.
Iluka Trading (Europe) B.V.
Iluka Lanka P Q (Private) Limited
Iluka Lanka Resources (Private) Limited
Iluka Lanka Exploration (Private) Limited
Iluka Trading (Shanghai) Co., Ltd
Iluka Brasil Mineracao Ltda
Iluka (UK) Ltd
Iluka Technology (UK) Ltd
Associated Minerals Consolidated Investments
Iluka (USA) Investments Inc
Iluka Resources Inc
(iii)
93
Country of
incorporation
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
The Netherlands
The Netherlands
The Netherlands
Sri Lanka
Sri Lanka
Sri Lanka
China
Brazil
United Kingdom
United Kingdom
USA
USA
USA
Equity holding
2015
%
2016
%
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
95.8
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
-
-
95.8
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Iluka Resources Limited
31 December 2016
Iluka Resources (NC) LLC
Iluka Resources (TN) LLC
(iv) EGEnergy Resources LLC
(iv) EGEnergy Resources United States LLC
(iv) EGEnergy Resources Manufacturing LLC
(iv) EGEnergy Resources NE Florida LLC
IR RE Holdings LLC
Iluka Atlantic LLC
Iluka International (SE Asia) Pte. Ltd.
Iluka Exploration (Kazakhstan) Limited Liability Partnership
ERO (Tanzania) Limited
Iluka Exploration (Canada) Limited
Iluka Investments (BVI) Limited
(v)
(vi)
(vii)
(viii) SRL Acquisition No. 3 Limited
(viii) Sierra Rutile (UK) Limited
(viii) Sierra Rutile Holdings Limited
(viii) Sierra Rutile Limited
(viii) Sierra Rutile Marketing Limited
USA
USA
USA
USA
USA
USA
USA
USA
Singapore
Kazakhstan
Tanzania
Canada
British Virgin Islands
British Virgin Islands
United Kingdom
British Virgin Islands
Sierra Leone
United Kingdom
100.0
100.0
-
-
-
-
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
-
-
-
-
-
-
-
-
* The above companies are parties to a Deed of Cross Guarantee (the Deed) under which each company
guarantees the debts of the others.
By entering into the Deed of Cross Guarantee, 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.
(i) Iluka International (ERO) Pty Ltd was incorporated on 13 January 2016.
(ii) Iluka International (West Africa) Pty Ltd was incorporated on 22 July 2016.
(iii) P.K.D. Resources (Private) Limited was renamed Iluka Lanka Resources (Private) Limited on 6 May 2016.
(iv) These entities were deregistered and ultimately merged into IR RE Holdings LLC effective 1 January 2016.
(v) ERO (Tanzania) Limited was incorporated on 18 February 2016.
(vi) Iluka Exploration (Canada) Ltd was incorporated on 26 February 2016.
(vii) Iluka Investments (BVI) Limited was incorporated on 21 July 2016.
(vii) These entities were acquired as part of the SRL acquisition detailed in the business combination note 6.
(a) Condensed financial statements of the extended closed group
Condensed statement of profit or loss and other comprehensive income
Revenue from ordinary activities
Expenses from ordinary activities
Finance costs
Income tax expense
Profit (loss) for the year
Other comprehensive income
Actuarial gains on defined benefit plans, net of tax
Total comprehensive (loss) income for the period
2016
$m
738.7
(951.4)
(29.4)
59.0
(183.1)
0.2
(182.9)
2015
$m
833.0
(723.9)
(56.2)
(37.8)
15.1
0.2
15.3
94
Iluka Resources Limited
31 December 2016
278.6
(183.1)
(92.1)
3.4
2016
$m
72.6
170.1
415.1
6.2
664.0
188.4
532.7
793.0
4.7
47.8
1,566.6
343.0
15.1
(79.5)
278.6
2015
$m
39.2
94.9
423.3
-
557.4
317.9
49.6
1,034.9
5.1
3.6
1,411.1
2,230.6
1,968.5
87.6
48.5
-
136.1
607.6
354.7
962.3
1,098.4
68.3
53.7
25.9
147.9
49.0
369.3
418.3
566.2
1,132.2
1,402.3
1,117.2
11.6
3.4
1,132.2
1,112.7
11.0
278.6
1,402.3
Summary of movements in consolidated retained earnings
Retained earnings at the beginning of the financial year
Total comprehensive income for the year
Dividends paid
Retained earnings at the end of the financial year
Condensed balance sheet
Current assets
Cash and cash equivalents
Receivables
Inventories
Current tax receivables
Total current assets
Non-current assets
Inventories
Other financial assets - investments in non-closed group entities
Property, plant and equipment
Intangible assets
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Payables
Provisions
Current tax payable
Total current liabilities
Non-current liabilities
Interest-bearing liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained profits
Total equity
95
30 Parent entity financial information
(a) Summary financial information for Iluka Resources Limited
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
space
(Loss) profit for the year
Total comprehensive (loss) profit
(b) Profit for the year
Iluka Resources Limited
31 December 2016
2016
$m
2015
$m
264.0
1,888.2
2,152.2
44.0
871.1
915.1
199.2
1,304.4
1,503.6
73.3
35.6
108.9
1,237.1
1,394.7
112.0
9.8
107.3
229.1
1,120.0
9.7
265.0
1,394.7
(67.9)
114.9
(67.9)
114.9
The loss for the year includes $nil dividends received from controlled entities (2015: $150.0 million). There were
no expenses for rehabilitation discount rate changes (2015: $9.3 million).
(c) Contingent liabilities of the parent entity
The parent had contingent liabilities for performance commitments and guarantees of $38.0 million as at 31
December 2016 (2015: $15.3 million).
(d) Contractual commitments for the acquisition of property, plant or equipment
As at 31 December 2016, the parent entity had contractual commitments for the acquisition of property, plant or
equipment totalling $0.1 million (2015: $0.5 million).
(e) Parent entity financial information
The financial information for the parent entity has been prepared on the same basis as the consolidated financial
statements, except as set out below.
Investments in subsidiaries
(i)
Investments in subsidiaries are accounted for at cost.
(ii) 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.
96
Iluka Resources Limited
31 December 2016
31 Contingent liabilities
(a) Bank guarantees
The Group has a number of bank guarantees in favour of various government authorities and service providers to
meet
the total value of
performance commitments and guarantees was $122.9 million (2015: $122.9 million).
its obligations under exploration and mining tenements. At 31 December 2016,
(b) 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.
