Annual Report
2018
DELIVER
SUSTAINABLE
VALUE
A
B
N
3
4
0
0
8
6
7
5
0
1
8
PRODUCTS
TiO2
TITANIUM
DIOXIDE
Iluka is the world’s largest
producer of natural rutile and
a major producer of synthetic
rutile, which is an upgraded
form of ilmenite. Collectively,
these products are referred
to as high-grade titanium
dioxide feedstocks.
Primary uses include pigment
(paints), titanium metal and
welding.
Zr
ZIRCON
Iluka is the world’s largest
producer of zircon.
Zircon is opaque; and heat,
water, chemical and abrasion
resistant. Primary uses
include ceramics, refractory
and foundry; and zirconium
chemicals.
1
Iluka Resources Limited, Annual Report 2018
MINERAL SANDS
PART OF EVERYDAY LIFE
FROM EVERYDAY APPLICATIONS IN THE HOME AND WORKPLACE, TO MEDICAL, LIFESTYLE
AND INDUSTRIAL APPLICATIONS, THE UNIQUE PROPERTIES OF TITANIUM DIOXIDE AND
ZIRCON ARE UTILISED IN A VAST ARRAY OF PRODUCTS. ILUKA ALSO RECOVERS AND
MARKETS ACTIVATED CARBON AND IRON CONCENTRATE, BOTH OF WHICH ARE
BY-PRODUCTS OF THE SYNTHETIC RUTILE PROCESS.
MANUFACTURING
CERAMICS
Zircon (Zr) is heat resistant and non-reactive and is used in
steel and glass manufacturing and metal casting.
Most types of ceramic tiles used for floor and wall coverings
contain zircon. Zircon contributes to whiteness, opacity and the
abrasion and chemical resistance that tiles provide.
NANOMATERIALS
PIGMENTS
The photocatalytic properties of titanium dioxide (TiO2)
nanomaterials has led to the creation of innovative new
applications for titanium dioxide products. Titanium dioxide
nanoparticles are used in sunscreens and self-cleaning
windows, light emitting diodes and solar cells.
Paint coatings, inks, plastic and ceramics use titanium dioxide
in the form of pigment.
ROOF/BUILDING/CONSTRUCTION
BATHROOM/LIFESTYLE
Solar panels, electrical insulators, bricks/cement, fibre optics,
exterior and interior paint, tiles, anti-pollution coatings.
Ceramics, sanitary and toilet basins, glass, faucets for
taps, cosmetics, pharmaceutical products, toothpaste,
antiperspirants, sunscreens.
HOME/OFFICE
AUTOMOTIVE
Mobile phones, plastic, printer inks, paper, packaging.
Brake linings/pads, car parking sensors, automotive paint,
catalytic converters, automotive electrics, rubber products.
KITCHEN
SPORTING GOODS AND RECREATION
Light bulbs, dishes, glasses, clock parts, food colouring,
ceramic knives, pans.
Golf clubs, tennis racquets, bicycle frames.
HEALTHCARE AND MEDICINE
Prosthetics, orthopedic implants, medical
instruments.
AIRCRAFT AND INDUSTRY
Titanium metal, desalination plants, zirconium metal,
corrosion resistant coatings.
Iluka Resources Limited, Annual Report 2018
1
ABOUT ILUKA
RESOURCES
MINERAL SANDS
PROCESS
1 GEOLOGICAL SETTING
Mineral sands are heavy minerals found in sediments on, or near to
the surface of ancient beach, dune or river systems. Mineral sands
include minerals such as rutile, ilmenite, zircon and monazite.
2 MINING APPROACH
Mineral sands mining involves both dry mining and wet (dredge or
hydraulic) operations. Mining unit plants and wet concentrator plants
separate and concentrate the heavy mineral sands from waste
material.
3 MINERAL SEPARATION
The heavy mineral concentrate is transported from the mine to
a mineral separation plant for final product processing. The plant
separates the heavy minerals zircon, rutile and ilmenite from each
other in multiple stages by magnetic, electrostatic and gravity
separation.
4 SYNTHETIC RUTILE
Iluka also produces synthetic rutile from ilmenite that is upgraded
by high temperature chemical processes.
5 REHABILITATION
As mining progresses, the mining pit is backfilled and covered with
stockpiled soils that were removed at the start of the mining process.
Rehabilitation is progressively undertaken to return land to a form
similar to its pre-mining state and suitable for various uses including
agricultural, pastoral and native vegetation.
6 MARKETING
Iluka transports the final products of zircon, rutile, synthetic rutile and
ilmenite to customers around the world.
lluka Resources Limited (Iluka) is an
international mineral sands company with
expertise in exploration, project development,
mining operations, processing, marketing
and rehabilitation. The company is the largest
producer of zircon globally and a major
producer of high-grade titanium dioxide
feedstocks (rutile and synthetic rutile). Iluka’s
products are used in an increasing array
of applications including home, workplace,
medical, lifestyle and industrial uses.
With over 3,000 direct employees, the
company has operations in Australia and Sierra
Leone; projects in Australia, Sierra Leone and
Sri Lanka; international exploration activities;
rehabilitation programmes in the US, Australia
and Sierra Leone; exploration and a globally
integrated marketing network.
Iluka holds a royalty over iron ore sales
revenues from tenements of BHP Billiton’s
Mining Area C (MAC) province in the north west
of Western Australia.
The company is listed on the Australian
Securities Exchange and its corporate support
centre is located in Perth, Western Australia.
2
Iluka Resources Limited, Annual Report 2018
ILUKA IS AN INTERNATIONAL MINERAL SANDS
COMPANY WITH EXPERTISE IN EXPLORATION,
DEVELOPMENT, MINING, PROCESSING, MARKETING
AND REHABILITATION
UNITED STATES
Rehabilitation
SIERRA LEONE
Sierra Rutile operations
Lanti and Gangama expansion projects
Sembehun project
SRI LANKA
Puttalam project
WESTERN
AUSTRALIA
Narngulu processing operations
Cataby project
Capel synthetic rutile kilns
Corporate support centre
SOUTH AUSTRALIA
Jacinth-Ambrosia operation
VICTORIA
Fine Minerals project
NEW SOUTH WALES
Balranald project
WORLD’S LARGEST
ZIRCON PRODUCER
Iluka Resources Limited, Annual Report 2018
3
Narngulu mineral separation plant, Western Australia, Australia
ABOUT THIS REPORT
This Annual Report is a summary of Iluka Resources' and its
subsidiaries' operations, activities and financial position as at 31
December 2018. Currency is expressed in Australian dollars (AUD)
unless otherwise stated.
Iluka publishes annually a separate Sustainability Report, in accordance
with the Global Reporting Initiative Framework. The 2018 Sustainability
Report is expected to be published in April 2019 and will cover the
company’s sustainability performance for the period 1 January to 31
December 2018.
Current and previous sustainability reports are available on the
company’s website – www.iluka.com.
Iluka is committed to reducing the environmental footprint associated
with the production of the Annual Report, and printed copies are only
posted to shareholders who have elected to receive a printed copy.
4
Iluka Resources Limited, Annual Report 2018
WORLD’S LARGEST
RUTILE PRODUCER
DELIVER SUSTAINABLE VALUE
BUSINESS REVIEW
2018 year in review
Chairman’s review
Managing Director’s review
Board and Executive
Financial summary
Strategy and business model
Financial and operational review
Sustainability
Business risks and mitigations
FINANCIAL REPORT
Results for announcement to the market
Directors’ report
Remuneration report
Auditor’s independence declaration
Financial statements
Directors’ declaration
Independent auditor’s report
PHYSICAL, FINANCIAL AND CORPORATE INFORMATION
Five year physical and financial summary
Operating mines physical data
Ore Reserves and Mineral Resources statement
Shareholder and investor information
Corporate information
6
8
10
12
14
18
22
42
44
48
49
58
80
81
131
132
140
142
149
150
152
Iluka Resources Limited, Annual Report 2018
5
Murray Basin, Victoria, Australia
2018 YEAR
IN REVIEW
MINERAL SANDS
REVENUE GROWTH UP
22%
NET PROFIT
$304m
GLOBAL SUPPLY TIGHTNESS IN KEY MARKETS
•
•
•
•
Global zircon supply tightness, with inventory and zircon in concentrate release
supporting consumption in 2018
Solid demand for high-grade titanium feedstocks
Significant price growth achieved for zircon and rutile products
Existing producers’ mines are mature, entering decline in coming years
PLEASING FINANCIAL PERFORMANCE
•
•
•
•
•
•
•
Two years of strong mineral sands revenue growth, up 22% in 2018 to $1,244
million, following 40% growth in 2017
Mining Area C royalty income contribution $56 million
Net profit after tax of $304 million
Strong free cash flow of $304 million
Achieved net cash position of $2 million, a significant improvement from net debt
of $506 million in 2016 following the Sierra Rutile acquisition
Return on capital of 54%
Full year dividend payment of 29 cents per share
MIXED OPERATIONAL RESULTS
•
•
•
After restarting Jacinth-Ambrosia mining in December 2017, zircon production
increased, reflecting higher than anticipated ore grades and improved recoveries
Superior run time achieved at synthetic rutile kiln in south west Western Australia,
with record synthetic rutile production achieved in 2018 from this asset
Operational issues and strike actions at Sierra Rutile resulted in disappointing
rutile production
RETURN ON CAPITAL
CATABY PROJECT ON TRACK FOR EARLY 2019 COMMISSIONING
54%
•
•
•
•
Approved by Iluka Board in December 2017 with total capital expenditure of
$250-275 million
Investment returns underpinned by favourable offtake agreements for 85% of
synthetic rutile production for at least four years
8.5 year mine life producing ilmenite feedstock for synthetic rutile production,
zircon and rutile with potential to extend life for a further four years
First production planned for first half of 2019
6
Iluka Resources Limited, Annual Report 2018
DELIVER
SUSTAINABLE VALUE
PROJECTS SUSTAIN PRODUCTION AND PROVIDE FUTURE GROWTH OPTIONS
•
•
•
•
Ambrosia early mine move approved at capital cost of $55 million to smooth
zircon production at Jacinth-Ambrosia operations in South Australia
Sierra Rutile expansions to double production at both Lanti and Gangama mines
on track for commissioning in mid-2019
Value optimisation work on other Sierra Leonean projects
Fine Minerals deposit in western Victoria could provide long-term zircon product
stream and entry to growing rare earths market
HIGH LEVELS OF SUSTAINABILITY PERFORMANCE
•
•
•
•
•
•
•
Material reduction in the number of injuries classified as having serious potential
However, Iluka’s total recordable injury frequency rate increased from 2.8 to 3.5
with eight more injuries than 2017
Proactive measures introduced to reduce malaria and typhoid cases
Demolition of redundant assets and clean-up of sites as part of ongoing closure
and land management activities
Human Rights Policy released in October 2018
Inclusion within 2018 Australian Dow Jones Sustainability Indices for leading
sustainability performance
Developed steps to understand climate risks and opportunities, including those
related to emissions reduction, in line with the recommendations of the Taskforce
on Climate-related Financial Disclosure
FREE CASH FLOW
$304m
NET CASH
$2m
TWO YEARS OF STRONG
MINERAL SANDS REVENUE
GROWTH, UP 22% IN 2018 TO
$1,244 MILLION, FOLLOWING
40% GROWTH IN 2017
CAPITAL INVESTMENT
$312m
Iluka Resources Limited, Annual Report 2018
7
CHAIRMAN’S REVIEW
DEAR SHAREHOLDERS
My letter to you this year is written amidst a challenging and
complex external environment for business. 2018 saw rising
geopolitical tensions, the resurrection of international trade
barriers and policy settings dominated by the continued
rise of populism. In Australia, these global factors are finding
expression in what appears to be ever diminishing trust
in institutions, including in the wake of the Hayne Royal
Commission into financial services, with associated reputational
implications for the business community as a whole.
No company is immune from these challenges. Success
demands increased vigilance across all business activities and
a sharp focus on core objectives. Iluka’s focus, determined by
the Managing Director and with the full support of the Board,
is on the delivery of sustainable value. The Board’s role is to
support the Executive in pursuing this objective and to hold it to
account. It is also to set a business culture that prioritises the
key pillars of value – the sustainability of our profits, our people
and our communities; the latter encompassing not only those
in Iluka’s operating regions, but the company’s customers,
suppliers and other external stakeholders as well.
These pillars are, of course, mutually reinforcing. To deliver
sustainable profits and returns to shareholders necessitates a
workforce that is skilled, engaged, diverse and empowered. It is
also dependent on the ongoing trust of our communities. That
trust is derived primarily from delivering on our commitments
– doing what we say we will do operationally, commercially and
with respect to health and safety, environmental management
and corporate governance in particular. Finally, Iluka’s ability to
invest in its people and its communities relies on sustainable
financial performance and the trust of our shareholders to grow
the business over the long term. These are the broad criteria
against which directors assess Iluka’s performance; on which
we expect scrutiny; and should ourselves be held to account.
8
Iluka Resources Limited, Annual Report 2018
STRONG PERFORMANCE WAS DELIVERED ON THE BACK OF CONTINUING
POSITIVE MARKET CONDITIONS
Notwithstanding the challenges in the external environment,
your company delivered a pleasing financial result in 2018. Key
features included:
•
•
•
net profit after tax of $304 million;
free cash flow of $304 million; and
a return to a modest net cash position of $2 million, two
years after the acquisition of Sierra Rutile (when net debt
was $506 million).
This strong performance was delivered on the back of
continuing positive market conditions, the realignment of Iluka’s
business strategy and the repositioning of the company’s
portfolio over the previous two years. The result enabled the
Board to declare a final dividend of 19 cents per share, fully
franked. Iluka’s interim dividend for 2018 was 10 cents per
share, producing a total dividend for the year of 29 cents per
share, fully franked. This is in line with Iluka’s dividend framework
to return to shareholders a minimum of 40% of free cash flow
not required for investment purposes or balance sheet activity.
One clear area of disappointment in 2018 was the performance
of the Sierra Rutile operation, which endured something
of an annus horribilis following an encouraging first year of
operations post acquisition. This performance is unacceptable
and attributable to a range of technical, industrial and external
factors. Addressing the long-term stability of Sierra Rutile’s
operating environment is a key priority for the Board. The
Executive has substantive measures and planning in place to
improve the operation’s performance. Directors are receiving
regular updates as to progress in this regard and visited Sierra
Leone in November. We will continue to keep shareholders
abreast of developments.
Iluka’s group sustainability performance was recognised in
2018 through the company’s continued listing on the Dow
Jones Sustainability Index as a leading sustainability performer.
Disappointingly, our total recordable injury frequency rate for
the year increased from 2.8 to 3.5, with eight additional injuries.
Many of these recordable injuries for the year were minor in
nature; there has been a material reduction in the number of
injuries classified as having serious potential in comparison to
2017. The lost time injury frequency rate remained constant
at 1.0 and we recorded 20 reportable environmental incidents
compared to 27 during the previous year.
Significant progress was made by the business in aligning
with the International Council on Mining and Metals (ICMM)
Framework for Sustainable Development. This included the
adoption of a Human Rights Policy, which is important in the
context of our operations and activities globally. In an excellent
acknowledgment of Iluka’s commitment to sustainable
development and the quality of work undertaken by our people,
the Jacinth-Ambrosia operation received two separate South
Australian Premier’s Awards for rehabilitation and diversity.
A review of our climate change approach was undertaken in
2018, which considered the recommendations made by the
Task Force on Climate-related Financial Disclosures (TCFD).
We have developed steps to understand our climate risks and
opportunities, including those related to emissions reduction, in
line with the TCFD’s recommendations.
As foreshadowed in last year’s Annual Report, the Board
has implemented a new Executive Incentive Plan (EIP) for
Iluka’s senior executives. The EIP is structured to align senior
executives’ interests with your interests as shareholders. In
2018, directors balanced the company’s strong financial result;
mixed operational performance; sustainability outcomes;
and the progression of strategic measures to determine
overall incentive outcomes above target. Full details of reward
outcomes, which under the terms of the EIP will be delivered
predominantly in equity, are set out in the Remuneration Report.