(c) Sri Lanka exploration deposits
In October 2013 the Group acquired all of the share capital in PKD Resources (Pvt) Ltd, a Sri Lankan domiciled
company which owns an exploration tenement located near the city of Puttalam in the North Western Province of
Sri Lanka. The consideration for the acquisition which remains contingent on future events includes:
•
•
•
payment of US$2.0 million on the grant of a mining license over EL 170 or on expiry of the stage 2 period
(being a period expiring in October 2017 which may be extended in certain circumstances by Iluka for 12
months or more, if agreed by both parties);
payment of US$8.0 million on the Iluka Board approving a development of mining operations on EL 170 or on
expiry of the stage 3 period (being a 12 month period commencing on the expiry of the stage 2 period which
may be extended in certain circumstances by Iluka for 12 months or more, if agreed by both parties); and
the payment of an annual trailing payment calculated at one per cent of the gross sale proceeds received
from the annual sale of all mineral products and sand clay produced from the tenement, less the US$2.0
million paid on the grant of the mining license over EL 170, which is being treated as an advance on the
trailing payment.
Iluka has a put option to transfer either the shares in PKD Resources (Pvt) Ltd or the tenements back to the
vendor. If exercised, Iluka will not be required to make the payments referred to above.
(d) 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.
32 Related party transactions
The only related party transactions are with directors and Key Management Personnel (refer note 28). Details of
material controlled entities are set out in note 29. The ultimate Australian controlling entity and the ultimate parent
entity is Iluka Resources Limited.
97
Iluka Resources Limited
31 December 2016
33 New and amended standards adopted by the group
Iluka Resources Limited has to change some of its accounting policies as the result of new or revised accounting
standards which became effective for the annual reporting period commencing on 1 January 2016. The affected
policies and standards are:
(i)
AASB 2014-3 Amendments to Australian Accounting Standards - Accounting for Acquisitions of Interests in
Joint Operations
(ii) AASB 2014-4 Amendments to Australian Accounting Standards - Clarification of Acceptable Methods of
Depreciation and Amortisation
(iii) AASB 2015-1 Amendments to Australian Accounting Standards - Annual
improvements to Australian
Accounting Standards 2012 - 2014 cycle
(iv) AASB 2015-2 Amendments to Australian Accounting Standards - Disclosure initiative: Amendments to
AASB 101
The adoption of these amendments did not have any impact on the current period or any prior period and is not
likely to affect future periods.
Certain new accounting standards and interpretations have been published that are not mandatory for 31
December 2016 reporting periods and have not been early adopted by the Group. The Group’s assessment of
the impact of these new standards and interpretations is set out below.
AASB 9 Financial Instruments (effective from 1 January 2018)
(i)
AASB 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities
and introduces new rules for hedge accounting. The changes to the standard are not expected to have a material
impact on the measurement and classification of the Group’s financial assets and liabilities.
The new hedge accounting rules will align the accounting for hedging instruments more closely with the Group’s
risk management practices. The Group’s current natural hedge relationship would qualify as a continuing hedge
upon the adoption of AASB 9. Accordingly, the Group does not expect a significant impact on the accounting for
its hedging relationships.
The new impairment model requires the recognition of impairment provisions based on expected credit losses
(ECL) rather than only incurred credit losses as is the case under AASB 139. This is not expected to have an
impact on the Group.
The new standard also introduces expanded disclosure requirements and changes in presentation. These are
expected to change the nature and extent of the Group’s disclosures about its financial instruments particularly in
the year of the adoption of the new standard.
AASB 15 Revenue from contracts with customers (effective from 1 January 2018)
(ii)
AASB 15 introduces a new framework for accounting for revenue and will replace AASB 118 Revenue, AASB
111 Construction Contracts and IFRIC 13 Customer Loyalty Programs. AASB 15 establishes principals for
reporting the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts
with customers. The new standard is based on the principal that revenue is recognised when control of a good or
service transfers to a customer, therefore the notion of control replaces the exiting notion of risks and rewards.
The Group is currently assessing the effects of applying the new standard on its financial statements and has
identified the key area likely to be impacted is freight revenue. AASB 15 requires the individual components of
revenue to be recognised separately and freight revenue is likely to be deferred until the product is delivered
rather than when the product is shipped. No other areas are expected to be significantly impacted.
The new standard also introduces expanded disclosure requirements and changes in presentation. These are
expected to change the nature and extent of the Group’s disclosures about its revenue from contracts with
customer and associated assets and, particularly in the year of the adoption of the new standard.
AASB 16 Leases (effective from 1 January 2019)
(iii)
AASB 16 was issued in February 2016. One of the key changes is that lessees are required to recognise assets
and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. The
standard will affect primarily the accounting for the Group’s operating leases.
98
Iluka Resources Limited
31 December 2016
As at the reporting date, the Group has non-cancellable operating lease commitments of $28.9 million (2015:
$31.1 million), see note 26(b). However, the Group has not yet determined to what extent these commitments will
result in the recognition of an asset and a liability for future payments and how this will affect the Group’s profit
and classification of cash flows. Some of the commitments will be covered by the exception for short-term and
low value leases and some commitments may relate to arrangements that will not qualify as leases under AASB
16.
There are no other standards that are not yet effective and that would be expected to have a material impact on
the entity in the current or future reporting periods and on foreseeable future transactions.
99
DIRECTORS' DECLARATION
In the directors' opinion:
Iluka Resources Limited
31 December 2016
(a)
(b)
(c)
the financial statements and notes set out on pages 52 to 99 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 2016 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 29 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 29.
Note 2 confirms that the financial statements also comply with International Financial Reporting Standards as
issued by the International Accounting Standards Board.
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 Martin
Chairman
T O'Leary
Managing Director
23 February 2017
100
Independent auditor’s report
to the members of Iluka Resources Limited
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Iluka Resources Limited (the Company) and its controlled
entities (together, the Group) is in accordance with the Corporations Act 2001, including:
a)
giving a true and fair view of the Group’s financial position as at 31 December 2016 and of its
financial performance for the year then ended
b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group’s financial report comprises:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the consolidated balance sheet as at 31 December 2016
the consolidated statement of profit or loss and other comprehensive income for the year then
ended
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the notes to the consolidated financial statements, which include a summary of significant
accounting policies
the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial
report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standard Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to
our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in
accordance with the Code.
PricewaterhouseCoopers, ABN 52 780 433 757
Brookfield Place, 125 St Georges Terrace, PERTH WA 6000, GPO Box D198, PERTH WA 6840
T: +61 8 9238 3000, F: +61 8 9238 3999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
101
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an
opinion on the financial report as a whole, taking into account the geographic and management
structure of the Group, its accounting processes and controls and the industry in which it operates.
The Group is a producer of zircon and high-grade titanium dioxide products of rutile and synthetic
rutile, with operations in Australia, the United States and Sierra Leone. The Group also earns royalty
income from a tier one iron ore operation – BHP Billiton’s Mining Area C province in Western
Australia.
Materiality
(cid:120) For the purpose of our audit we used overall group materiality of $7.75 million, which represents
approximately 1% of the Group’s total revenue.
(cid:120) We applied this threshold, together with qualitative considerations, to determine the scope of our
audit and the nature, timing and extent of our audit procedures and to evaluate the effect of
misstatements on the financial report as a whole.
(cid:120) We chose revenue as the materiality benchmark rather than profit before tax due to the recent
volatility in profit before tax. Revenues are reflective of the Group’s operating activities in
continued challenging market conditions, are relatively stable when compared to profit before tax
and provide a level of materiality which, in our view, is appropriate for the audit having regard to
the expected requirements of users of the Group’s financial report.
Audit scope
(cid:120) Our audit focused on where the directors made subjective judgements; for example, significant
accounting estimates involving assumptions and inherently uncertain future events.
(cid:120) Component auditors, operating under our instructions, performed specified audit procedures over
the Group’s United States and Sierra Leone operations’ financial information. These procedures,
combined with the work performed by us, as the Group engagement team, provided sufficient
appropriate audit evidence as a basis for our opinion on the Group financial report as a whole.
102
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report for the current period. We communicated the key audit matters to the
Audit and Risk Committee. The key audit matters were addressed in the context of our audit of the
financial report as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is
made in that context.
Key audit matter
How our audit addressed the key audit matter
Impairment assessments for non-
current assets
Refer to Critical accounting estimates and
judgements in note 3(i) and note 14 to the
financial report
In undertaking a review of impairment
indicators for the Group’s property, plant
and equipment cash generating units
(CGUs) at year end, the Group identified
certain idle assets in Australia which are no
longer expected to contribute to the future
cash inflows of the Group’s operations.
This assessment resulted in an impairment
charge of $201 million.
As the Group continues to operate in a
challenging economic environment with
mineral sands pricing remaining subdued, it
also assessed its three CGUs – Australian
Operations, US Operations and Sierra Rutile
– for impairment indicators. Under
Australian Accounting Standards, if
impairment indicators are detected for a
CGU, the Group is required to perform an
impairment assessment.
Sustained low mineral sands pricing was
determined to be an impairment indicator
for the Australian Operations CGU and the
Group undertook an impairment test on the
property, plant and equipment included in
the Australian Operations CGU.
When an impairment assessment is
performed, there are significant judgements
made in relation to assumptions, such as:
(cid:120)
long term mineral sands pricing
We assessed whether the composition of the Group’s CGUs, which
are the smallest identifiable groups of assets that can generate
largely independent cash inflows, was consistent with our
knowledge of the Group’s operations.
We considered the basis upon which idle assets were separated
from the CGUs by assessing the feasibility of deploying these
assets to mineral sands operations in the future. We evaluated the
Group’s assessment that the likely net disposal proceeds of these
idle assets is $nil, after allowing for the cost of decommissioning
and dismantling.
We evaluated the Group’s assessment of whether there were any
indicators of asset impairment at 31 December 2016 for its CGUs.
The Group identified that impairment indicators were evident for
the Australian Operations CGU as outlined in note 14 to the
financial report. The Group’s assessment did not identify any
impairment indicators for the US or Sierra Rutile CGUs and we
did not identify any further impairment indicators for these CGUs
which had not been considered by the Group.
We focused our testing on the Group’s impairment assessment for
the Australia Operations CGU. We performed the following
procedures:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
assessed whether the Australian Operations CGU
appropriately included all directly attributable assets and
liabilities
considered whether the discounted cash flow model used to
estimate the ‘fair value less costs of disposal’ (the impairment
model) was consistent with the basis required by Australian
Accounting Standards
tested whether forecast cash flows used in the impairment
model were consistent with the most recent Corporate Plan
formally approved by directors
considered whether the forecast cash flows used in the
impairment model were reasonable and based on supportable
assumptions by:
103
Key audit matter
How our audit addressed the key audit matter
reserve estimates and production and
processing volumes
o comparing long term mineral sands pricing data used in
the impairment model to independent industry forecasts
(cid:120)
(cid:120)
operating costs, foreign exchange rates
and inflation rates, and
(cid:120) discount rates.
This was a key audit matter due to the
significant carrying value of the Group’s
non-current assets which are subject to the
judgements and assumptions outlined above
in determining whether there are any
impairment indicators or impairment
charges.
Closure and rehabilitation provisions
Refer to Critical accounting estimates and
judgements in note 3(ii) and note 16 to the
financial report
As a result of its mining and processing
operations, the Group is obliged to restore
and rehabilitate the environment disturbed
by these operations. Rehabilitation activities
are governed by a combination of legislative
requirements and Group policies. At
31 December 2016 the balance sheet
included provisions for such obligations of
$528.1m. We placed particular focus on
closure and rehabilitation provisions of
$374.5m for sites which are no longer
operating, as changes in provisions for their
rehabilitation are recognised immediately in
the profit and loss.
o comparing the forecasted cash flows to actual cash flows
for previous years to assess the accuracy of the Group’s
forecasting
o comparing foreign exchange rate and inflation rate
assumptions in the impairment model to current
economic forecasts, and
o assessing the Group’s discount rate calculations, including
having regard to the inputs utilised in the Group’s
weighted average cost of capital such as peer company
betas, risk free rate and gearing ratios, assisted by PwC
valuation experts
tested the internal mathematical accuracy of the impairment
model’s calculations, and
evaluated the adequacy of the disclosures made in note 14
including those regarding key assumptions used in the
impairment assessment, in light of the requirements of
Australian Accounting Standards.
(cid:120)
(cid:120)
We performed tests on key controls over the assessment of the
work required to rehabilitate disturbed areas and the estimated
future cost of that work which forms the basis for the Group’s
closure and rehabilitation provision models for Australia, the US
and Sierra Leone.
We evaluated tested key assumptions utilised in these models by
performing the following procedures:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
comparing the rehabilitation costs being incurred at the
Group’s sites which are no longer operating to operating sites
with similar expected rehabilitation profiles to check that
rehabilitation estimates take into account current experience
assessing the ability of the Group to make reliable estimates of
the extent of future rehabilitation expenditure by comparing
actual cash outflows in 2016 to those forecast as part of the
provision in previous years
examining support for significant changes in future cost
estimates from the prior year
assessing the timing of work to be performed by reviewing
mine plans and/or other environmental requirements, and
104
Key audit matter
How our audit addressed the key audit matter
This was a key audit matter given the
determination of these provisions required
judgement in the assessment of the nature
and extent of the work to be performed, the
future cost of performing the work, the
timing of when the rehabilitation will take
place and economic assumptions such as the
discount rate for future cash outflows
associated with rehabilitation activities.