Board development continued with the appointment of Rob
Cole as a non-executive director in March 2018. Rob has
brought an important and valuable perspective to the Board’s
deliberations during what was a year of significant activity for
the company. I would also like to pay tribute to the contribution
of my other fellow directors; the performance of Iluka’s people,
led by Tom O’Leary; and, as ever, the ongoing support of our
shareholders.
The coming year promises further challenges, with Iluka
progressing its programme of capital investments against the
backdrop of what is an unpredictable external environment
for business. Your Board believes the company is positioned
strategically, financially and culturally to meet these challenges
and deliver on its objective.
Greg Martin
Chairman
Iluka Resources Limited, Annual Report 2018
9
MANAGING DIRECTOR’S REVIEW
ILUKA’S AUSTRALIAN OPERATIONS PERFORMED VERY WELL OVER
THE COURSE OF THE YEAR
Operations
Iluka’s Australian operations performed very well over the
course of the year. At Jacinth-Ambrosia in South Australia,
higher than anticipated ore grades and improved recoveries
delivered an increase in heavy mineral concentrate inventory,
which will help to smooth our future production profile for
zircon. In Western Australia, the Narngulu mineral separation
plant processed 530 thousand tonnes of concentrate,
exclusively from Jacinth-Ambrosia. Synthetic rutile production
from Iluka’s SR2 kiln at Capel was 220 thousand tonnes – a
record production performance for this asset. Each of these
operations will undergo some transition in 2019 as part of
Iluka’s capital development programme. I expect their strong
performance to stand them in good stead in executing these
plans.
The Sierra Rutile operation in Sierra Leone performed
unacceptably in 2018, producing 122 thousand tonnes of rutile
– 28% lower than 2017. Most concerning were the unlawful
strike actions taken by a section of the workforce in October
and November. The Government of Sierra Leone formed a
taskforce to investigate this activity, which found the strikes
illegal and that Iluka had taken appropriate measures to ensure
the safety of its people and assets.
In acquiring Sierra Rutile, Iluka was cognisant that operating in
a developing country would present new challenges. Clearly,
we did not anticipate some of the events that occurred in 2018.
Although substantial, the company does not regard these
challenges as insurmountable and we retain confidence in the
quality of the reserve we acquired. Fundamentally, improving
Sierra Rutile’s performance requires certainty in the operating
environment and we are working closely with the Sierra Leonean
Government, which was elected in April 2018, to achieve this.
The Government has expressed strong support for Iluka’s
investment in Sierra Rutile on the basis that foreign investment
is crucial to the development of Sierra Leone’s economy. The
findings of its taskforce were a welcome development and an
important, initial step towards achieving long-term stability.
DEAR SHAREHOLDERS
Each of Iluka’s previous two Annual Reports outlined a number
of actions being taken to place the company on a sustainable
footing with a view to future developments. In 2018, the
Executive embedded this approach into a defined strategy – the
Iluka Plan – and a single objective – to deliver sustainable value.
The Iluka Plan outlines the company’s purpose, core, direction
and values, serving as the reference point to guide business
decisions. It is detailed on page 18-21 of this year’s Annual
Report and I would encourage you to review it.
In 2018 we saw aspects of our approach begin to come to
fruition. Iluka delivered a solid financial result; experienced
continued positive market conditions; produced zircon and
synthetic rutile volumes above plans; made sound progress in
relation to capital projects; and received external recognition
of the company’s sustainability performance. As the Chairman
has outlined, we are facing a challenging and complex external
business environment. Meeting our objective will require
a continued emphasis on delivery and resolve across the
portfolio.
Markets
Market conditions for Iluka’s core products of zircon and
high-grade titanium dioxide feedstocks (rutile and synthetic
rutile) were very favourable throughout 2018. In zircon, we
saw strong sales and price growth across all products, with
the weighted average price received up 41% compared to
2017. Iluka’s approach to the zircon market remains to provide
sustainability, transparency and predictability in pricing. On 1
October, the company increased its Zircon Reference Price to
US$1,580 per tonne for a period of six months. Iluka’s approach
has been well accepted by our customers and, as announced
today, current pricing will be extended for a further six months.
Industry-wide production disruptions at key high-grade titanium
feedstock operations, including Sierra Rutile, reduced product
availability in 2018. This amplified the effect of an already
emerging structural deficit for high-grade feedstocks, with
supply-side scarcity, coupled with continued strong demand,
creating a tight market and challenges for our customers.
Contract prices for rutile increased 21% relative to the previous
year. In 2019, structural dynamics throughout the mineral sands
industry are expected to continue to support volumes and
prices for zircon, rutile and synthetic rutile.
10
Iluka Resources Limited, Annual Report 2018
I’m also pleased to advise that Iluka and the International Finance
Corporation (IFC), a member of the World Bank Group, have been in
discussions to commence a strategic partnership in Sierra Leone. The IFC
has today commenced a 60 day disclosure period in relation to its potential
investment. This investment remains subject to due diligence, finalisation
of documentation on commercially acceptable terms and Board approvals
by both Iluka and IFC; and would see IFC acquiring an equity stake of up
to 10% in Sierra Rutile for US$60 million . Partnering with the IFC would
provide benefits to Iluka, IFC and the people of Sierra Leone by promoting
the continued, sustainable development of the Sierra Rutile operation. The
World Bank Group has a large and longstanding presence in Sierra Leone
and, through the IFC, mobilises funding for private enterprises in developing
countries, with partners that adhere to high levels of corporate governance
and sustainability performance, to aid economic development and reduce
poverty. Sierra Rutile is one of Sierra Leone’s largest private sector operations
and the IFC has unparalleled expertise in community and stakeholder
engagement, which would complement Sierra Rutile’s own activities in these
areas.
Capital projects
Iluka invested $312 million in developing its capital projects in 2018. This is a
significant sum and the successful delivery of these projects is essential to
the company’s future. The Cataby mine in Western Australia will commence
production in the first half of 2019. Ilmenite sourced from Cataby will underpin
Iluka’s synthetic rutile production over the next decade. It also provides a
material source of zircon and rutile, which will be processed at the Narngulu
mineral separation plant. In October, the Board approved the early mine
move from the Jacinth deposit to the Ambrosia deposit in South Australia,
which will occur in the second half of 2019 and partially offset the impact of
declining ore grade over the remaining life of the operation. At Sierra Rutile,
we are doubling the capacity of both the Gangama and Lanti dry mines, with
commissioning also scheduled for mid 2019. Each of these developments is
currently on schedule and budget.
The company’s senior leadership underwent substantial evolution during
the year, with Adele Stratton commencing in the role of Chief Financial
Officer; Julian Andrews adding the strategy and rehabilitation functions to
his business development accountability; and the appointment of Melissa
Roberts to the Executive. A diverse skill set among our management and
wider workforce is essential to the delivery of the Iluka Plan and these
appointments add to that capability. Of equal importance is our shared
sense of commitment; and I am grateful for the enduring dedication of Iluka’s
people, including our directors. I look forward to updating shareholders on the
company’s further progress over the coming 12 months.
Tom O’Leary
Managing Director and
Chief Executive Officer
Iluka Resources Limited, Annual Report 2018
11
BOARD OF DIRECTORS
Summary of experience
GREG MARTIN
TOM O’LEARY
MARCELO BASTOS
BEc, LLB, FAIM, MAICD
LLB, BJuris
Chairman
Joined Iluka 2013
Murchison Metals, The Australian Gas
Light Company, Santos, Western Power
Managing Director and
Chief Executive Officer
Joined Iluka 2016
Wesfarmers Chemicals, Energy &
Fertilisers, Wesfarmers, Nikko, Nomura,
Allen & Overy, Clayton Utz
BEng Mechanical (Hons, UFMG), MBA
(FDC-MG), MAICD
Independent non-executive Director
Joined Iluka 2014
Vale, BHP, MMG, Aurizon Holdings,
Golder Associates, OZ Minerals, Golding
Contractors
JAMES (HUTCH) RANCK
JENNIFER SEABROOK
XIAOLING LIU
BSE (Econ), FAICD
BCom, FCA, FAICD
PhD, BEng, GAICD, FAusIMM, FTSE
Independent non-executive Director
Joined Iluka 2013
Independent non-executive Director
Joined Iluka 2008
Independent non-executive Director
Joined Iluka 2016
Gresham Advisory Partners, Hartley
Poynton, Touche Ross, Australian Rail
Track Corporation, Western Power, Alinta
Gas, MMG, IRESS
Newcrest, South 32, Rio Tinto Minerals,
Australian Aluminium Council, Melbourne
Business School
Image above (L-R):
Marcelo Bastos, Xiaoling Liu, Tom
O’Leary, Greg Martin, Rob Cole, Jennifer
Seabrook, James (Hutch) Ranck
Elders, CSIRO, DuPont
ROB COLE
LLB (Hons), BSc
Independent non-executive Director
Joined Iluka 2018
Ausdrill, GLX Group, Synergy, Southern
Ports, St Bartholomew's House,
Woodside Petroleum, King & Wood
Mallesons
12
Iluka Resources Limited, Annual Report 2018
EXECUTIVE
TOM O’LEARY
ADELE STRATTON
STEVE WICKHAM
LLB, BJuris
BA (Hons), FCA, GAICD
Assoc Dip in Mechanical Engineering
Managing Director and
Chief Executive Officer
Joined Iluka 2016
Wesfarmers Chemicals, Energy &
Fertilisers, Wesfarmers, Nikko, Nomura
Chief Financial Officer
Joined Iluka 2011
Chief Operating Officer, Mineral Sands
Joined Iluka 2007
KPMG, Rio Tinto Iron Ore
Ticor South Africa, Australian Zircon
MATTHEW BLACKWELL
SIMON HAY
SUE WILSON
BEng (Mech), Grad Dip (Tech Mgt), MBA,
MAICD, MIEAust
BSc (Hons), MAppSc, Grad Dip (Mgmt),
MAICD
BJuris, LLB, FGIA, FICSA, FAICD
Head of Marketing & Procurement
Joined Iluka 2004
Head of Resource Development
Joined Iluka 2009
General Counsel and
Company Secretary
Joined Iluka 2016
Asia Pacific Resources, WMC Resources,
Normandy Poseidon
Mount Isa Mines, WMC Resources, BHP
South32, Bankwest, Herbert Smith
Freehills, Western Power
SARAH HODGSON
JULIAN ANDREWS
MELISSA ROBERTS
LLB, GAICD
BCom (Hons), PhD, CFA, GAICD
BCom (Hons), MBA
Head of Strategy, Planning and
Business Development
Joined Iluka 2017
Wesfarmers Chemicals,
Energy & Fertilisers, PwC
General Manager, Investor Relations
and Commercial Mineral Sands
Operations
Joined Iluka 2009
CSBP (now part of Wesfarmers), Mayne
Health
General Manager People &
Sustainability
Joined Iluka 2013
Mercer, Westpac, KPMG
ROB HATTINGH
MSc (Geochem)
Chief Executive Officer Sierra Rutile
Joined Iluka 2008
Richards Bay Minerals, Exxaro
COMMITTEES
The Board of Directors comprises six non-executive Directors and one executive Director (the Managing Director).
Audit and Risk Committee
People and Performance Committee
Nominations and Governance Committee
Chairman – Jennifer Seabrook
Chairman – James (Hutch) Ranck
Chairman – Greg Martin
EXECUTIVE
The Executive is structured to include 10 senior executives. Its responsibilities include achieving defined business and financial
outcomes, capital deployment, business planning, identification and pursuit of appropriate growth opportunities, sustainability
performance, promotion of diversity objectives and succession planning.
Iluka Resources Limited, Annual Report 2018
13
Eneabba rehabilitation site, Western Australia, Australia
FINANCIAL
SUMMARY
MINERAL
SANDS
REVENUE
UNDERLYING
MINERAL SANDS
EBITDA1
MINING
AREA C
EBITDA
UNDERLYING
GROUP
EBITDA
$1,244m
$545m
$56m
$600m
$m
$m
$m
$m
1,244
1,018
820
725
726
545
67
62
60
56
48
301
232
189
44%
33%
28%
103
30%
14%
600
361
293
256
151
14 15 16 17 18
14 15 16 17 18
14 15 16 17 18
14 15 16 17 18
Mineral sands revenue
increased 22% to $1,244
million, following strong
revenue growth in 2017.
Contributing to the 2018
result were significant
increases in zircon and
rutile prices, offset by small
declines in sales volumes.
Weighted average zircon and
rutile prices increased 41%
and 21% respectively. The
pricing result reflects tight
conditions in both markets
owing to solid demand and
constrained supply. Iluka’s
Zircon Reference Price was
raised twice in the year
to finish at US$1,580 per
tonne. High-grade titanium
feedstock prices were
supported by demand from
the pigment market.
Z/R/SR sales volumes were
down 7%. Rutile sales were
constrained by operational
issues at Sierra Rutile and
the exhaustion of inventory
drawn downs. Zircon sales
were broadly flat relative
to 2017, and included
the release of zircon in
concentrate given favourable
market conditions.
Income from Iluka’s Mining
Area C royalty was $56
million in 2018, down 8%
from 2017 due to lower sales
volumes from the royalty
area. A$1 million capacity
payment was part of the
income received in the year.
2018 underlying Group
EBITDA of $600 million
was 66% higher than 2017,
largely reflecting the strong
mineral sands revenue
growth over the period.
EBITDA1
EBITDA1 margin
Iluka’s underlying mineral
sands EBITDA increased
by 81% to $545 million.
This result reflects the
strong growth in mineral
sands revenue. Slightly
offsetting this, cash costs
of production increased by
22% due to higher costs at
Sierra Rutile, and the restart
of mining and concentrating
at Jacinth-Ambrosia,
generating mineral sands
EBITDA margin of 44%.
Since 2016 Iluka has been
reducing inventory levels
to a normalised level. This
process was completed
in 2018. Restructure and
idle capacity charges were
down 66% with the restart
of Jacinth-Ambrosia while
government royalties were
up 51% due to payments on
a higher revenue base.
(1) Underlying minerals sands and Group EBITDA excludes adjustments including impairments and changes
to rehabilitation provisions for closed sites. Iluka’s share of Metalysis Ltd’s losses, which are non-cash in
nature, are also excluded.
14
Iluka Resources Limited, Annual Report 2018
NET
PROFIT
AFTER
TAX
$304m
FREE
CASH
FLOW
$304m
NET
CASH
(DEBT)
$2m
$m
304
$m
$m
%
322
304
196
155
47
4%
32%
2
n/a
4%
6
n/a
(59)
(183)
(506)
54
(63)
(224)
(172)
ROE
AND
ROC
ROE 32%
ROC 54%
54
32
7
4
(4)
(2)
(17)
(18)
(12)
(20)
14 15 16 17 18
14 15 16 17 18
14 15 16 17 18
14 15 16 17 18
Iluka achieved a net profit
after tax of $304 million in
2018. This is a significant
turnaround on the $172
million loss recorded in 2017,
which was impacted by the
inclusion of a $185 million
impairment expense and a
$127 million rehabilitation
provision increase. The
strong profit achieved in
2018 is the highest since
2012 and is a reflection of
the increased zircon and
rutile prices received in the
period.
2018 free cash flow was
$304 million. This is the
second consecutive year of
strong cash flows, reflecting
the favourable market
conditions over this period.
Operating cash flow
contributed $594 million
and Mining Area C royalty
contributed $56 million.
Capital expenditure in 2018
was $312 million, including
$189 million on the Cataby
mine development and $104
million at Sierra Rutile.
Net Debt
Gearing %
Return on equity
Return on capital
Iluka’s strong financial
performance in 2018 has
generated a return on
shareholders’ equity (ROE)
of 32% and return on capital
(ROC) of 54%.
Strong free cash flow in
2017 and 2018 has enabled
Iluka to return to a net cash
position. Recently, net debt
peaked at $506 million in
2016, largely due to the $455
million acquisition of Sierra
Rutile in that year.
The return to net cash
has also occurred over a
time of significant capital
expenditure ($312 million),
where Iluka is delivering
projects to sustain future
operations.