(cid:120)
considering the appropriateness of the discount rates and
inflation rates utilised in calculating the provision by
comparing them to current market consensus.
We also evaluated the accounting treatment applied to changes in
the rehabilitation provision, including whether they are expensed
or capitalised, due to the Group’s significant proportion of sites
which are no longer operating.
We assessed the rehabilitation provision acquired through the
acquisition of Sierra Rutile Limited as set out in the key audit
matter below – Acquisition of Sierra Rutile Limited.
We evaluated the Group’s selling price and demand forecasts,
which underpin its classification of current and non-current
inventory, and the process by which they were developed,
including considering contracted customer prices and volumes.
We also compared them to budgets and forecasts approved by the
Directors and found them consistent.
To assess the historical accuracy of the Group’s forecasting, we
compared the selling price and demand forecast utilised in the
prior year to this year’s actual results. We found that actual
performance was materially consistent with forecasted
assumptions.
We also assessed the Group’s estimation of costs to complete work
in progress and anticipated selling costs of product inventory
based on previous sales experience and the budgets approved by
the Directors.
Net realisable value and classification
of product inventory
Refer to Critical accounting estimates and
judgements in note 3(iii) and note 13 to the
financial report
The Group held product inventory of
$629.4m at 31 December 2016 comprising
$341.4m of finished goods and $288m of
work in progress mineral concentrates.
Due to current sales prices and cyclically low
demand, the Group has adopted a strategy of
processing work in progress inventory to
meet current demand. This has led to
inventory being sold over a period longer
than 12 months from the balance sheet date.
Inventory expected to be sold over a period
longer than 12 months from the balance
sheet date is required to be classified as non-
current. In addition, the Group’s operating
margins in some product lines have
significantly reduced, leading to a risk that
these products may be held at a value that is
greater than their net realisable value.
The valuation and classification of product
inventory was a key audit matter due to the
size of this asset class and the judgement
involved in estimating expected selling price
and demand in future periods.
105
Key audit matter
How our audit addressed the key audit matter
Acquisition of Sierra Rutile Limited
Refer to Acquisition of Sierra Rutile Limited
in note 6 to the financial report
On 7 December 2016, a wholly owned
subsidiary of the Company merged with
Sierra Rutile Limited for purchase
consideration of $375m.
The acquisition of a business is complex and
the accounting standards require the Group
to identify all assets and liabilities of the
newly acquired subsidiary and estimate the
fair value of each item. The fair value of
these items may be significantly different to
the historical cost which had been previously
recorded by the acquired business. The
items also may not have met the recognition
criteria under accounting standards.
The acquisition was a key audit matter given
its significance to the Group and that
significant judgement is involved in
assigning a fair value to the assets and
liabilities acquired.
Recognition and measurement of
deferred tax assets
Refer to Acquisition of Sierra Rutile Limited
in note 6 to the financial report
As a result of the acquisition of Sierra Rutile
Limited on 7 December 2016, the Group
recognised $122m of deferred tax assets,
primarily comprising the anticipated benefit
of existing tax losses reducing future tax
payable.
The recognition and measurement of these
deferred tax assets was a key audit matter
given that there was significant judgement in
assessing whether there will be enough
future taxable profits to utilise the existing
tax losses.
We read key transaction documents and assessed how the Group
estimated the fair value of the assets and liabilities identified in
the acquisition. In particular, we focussed on significant
judgements made by the directors in assessing the fair value of:
(cid:120) plant, equipment and mine properties and development assets
by assessing the reasonableness of key model assumptions in
the Group’s fair value model. To do this:
o we compared long term mineral sands pricing data used in
the fair value model to independent industry forecasts
o we compared the asset specific discount rate for Sierra
Rutile Limited used in the fair value model to other market
participants’ average cost of capital taking into account a
country risk premium, assisted by PwC valuations experts
o we read the Group’s life of mine plan, including resource
to reserve conversion, and future areas of interest to be
developed,
(cid:120)
asset retirement obligations by comparing key assumptions
such as expected timing and quantum of cash outflows to
rehabilitate the Sierra Rutile operations to the Group’s other
rehabilitation sites worldwide.
We evaluated the Group’s rationale for the recognition of deferred
tax assets of $122m primarily relating to unused tax losses for the
acquired entity. Our work on this matter is set out in the key audit
matter, Recognition and measurement of deferred tax assets.
We obtained a reconciliation of the available carry forward tax
losses of Sierra Rutile Limited through to 31 December 2016
which was prepared by Sierra Rutile Limited’s tax advisors in
Sierra Leone. We found these to be materially consistent with the
Group’s underlying assessment of carry forward tax losses to 31
December 2016 prepared during the due diligence period for the
acquisition. We also evaluated advice the Group received with
respect to the availability of these losses given the change in
control as a result of the acquisition, assisted by PwC tax experts.
We also evaluated the Group’s rationale for the recognition and
measurement of deferred tax assets of $122m. We evaluated the
Group’s mine plan and financial model to assess the Group’s
conclusion that sufficient taxable income would likely be earned in
the future to utilise the tax losses for which deferred tax assets
have been recognised.
106
Other information
The directors are responsible for the other information. The other information comprises the
Directors’ Report, Ore Resources and Mineral Resources Statement, Shareholder Information, Share
Registry Details and Corporate Information included in the Company’s annual report for the year
ended 31 December 2016 but does not include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent
with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_files/ar2.pdf.
This description forms part of our auditor’s report.
107
Report on the audit of the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 25 to 43 of the Directors’ Report for the
year ended 31 December 2016.
In our opinion, the remuneration report of Iluka Resources Limited for the year ended 31 December
2016 complies with section 300A of the Corporations Act 2001.
Responsibilities for the remuneration report
The directors of the Company are responsible for the preparation and presentation of the
remuneration report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the remuneration report, based on our audit conducted in
accordance with Australian Auditing Standards.