WEIGHTED AVERAGE
ZIRCON AND RUTILE PRICES
INCREASED 41% AND 21%
Iluka Resources Limited, Annual Report 2018
15
Narngulu mineral separation plant, Western Australia, Australia
BALANCE SHEET
As at 31 December 2018, Iluka had total debt facilities of $618 million and net cash
of $2 million. Iluka has a Multi Optional Facility Agreement (MOFA) which comprises a
series of five year unsecured bilateral revolving credit facilities with several domestic
and foreign institutions. Drawings under the MOFA at 31 December 2018 were $50
million (2017: $239 million). Undrawn MOFA facilities at 31 December 2018 were $568
million (2017: $456 million). Of the above interest-bearing liabilities, $50.4 million is
subject to an effective weighted average floating interest rate of 4.2% (2017: 3.1%).
Note 14 of Iluka’s Financial Report provides details of the maturity profile and interest
rate exposure.
DEBT, GEARING AND DEBT
FACILITIES PROFILE
DEBT FACILITIES
MATURITY PROFILE
$m
1000
871
800
600
400
200
0
-200
-400
-600
4%
n/a
(59)
6
1,010 1,015
Gearing %
541
100
80
60
40
20
0
618
n/a
2
695
32%
17%
(183)
(506)
77
0
0
0
19 20 21 22 23
14
15
16
17
18
Total facilities
Net (debt) cash
Gearing (%)
16
Iluka Resources Limited, Annual Report 2018
DIVIDEND FRAMEWORK
HEDGING
NET CASH, STRONG
BALANCE SHEET
Iluka’s dividend framework is to pay a minimum of 40% of free cash flow not required
for investing or balance sheet activity. The company also seeks to distribute the
maximum franking credits available. Iluka’s 2018 full year dividend payment of 29
cents per share (19 cents per share final and 10 cents per share interim dividend), fully
franked, represents 40% of free cash flow for the year. This is consistent with Iluka’s
framework and reflects the underlying strength in the 2018 result. Iluka continues
to target credit metrics broadly consistent with investment grade credit metrics and
future dividend decisions will take into account balance sheet position and capital
expenditure requirements.
Distribution metrics
Payout ratio % of free cash flow
2017
40
2018
40
Iluka extended its foreign exchange hedging programme during the year as part of its
financial risk management strategy by entering into the following hedging contracts
in relation to US$96 million of expected USD revenue from contracted sales over the
period 2020 to 2021:
•
•
US$64 million in foreign exchange collar contracts expiring in 2020 and 2021. The
collars are comprised of AUD call options with strike prices of 75.5 cents and AUD
put options with strike prices of 66.0 cents; and
US$32 million in forward foreign exchange contracts maturing in 2020 at an
average AUD:USD rate of 72.1 cents.
The following hedging contracts matured during the year:
•
•
US$95 million in forward foreign exchange contracts at a weighted average rate of
80.1 cents; and
US$24 million in foreign exchange collar contracts consisting of US$24 million of
bought AUD call options with strike prices of 80.0 cents and US$24 million of sold
put options with strike prices of 70.0 cents.
Note 20 of Iluka’s Financial Report provides details of Iluka’s open hedge contracts at
31 December 2018.
Iluka Resources Limited, Annual Report 2018
17
STRATEGY AND
BUSINESS MODEL
THE ILUKA PLAN
In 2018 Iluka developed the Iluka Plan, which outlines the
company’s values, purpose, core and direction. It is the
strategic reference point that guides business decisions.
OUR VALUES
INTEGRITY
RESPECT
COURAGE
ACCOUNTABILITY
COLLABORATION
18
Iluka Resources Limited, Annual Report 2018
OUR PURPOSE
DELIVER
SUSTAINABLE
VALUE
OUR CORE
OUR VALUES
Act with
INTEGRITY
Demonstrate
RESPECT
Show
COURAGE
Take
ACCOUNTABILITY
COLLABORATE
We are an
INTERNATIONAL MINERAL SANDS COMPANY
with expertise in
exploration, development, mining,
processing, marketing and
rehabilitation.
OUR
DIRECTION
-
NEXT
THREE YEARS
DELIVER TO
GROW OUR
FUTURE
EXECUTE
our projects
EXCEL
in our core
MATURE
our options
OUR DIRECTION
-
BEYOND
GROW WHERE WE
CAN ADD VALUE
Mineral Sands opportunities
and diversification
Eneabba rehabilitation site, Western Australia, Australia
Iluka Resources Limited, Annual Report 2018
19
OUR PURPOSE
DELIVER
SUSTAINABLE
VALUE
OUR VALUES
Act with
INTEGRITY
Demonstrate
RESPECT
Show
COURAGE
Take
ACCOUNTABILITY
COLLABORATE
OUR CORE
We are an
INTERNATIONAL MINERAL SANDS COMPANY
with expertise in
exploration, development, mining,
processing, marketing and
rehabilitation.
OUR
DIRECTION
-
NEXT
THREE YEARS
DELIVER TO
GROW OUR
FUTURE
EXECUTE
our projects
EXCEL
in our core
MATURE
our options
OUR DIRECTION
-
BEYOND
GROW WHERE WE
CAN ADD VALUE
Mineral Sands opportunities
and diversification
OUR CORE
Iluka is an international mineral sands company with expertise
in exploration, development, mining, processing, marketing and
rehabilitation.
ILUKA’S FOCUS IS ON
DELIVERY
Dredge lake, Sierra Rutile, Sierra Leone
20
Iluka Resources Limited, Annual Report 2018
OUR PURPOSE
Iluka’s purpose is to deliver sustainable value. The company
aims to achieve this by:
•
•
•
•
protecting the safety, health and wellbeing of our
employees;
optimising shareholder returns through prudent capital
management and allocation;
developing a robust business that can maintain and grow
returns over time;
providing a competitive offering to our customers;
• managing our impact on the environment;
•
•
supporting the communities in which we operate; and
building and maintaining an engaged, diverse and capable
workforce.
OUR DIRECTION
During the three years 2018-20, Iluka’s focus is on delivery,
particularly with respect to:
•
•
•
executing the company’s capital projects;
achieving a sustainable price environment for mineral
sands products;
operational excellence and continuing to excel in core
areas of expertise; and
• maturing longer-term growth options in the company’s
portfolio.
Beyond this period, Iluka aims to continue to grow where it
can add value in mineral sands and potentially in other mineral
diversification.
An overview of the purpose and status of the company’s near-
term and longer-term capital projects is detailed on pages
36-37 of this report.
Iluka’s approach to capital management seeks to balance the
impact of commodity pricing and investment factors. Central
aspects of the company’s methodology in this area include:
• maintaining credit metrics that are broadly consistent
with an investment grade credit profile – generally
corresponding to a leverage ratio of 1.0 to 1.5 times net
debt to EBITDA;
•
•
Iluka’s dividend framework, which stipulates returns to
shareholders of a minimum of 40% of free cash flow
not required for investment purposes or balance sheet
activity; and
disciplined capital allocation, meaning Iluka will commit
funds to new projects only when it is sufficiently confident
of achieving satisfactory returns for shareholders.
Insofar as inorganic growth options are concerned, Iluka
considers merger and acquisition opportunities that
demonstrate both a clear business advantage and value for
shareholders.
Risks to the achievement of the Iluka Plan, and their associated
mitigation measures, are outlined on pages 44-45 of this
report.
Iluka Resources Limited, Annual Report 2018
21
FINANCIAL AND
OPERATIONAL
REVIEW
In this section
SALES AND MARKETS
PRODUCTION AND
OPERATIONS
OPERATIONS
PROJECTS
EXPLORATION
RECOGNISED AS A LEADING
SUSTAINABILITY PERFORMER
ON THE DOW JONES
SUSTAINABILITY INDEX
22
Iluka Resources Limited, Annual Report 2018
CATABY,
WESTERN AUSTRALIA, AUSTRALIA
Currently in the final stages of construction, Cataby is a large
predominantly chloride ilmenite deposit located approximately
150 kilometres north of Perth, in the Shire of Dandaragan. The
project has an anticipated mine life of 8.5 years, with the possibility
to extend this by a further four years.
Operations Manager, Cataby
Iluka Resources Limited, Annual Report 2018
Iluka Resources Limited, Annual Report 2018
23
23
FINANCIAL AND
OPERATIONAL
REVIEW
INCOME STATEMENT ANALYSIS
$ million
Z/R/SR revenue
Ilmenite and other revenue
Mineral Sands Revenue
Cash costs of production
Inventory movement - cash
Restructure and idle capacity charges
Government royalties
Marketing and selling costs
Asset sales and other income
Exploration and resources development
Corporate and other costs
Foreign exchange
Mineral sands EBITDA
Mining Area C EBITDA
Underlying Group EBITDA
Depreciation and amortisation
Inventory movement - non-cash
Rehabilitation for closed sites
Share of Metalysis Ltd's losses (associate)
Impairment expense
Group EBIT
Net interest costs and bank charges
Rehabilitation unwind and other finance costs
Profit (loss) before tax
Tax expense
Profit (loss) for the period (NPAT)
Average AUD/USD (cents)
2018
2017 % change
1,179.0
65.1
959.1
58.4
1,244.1
1,017.5
22.9
11.5
22.3
22.2
(51.6)
(66.3)
51.2
12.7
157.1
22.4
2.1
116.7
81.0
(6.7)
66.5
(15.7)
(57.6)
n/a
-
-
n/a
(9.0)
-
n/a
(372.4)
(141.5)
(73.3)
(25.2)
(33.8)
0.7
(24.6)
(47.1)
0.6
300.9
59.6
360.5
(111.0)
(66.8)
(127.4)
(3.3)
(185.4)
(133.4)
(15.5)
(16.7)
(165.6)
(455.1)
(68.5)
(24.7)
(38.1)
(38.1)
1.8
(30.1)
(48.1)
1.3
544.5
55.6
600.1
(93.6)
(28.3)
4.6
-
-
482.8
(14.1)
(16.7)
452.0
(148.1)
303.9
74.8
(6.0)
2,368.3
(171.6)
76.7
n/a
(2.5)
1
Underlying Group EBITDA excludes adjustments including impairments and 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.
UNDERLYING NPAT
Profit (loss) for the period (NPAT)
Adjustments:
Rehabilitation of closed sites, post tax
Impairments, post tax
Share of Metalysis Ltd's losses post tax
Underlying NPAT
2018
303.9
(3.2)
-
-
300.7
2017
(171.6)
125.0
138.9
3.3
95.6
Sierra Rutile, Sierra Leone
24
Iluka Resources Limited, Annual Report 2018
MOVEMENT IN NPAT
500
400
300
200
100
0
-100
(172)
-200
-300
7
1
0
2
r
e
b
m
e
c
e
D
1
3
17
1
-
189
132
(22)
(4)
(1)
304
(142)
265
26
4
16
(40)
49
(16)
e
c
i
r
P
l
o
V
i
x
M
X
F
l
e
d
I
r
e
h
t
o
d
n
a
m
l
I
S
G
O
C
t
i
n
U
n
o
i
t
a
t
i
l
i
b
a
h
e
R
C
A
M
e
t
a
r
o
p
r
o
C
r
e
h
t
o
d
n
a
s
l
a
r
e
n
M
i
i
l
s
s
y
a
t
e
M
/
t
n
e
m
r
i
a
p
m
I
x
a
T
t
s
e
r
e
t
n
I
i
n
o
i
t
a
c
e
r
p
e
D
r
e
h
t
o
&
d
n
w
n
U
i
8
1
0
2
r
e
b
m
e
c
e
D
1
3
Sales commentary is contained on pages 26-27.
The Australian dollar weakened in 2018, with an average
AUD/USD exchange rate of 74.8 cents compared to 76.7 cents
in 2017. This increased the Australian dollar Z/R/SR revenue
received, with the majority of sales denominated in US dollars.
The Group has hedging contracts to assist in managing
exchange rate exposure, which are detailed on page 17 of this
report. Foreign exchange impacts on operating costs, mainly
those relating to Sierra Rutile operations, are included in the
overall movement in unit cost of goods sold.
Cash costs of production increased by $83 million, despite
lower production volumes. Increased costs related to the
resumption of mining and concentrating activities at Jacinth-
Ambrosia in December 2017, slightly offset by completion of
mining at Tutunup South in March 2018. Higher costs at Sierra
Rutile in 2018 due to increased dredge maintenance costs,
and higher fuel and commissioning costs with the in-pit mining
unit. Exchange rate depreciation has also contributed to higher
Australian dollar costs on conversion of the Sierra Rutile US
dollar cost base.
Unit cost of goods sold increased to $750 per tonne
compared to $743 per tonne in 2017, reflecting the increased
cost base in Sierra Rutile.
Idle costs decreased in 2018 to $25 million versus $73 million
in 2017. Idle costs in the prior year included costs associated
with the suspension of mining and concentrating activities at
Jacinth-Ambrosia, the idling of the Hamilton mineral separation
plant and the prolonged maintenance shutdown for the
Narngulu mineral separation plant prior to it becoming the
primary plant for Australia. Idle costs in 2018 reflect ongoing
maintenance and land management costs for idle plant and
operations at Eneabba, Tutunup South, Murray Basin and the
US.
Mineral sands other costs increased due to higher royalty
payments on the higher revenue base, combined with increased
Resource Development expenditure associated with drilling to
further delineate the Balranald deposit.
Impairment charges were recognised in 2017 for the idling of
the Hamilton mineral separation plant and the write-down of the
investment in Metalysis Ltd.
Tax expense had an effective tax rate in the current year of
32.8% compared with the prior year of 3.6% (the corporate tax
rate applicable in the main operating jurisdictions of Australia
and Sierra Leone is 30%). The prior year effective tax rate was
impacted by the substantial tax deductible expenses related to
impairments.
Iluka Resources Limited, Annual Report 2018
25
FINANCIAL AND
OPERATIONAL REVIEW
SALES AND MARKETS
ZIRCON
RUTILE
SYNTHETIC
RUTILE
ILMENITE
Sales volumes (kt)
Sales volumes (kt)
Sales volumes (kt)
Sales volumes (kt)
380
379
352 346
339
264
233
244
215
317
300
182
172
134
187
171
82
225
203
18
14 15 16 17 18
14
15
16
17
18
14
15
16
17
18
14 15 16 17 18
Zircon
High-grade titanium feedstocks
In 2018 Iluka sold 379
thousand tonnes of zircon,
in line with the 380 thousand
tonnes sold in 2017. Sales
of zircon over the past two
years are reflective of the
solid underlying demand
conditions across Iluka’s
major markets, including
China, Asia, India and Europe.
Supply of zircon was tight
throughout the year as
major zircon producers and
swing production capacity
were constrained in their
ability to respond to lower
production as a result of
production disruptions
(among Iluka's competitors),
declining grades and
resource depletion. The
main industry responses
were from Iluka, through the
release of additional zircon in
concentrate and increased
production from Indonesian
miners. At the end of 2018,
some slowing of buying was
evident resulting in a broadly
balanced market. However,
with minimal inventories
through the value chain
and an emerging structural
deficit, Iluka is of the view that
tightness will be an ongoing
feature of the market in the
medium term.
In 2018, Iluka implemented
two increases to its Zircon
Reference Price, each
effective for six months, to
finish the year at US$1,580
per tonne. As a result,
weighted average received
prices for zircon premium
and standard were up 41%
relative to 2017.
Iluka’s approach in the
zircon market is focused on
supplying zircon to satisfy
genuine underlying demand.
In addition, a pricing cadence
is struck to reduce historic
volatility and achieve more
sustained and sustainable
zircon prices. Together, this
is expected to deliver more
sustainable and predictable
revenue outcomes. In light
of global uncertainties, Iluka
plans to maintain the current
Zircon Reference Price for a
further six months effective
from 1 April 2019.
Iluka’s 2018 sales of high-
grade titanium feedstocks
of rutile and synthetic rutile
were 448 thousand tonnes,
down around 12% from
509 thousand tonnes in
2017. Sales in 2018 were
production constrained with
supply disruptions at Iluka’s
primary rutile source, Sierra
Rutile, and the completion of
planned inventory drawdown
from previous Murray Basin
operations.
Several mineral sands
operations across the
industry experienced
production disruptions in
the year, reducing availability
of high-grade titanium
feedstocks. At the same
time, demand for high-grade
feedstocks has remained
robust. This is largely
attributable to purchasing
by the titanium pigment
industry, which represents
approximately 90% of end
use demand. High-grade
feedstocks allow chloride
pigment plant operators
to improve plant yield and
increase utilisation.
The supply-side issues
coupled with strong demand
have created tight market
conditions and driven price
appreciation in the high-
grade market. Iluka’s 2018
weighted average rutile price
increased 21% on the 2017
average to US$952 per
tonne. The average price in
the fourth quarter of 2018
was US$1,038 per tonne.
Iluka’s synthetic rutile
product is predominantly
sold under contract. Sales
volumes reflect annual
production from the kiln and
minor inventory movement.
As per contractual
arrangements, prices are not
disclosed, but increased in
line with market conditions.
The underlying drivers of
tight market conditions in
2018 are expected to remain
in 2019. Iluka enters 2019
with minimal inventories and
will be managing shipments
to meet customer demand.
Half on half price increases
ranging from 8 to 11% for
rutile/synthetic rutile have
been negotiated for all
volumes contracted in the
first half 2019.
26
Iluka Resources Limited, Annual Report 2018
% of total 2018 mineral sands sales revenue
30%
EUROPE
37%
CHINA
AMERICAS
13%
ASIA &
MIDDLE EAST
17%
AUSTRALIA
3%
Weighted average received prices – US$/t FOB
Zircon premium and standard
Zircon (all products including zircon in concentrate)1
Rutile (excluding HYTI)2
Synthetic rutile3
2014
1,054
1,033
828
750
2015
2016
986
961
763
-
810
773
731
-
2017
958
940
790
-
2018
1,351
1,321
952
-
(1) Zircon prices reflect the weighted average price for zircon premium and zircon standard, also with a weighted average price for all zircon materials,
including zircon in concentrate. The prices for each product vary considerably, as does the mix of such products sold period to period. In 2018 the
split of zircon and concentrate, by zircon sand equivalent was approximately: 79%, 21% (full year 2017: 88%;12%).
(2) HYTI is excluded from rutile sales prices as it is a lower value titanium dioxide product, with a typical titanium dioxide content of 70% to 90%. This
product sells at a lower price than rutile, which typically has a titanium dioxide content of 95%.
(3)
Iluka’s synthetic rutile sales are, in large part, underpinned by commercial offtake arrangements. The terms of these arrangements, including the
pricing arrangements are commercial in confidence and as such not disclosed by Iluka. Synthetic rutile, due to its lower titanium dioxide content
than rutile, is priced lower than natural rutile.
ILUKA EXPECTS MODERATE
DEMAND GROWTH FOR ZIRCON
AND TITANIUM FEEDSTOCKS IN
THE SHORT TO MEDIUM TERM
Iluka Resources Limited, Annual Report 2018
27
FINANCIAL AND
OPERATIONAL REVIEW
PRODUCTION AND OPERATIONS
ZIRCON
RUTILE
SYNTHETIC RUTILE
ILMENITE
Production volumes (kt)
Production volumes (kt)
Production volumes (kt)
Production volumes (kt)
389
358
347
349
312
302
220
211
211
177
163
137
118
165
0
466
448
395
365
329
14 15 16 17 18
14
15
16
17
18
14
15
16
17
18
14 15 16 17 18
Australia
Sierra Leone
Full year synthetic rutile
production from Iluka’s
SR2 kiln at Capel, Western
Australia, was 220 thousand
tonnes, the highest annual
production achieved
from the SR2 kiln since
commissioning in 1997.
This result reflects high kiln
operating runtimes achieved
throughout the year. In
2018, ilmenite feedstocks
for the kiln were from both
internal and external sources.
From February 2019, the
kiln will undergo a major
maintenance outage for
approximately two months
before beginning its next four
year campaign. Cataby will
provide the main source of
ilmenite feedstock for the kiln
in 2019.
Iluka’s primary zircon mine,
Jacinth-Ambrosia, South
Australia, operated at full
capacity in 2018. Higher
than anticipated ore grades
and improved recoveries
resulted in an increase in
heavy mineral concentrate
inventory over the course
of 2018. This inventory
will help to smooth future
zircon production from
Iluka’s operations. In the
December quarter, mining
was completed at the
southern end of the Jacinth
deposit. The mining unit is
now located at Jacinth North,
where it will remain before
moving to Ambrosia, planned
for the second half of 2019.
The Narngulu mineral
separation plant in Western
Australia processed 530
thousand tonnes of HMC
in 2018, exclusively from
Jacinth-Ambrosia. In 2019,
the plant will continue to
process concentrate from
Jacinth-Ambrosia and will
also process non-magnetic
material from Cataby when
operations commence in
2019.
Sierra Rutile produced 122
thousand tonnes of rutile
in 2018. This is 28% lower
than 2017 (168 thousand
tonnes) reflecting a number
of factors that hampered
operations over the year
including mechanical
and operational issues,
maintenance issues at the
dredge, commissioning and
operational issues with the
in-pit mining unit and strike
actions.
A number of ongoing
mechanical and operational
issues resulted in lower
runtimes and ore throughput
rates over the course of
2018. These included
bearing failures, water tank
liner failures and unexpected
hard rock digging conditions.
Iluka is implementing a
range of measures that have
been identified to improve
production outcomes and
ensure operational targets
are met consistently going
forward.
Output from the Lanti
dredge was affected by
several periods of downtime
resulting from mechanical
issues. Iluka implemented
a maintenance plan for the
dredge and its planned
decommissioning was
extended to early 2019.
Over two separate episodes
in October and November
2018, unlawful strike action
at Sierra Rutile resulted
in operations halting for
approximately two weeks.
An independent taskforce
was established by the
Government of Sierra
Leone. The taskforce
found the strikes illegal
and that Iluka had taken
appropriate measures to
ensure the safety of its
people and assets. Improving
performance at Sierra Rutile
requires a stable operating
environment and Iluka is
working closely with the
Government to achieve
this. The Government has
expressed strong support for
Iluka’s investment in Sierra
Rutile and the findings of its
taskforce are an important
step towards achieving long-
term stability.
28
Iluka Resources Limited, Annual Report 2018
HMC produced and processed
HMC produced
HMC processed
2018
934
1,037
2017
% change
612
1,280
52.6
(19.0)
Cash cost and unit cost of production $/t
Cash cost of production
Unit cash cost per tonne of Z/R/SR excluding by-products
Unit costs of goods sold per tonne of Z/R/SR sold
$m
$/t
$/t
2018
455.1
606
750
2017
% change
372.4
439
743
22.2
38.1
0.9
Mineral sands operations results
Revenue
Mineral sands EBITDA
EBIT
$ million
Australia
United States
Sierra Rutile
Resource development
and support costs
Intercompany elimination
2018
1,011.4
39.3
205.7
-
(12.3)
2017
833.7
40.0
145.9
-
(2.1)
Total
1,244.1
1,017.5
2018
603.5
1.5
30.2
(88.6)
(2.1)
544.5
2017
359.1
(4.9)
30.8
(83.3)
(0.8)
300.9
2018
532.6
1.5
(12.5)
(36.7)
(2.1)
482.8
2017
53.5
(124.4)
(0.6)
(61.1)
(0.8)
(133.4)
RECORD ANNUAL PRODUCTION FROM
SR2 KILN IN WESTERN AUSTRALIA OF
220 THOUSAND TONNES
Zircon
Iluka is the world’s largest producer of zircon. Zircon is
opaque; and heat, water, chemical and abrasion resistant.
Uses include ceramics, refractory and foundry, and
zirconium chemicals.
Iluka Resources Limited, Annual Report 2018
29
FINANCIAL AND
OPERATIONAL REVIEW
OPERATIONS
Australia
Production volumes
Zircon
Rutile
Synthetic rutile
Total Z/R/SR production
Ilmenite
Total saleable production
HMC produced
HMC processed
Unit cash cost of production - Z/R/SR 1
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 and amortisation
Inventory movements - non-cash production costs
Rehabilitation costs for closed sites
Impairment expense
EBIT
2018
2017
% change
327.9
41.7
219.9
589.5
340.6
930.1
694
795
498
1,011.4
(293.6)
(46.0)
(14.4)
(31.2)
(24.2)
1.5
603.5
(48.8)
(25.4)
3.3
-
532.6
293.7
134.5
210.8
639.0
390.5
1,029.5
259
932
350
833.7
(223.6)
(151.8)
(65.3)
(18.2)
(16.4)
(0.7)
359.1
(67.7)
(75.0)
(7.9)
(155.0)
(53.5)
11.6
(69.0)
4.3
(7.7)
12.8
9.7
167.6
14.7
(42.3)
21.3
(31.3)
68.1
77.9
(71.4)
(48.2)
(114.3)
67.4
27.9
69.5
141.8
100.0
895.5
kt
kt
kt
kt
kt
kt
kt
kt
$/t
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
1 Calculated as cash costs of production, including by-product costs divided by Z/R/SR production.
Mineral sands revenue of $1,011 million for the year reflected
a 21% increase from prior year due to higher sales prices per
tonne of Z/R/SR sold, partially offset by lower sales volumes
than prior year.
The decrease in restructure and idle costs reflected the
absence of both idle costs associated with Jacinth-Ambrosia
and restructuring costs associated with the Hamilton mineral
separation plant, which were incurred in the prior year.
Inventories held decreased during the year to normal levels,
being $299 million at year end. Non-current finished goods
inventories decreased to nil during the period, with remaining
non-current inventory comprising only work in progress.
Similarly, there was no impairment charge in the current year;
the impairment in 2017 related to the idling of the Hamilton
mineral separation plant.
30
Iluka Resources Limited, Annual Report 2018
Sierra Rutile
Production volumes
Zircon
Rutile
Ilmenite
Total production volume
HMC produced
HMC processed
Unit cash cost of production - saleable product 1
Mineral sands revenue
Cash costs of production
Inventory movements - cash
Restructure and idle capacity charges
Government royalties
Marketing and selling costs
Asset sales and other income
EBITDA
Depreciation and amortisation
Inventory movement - non-cash
Rehabilitation and holding costs for closed sites
2018
2017
% change
11.4
121.5
54.5
187.4
240
242
1,155
205.7
(153.5)
(11.7)
(2.5)
(6.9)
(0.9)
-
30.2
(41.1)
(2.9)
1.3
(12.5)
3.0
167.6
57.6
228.2
353
348
783
145.9
(133.5)
31.7
-
(7.0)
(6.1)
(0.2)
30.8
(39.4)
8.0
-
(0.6)
280.0
(5.4)
(17.9)
(32.1)
(30.5)
(47.6)
41.0
(15.0)
101.6
-
1.4
85.2
-
(1.9)
(4.3)
275.0
-
(1,966.7)
kt
kt
kt
kt
kt
kt
$/t
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
EBIT
1
Calculated as cash costs of production, including by-product costs divided by Z/R production
Sierra Rutile had a disappointing performance this year. The
operations suffered downtime due to dredge maintenance
issues early in the year when the dredge was off-line for six
weeks; extended commissioning of Lanti dry mine in-pit mining
unit; and illegal industrial actions in the fourth quarter. This poor
operational performance impacted on cash production costs,
which were US$13 million higher than originally guided (US$102
million) at the start of the year.
Mineral sands revenue increased 41% on higher sales prices
per tonne of Z/R/SR sold, partially offset by lower sales volumes
than the prior year, in part caused by lower inventory availability
due to the operational issues noted above.
Titanium dioxide
A dark coloured mineral which, with further processing,
becomes a white, opaque powder. Around 90% of titanium
dioxide globally is used as a pigment in the manufacture of
paint, plastic and paper.
Iluka Resources Limited, Annual Report 2018
31
FINANCIAL AND
OPERATIONAL REVIEW
OPERATIONS
United States (Virginia)
Production volumes
Zircon
Total Z/R/SR production
Mineral sands revenue
Cash costs of production
Inventory movement - cash
Restructure and idle capacity charges
Marketing and selling costs
Asset sales and other income
EBITDA
Rehabilitation and holding costs for closed sites
EBIT
2018
2017
% change
9.3
9.3
39.3
(8.0)
(23.0)
(7.8)
0.5
0.5
1.5
-
1.5
15.6
15.6
40.0
(15.3)
(22.6)
(8.0)
-
1.0
(4.9)
(119.5)
(124.4)
(40.4)
(40.4)
(1.8)
47.7
(0.9)
2.5
n/a
50.0
n/a
-
n/a
kt
kt
$m
$m
$m
$m
$m
$m
$m
$m
$m
1 Calculated as cash costs of production, including by-product costs divided by Z/R/SR production.
Zircon and ilmenite production in the United States ceased in
December 2015 following the completion of mining at Brink
and Concord deposits. The US operations were permanently
closed in December 2016. Production in 2018 represents the
processing of remnant stockpiles to reduce future rehabilitation
obligations.
Rehabilitation costs in the prior year arose due to the
identification of potential additional obligations relating to
past rehabilitation. Iluka continues to engage proactively with
regulatory agencies and positive progress has been made in
the management and mitigation of rehabilitation liabilities in the
US.
Mineral sands revenue represents the sale of finished goods
that had been stockpiled at the end of operations, combined
with a component of the remnant stockpiles processed in the
year. The US inventory balance was $7 million at year end.
Cash costs of production were largely driven by activities
associated with product transportation, combined with some
processing costs for the remnant stockpiles.
The cost of rehabilitating the Virginia operation will largely
depend on the rehabilitation programme ultimately undertaken
by Iluka, which can only be determined following what is
expected to be extensive and ongoing engagement with the
regulators. As the nature and extent of any change continues to
be highly uncertain, the provision has been calculated (as it was
in the 2017 accounts) on a probabilistic basis across a range of
scenarios.
Restructure and idle costs reflect regional management and
holding costs following closure of operations. These costs
are expected to be broadly consistent going forward until all
stockpiles are diminished and rehabilitation is complete.
32
Iluka Resources Limited, Annual Report 2018
Narngulu mineral separation plant, Western Australia, Australia
Iluka Resources Limited, Annual Report 2018
33
FINANCIAL AND
OPERATIONAL REVIEW
Movement in net (debt) cash
$ million
Opening net cash (debt)
Operating cash flow
MAC royalty
Exploration
Interest (net)
Tax
Capital expenditure
Sri Lanka investment
Payment for option contracts
Asset sales
Purchase of treasury shares
Free cash flow
Dividends
Net cash flow
Exchange revaluation of USD net debt
Amortisation of deferred borrowing costs
(Decrease)/increase in net cash (debt)
H1
2017
(506.3)
193.9
30.5
(5.6)
(8.8)
(6.4)
(24.6)
-
-
1.2
-
180.2
-
180.2
22.6
(1.1)
201.7
H2
2017
(304.6)
197.8
29.4
(7.0)
(6.5)
(3.6)
(65.9)
(2.6)
(2.3)
2.4
-
141.7
(25.1)
116.6
7.0
(1.5)
122.1
H1
2018
(182.5)
306.5
29.6
(4.6)
(4.7)
(2.4)
(93.6)
-
-
1.1
(6.4)
225.5
(69.2)
156.3
(7.3)
(0.9)
148.1
H2
2018
(34.4)
287.7
26.2
(7.1)
(1.9)
(2.8)
(217.9)
-
(0.6)
1.3
(6.0)
78.9
(39.1)
39.8
(2.9)
(0.7)
36.2
Closing net cash (debt)
(304.6)
(182.5)
(34.4)
1.8
Net debt reduced to a net cash position of $1.8 million,
reflecting strong free cash flow of $304.4 million, partially offset
by a weaker Australian dollar revaluing US dollar denominated
debt.
Operating cashflow of $594.2 million was a 52% increase
from 2017 due to higher underlying EBITDA from continued
improved market conditions.
Cashflows from the MAC royalty are received quarterly in
arrears and were largely consistent year on year due to
materially similar iron ore sales volumes and prices.
Iluka invested $311.5 million on capital developments during
2018, predominantly at Cataby.
An interim dividend of 10 cents per share was paid in
September and Iluka has announced a final fully franked
dividend of 19 cents per share payable in April 2019.
Activated carbon
Iluka produces high quality, coal based activated carbon as
a co-product from its synthetic rutile kiln 2 operations
34
Iluka Resources Limited, Annual Report 2018
Non-IFRS financial information
This document uses non-IFRS financial information including underlying 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.
All currency shown in the Annual Report is expressed in Australian dollars, unless otherwise indicated.