PricewaterhouseCoopers
Justin Carroll
Partner
Perth, 23 February 2017
108
Iluka Resources Limited
31 December 2016
Ore Reserves and Mineral Resources Statement
Heavy Mineral Ore Reserves
Iluka Ore Reserves Breakdown by Country, Region and JORC category at 31 December 2016
Summary of Ore Reserves for Iluka (i), (ii), (iii)
Country
Region
Australia Eucla Basin
Total Eucla Basin
Murray Basin
Total Murray Basin
Perth Basin
Total Perth Basin (v)
USA
Atlantic Seaboard
Total Atlantic Seaboard
Total Proved
Total Probable
Grand Total
Ore Reserve
Category
Ore
Tonnes
Millions
In Situ
HM
Tonnes
Millions
HM
Grade
(%)
Ilmenite
Grade
(%)
Zircon
Grade
(%)
Rutile
Grade
(%)
Change
HM
Tonnes
Millions
HM Assemblage (iv)
Proved
Probable
Proved
Probable
Proved
Probable
Proved
Probable
99
4
103
-
-
-
3.9
0.1
3.9
-
-
-
90
92
182
5.8
7.0
12.8
-
-
-
-
-
-
3.9
2.1
3.8
-
-
-
6.5
7.5
7.0
-
-
-
189
96
9.7
7.0
5.1
7.3
286
16.7
5.9
27
20
27
-
-
-
60
60
60
-
-
-
47
60
52
50
52
50
-
-
-
9
8
9
-
-
-
26
9
19
4
4
4
-
-
-
4
4
4
-
-
-
4
4
4
(0.0)
(1.7)
(3.7)
(0.9)
(6.3)
(i) Competent Persons - Ore Reserves: C Lee (MAusIMM(CP)). The Ore Reserves in this table have been estimated in
accordance with the JORC Code (2012 Edition), other than the Ore Reserves for the IPL North and South West deposits, which
have not materially changed and have been estimated in accordance with the JORC Code (2004 Edition). Iluka Resources is
undertaking further work in order to report these estimates in accordance with the JORC Code (2012 Edition).
(ii) Ore Reserves are a sub-set of Mineral Resources.
(iii) Rounding may generate differences in last decimal place.
(iv) Mineral assemblage is reported as a percentage of in situ heavy mineral (HM) concentrate.
(v) Rutile component in Perth Basin South West operations is sold as a leucoxene product.
109
Iluka Resources Limited
31 December 2016
Rutile Ore Reserves (Sierra Leone)
Iluka Ore Reserve for Sierra Leone Rutile and JORC category at 31 December 2016
Summary of Ore Reserves for Iluka (i), (ii), (iii)
Country
Region
Sierra Leone
Sierra Leone
Total Sierra Leone
Ore Reserve
Category
Proved
Probable
In situ Assemblage
(iv),(v)
Ore
Tonnes
Millions
In Situ
Rutile
Tonnes
Millions
Rutile
Grade
(%)
Ilmenite
Grade
(%)
Zircon
Grade
(%)
Change
Rutile
Tonnes
Millions
34
271
306
0.5
3.4
3.9
1.45
1.24
1.27
-
-
-
-
-
-
0.5
3.4
3.9
(i) Competent Persons - Ore Reserves: C Lee (MAusIMM(CP)).
(ii) Ore Reserves are a sub-set of Mineral Resources
(iii) Rounding may generate differences in last decimal place.
(iv) Mineral assemblage is reported as a percentage of in situ material.
(v) Ilmenite and zircon are only considered to be at an Inferred level of confidence in the Mineral Resource estimation, and
while present, currently have a low value ascribed in the reserve optimisation process for Sierra Leone.
Ore Reserves
Ore Reserves are estimated using all available geological and relevant drill hole and assay data, including mineralogical
sampling and test work on mineral recoveries and final product qualities. Reserve estimates are determined by the
consideration of all of the “Modifying Factors” in accordance with the JORC Code 2004 and 2012, and for example, may include
but are not
limited to, product prices, mining costs, metallurgical recoveries, environmental consideration, access and
approvals. These factors may vary significantly between deposits.
The Ore Reserves and Mineral Resources for the Sierra Leone rutile deposits are reported separately as there is insufficient
information to state the assemblage in terms of a portion of the heavy mineral (HM) content which is traditionally done in
reporting heavy minerals. Historical data focussed on the insitu rutile content which is honoured in the reporting of Ore
Reserves and Mineral Resources for Sierra Leone. An equivalent comparison of the rutile tonnages contained in Iluka's Ore
Reserve inventory for heavy minerals can be calculated using the formula:
[Rutile tonnes = HM tonnes * Rutile %] that is [16.7*(4/100)] = 0.7 Mt of rutile.
For the year ending 2016, HM Ore Reserves decreased by 6.3Mt HM associated with mining depletion and adjustments, down
from 23.0Mt HM to 16.7Mt HM.
The main factors contributing to the movement in Iluka’s HM Ore Reserves during 2016 include the following:
• The Eucla Basin Ore Reserves decreased by 0.02Mt HM associated with mining depletion of the Jacinth deposit.
• The Perth Basin Ore Reserves decreased by 3.7Mt HM as a result of mine depletion at Tutunup South (0.2Mt) and write down
of Ore Reserves for the Allied Tails, Adamson, Depot Hill East, Depot Hill North, IPL South, Ocean Hill, South Capel Offices,
South Tails, Twins Hills and Uplands Deposits (3.5Mt). The write downs reflect a combination of development uncertainty and
inadequacy in the current level of supporting feasibility studies.
• The Murray Basin Ore Reserves decreased by 1.7Mt HM with the reclassification of Ore Reserves for the Castaway and
Kerribee Deposits. The write downs reflect a combination of development uncertainty and inadequacy in the current level of
supporting feasibility studies.
• The Atlantic Seaboard Ore Reserves decreased by 0.9Mt HM with the reclassification of Ore Reserves for the Old Hickory
and Brink, being deemed sub-economic at this time.
In December 2016 Iluka acquired the assets of Sierra Rutile Limited which comprise Ore Reserves of 306Mt of Ore containing
3.9Mt of rutile.
110
Heavy Mineral Ore Reserves Mined and Adjusted
Iluka Ore Reserves Mined and Adjusted by Country and Region at 31 December 2016
Summary of Ore Reserve Depletion (i)
Iluka Resources Limited
31 December 2016
In Situ HM
Tonnes
Millions
2015
In Situ
HM
Grade
2015
In Situ
HM
Tonnes
Millions
Mined
2016
In Situ
HM
Tonnes
Millions
Adjusted
2016 (ii)
In Situ
HM
Tonnes
Millions
2016
In Situ HM
Tonnes
Millions
Net
Change
(iii)
In Situ
HM
Grade
2016
Country
Region
Category
Australia Eucla Basin
Active Mines
Non-Active Sites
Total Eucla Basin
Murray Basin
Active Mines
Non-Active Sites
Total Murray Basin
Perth Basin
Active Mines
Non-Active Sites
Total Perth Basin
USA
Atlantic Seaboard
Active Mines
Non-Active Sites
Total Atlantic Seaboard
Total Active Mines
Total Non-Active Sites
2.0
2.0
4.0
-
1.7
1.7
0.5
16.0
16.5
0.9
-
0.9
3.4
19.7
4.7
3.5
4.1
(0.1)
-
(0.1)
-
15.2
15.2
-
5.5
5.5
5.1
-
5.1
4.9
5.8
-
-
-
(0.2)
-
(0.2)
-
-
-
(0.4)
-
0.1
-
0.1
-
(1.7)
(1.7)
-
(3.5)
(3.5)
(0.9)
-
(0.9)
(0.7)
(5.2)
2.0
2.0
3.9
-
-
-
4.3
3.5
3.8
-
-
-
0.3
12.5
12.8
12.7
6.9
7.0
-
-
-
2.3
14.4
-
-
-
4.6
6.1
5.9
(0.0)
-
(0.0)
-
(1.7)
(1.7)
(0.2)
(3.5)
(3.7)
(0.9)
-
(0.9)
(1.1)
(5.2)
(6.3)
Total Ore Reserves
23.0
5.7
(0.4)
(5.9)
16.7
(i) Rounding may generate differences in last decimal place.