2018
Mineral sands revenue
Freight revenue
Expenses
Mining Area C
FX
Corporate costs
EBITDA
Depn and amort
Inventory movement
- non-cash
Rehabilitation for
closed sites
EBIT
Net interest costs
Rehab unwind and other
finance costs
Profit before tax
Aus
1,011.4
39.4
(447.3)
-
-
-
603.5
(48.8)
(25.4)
3.3
532.6
-
(10.3)
522.3
US
39.3
3.9
SRL
205.7
7.0
Expl
& oth
(12.3)
Mineral
sands
1,244.1
50.3
(41.7)
(182.5)
(31.6)
(703.1)
-
-
-
1.5
-
-
-
1.5
-
(4.4)
(2.9)
-
-
-
30.2
(41.1)
(2.9)
1.3
(12.5)
-
(2.0)
(14.5)
-
-
-
(43.9)
(3.3)
-
-
(47.2)
-
-
(47.2)
-
-
-
591.3
(93.2)
(28.3)
4.6
474.4
-
(16.7)
457.7
MAC
Corp
Group
-
-
-
55.6
-
-
55.6
(0.4)
-
-
55.2
-
-
55.2
-
-
-
-
1.3
(48.1)
(46.8)
-
-
-
(46.8)
(14.1)
-
(60.9)
1,244.1
50.3
(703.1)
55.6
1.3
(48.1)
600.1
(93.6)
(28.3)
4.6
482.8
(14.1)
(16.7)
452.0
Segment result
522.3
(2.9)
(14.5)
n/a
504.9
55.2
n/a
560.1
2017
Mineral sands revenue
Mineral sands expenses
Mining Area C
FX
Corporate costs
Underlying EBITDA
Depn and amort
Inventory movement
- non-cash
Rehabilitation for
closed sites
Share of Metalysis Ltd's
losses
Impairment
EBIT
Net interest costs
Rehab unwind and other
finance costs
Profit before tax
Aus
833.7
(474.6)
-
-
-
359.1
(67.7)
US
40.0
(44.9)
-
-
-
(4.9)
-
SRL
145.9
(115.1)
-
-
-
Expl
& oth
Mineral
sands
(2.1)
1,017.5
(35.5)
(670.1)
-
-
-
-
-
-
30.8
(39.4)
(37.6)
(3.5)
347.4
(110.6)
(75.0)
-
8.0
0.2
(66.8)
(7.9)
(119.5)
-
(155.0)
53.5
-
(10.3)
43.2
-
-
(124.4)
-
(1.9)
(126.3)
-
-
-
(40.9)
-
(127.4)
-
(155.0)
(112.4)
-
-
(14.1)
(40.9)
(126.5)
-
-
-
(0.6)
-
(1.9)
(2.5)
(2.5)
MAC
-
-
59.6
-
-
59.6
(0.4)
-
-
-
-
59.2
-
-
59.2
Corp
& elim
-
-
-
0.6
(47.1)
(46.5)
-
-
-
(3.3)
(30.4)
(80.2)
(15.5)
(2.6)
(98.3)
Group
1,017.5
(670.1)
59.6
0.6
(47.1)
360.5
(111.0)
(66.8)
(127.4)
(3.3)
(185.4)
(133.4)
(15.5)
(16.7)
(165.6)
Segment result
43.2
(126.3)
n/a
(85.6)
59.2
n/a
(26.4)
Iluka Resources Limited, Annual Report 2018
35
FINANCIAL AND
OPERATIONAL REVIEW
PROJECTS
CATABY, WESTERN AUSTRALIA
AMBROSIA, SOUTH AUSTRALIA
The Iluka Board approved the Cataby mine development
in December 2017. Cataby is a large, chloride ilmenite-rich
deposit 150 kilometres north of Perth with ilmenite from
the mine to support the continued production of synthetic
rutile at Capel, in the south west of Western Australia.
Offtake agreements were secured for 85% of synthetic rutile
production for a minimum of four years prior to project approval,
underpinning returns.
The Jacinth-Ambrosia mine in South Australia’s Eucla Basin is
Iluka’s primary source of zircon. The company undertook work
in 2018 assessing options to smooth the production profile
of Jacinth-Ambrosia to partially offset the impact of declining
grade over its remaining operating life. The outcome of this
work was to accelerate the mine move from the Jacinth to the
Ambrosia deposit to the fourth quarter of 2019 (previously
planned to occur in 2022).
In 2018, the definitive feasibility study for the Ambrosia mine
move was completed and the Board approved ~$55 million of
funding. Of this ~$35 million is expected to be spent in 2019
on roads, earthworks, high voltage power, mining pipework and
pumping infrastructure, site infrastructure and buildings. The
deferred capital of ~$20 million to be spent over 2020 and 2021
is related to tailings infrastructure and management.
Activity commenced in late 2018, including access road
construction, relocation of equipment and expansion of existing
amenities.
The mine will produce, on average, approximately 200 thousand
tonnes of synthetic rutile (from ilmenite feedstock), 50 thousand
tonnes of zircon and 30 thousand tonnes of rutile. Ilmenite will
be transported to Capel for synthetic rutile production and
the non-magnetic stream (zircon and rutile) to Iluka’s Narngulu
mineral separation plant in Geraldton for final processing.
Cataby has a planned mine life of 8.5 years. Access to additional
Ore Reserve could extend the mine life for a further four years.
The majority of project execution and site works were
completed over the course of 2018. This included construction
of the mining unit, relocation of the Newman concentrator
from Eneabba, construction of the accommodation village,
installation of high voltage power distribution, bulk earthworks
and site foundations. The mining contractor is on site and
removal of overburden to expose the ore has begun.
As previously disclosed, the estimated total capital cost is
$250-275 million. Activities to be completed in early 2019
include pre-strip mining and plant commissioning. First
production is planned for the first half of 2019.
36
Iluka Resources Limited, Annual Report 2018
SIERRA RUTILE, SIERRA LEONE
Lanti Dry and Gangama expansion, Sierra Leone
Sembehun, Sierra Leone
Iluka’s plans following the acquisition of Sierra Rutile in
December 2016 contemplated the doubling of capacity at
both the Lanti Dry and Gangama mining operations to increase
throughputs and reduce unit operating costs. These projects
received Board approval in December 2017.
The Lanti Dry mine expansion involves the construction of a
second in-pit mining unit and additional concentrator capacity.
At Gangama, the expansion includes the construction of a
second mining unit and concentrator based on the current
truck and shovel mining method.
Both projects progressed in line with budget and schedule over
2018, with completion expected in mid-2019.
Sembehun is a new mine development at Iluka’s Sierra Rutile
operations. The Sembehun group of deposits contain more
than 70% of remaining Ore Reserves at Sierra Rutile.
The definitive feasibility study commenced in March 2018. A
number of value optimisation studies are continuing and are
focused on investigating options around the timing, capacity
and sequence of mining and concentrating activities across the
Sembehun deposits.
Environmental, social and health impact assessments are
currently being conducted.
As part of the Sembehun development, Iluka is also planning to
upgrade the capacity of the mineral separation plant at Sierra
Rutile.
ILUKA HAS A DISCIPLINED
APPROACH TO CAPITAL INVESTMENT
Iluka Resources Limited, Annual Report 2018
37
PROJECTS
FINE MINERALS, VICTORIA
BALRANALD, NEW SOUTH WALES
Iluka is advancing a project to mine and beneficiate zircon and
rare earth elements from deposits in the Wimmera region of the
Murray Basin, Victoria. Iluka currently holds exploration licences
on a number of these ore bodies. These and other similar
deposits have not been developed into mining operations due
to technical challenges associated with purity and recovery of
the valuable minerals.
Balranald and Nepean are two large, deep, high-grade rutile-rich
deposits in northern Murray Basin, New South Wales. Iluka is
developing an underground mining method for these deposits,
involving directional drilling technology unconventional to
typical mineral sands operations. The advantages of this
approach include reduced environmental footprint, potentially
lower capital intensity, scaleability and portfolio flexibility.
Iluka recently commenced a pre-feasibility study for the
WIM100 fine minerals deposit. In 2018, a test pit was completed
and an ore sample sent to the mineral test facility in Capel,
Western Australia for testing and preparation of customer
samples.
The pre-feasibility study is scheduled to be concluded by the
end of 2019.
In 2018, Iluka has undertaken a drilling programme to provide a
more detailed understanding of the deposit mineralisation.
Expenditure for the final field trial will be considered for approval
in 2019. The trial is designed to demonstrate the effective
functioning of drilling and processing componentry in a
continuous mining and processing environment.
38
Iluka Resources Limited, Annual Report 2018
PUTTALAM, SRI LANKA
Puttalam Quarry (PQ) is a large, sulphate ilmenite deposit in
north west Sri Lanka. Iluka is currently undertaking a pre-
feasibility study on its development.
The focus of project work to date has been to establish the legal
framework and investment terms which the development will
be subject to. These include surface access rights, ministerial
and other governmental approvals, fiscal regime and other
arrangements. In 2018, progress was hampered by government
instability in Sri Lanka.
RESOURCE DEVELOPMENT ACTIVITIES BEING
UNDERTAKEN BY THE COMPANY INCLUDE
PROJECTS IN AUSTRALIA, SIERRA LEONE
AND SRI LANKA; TECHNICAL INNOVATION;
AND A GLOBAL EXPLORATION PROGRAMME
Iluka Resources Limited, Annual Report 2018
39
Quebec, Canada. Image courtesy Societe d’Exploration Miniere Vior Inc.
FINANCIAL AND
OPERATIONAL REVIEW
EXPLORATION
Growing and improving the quality of Iluka’s Ore Reserves
and Mineral Resources is important to Iluka’s ability to deliver
sustainable value. The quality of Iluka’s Sierra Leonean assets
provides a low risk opportunity to add to Ore Reserves in
the short term via brownfield exploration. This is balanced
with focused greenfield exploration and the assessment
of external opportunities, capable of delivering significant
longer-term growth.
SIERRA LEONE
At Sierra Rutile, drilling tested for potential Mineral Resources
extensions near current mining areas. Updated geological
modelling advanced understanding of the Mineral Resources
at the Sembehun project.
Iluka announced the addition of 0.62Mt of rutile for a total of
5.0Mt rutile at the Sembehun Group Deposits1. In January
2019, Iluka also announced the inaugural Pejebu Mineral
Resource estimate of 0.22Mt of rutile, which is proximal to
current mining areas2.
AUSTRALIA
Iluka completed over 30,000m of drilling supporting key
projects at Cataby, Western Australia; Ambrosia, South
Australia; Balranald, New South Wales; and the Fine Minerals
project, Victoria.
At Ambrosia, 19,018m of mine production drilling was
completed to underpin inaugural mining in the third quarter of
2019.
QUEBEC, CANADA
Iluka continued to fund Societe d’Exploration Miniere Vior
Inc. to undertake greenfield exploration for high-grade rutile/
ilmenite deposits in the Foothills, Grand Duc and Big Island
Lake (BIL) project areas in Quebec. Work in 2018 included
diamond drill testing at the BIL Prospect and a 1462 line
kilometre HeliFalcon geophysical survey across the projects
to assist definition of diamond drilling targets for testing in
2019.
1
2
See ASX Release Sembehun Mineral Resource Increase and
Pejebu Exploration Target, Sierra Rutile, 15 August 2018.
See ASX Release, Inaugural Pejebu Mineral Resource Estimate
released 25 January 2019.
40
Iluka Resources Limited, Annual Report 2018
KAZAKHSTAN
Results of drilling completed in 2017 did not meet Iluka’s technical hurdle to justify
continued exploration on GIN1, GIN2 and GIN3. In May 2018, Iluka submitted the final
technical report to the Committee of Geology and Subsoil Use, Ministry of Investments
and Development, Kazakhstan.
GENERATION AND EXTERNAL OPPORTUNITIES
Project generation, combined with a willingness to partner with others on high potential
projects remains vital to delivering high value organic growth options.
Tenement position as at 31 December 2018
Region
Eucla Basin, South Australia
Murray Basin (SA, NSW, Vic)
Perth Basin (WA)
Other – Australia
Sierra Leone
Sri Lanka
Other
Total
Approx. square kilometres
15,178
5,297
534
322
53,688
135
742
76,192
Exploration expenditure 2018 - $11.7 million
Administration and
Other Costs
$1.5m
Australia
$5.8m
Africa
$0.7m
Kazakhstan
$1.2m
Americas
(US and Canada)
$2.5m
EXPLORATION COMPLETED
OVER 40,000M OF TARGETED
DRILLING ACROSS
AUSTRALIA, AFRICA AND
NORTH AMERICA
Iluka Resources Limited, Annual Report 2018
41
SUSTAINABILITY
There were a number of sustainability highlights in 2018,
including the adoption of a new Human Rights Policy, a review
of Iluka's approach to climate change and the retention of
its position on the Australian Dow Jones Sustainability Index
(DJSI).
Published in October 2018, Iluka's Human Rights Policy
articulates the company's commitment to respect human
rights and align business activities with the UN Guiding
Principles on Business and Human Rights. This commitment
is supported by a detailed work plan to prevent or mitigate
any negative human rights impacts in connection with Iluka’s
operations and maximise any potential positive impacts.
The policy directly references slavery and forced labour and
assists in the company’s preparations for the introduction of
modern slavery legislation in Australia.
Iluka also undertook a review of our climate change approach.
The company’s activities are inherently energy-intensive, with
the majority of Iluka’s greenhouse gas emissions generated
from energy use during mining and processing. The company
is working to manage its climate change risks and take
advantage of associated business opportunities. Iluka is
committed to the Paris Agreement objectives and accepts
the Intergovernmental Panel on Climate Change (IPCC)
assessment of climate change science. The Board is taking
steps to implement the recommendations made by the Task
Force on Climate-related Financial Disclosures (TCFD).
The company retained its position on the Australian DJSI
and was included in the FTSE4Good Index in recognition
of strong environmental, social and governance practices.
These indices track the performance of over 3,500 leading
companies worldwide, independently evaluating their long-
term sustainability performance.
Eneabba rehabilitation site, Western Australia, Australia
42
Iluka Resources Limited, Annual Report 2018
RECOGNISED AS A LEADING
SUSTAINABILITY PERFORMER
ON THE DOW JONES
SUSTAINABILITY INDEX (DJSI)
AUSTRALIA
SUSTAINABILITY APPROACH
Iluka aspires to achieve high levels of sustainability performance integrating economic,
environmental and social considerations into business practice, and ensuring safe and
responsible conduct underpins everything we do.
Iluka’s sustainability approach and performance is overseen by the Board and is
integrated into all levels of the business. Sustainability is governed through a series of
policies and management systems aligned to the company’s core values – to act with
integrity, demonstrate respect, show courage, take accountability and collaborate.
Governance
Health and safety
We conduct our business by adhering
to the highest standards of corporate
governance.
We strive to maintain a fatality-free
workplace, minimising injuries and
protecting the health and wellbeing
of our people and the communities in
which we operate.
Economic responsibility
Social performance
We aim to create sustainable economic
outcomes, which allow us to share
economic benefits with the communities
in which we operate, and to deliver
sustainable value.
We respect human rights, engage
meaningfully with stakeholders and seek
to make a positive difference to the
social and economic development of the
areas in which we operate.
People
Environment
Iluka aims to attract and retain the best
people while building and maintaining
a diverse, inclusive and high-achieving
workforce.
We seek to manage our impact on the
environment, use resources efficiently
and leave positive rehabilitation and
closure outcomes.
Health and safety performance
The health and safety of Iluka’s people is the foundation of our business. Iluka
strives to maintain a fatality-free workplace and continually reduce injury and illness
potential.
Thirty-four people sustained recordable injures while working for Iluka in 2018; 10
of these were lost time injuries, 19 were medical treatment injuries and five were
restricted work cases.
The Group total recordable injury frequency increased from 2.8 in December 2017
to 3.5 in December 2018. The Group lost time injury frequency rate remained at
1.0. The severity of injuries has reduced with the severity rate declining from 97.1 to
90.6 and the number of serious potential incidents has reduced materially from 60
occurrences in 2017 to 47 occurrences in 2018.
Iluka Resources Limited, Annual Report 2018
43
BUSINESS RISKS AND MITIGATIONS
The identification and management of
risk is fundamental to achieving Iluka’s
objective to deliver sustainable value.
The company is 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. This
framework provides a whole of business
approach to the management of
risks and sets out the process for the
identification, assessment, monitoring,
review and reporting of risk to facilitate
the achievement of our plans and
objectives.
The Board, through the Board Charter,
delegates responsibility for 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.
Company risks, and how they are being
managed, are reviewed and updated by
the Executive regularly and are reported,
along with the Executive’s assessment
of the company’s risk profile, for approval
by the Board twice yearly.
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
reasonable 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
is a key focus for Iluka. The success
of exploration activity and project
delivery is critical to sustain operational
production profiles.
Through its risk management framework
Iluka seeks to:
PROJECT DEVELOPMENT
RISKS
•
•
•
•
•
•
embed a culture of risk awareness
by integrating risk management
into our business activities and
processes;
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 agreed risk
tolerances;
ensure material business
risks are effectively identified,
communicated and appropriately
elevated throughout all levels of
management and to the Board; and
continue to fulfil governance
requirements for risk management.
Iluka applies 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.
44
Iluka Resources Limited, Annual Report 2018
Iluka regularly assesses its ability to
enhance its production profile or extend
the economic life of deposits through
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 risks
associated with some projects; for
example, the new unconventional
mineral sands mining approach planned
for the Balranald deposit, and in the Fine
Minerals project in Victoria.
A structured capital process and project
delivery framework is utilised to facilitate
successful project development to
manage risks associated with bringing
new projects into operation.
PRODUCT DEMAND AND
PRICE RISKS
Iluka is subject to fluctuations in global
economic conditions, customer demand
and end-use markets. The demand for
Iluka’s products may be sensitive to a
wide range of factors most of which
are outside of the company’s control
such as changes in the global economy,
adverse changes in pigment or ceramic
markets, or technology changes that
reduce the level of feedstock required
(substitution or thrifting). The prices
for products are also subject to these
market conditions. The company’s
approach to these risks is to adopt
pricing strategies that promote
sustainability (of demand and pricing)
and where appropriate to seek offtake
agreements that support project capital
returns, and to adjust production and
inventory levels in the context of market
demand.
FINANCIAL RISKS
Iluka faces risks relating to the cost
of and access to funds, movement in
interest rates and foreign exchange rates
(refer Note 19 in financial statements).
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.
Where Iluka has entered into long-term
contracts with fixed or floor prices
(i.e. hedged the commodity price),
Iluka will consider the management
of the risks related to movements in
foreign exchange rates by entering into
appropriate hedging arrangements. Any
hedging is conducted in accordance
with Iluka’s risk tolerances and policies
including appropriate approvals.
GROWTH RISKS
To deliver sustainable value, Iluka
attempts to generate growth options
through exploration, innovation, project
development and appropriate external
growth opportunities. 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. New or evolving regulations and
international standards are outside
the company’s control and are often
complex and difficult to predict. The
potential development of international
opportunities can be jeopardised by
changes in fiscal or regulatory regimes,
difficulties in interpreting or complying
with local laws, material differences in
sustainability standards and practices,
or changes to existing political, judicial or
administrative policies.
Risks in the locations in which Iluka
operates could include terrorism, civil
unrest, judicial activism, community
challenge or opposition, regulatory
investigation, nationalisation,
protectionism, renegotiation or
nullification of existing contracts, leases,
permits or other agreements, imposts,
restrictions on repatriation of earnings or
capital and changes in laws and policy,
as well as other unforeseeable risks.
If any of the company’s operations are
affected by one or more of these risks, it
could have a material adverse effect on
its assets in those countries, as well as
Iluka’s overall operating results, financial
condition and prospects.
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 to or 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 inconsistent
with Iluka policy or applicable laws.
Iluka has a clear Anti-bribery and
Corruption Policy, and internal controls
and procedures to protect against such
risks, including training and compliance
programmes 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.
ENVIRONMENTAL
STANDARDS RISK
Mining operations, by their nature,
can have a significant impact on the
environment. 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. Iluka could
be subject 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, 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.
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 failure to comply with laws or
regulations could lead to fines, legal
and compensation 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
operational sites.
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 experienced industrial
action at the Sierra Rutile operation in
2018. Addressing risks to the stability
of Sierra Rutile’s operating environment
is a key priority for the company’s
Board and Executive. The company
undertakes regular reviews for mitigation
of property and business continuity
risks. Iluka also conducts planning and
simulated scenarios to ensure rapid
and effective response in the event of
an emergency or crisis. Appropriate
business plans, policies and training
exercises provides support to mitigate
Iluka’s risk. Iluka also maintains a prudent
insurance programme that may offset a
portion of the financial impact of a major
interruption event.
SUSTAINABILITY RISK
Iluka’s safety, health, environmental,
people and stakeholder performance
expectations are clearly articulated in its
policies and are overseen by the Board.
The annual Iluka Sustainability Report
contains further information on the
company’s operating conditions, as well
as elements of the business strategy.
This document (for the 2017 year), as
well as other company information, is
available on Iluka’s website www.iluka.
com.
Iluka plans to publish a Sustainability
Report in respect of the 2018 year, in
April 2019.
Iluka Resources Limited, Annual Report 2018
45
FINANCIAL REPORT
Results for announcement to the market
Directors’ report
Remuneration report
Auditor’s independence declaration
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
48
49
58
80
81
82
83
84
85
86
131
132
46
Iluka Resources Limited, Annual Report 2018
SIERRA RUTILE OPERATIONS,
SIERRA LEONE
Sierra Rutile, a wholly owned subsidiary of Iluka Resources, is a
multi-mine operation located in the Bonthe and Moyamba districts,
south west Sierra Leone. The operation is the world’s largest natural
rutile deposit
Sierra Rutile, Sierra Leone
Iluka Resources Limited, Annual Report 2018
Iluka Resources Limited, Annual Report 2018
47
47
RESULTS FOR ANNOUNCEMENT TO THE MARKET
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
For the year ended 31 December 2018
RESULTS FOR ANNOUNCEMENT TO THE MARKET
Provided below are the results for announcement to the market 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 2018 (the 'financial year') compared with the year ended 31
December 2017 ('comparative year').
All currencies shown in this report are Australian dollars unless otherwise indicated.
Revenue from ordinary activities
Profit from ordinary activities after tax attributable to members
Net profit for the period attributable to members
Up 25.3% to $1350.9m
Up 277% to $303.9m
Up 277% to $303.9m
Dividends
2018 final: 19 cents per ordinary share (100% franked), to be paid in April 2019
2018 interim: 10 cents per ordinary share (100% franked), paid in September 2018
2017 final: 25 cents per ordinary share (100% franked), paid in April 2018
2017 interim: 6 cents per ordinary share (100% franked), paid in September 2017
Key ratios
Basic profit/(loss) per share (cents)
Diluted profit/(loss) per share (cents)
Free cash flow per share (cents)¹
Return on Equity²
Net tangible assets per share ($)
2018
72.2
71.8
72.1
31.8
2.12
2017
(41.0)
(41.0)
76.9
(20.1)
1.70
¹Free cash flow is determined as cash flow before refinance costs, proceeds/repayment of borrowings and dividends paid in
the year.
²Calculated as Net Profit/(Loss) after Tax (NPAT) for the year as a percentage of average monthly shareholder's equity over the
year.
The Board of Directors approved a new Dividend Reinvestment Plan (DRP) effective from the 2017 final dividend
onwards. The new DRP came into effect from 28 March 2018, being the record date for the final dividend payable
in respect of the period ended 31 December 2017. A discount of 1.5% applied to the allocation price for the 2017
final dividend under the DRP. Under the plan, eligible shareholders can reinvest either all or part of their dividend
payments into additional fully paid Iluka shares.
The DRP was active for the 2018 interim dividend, and remains active for the 2018 final dividend. The Directors
have determined that no discount will apply for the DRP in respect of the 2018 final dividend. Shares allocated to
shareholders under the DRP for the 2018 final dividend will be allocated at an amount equal to the average of the
daily volume weighted average market price of ordinary shares of the Company traded on the ASX over the
period of 10 trading days commencing on 13 March 2019. The last date for receipt of election notices for the
DRP is 11 March 2019.
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.
48
48
Iluka Resources Limited, Annual Report 2018
DIRECTORS’ REPORT
For the year ended 31 December 2018
DIRECTORS' REPORT
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
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 2018.
The information appearing on pages 14 to 45 forms part of the Directors' Report for the financial year ended 31
December 2018 and is to be read in conjunction with the following information:
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:
G Martin
M Bastos
R Cole (Appointed 1 March 2018)
X Liu
T O'Leary
J Ranck
J Seabrook
DIRECTORS' PROFILES
Name:
Qualifications:
Age:
Role:
Appointed:
Independent:
Greg Martin
BEc, LLB, FAIM, MAICD
59
Chairman and Non-executive Director
January 2013
Yes
Current positions:
• Chairman of the Board
• Nominations and Governance 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):
• Sydney Desalination Plant Pty Limited - Chairman (current)
• Western Power - Deputy Board Chair (current)
• Spark Infrastructure - Non-executive Director (current)
• Coronado Global Resources (retired February 2019)
• Santos Limited - Non-executive Director (retired August 2017)
• Prostar Investments (Australia) Pty Ltd - Chairman (retired December 2017)
Name:
Qualifications:
Age:
Role:
Appointed:
Independent:
Tom O'Leary
LLB, BJuris
55
Managing Director
October 2016
No
49
Iluka Resources Limited, Annual Report 2018
49
DIRECTORS’ REPORT
For the year ended 31 December 2018
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
Relevant skills and experience:
Mr O’Leary was previously Managing Director of Wesfarmers Chemicals, Energy & Fertilisers 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.
Other relevant directorships and offices (current and recent):
• Clontarf Foundation - Director (current)
• Edith Cowan University Council - Member (retired June 2017)
Name:
Qualifications:
Age:
Role:
Appointed:
Independent:
James (Hutch) Ranck
BSE (Econ), FAICD
70
Non-executive Director
January 2013
Yes
Current positions:
• People and Performance Committee - Chairman
• Audit and Risk Committee - Member
• Nominations and Governance 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. Hutch was a former
Chairman of Elders Limited and a Non-executive Member of the CSIRO Board.
Other relevant directorships and offices (current and recent):
• Elders Limited - Chairman (retired December 2018)
• CSIRO - Non-executive Member of the Board (retired May 2018)
Name:
Qualifications:
Age:
Role:
Appointed:
Independent:
Jenny Seabrook
BCom, FCA, FAICD
62
Non-executive Director
May 2008
Yes
Current positions:
• Audit and Risk Committee - Chairman
• Nominations and Governance 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 a Senior Advisor to Gresham Partners Limited. Jenny was formerly a
member of the Takeovers Panel (2000 to 2012), and her previous non-executive directorships include: Export
Finance and Insurance Corporation, Amcor Limited, Bank of Western Australia Limited, West Australian
Newspapers Holdings Limited, Australian Postal Corporation, AlintaGas, Western Power Corporation and Western
Australian Treasury Corporation.
50
50
Iluka Resources Limited, Annual Report 2018
DIRECTORS’ REPORT
For the year ended 31 December 2018
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
Other relevant directorships and offices (current and recent):
• BGC (Australia) Pty Ltd - Non-executive Director (appointed October 2018)
• Esther Investments Pty Ltd - Non-executive Director (appointed October 2018)
• MMG Limited - Non-executive Director (current)
• IRESS Limited - Non-executive Director (current)
• Australian Rail Track Corporation - Non-executive Director (current)
• Western Australian Treasury Corporation - Non-executive Director (retired September 2018)
Name:
Qualifications:
Age:
Role:
Appointed:
Independent:
Marcelo Bastos
BEng Mechanical (Hons, UFMG), MBA (FDC-MG), MAICD
55
Non-executive Director
February 2014
Yes
Current positions:
• Audit and Risk Committee - Member
• Nominations and Governance Committee - Member
Relevant skills and experience:
Mr Bastos was formerly 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 also served as the Chief Executive Officer of BHP Billiton Mitsubishi Alliance
(BMA), President of Nickel West (BHP Billiton), President and Chief Operating Officer of Cerro Matoso and Nickel
Americas (BHP Billiton) and 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 Western Australia Chamber of Mines and Energy
and served as Vice President of the Queensland Resources Council.
Other relevant directorships and offices (current and recent):
• OZ Minerals Limited - Non-executive Director (appointed September 2018)
• Aurizon Holdings Limited - Non-executive Director (appointed November 2017)
• Golder Associates - Non-executive Director (appointed July 2017)
Name:
Qualifications:
Age:
Role:
Appointed:
Independent:
Xiaoling Liu
PhD, BEng, GAICD, FAusIMM, FTSE
62
Non-executive Director
February 2016
Yes
Current positions:
• Audit and Risk Committee - Member
• Nominations and Governance 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
roles included: Board member of 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.
51
Iluka Resources Limited, Annual Report 2018
51
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
DIRECTORS’ REPORT
For the year ended 31 December 2018
Other relevant directorships and offices (current and recent):
• Newcrest Mining Limited - Non-executive Director (current)
• Melbourne Business School - Non-executive Director (current)
• South 32 Limited - Non-executive Director (current)
Name:
Qualifications:
Age:
Role:
Appointed:
Independent:
Rob Cole
LLB (Hons), BSc
56
Non-executive Director
March 2018
Yes
Current positions:
• Nominations and Governance Committee - Member
• People and Performance Committee - Member
Relevant skills and experience:
Mr Cole is an experienced business leader and has worked for over 30 years in the energy and resources
industry. He has held a diverse range of senior positions in commercial, corporate, marketing and business
strategy and planning functions. Mr Cole was previously Managing Director of oil and gas production and
exploration company, Beach Energy, where he led a whole of business review and successfully implemented a
new strategic direction for the company. Mr Cole also spent over eight years at Woodside Petroleum Limited
across a number of senior positions in commercial, corporate and legal areas, including Executive Director,
Executive Vice President (Corporate and Commercial) and General Counsel. Prior to his time at Woodside, Mr
Cole was a Partner at the law firm King & Wood Mallesons.
Other relevant directorships and offices (current and recent):
• Ausdrill Limited - Non-executive Director (appointed July 2018)
• Synergy - Chair (appointed November 2017)
• GLX Group - Chair (appointed November 2016)
• St Bartholomew's House Inc. - Non-executive Director (appointed November 2016)
• Southern Ports Authority - Chair (appointed July 2016)
52
52
Iluka Resources Limited, Annual Report 2018
DIRECTORS’ REPORT
For the year ended 31 December 2018
Iluka Resources Limited, Annual Report 2018
53
ILUKARESOURCESLIMITED31DECEMBER2018MEETINGSOFDIRECTORSIn2018,theBoardmeton6occasions,ofwhichallmeetingswerescheduled.Inadditiontothesemeetings,theBoardspentadayprimarilyfocusedonstrategicplanning.TheChairmanchairedallthemeetings.TheNon-executiveDirectorsperiodicallymetindependentofmanagementtodiscussrelevantissues.Directors’attendanceatBoardandcommitteemeetingsduring2018isdetailedbelow:DIRECTORSSHAREHOLDINGDirectorsshareholdingissetoutintheRemunerationReport,section6.4.EXECUTIVETEAMPROFILESJulianAndrews,BCom(Hons),PhD,CFA,GAICDHeadofBusinessDevelopmentMrAndrewsjoinedIlukaasHeadofBusinessDevelopmentin2017.PriortojoiningIluka,MrAndrewsheldvariousrolesatWesfarmers,includingGeneralManager,BusinessDevelopmentandChiefFinancialOfficerofWesfarmersChemicals,Energy&Fertilisers.HebeganhiscareerinstrategyconsultingwithPricewaterhouseCoopersCanadaandworkedinprojectfinanceandcorporateadvisoryintheUSAbeforerelocatingtoPerthin2004.MatthewBlackwell,BEng(Mech),GradDip(TechMgt),MBA,MAICD,MIEAustHeadofMarketingandProcurementMrBlackwelljoinedIlukain2004asPresidentofUSOperations.HehadresponsibilitiesforLandManagementandasGeneralManager,USA,beforebeingappointedHeadofMarketing,MineralSandsinFebruary2014.In2017,MrBlackwell’s’responsibilitieswereexpandedtoincludeIluka’sprocurementactivities.PriortojoiningIlukahewasExecutiveVicePresidentofTSXlistedAsiaPacificResources,basedinThailand.MrBlackwellhasabackgroundinminingandprocessingwithpositionsinprojectmanagement,maintenance,productionandbusinessdevelopment.53 DIRECTORS’ REPORT
For the year ended 31 December 2018
Rob Hattingh, MSc (Geochem)
Chief Executive Officer, Sierra Rutile
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
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 28 years’ experience in the
mineral sands 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.