(ii) Adjusted figure includes write-downs and modifications in mine design.
(iii) Net change includes depletion by mining and adjustments.
111
Heavy Mineral Resources
Iluka Ore Resource Breakdown by Country, Region and JORC Category at 31 December 2016
Summary of Mineral Resources for Iluka (i), (ii), (iii)
Iluka Resources Limited
31 December 2016
Mineral Resource
Category
Material
Tonnes
Millions
In Situ
HM
Tonnes
Millions
HM
Grade
(%)
Ilmenite
Grade
(%)
Zircon
Grade
(%)
Rutile
Grade
(%)
Change
HM
Tonnes
Millions
HM Assemblage (iv)
Country
Region
Australia Eucla Basin
Total Eucla Basin
Murray Basin
Total Murray Basin
Perth Basin
Total Perth Basin (v)
USA
Atlantic Seaboard
Measured
Indicated
Inferred
Measured
Indicated
Inferred
Measured
Indicated
Inferred
Measured
Indicated
Inferred
Total Atlantic Seaboard (vi)
Sri Lanka Sri Lanka
Measured
Indicated
Inferred
Total Sri Lanka (vii)
Total Measured
Total Indicated
Total Inferred
227
85
74
386
16
88
85
189
497
302
242
1,041
59
43
16
118
214
39
437
690
1,012
558
854
7.1
8.1
3.7
18.9
4.4
18.5
10.1
33.0
29.6
15.9
11.6
57.0
2.4
2.42
0.5
5.2
22.2
3.4
30.7
56.3
65.7
48.3
56.5
3.1
9.5
5.1
4.9
27.6
21.0
11.9
17.5
6.0
5.2
4.8
5.5
4.0
5.6
2.9
4.4
10.4
8.7
7.0
8.2
6.4
8.7
6.6
32
65
60
52
62
56
49
54
59
54
55
57
65
65
61
65
70
69
66
67
60
58
60
59
44
20
20
29
11
11
10
11
10
10
9
10
12
10
11
11
3
4
4
4
12
11
7
10
4
2
2
3
11
14
14
13
5
5
5
5
-
-
-
-
4
3
5
4
5
8
6
6
(0.2)
(0.8)
(1.4)
-
-
(2.4)
Grand Total
2,424
170.5
7.0
(i) Competent Persons - Mineral Resources: B Gibson (MAIG).
(ii) Mineral Resources are inclusive of Ore Reserves.
(iii) Rounding may generate differences in last decimal place.
(iv) Mineral assemblage is reported as a percentage of in situ heavy mineral content.
(v) Rutile component in Perth Basin South West operations is sold as a leucoxene product.
(vi) Rutile is included in ilmenite for the Atlantic Seaboard region.
(vii) It should be noted that the Sri Lanka resource estimates are based on a 100 per cent ownership basis which applies to the
exploration stage. The Sri Lankan Exchange Control Act currently limits the percentage holding of a foreign entity in a Sri
Lankan mining company to 40 per cent, although approval for up to 100 per cent may be granted.
112
Rutile Mineral Resources (Sierra Leone)
Iluka Mineral Resources for Sierra Rutile and JORC Category at 31 December 2016
Summary of Mineral Resources for Iluka (i), (ii), (iii)
Iluka Resources Limited
31 December 2016
In situ Assemblage
(iv),(v)
Mineral Resource
Category
Material
Tonnes
Millions
In Situ
Rutile
Tonnes
Millions
Rutile
Grade
(%)
Ilmenite
Grade
(%)
Zircon
Grade
(%)
Change
Rutile
Tonnes
Millions
Country
Region
Sierra Leone Sierra Leone
Measured
Indicated
Inferred
60
538
122
719
0.8
5.5
1.3
7.5
1.26
1.02
1.06
1.04
0.12
0.14
-
0.11
0.16
0.07
0.01
0.07
0.8
5.5
1.3
7.5
Total Sierra Leone
(i) Competent Persons - Mineral Resources: B Gibson (MAIG).
(ii) Mineral Resources are inclusive of Ore Reserves.
(iii) Rounding may generate differences in last decimal place.
(iv) Mineral assemblage is reported as a percentage of in situ heavy mineral content.
(v) Ilmenite and zircon are included for tabulation purposes under the Measured and Indicated resource categories. The
confidence in the estimates for ilmenite and zircon are only considered to be at an Inferred level of confidence and should not
be used in the estimation of Ore Reserves.
Mineral Resources
Mineral Resources are estimated using all available and relevant geological, drill hole and assay data, including mineralogical
sampling and test work on mineral and final product qualities. Resource estimates are determined by consideration of geology,
heavy mineral (HM) cut-off grades, mineralisation thickness vs. overburden ratios and consideration of the potential mining and
extraction methodology and are prepared in accordance with the 2012 JORC Code. These factors may vary significantly
between deposits.
For the year ending 2016, Mineral Resources (excluding the Mineral Resources attributable to the Sierra Rutile acquisition)
decreased by 2.4Mt HM net of mining depletion and adjustments (sale, relinquishment, exploration discovery and development
and write-downs) down from 172.9Mt HM to 170.5Mt HM.
The change in Mineral Resources for 2016 was driven by the following:
• Eucla Basin Mineral Resources decreased by 0.2Mt HM principally as a result of mining depletion at Jacinth.
• The Perth Basin Mineral Resources decreased by 1.4Mt HM principally as a result of mining depletion and write down of
resources inaccessible for mining at Tutunup South of 0.4Mt HM and write downs for Depot Hill Central (1.0Mt HM).
• Murray Basin Mineral Resources decreased by 0.8Mt HM as a result of write downs for the Rainmaker and Rainlover deposits
(0.4Mt HM) and decreases of the Mineral Resources for Adaptordie (0.1Mt HM), Archer (0.2Mt HM) and Bells (0.1Mt HM)
following remodelling and updated resource estimation.