Sarah Hodgson, LLB, GAICD
General Manager, People & Sustainability
Ms Hodgson joined the People team at Iluka in 2013 and was appointed as General Manager People in May
2017. Ms Hodgson has 20 years’ HR experience specialising in remuneration and international mobility and
started her career at PricewaterhouseCoopers in London before relocating to Australia with KPMG in 2002. Prior
to joining Iluka Ms Hodgson held senior remuneration roles both as a consultant and in-house at Mercer,
Westpac and KPMG.
Adele Stratton, BA (Hons), FCA, GAICD
Chief Financial Officer
Ms Stratton joined Iluka in 2011 and was appointed Chief Financial Officer in August 2018. In the intervening
period she held numerous senior roles across the company, most recently General Manager Finance, Investor
Relations and Corporate Affairs. She is a qualified chartered accountant with 17 years’ experience working in
both practice and public listed companies. Ms Stratton commenced her career with KPMG, spending 7 years in
the assurance practice both in the UK, where she qualified as a chartered accountant, and Australia. Prior to
joining Iluka, she worked in a number of finance roles at Rio Tinto Iron Ore in Perth.
Melissa Roberts, BCom (Hons), MBA
General Manager, Investor Relations and Commercial Mineral Sands Operations
Ms Roberts joined Iluka in 2009 and has held a number of roles across the business in Commercial, Business
Development, IT and Investor Relations. Ms Roberts has 18 years’ experience within the health, chemicals and oil
& gas industries. Prior to joining Iluka, Ms Roberts held various positions consulting to a range of oil and gas
operators in the UK, including, Maersk, BP and Talisman Energy. She also held positions in Australia with CSBP
(now part of Wesfarmers Chemicals, Energy & Fertilisers), and with Mayne Health.
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.
54
54
Iluka Resources Limited, Annual Report 2018
DIRECTORS’ REPORT
For the year ended 31 December 2018
Sue Wilson, BJuris, LLB, FGIA, FCIS, FAICD
General Counsel and Company Secretary
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
Ms Wilson joined Iluka in December 2016. She was previously the Head of Company Secretariat at South32. 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 and a
non-executive director of Amana Living. She is a former Chairman of the WA State Council of the Governance
Institute of Australia and non-executive director of Western Power.
COMPANY SECRETARY
Ms Wilson is the Company Secretary of the Company. Ms Wilson was appointed to the position of Company
Secretary in December 2016. Refer to the previous section for Ms Wilson’s profile.
Mr Nigel Tinley BBus CPA GAICD FGIA FCIS 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 Limited both in Australia and internationally.
DIRECTORS AND OTHER OFFICERS’ REMUNERATION
Discussion of the Board’s policy for determining the nature and amount of remuneration for directors and senior
executives and the relationship between such policy and company performance are contained in the
remuneration report on pages 58 to 79 of this Annual Report.
PRINCIPAL ACTIVITIES
The principal activities and operations of the Group during the financial year were the exploration, project
development, mining operations, processing and marketing of mineral sands. The Company also has a royalty
over iron ore sales revenue from BHP Billiton's Mining Area C province in Western Australia.
INDEMNIFICATION AND INSURANCE OF DIRECTORS AND 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.
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.
INDEMNIFICATION OF AUDITORS
The company's auditor is PricewaterhouseCoopers. 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.
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.
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 25 on page 121 of the financial report.
55
Iluka Resources Limited, Annual Report 2018
55
DIRECTORS’ REPORT
For the year ended 31 December 2018
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
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 for the following reasons:
•
•
all non-audit services were provided in accordance with Iluka’s Non-Audit Services Policy and External
Auditor Guidelines; and
all non-audit services were subject to the corporate governance processes adopted by the company and have
been reviewed by the Audit & Risk Committee to ensure that they do not affect the integrity or objectivity of
the auditor.
A copy of the auditors' independence declaration as required under section 307C of the Corporations Act 2011 is
set out on page 80.
ENVIRONMENTAL REGULATIONS
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.
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. On 23 April
2018, Iluka was served with an originating application and statement of claim in respect of a shareholder class
action for alleged breaches of continuous disclosure obligations, and misleading and deceptive conduct. A
contingent liability has been disclosed in note 22 to the financial statements. Given the status of proceedings,
Iluka is unable to reliably estimate the quantum of liability, if any, that Iluka may incur in respect of this class
action.
MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR
On 22 January 2019, class action proceedings were brought by a group of landowner representatives in Sierra
Leone, who allege they suffered a loss as a result of Sierra Rutile Limited’s mining operations. Given the early
stage of proceedings, it is not practicable for Iluka to estimate the quantum of liability, if any, that Iluka may incur
in respect of this class action.
On 21 February 2019, the Group announced the potential for the International Finance Corporation (IFC) to
acquire a 10% equity interest in Sierra Rutile Limited, subject to due diligence, documentation and Board
approvals by both the Group and the IFC. The financial effects of this transaction have not been recognised in the
financial statements at 31 December 2018.
Other than the above matters, as further detailed in note 23 of the financial statements, 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 its operations or the state of affairs of the entity in
subsequent financial years.
DIVIDEND
The directors have declared a fully franked final dividend of 19 cents per ordinary share payable on 4 April 2019.
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 pages 22 to 41. Disclosure of any 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 2018 may be accessed from
the Company’s website at http://www.iluka.com/about-iluka/governance.
56
56
Iluka Resources Limited, Annual Report 2018
DIRECTORS’ REPORT
For the year ended 31 December 2018
Iluka Resources Limited, Annual Report 2018
57
ILUKARESOURCESLIMITED31DECEMBER2018ROUNDINGOFAMOUNTSTheCompanyisofakindreferredtoin"ASICCorporations(RoundinginFinancial/Directors'Reports)Instrument2016/191",issuedbytheAustralianSecuritiesandInvestmentsCommission,relatingtothe'roundingoff'ofamountsintheDirectors'ReportandaccompanyingFinancialReport.AmountsintheDirectors'ReporthavebeenroundedoffinaccordancewiththatRoundingInstrumenttothenearesthundredthousanddollars,orincertaincases,tothenearestdollar.Thisreportismadeinaccordancewitharesolutionofthedirectors.GMartinChairmanTO'LearyManagingDirector21February201957 DIRECTORS’ REPORT
For the year ended 31 December 2018
REMUNERATION REPORT
The directors of Iluka Resources Limited (Iluka or company) present this Remuneration Report (Report) for the year ended
31 December 2018.
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 2018 Remuneration
– Key Developments
This section of the Report provides a snapshot of key remuneration
developments at Iluka in 2018, as well as an overview of the total realised
remuneration received by executive KMP for the relevant year.
SECTION 2
Remuneration at Iluka
SECTION 3
Performance and Executive
Remuneration
SECTION 4
Non-executive Director
Remuneration
SECTION 5
Remuneration Governance
SECTION 6
Statutory Remuneration
Disclosures
This section gives an overview of Iluka’s remuneration principles and the process
for determining the structure of remuneration for executive KMP.
This section outlines the remuneration structure and outcomes for Iluka’s
executive KMP in 2018, being:
•
•
T O’Leary – Managing Director and Chief Executive Officer
J Andrews – Head of Strategy, Planning and Business Development
(from 22 August 2018)
• M Blackwell – Head of Marketing and Procurement
• S Hay – Head of Resource Development
• A Stratton – Chief Financial Officer (from 22 August 2018)
• D Warden – Chief Financial Officer & Head of Strategy and Planning
(ceased 5 October 2018)
• S Wickham – Chief Operating Officer Mineral Sands
It also demonstrates how the components of remuneration at Iluka are aligned
with value-creation by being linked to the company’s performance.
This section outlines the remuneration structure and fees paid to Iluka’s non-
executive directors in 2018, being:
• G Martin – Chairman, Independent Non-executive Director
• M Bastos – Independent Non-executive Director
• R Cole – Independent Non-executive Director (from 1 March 2018)
• X Liu – Independent Non-executive Director
•
•
J Ranck – Independent Non-executive Director
J Seabrook – Independent Non-executive Director
This section sets out the governance framework and practices which support
Iluka’s remuneration framework.
This section includes statutorily required remuneration disclosures for 2018,
including details of equity awards outstanding and executive KMP and non-
executive director shareholdings in Iluka.
58
Iluka Resources Limited, Annual Report 2018
DIRECTORS’ REPORT
For the year ended 31 December 2018
SECTION 1
OVERVIEW OF 2018 REMUNERATION – KEY DEVELOPMENTS
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.
1.1
Snapshot of 2018 Remuneration Outcomes
The following information provides a snapshot of developments which occurred in relation to the company's
remuneration arrangements:
Linking business
performance to
remuneration
outcomes
Refer to section 5.3
Iluka 2018
Performance
Refer to section 3
• A new Executive Incentive Plan (EIP) was introduced in 2018. The EIP has been designed
to ensure that Iluka’s incentives support the achievement of the company’s strategy and
key objective – to deliver sustainable value.
• The EIP generates a strong alignment between shareholders and executives by delivering
awards predominately in equity with deferred vesting, supporting decisions in the long term
interests of shareholders.
• The EIP combined the previous Short Term Incentive Plan (STIP) and Long Term Incentive
Plan (LTIP) into a single incentive plan. The quantum of each executive KMP’s EIP award
will be determined by performance against a scorecard over the 12 month annual
performance period.
• The award targets set for Executives have a lower total maximum reward opportunity and
a reduction in the proportion paid in cash than under previous plans.
• For 2018 the Board set performance measures which were a combination of specific
financial, production and sustainability targets in respect of performance in the 2018 year
and an assessment of the company’s progress against its longer term strategic plan to
position Iluka to deliver sustainable value.
• Any resulting EIP award will be delivered to executive KMP as follows:
• Two thirds (67%) as a combination of:
• A cash payment, made at the end of the performance period; and
• A grant of restricted shares, to be released in equal tranches over the three
years following the end of the performance period; and
• One third (33%) as a grant of performance rights, which will vest subject to meeting
a further gateway test (based on the company’s relative Total Shareholder Return
performance over a four year period commencing at the beginning of the
performance period).
•
The Board expects executives to build, and continue to hold, a personally significant
shareholding in Iluka through minimum shareholding requirements.
• Strong financial performance as reflected in revenue growth of 22% in 2018 to $1.244 billion
and net profit after tax of $303.9 million resulting in a return on capital of 54%.
• Group Z/R/SR production of 732,000 tonnes, with the Australian assets performing very
well including record synthetic rutile production from the SR2 kiln and strong zircon output
at Jacinth-Ambrosia, although a disappointing rutile production outcome at SRL.
• Unfavourable performance on sustainability measures with an increase in TRIFR from 2.8
to 3.5 with 8 additional injuries. Many of the recordable injuries for the year were minor in
nature with a material reduction in the number of injuries classified as having serious
potential in comparison to 2017.
• Progression of strategic initiatives including ensuring sustainable zircon production into
the medium term by accelerating the Jacinth-Ambrosia mine move and producing more
zircon in concentrate to help balance the market; progression of the Cataby project on time
and budget to maintain synthetic rutile production over the next decade and progression of
expansions at Sierra Rutile, however Sembehun development was deferred to allow for
further analysis and optimisation.
Iluka Resources Limited, Annual Report 2018
59
DIRECTORS’ REPORT
For the year ended 31 December 2018
Iluka 2018 EIP
outcomes
Refer to section 3
Changes in Total
Fixed Remuneration
(TFR)
Long Term Incentive
Plan (LTIP) – Legacy
Arrangement
Refer section 3.3
Long Term Deferred
Rights (LTDR) – One-
off Equity Grants
Refer section 3.4
• The Board assessment of performance for 2018 balances the strong financial performance,
mixed operational performance, sustainability outcomes and the progression of long term
strategic measures. The assessment resulted in overall incentive outcomes above target.
• The EIP outcome for the Managing Director was 116% of target (maximum 150%). This
outcome results in a total award of $2,157,127 which will be delivered as a combination of
restricted shares (52%), performance rights (33%) and cash (15%).
• The average EIP outcome for other executive KMP was 113% of target (maximum 150%).
For the executive KMP 47% of the incentive will be delivered as restricted shares, 33% as
performance rights and 20% as cash.
• As a result of Adele Stratton’s appointment as Chief Financial Officer her TFR was adjusted
to reflect the promotion and change in accountabilities.
• No other TFR increases were awarded to executive KMP during 2018.
• 25% of the 2016 LTIP (performance period 1 January 2016 to 31 December 2018) vested.
The TSR of Iluka over the performance period was 44.2%, which ranked at the 50th percentile
of the S&P/ASX 200 Materials Index comparator group. The average ROE over the
performance period was negative 1.8% (reported earnings in both 2016 and 2017 were
impacted by impairments and increases to provisions).
•
In October 2016, LTDR’s were granted to the Managing Director as compensation for
incentives foregone from Mr O’Leary’s previous employer. Tranche 2 of the Managing
Director’s LTDR award (performance period 1 October 2016 to 31 December 2018) was
tested as at 31 December 2018 and 35.7% of the award vested. The TSR over the period
was 29.4% which ranked at the 61st percentile of the S&P/ASX 200 Materials Index
comparator group. The average ROE was 3.3% (reported earnings in both 2016 and 2017
were impacted by impairments and increases to provisions).
•
In 2018, LTDRs were granted to the Chief Operating Officer in recognition of the ongoing
importance of integration and delivery of the investment case for the Sierra Rutile
operations. Share rights will vest subject to meeting certain performance hurdles which will
be tested over a two year period commencing 1 January 2018 and ending on 31 December
2019.
Non–executive
directors
Remuneration
Refer section 4
• During 2018 the Board engaged an external remuneration consultant to benchmark Board
and committee fees. The Board determined that an increase in Board and committee fees
was warranted given that fees have not been increased since 2011. A 3% increase was
applied to Board and Audit and Risk Committee fees and a 23% increase to the People and
Performance Committee fees to align with current market practice and to recognise the
substantial workload of the Committee. Fee increases were applied from 1 March 2018.
60
Iluka Resources Limited, Annual Report 2018
DIRECTORS’ REPORT
For the year ended 31 December 2018
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 2018. 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:
•
•
•
•
“TFR” includes base salary and superannuation earned in 2018.
"Other" payments include non-monetary benefits received in 2018, including car parking and termination
entitlements (such as payment in lieu of notice and accrued annual and long service leave).
“EIP” reflects the EIP cash amount and restricted share award receivable by executive KMP in respect of
performance in 2018 (paid in March 2019 following the release of annual results). It does not include the
performance rights component of EIP outcomes, as they will only vest in future years if additional performance
conditions are met.
“LTIP/LTDR” reflects former LTIP or LTDR awards of shares as a consequence of rights from prior years which
reached the end of their performance period and vested in 2018. It does not include LTIP or LTDR awards which
may vest in future years if performance conditions are met.
Name
TFR
$
Other
$
EIP
$
Cash
Restricted
Shares
LTIP1/
LTDR2
$
Shares
Total
Earnings
$
Managing Director
T O'Leary
Other executive KMP
J Andrews3
M Blackwell
S Hay
A Stratton4
D Warden5
S Wickham6
Total
1,400,000
13,406
323,569
1,121,706
527,795
3,386,656
500,000
655,000
600,000
469,783
506,957
733,000
13,406
13,406
13,406
13,406
10,959
77,434
115,350
153,729
134,820
132,653
-
271,073
361,262
316,827
311,733
-
-
899,829
128,321
1,311,718
90,503
13,365
113,774
1,155,556
940,940
631,690
155,909
366,386
126,362
1,459,091
4,864,740
155,423
1,016,030
2,748,987
1,000,300
9,785,480
1 Represents the estimated value of the 2016-2018 LTIP (not applicable to T O’Leary and J Andrews) for which the performance period
concluded on 31 December 2018. The estimate was calculated using the opening share price of $7.62 at 1 January 2019. The actual
value will be calculated using the closing share price at the date of vesting (1 March 2019).