In December 2016 Iluka acquired the assets of Sierra Rutile Limited which include 719Mt of material grading 1.04 % rutile and
containing 7.5Mt of rutile.
113
Heavy Mineral Resources Mined and Adjusted
Iluka Mineral Resources Mined and Adjusted by Country and Region at 31 December 2016
Summary of Mineral Resource Depletion (i)
Iluka Resources Limited
31 December 2016
In Situ HM
Tonnes
Millions
2015
In Situ HM
Grade
2015
In Situ HM
Tonnes
Millions
Mined
2016
In Situ HM
Tonnes
Millions
Adjusted
2016 (ii)
In Situ HM
Tonnes
Millions
2016
In Situ HM
Grade
2016
In Situ HM
Tonnes
Millions
Net
Change
(iii)
Country
Region
Category
Australia Eucla Basin
Active Mines
Non-Active Sites
Total Eucla Basin
Murray Basin
Active Mines
Non-Active Sites
Total Murray Basin
Perth Basin
Active Mines
Non-Active Sites
Total Perth Basin
USA
Atlantic Seaboard
Active Mines
Non-Active Sites
Total Atlantic Seaboard
Sri Lanka Sri Lanka
Active Mines
Non-Active Sites
Total Sri Lanka
Total Active Mines
Total Non-Active Sites
(0.1)
-
(0.1)
-
(0.8)
(0.8)
(0.2)
(1.0)
(1.2)
(2.2)
2.2
-
-
-
-
2.3
16.6
18.9
-
33.0
33.0
0.5
56.6
57.0
-
5.2
5.2
-
56.3
56.3
2.5
16.6
19.2
-
33.8
33.8
0.9
57.5
58.4
2.2
3.1
5.2
-
56.3
56.3
5.6
167.3
4.0
5.7
5.4
(0.1)
-
(0.1)
-
-
-
(0.2)
-
(0.2)
-
-
-
-
-
-
-
17.0
17.0
9.6
5.5
5.5
2.8
7.4
4.4
-
8.2
8.2
3.8
7.4
7.1
3.9
5.7
5.4
-
17.5
17.5
9.7
5.5
5.5
-
4.4
4.4
-
8.2
8.2
4.3
7.2
7.1
(0.2)
-
(0.2)
-
(0.8)
(0.8)
(0.4)
(1.0)
(1.4)
(2.2)
2.2
-
-
-
-
(2.8)
0.4
(2.4)
Total Mineral Resources
172.9
(0.4)
-
(2.4)
0.4
2.8
167.7
(0.4)
(2.0)
170.5
(i) Rounding may generate differences in last decimal place.
(ii) Adjusted figure includes write-downs and modifications in mine design.
(iii) Net change includes depletion by mining and adjustments.
Annual Statement of Mineral Resources and Ore Reserves
The Annual Statement of Mineral Resources and Ore Reserves as at 31 December 2016 presented in this Report has been
prepared in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves
2012 Edition (the JORC Code 2012) and ASX listing rules and disclosed in the announcement dated 23 February 2017.
Information prepared and disclosed under the JORC Code 2004 Edition and which has not materially changed since last
reported has not been updated. Iluka is not aware of any new information or data that materially affects the information included
in this Annual Statement and confirms that all the material assumptions and technical parameters underpinning the estimates in
the relevant market announcement continue to apply and have not materially changed.
114
Iluka Resources Limited
31 December 2016
Competent Persons Statement
The information in this report that relates to Mineral Resources is based on information compiled by Mr Brett Gibson who is a
Member of the Australian Institute of Geoscientists.
The information in this report that relates to Ore Reserves is based on information compiled by Mr Chris Lee who is a member
of the Australasian Institute of Mining and Metallurgy (AUSIMM).
Mr Gibson and Mr Lee are full time employees of Iluka Resources.
Mr Gibson and Mr Lee have sufficient experience that is relevant to the styles of mineralisation and types of deposits under
consideration and to the activity which is being undertaken to qualify a Competent Person as defined in the 2012 Edition of the
‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’, the JORC Code 2012 Edition.
Mr Gibson and Mr Lee consent to the inclusion in this report of the matters based on his information in the form and context in
which it appears.
The information in this report that relates to specific Mineral Resources and Ore Reserves is based on and accurately reflects
reports compiled by Competent Persons as defined in the JORC Code 2012 for each of the company regional business units.
Each of these persons is a full-time employee of Iluka Resources Limited or its relevant subsidiaries, holds equity securities in
Iluka Resources Limited and is entitled to participate in Iluka’s executive equity long term incentive plan, details of which are
included in Iluka’s 2016 Remuneration report.
All the Competent Persons named are Members of The Australasian Institute of Mining and Metallurgy and/or The Australian
Institute of Geoscientists and/or the relevant jurisdiction ROPO (Recognised Overseas Professional Organisation) and have
sufficient experience which is relevant to the styles of mineralisation and types of deposits under consideration and to the
activity they are undertaking to qualify as a Competent Person as defined in the JORC Code 2012. At the reporting date, each
Competent Person listed in this Report is a full-time employee of Iluka Resources Limited or one of its subsidiaries. Each
Competent Person consents to the inclusion of material in the form and context in which it appears.
All of the Mineral Resource and Ore Reserve figures reported represent estimates as at 31 December 2016. All tonnes and
grade information has been rounded, hence small differences may be present in the totals. All of the Mineral Resource
information is inclusive of Ore Reserves (i.e. Mineral Resources are not additional to Ore Reserves).
Mineral Resources and Ore Reserves Corporate Governance
Iluka has an established governance process supporting the preparation and publication of Mineral Resources and Ore
Reserves which includes a series of structures and processes independent of the operational reporting through business units
and product groups.
The Audit and Risk Committee has in its remit the governance of resources and reserves. This includes an annual review of
Mineral Resources and Ore Reserves at a group level, as well as review of findings and progress from the Group Resources
and Reserves internal audit programme within the regular meeting schedule.
Mineral Resources and Ore Reserves are estimated by Iluka Personnel or suitably qualified independent personnel using
industry standard techniques and supported by internal guidelines for the estimation and reporting of Mineral Resources and
Ore Reserves.
All Mineral Resource and Ore Reserve estimates and supporting documentation is reviewed by Competent Persons employed
by Iluka. If there is a material change in the estimate of a Mineral Resource, the Modifying Factors for the preparation of Ore
Reserves, or reporting an inaugural Mineral Resource or Ore Reserve and if it is considered prudent to have an external review
then the estimate and supporting documentation in question is reviewed by a suitably qualified independent Competent Person.
All Mineral Resources and Ore Reserves are internally reviewed by Iluka Competent Persons.
The Iluka Mineral Resource and Ore Reserve position is reviewed annually by a suitably qualified independent Competent
Person prior to publication and the governance process is also audited by an independent body (PricewaterhouseCoopers).
Iluka has continued the development of internal systems and controls in order to meet JORC (2012) guidelines in all external
reporting including the preparation of all reported data by Competent Persons as members of The Australasian Institute of
Mining and Metallurgy (The AusIMM), The Australian Institute of Geoscientists (AIG) or recognised overseas professional
organisations (ROPOs).
The establishment of an enhanced governance process has also been supported by a number of process improvements and
training initiatives over recent years, including a Web based group reporting and sign-off database, annual internal Competent
Person reports and Competent Person development and training.
115
Iluka Resources Limited
31 December 2016
Shareholder Information
as at 31 January 2017
Australian Securities Exchange listing
Iluka’s shares are listed on the Australian Securities Exchange (ASX) Limited. The Company is listed as “Iluka”
with an ASX code of ILU.
Number of shares on issue
The Company had 418,701,360 shares on issue as at 31 January 2017. A total of 446,050 ordinary shares are
restricted pursuant to the directors, executives and Employee Share Acquisition Plan, Equity Incentive Plan and
Employee Share Plan.
Shareholdings
There were 24,047 shareholders. 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
Size of shareholding
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 - 1,000,000
1,000,001 and over
Unmarketable parcel (less than $500)
Number of holders
12,759
7,730
1,276
729
39
14
1,500
Substantial Shareholders (as provided in disclosed substantial shareholder notices to the company)
Shareholder
Schroder Investment Management Australia Limited
Northcape Capital Pty Ltd
Nikko Asset Management
SailingStone Capital Partners LLC
BlackRock Investment Management
Size of shareholding
45,649,855
32,910,017
30,619,502
30,408,843
30,326,071
% of issued capital
10.90
7.86
7.31
7.25
7.24
Top 20 Shareholders (nominee company holdings)
Shareholder
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Noms Pty Ltd (DRP)
BNP Paribas Nominees Pty Ltd (Agency Lending DRP)
Warbont Nominees Pty Ltd
Australian Foundation Investment Company Limited
Argo Investments Limited
Australian Foundation Investment Company Limited
UBS Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
R O Henderson (Beehive) Pty Limited
BNP Paribus Noms (NZ) Ltd
Mirrabooka Investments Limited
RBC Investor Services Australia Nominees Pty Limited
BNP Paribas Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited
Mr Adam Matthew Hartley
Number of shares
140,792,949
77,435,300
57,788,878
40,186,929
19,882,754
8,506,823
3,123,323
2,367,000
1,700,000
1,275,000
1,235,000
1,232,369
1,149,856
1,145,000
981,195
900,000
841,543
818,000
590,946
500,257
% of issued capital
33.63
18.49
13.80
9.60
4.75
2.03
0.75
0.57
0.41
0.30
0.29
0.29
0.27
0.27
0.23
0.21
0.20
0.20
0.14
0.12
116
Iluka Resources Limited
31 December 2016
Share Registry Details
Dividends
Iluka's Board of Directors typically make a determination on dividend payments twice a year.
Iluka does not operate a dividend reinvestment plan (DRP).
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 Ltd
Level 2, 45 St Georges Terrace
Perth, Western Australia, 6000
Telephone: +61 3 9415 5000 (Head Office) +61 8 9323 2000 (Perth) or 1300 850 505
Facsimile: +61 8 9323 2033 (Perth) or +61 3 9473 2500 (Melbourne)
Annual Reports and email notification of major announcements
Shareholders can elect to receive a printed copy of the Annual Report and/or receive email notifications related to
major Company announcements. Please contact Computershare.
Postal address
GPO Box 2975
Melbourne VIC 3000
Website: www.computershare.com
Each inquiry should refer to the shareholder number which is shown on issuer-sponsored holding statements and
dividend statements.
Investor Relations Inquiries
Dr Robert Porter
General Manager, Investor Relations and Corporate Affairs
robert.porter@iluka.com
+61 8 9360 4700
+61 (0) 407 391 829
2017 Calendar
23 February
20 April
26 April 9:30am WST
28 April 9:30am WST
20 July
17 August
19 October
31 December
All dates are indicative and subject to change. Shareholders are advised to check with the Company to confirm timings.
Announcement of Full Year Financial Results
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
117
Iluka Resources Limited
31 December 2016
Corporate Information
Company details
Iluka Resources Limited
ABN: 34 008 675 018
Registered office
Level 23, 140 St George’s Terrace
Perth WA 6000 Australia
Postal address
GPO Box U1988
Perth WA 6845 Australia
Telephone: +61 8 9360 4700
Facsimile: +61 8 9360 4777
Company Secretary
Sue Wilson, Company Secretary
Nigel Tinley, Joint Company Secretary
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.
Notice of Annual General Meeting
Iluka's 62nd Annual General Meeting of Shareholders will be held on Level 2 in Meeting Room 8 at the Perth
Convention and Exhibition Centre, 21 Mounts Bay Road, Perth, Western Australia on Friday 28 April 2017
commencing at 9:30am (WST).
Disclaimer - Forward Looking Statements
This Report may contain certain forward looking statements. These statements may include, without limitation,
estimates of future production and production potential; estimates of future capital expenditure and cash costs;
estimates of future product supply, demand and consumption; statements regarding future product prices; and
statements regarding the expectation of future Mineral Resources and Ore Reserves.
Where Iluka expresses or implies an expectation or belief as to future events or results, such expectation or belief
is expressed in good faith and on a reasonable basis. No representation or warranty, express or implied, is made
by Iluka that the matters stated in this presentation will in fact be achieved or prove to be correct.
Forward-looking statements are only predictions and are subject to risks, uncertainties and other factors, which
could cause actual results to differ materially from future results expressed, projected or implied by such
forward-looking statements. Such risks and factors include, but are not limited to:
changes in exchange rate assumptions;
changes in product pricing assumptions;
•
•
• major changes in mine plans and/or resources;
•
•
•
changes in equipment life or capability;
emergence of previously underestimated technical challenges; and
environmental or social factors which may affect a licence to operate.
Iluka does not undertake any obligation to release publicly any revisions to any forward-looking statement to
reflect events or circumstances after the date of this report, or to reflect the occurrence of unanticipated events,
except as may be required under applicable securities laws.
Non-IFRS Financial Information
This document uses non-IFRS financial information including mineral sands EBITDA, underlying Group EBITDA
and Group EBIT which are used to measure both Group and operational performance. Non-IFRS measures are
unaudited but derived from audited accounts. A reconciliation of non-IFRS financial information to the audited
Profit before tax in the Consolidated statement of profit or loss and other comprehensive income is included on
page 24.
118
www.iluka.com