2 The estimated value of the 2016 LTDR award for T O’Leary was calculated using the opening share price of $7.62 at 1 January 2019.
The actual value will be calculated using the closing share price at the date of vesting (1 March 2019).
3 J Andrews was appointed to his current role and became a KMP on 22 August 2018. Remuneration disclosures for the full 2018 year
are shown.
4 A Stratton was appointed to her current role and became a KMP on 22 August 2018. Remuneration disclosures for the full 2018 year
are shown. EIP for A Stratton was calculated based upon her TFR of $575,000 as at 31 December 2018.
5 D Warden ceased to be a KMP on 5 October 2018. Remuneration disclosures reflect the period he was a KMP.
6 S Wickham received an additional allowance in consideration of the significant time he is required to spend in Sierra Leone.
Iluka Resources Limited, Annual Report 2018
61
DIRECTORS’ REPORT
For the year ended 31 December 2018
SECTION 2
REMUNERATION AT ILUKA
2.1
Components of executive KMP remuneration in 2018
Executive remuneration is comprised of both fixed and "at risk" components. The table below describes each of the
components making up each executive KMP’s total remuneration package applicable in 2018:
The following diagram sets out the mix of fixed and "at risk" remuneration for executive KMP in 2018*:
* Percentages are based on achievement of maximum performance for the “at risk” remuneration components provided in 2018.
With the introduction of the EIP, the proportion of the annual incentive which is delivered as cash to executive KMP has
reduced in 2018. The Managing Director’s cash component of the EIP will reduce to zero by 2020.
62
Iluka Resources Limited, Annual Report 2018
DIRECTORS’ REPORT
For the year ended 31 December 2018
SECTION 3
2018 PERFORMANCE AND EXECUTIVE REMUNERATION OUTCOMES – FURTHER DETAIL
The outcomes of the incentive awards for executive KMP in 2018 are summarised below.
3.1
Company Performance
Five year performance
The table below provides key performance metrics for 2018 and the prior four financial years.
Net profit/(loss) after tax ($ million)
EBITDA margin (%)
Free cash flow ($ million)
Earnings per share (cents)
Return on equity (%)
Closing share price ($)1
Dividends paid (cents)3
Franking credit level (%)
Average AUD:USD spot exchange rate (cents)
2014
(62.5)
32.5
196.3
(15.0)
(4.1)
5.95
19
100
90.3
2015
53.5
31.2
155.0
12.8
3.8
6.13
25
100
75.2
Revenue per tonne Z/R/SR sold ($/t)
1,030
1,136
20162
20172
(224.0)
(171.6)
13.9
47.3
(53.3)
(17.1)
7.27
3
100
74.4
999
35.4
321.9
(41.0)
(20.1)
10.17
31
100
76.7
2018
303.9
48.2
304.4
72.2
31.8
7.62
29
100
74.8
1,079
1,415
1 Starting share price on 1 January 2014 was $8.63.
2 Reported earnings in both 2016 and 2017 were impacted by impairments and increases to provisions
3 Dividends paid in relation to the year
3.2
2018 EIP scorecard outcomes
The annual scorecard measures are intentionally challenging, have been set in line with Iluka’s long term corporate
plan and in the Board’s view, will deliver sustainable value if achieved.
The diagram below provides a summary overview of the outcome achieved for 2018 against each category of the
scorecard performance areas.
1 Average KMP individual scores.
2 Percentage of target using average individual strategic score.
Iluka Resources Limited, Annual Report 2018
63
DIRECTORS’ REPORT
For the year ended 31 December 2018
Set out below is commentary on the performance outcome for each component of the 2018 EIP Scorecard:
EIP Measures
Rationale for inclusion
Performance outcome and commentary
Financial
35% Weighting
Above target performance - 132% of target
The combination of financial
measures reflect how
efficiently Iluka uses capital to
generate earnings, the
management of total cash
costs within the business, and
considers the profit made and
resulting impact of returns
generated for shareholders.
Stretch performance was achieved in relation to:
• Return on Equity 31.8%;
• Return on Capital 54%;
•
• Net Profit After Tax $303.9 million.
Earnings per share 72.3 cents per share; and
The all-in unit cash costs of production of $864 per
tonne was higher than planned.
Managing Director and
Chief Financial Officer:
• Return on Equity
• Earnings per Share
• All in Unit Cash Costs of
Production
Other Executive KMP:
• Return on Capital
• Net Profit After Tax
• All in Unit Cash Costs of
Production
Production
15% Weighting
Above target performance - 131% of target
• Group Z/R/SR
Production was included as
a scorecard metric for 2018
because, in the context of
strong demand for Iluka’s
output, it was appropriate to
optimise production.
The production outcome of 731.5 kt reflected higher
than planned output from Australian operations which
more than offset
lower than planned production
outcomes at Sierra Rutile. Higher Australian production
was largely achieved through the production and sale of
zircon
in concentrate (ZIC) products which were
produced and sold to meet customer demand, offset
market shortages of zircon sand, and to mitigate
remediation obligations. The record synthetic rutile
production from the kiln in Capel also contributed to the
stronger production outcome
in Australia. The
production optimisation and initiatives to deliver more
tonnes into the market contributed to delivering the
strong revenue achieved in 2018 and to meeting
customer demand particularly in zircon markets.
Sustainability
15% Weighting
Below Target performance - 50% of target
• Group TRIFR
• Group Closure Index
• Level 3+ Environmental
Incidents
• Closed Actions by Due
Date
• Increase in
environmental and
safety reporting (SRL)
Providing a safe workplace
for all employees and
ensuring that the impact of
its activities on the
environment is managed
appropriately and minimised
are integral to Iluka’s
corporate objective and
values.
The closure index measures
the effectiveness of Iluka’s
management of its
rehabilitation exposure and
risks associated with
disturbed areas arising from
operational activity.
For executive KMP with
accountability for SRL
operations, the focus on
leading measures ensures
continuous sustainability
performance and improved
outcomes.
in operations and projects
In 2018 the Group recorded a TRIFR of 3.5 (rolling 12-
month average to 31 December 2018) which was above
target performance resulting in a below threshold
incentive outcome. Targets for 2018 were set based on
achieving a year-on-year improvement despite the
increased activity
in
comparison to 2017. Many of the recordable injuries for
the year were minor in nature and overall there was a
material reduction in the number of injuries classified
as having serious potential in comparison to 2017.
For environmental incidents, threshold performance w
achieved with 9 level 3 incidents occurring in 2018 compa
with 7 incidents in 2017, excluding SRL.
The target set to improve the timeliness of improvement
actions was achieved, which represented a significant
improvement from prior years.
The Group closure index, which measures rehabilitation
exposure risk across the business, resulted in a below
threshold outcome for 2018.
SRL achieved above target outcomes for improving
environmental and safety reporting as part of the
ongoing program to instil an effective safety culture
across the operations.
64
Iluka Resources Limited, Annual Report 2018
DIRECTORS’ REPORT
For the year ended 31 December 2018
Group Strategy
10% weighting
At target performance - 100% of target
Details relating to progress against the 2018 strategic
objectives are provided below.
The 2018 strategic
objectives were linked to
major business
opportunities and priorities
for the year and risks from
the corporate plan, and were
directed at positioning Iluka
to deliver sustainable value
over the longer term.
Sub-total –
Group objectives
75% weighting
Above target performance - 111% of target
Individual Strategy
25% weighting
Above target performance - Average executive
KMP performance - 122% of target
Individual KMP strategic
objectives were set to
support achievement of
group objectives.
Total
100% weighting
Average executive KMP performance - 114% of
target
Iluka Resources Limited, Annual Report 2018
65
DIRECTORS’ REPORT
For the year ended 31 December 2018
For 2018 the Board extracted key components of the Company’s Corporate Plan and set objectives for the Company as
well as for individuals which Directors believe will position the Company to deliver sustainable value over the long term.
While the precise terms of those objectives and progress made is in some cases commercially sensitive, a summary of
the 2018 strategic objectives and progress made against those objectives is set out below.
2018 Strategic
Objectives
• Delivering value-
accretive
expansions
Progress
• Cataby – at year end mechanical construction was near complete; wet commissioning
commenced on 20 December 2018. The project is expected to be completed on time and
budget.
• Jacinth –Ambrosia – Capital works associated with an early move to develop the Ambrosia
deposit have been approved and will support continued significant production of zircon
from the Jacinth-Ambrosia mine. The project is tracking well on schedule and budget.
• Sierra Rutile expansions covered separately below.
• Fine Minerals – a PFS commenced in August on this rare earths and zircon project in the
Murray Basin in Victoria and all activities are on track.
• Sri Lanka PQ Project – the PFS was largely complete by year end and a summary report is
in preparation. Recent political uncertainty will inevitably delay progress on achieving
certainty in respect of fiscal arrangements.
• Deliver on Sierra
Rutile acquisition
• Production was significantly below plan.
• Lanti in-pit mining unit delivered within cost but behind schedule and has not performed to
expectations operationally. A lessons learnt exercise was conducted and lessons applied
to other projects.
• The DM 1 and 2 expansion projects have progressed during 2018 on time and budget.
• Sembehun development was deferred to enable further analysis and optimisation of the
project scope and capital requirements. Studies commenced in December with a new
development plan to be presented mid-2019. Re-interpretation of existing Sembehun
drilling data yielded an additional 0.6 million tonne of rutile mineral resource.
• A project office was established in South Africa in June and all SRL project responsibilities
transferred to this team smoothly in Q3.
• Improvement needed in employee relations as illustrated by strike actions in Q4 2018 which
interrupted production.
• Participation in the President of Sierra Leone’s taskforce to examine the underlying causes
of the strike actions was managed well, and the report of the taskforce illustrates the
strength of Government support for Sierra Rutile Limited.
• Reduce costs
• A range of cost reduction initiatives have been progressed across business areas,
examples include:
• The Iluka spend optimization programme was completed on schedule, delivering net
cost reductions across 12,000 catalogued consumables;
• At SRL, approximately 1,400 items were re-bid and new contracts negotiated with
numerous improvements including some critical items held on consignment and
transparent open book pricing; and
• Optimisation of the intermediate and finished goods supply chains which delivered
material savings in 2018.
• While the cost reduction initiatives noted above generated savings in the order of $8 million
in 2018, and will generate ongoing savings, they were not sufficient to offset the increase
in all-in unit cost of production.
• Operational issues at SRL led to a higher cost base in 2018, with an increase of US$13
million to the original guidance of US$102 million cash costs. This had a detrimental impact
on all-in unit costs for both SRL and the Group
• Effectively manage
• Positive progress has been made in the management and mitigation of rehabilitation
rehabilitation
exposure in the
United States
liabilities in the United States.
66
Iluka Resources Limited, Annual Report 2018
DIRECTORS’ REPORT
For the year ended 31 December 2018
The diagram below shows actual EIP reward as a percentage of maximum potential reward for each executive KMP.
The following table shows the value of total remuneration for executive KMP directly attributable to the 2018
performance year by showing the fixed remuneration paid, and the cash and equity value of the 2018 EIP award.
Executive KMP
TFR
$
Other
$
EIP
$
Total
$
Cash
Restricted
Shares
Performance
Rights
Managing Director
T O’Leary
Other executive KMP
J Andrews
M Blackwell
S Hay
A Stratton
S Wickham
1,400,000
13,406
323,569
1,121,706
711,852
3,570,533
500,000
655,000
600,000
469,783
733,000
13,406
13,406
13,406
13,406
77,434
115,350
153,729
134,820
132,653
155,909
271,073
361,262
316,827
311,733
366,386
190,328
1,090,157
253,652
1,437,049
222,453
1,287,506
218,877
1,146,452
257,250
1,589,979
1The EIP award to the MD is awarded as 15% cash, 52% restricted shares and 33% performance rights. For other executive KMP the
award is 20% cash, 47% restricted shares and 33% performance rights. The value for the 2018 EIP award of restricted shares and
performance rights is the dollar value that will be awarded in March 2019.
Iluka Resources Limited, Annual Report 2018
67
DIRECTORS’ REPORT
For the year ended 31 December 2018
3.3
2016 LTIP outcome (legacy arrangement)
At the end of 2018, the three year 2016 LTIP award completed its performance period (1 January 2016 to 31 December
2018).
Performance was measured against both the ROE and relative TSR performance targets as follows:
Component
Performance target
Actual performance
Implication for vesting
ROE (50%)
Relative TSR (50%)
(S&P/ASX 200 Materials
Index)
50% vesting at Threshold
of 10% with full vesting at
target of 14%
50% vesting at 50th
percentile and full vesting
for 75th percentile
-1.8%1
50th percentile2
Nil vesting of the
ROE component
50% vesting of
the TSR component
1 The 2016 and 2017 reported results were impacted by impairments and increases to provisions.
2 The TSR achieved over the three year period was 44.2% which ranked at the 50th percentile threshold for vesting.
3 No corporate events that resulted in any changes to the comparator group took place during the performance period.
3.4
One-off equity grants
2018 Long Term Deferred Rights – Chief Operating Officer
The Board retains the flexibility to make one-off equity grants in recognition of executive position changes and the impact
these new and other specific roles will have on delivering Iluka’s future strategic plan. In recognition of the ongoing
importance of integration and delivery of the investment case for the Sierra Rutile operations, an equity grant was
awarded as LTDR to the Chief Operating Officer in 2018. Key details of the grant are set out in the table below:
LTDR opportunity
In 2018, the maximum LTDR opportunity for the Chief Operating Officer was 15% of TFR.
Instrument
The LTDR was awarded in share rights that entitle the participant 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 period
Share rights may vest at the end of the two year performance period between 1 January 2018
and 31 December 2019, subject to the satisfaction of performance hurdles.
Cessation of
employment
Change of control
Board discretion
If the executive KMP resigns or is dismissed for cause, all of their unvested share rights will
lapse, unless the Board determines otherwise. If the executive KMP ceases employment due
to any other circumstances (including death, total and permanent disability, redundancy or
retirement), the Board has discretion to determine the treatment of any unvested share rights
and may determine that some or all of the share rights lapse, vest or stay on foot.
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.
Where the Board exercises its discretion under the LTDR, 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 targets and
the proportion of the performance period that has elapsed.
68
Iluka Resources Limited, Annual Report 2018
DIRECTORS’ REPORT
For the year ended 31 December 2018
2016 LTDR outcome – Managing Director
In October 2016, the Managing Director received an award of LTDR in consideration of joining Iluka and thereby forfeiting
benefits that he may have become entitled to at his previous employer.
The LTDR award comprised three tranches of share rights which vest subject to ROE and relative TSR performance
targets in line with the LTIP performance targets outlined in Section 3.3 above over staggered performance periods. The
diagram below illustrates the performance periods over which the performance targets will be measured and the
tranches will become eligible for vesting. This staggered approach was designed to promote sustained value creation
for shareholders:
Following the end of 2018, Tranche 2 of the LTDR grant was eligible to be tested against the ROE and relative TSR
performance targets over the performance period 1 October 2016 to 31 December 2018.
Average ROE performance over the period of 3.3% (reported earnings in both 2016 and 2017 were impacted by
impairments and increases to provisions) against a threshold of 10% resulted in no vesting of the ROE component (half
of Tranche 2) and TSR of 29.4% that ranked at the 61st percentile of the S&P/ASX 200 Materials Index comparator group
on a relative basis resulted in 71% vesting of the TSR component (the remaining half of Tranche 2).
Iluka Resources Limited, Annual Report 2018
69
DIRECTORS’ REPORT
For the year ended 31 December 2018
SECTION 4
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 2018 (including superannuation) was $1.2
million. Non-executive directors do not receive any performance-based remuneration.
External remuneration consultants were engaged in 2018 to conduct benchmarking analysis in respect to non-executive
directors remuneration. Having regard to this market data, directors’ workloads and the need to attract and retain high
calibre directors with the requisite skills and experience, the Board determined that an increase was warranted. Non-
executive directors’ fees were last increased in 2011.
Details of the change in non-executive director fees 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
Nominations Committee Chair
Nominations Committee Member
2017
2018
$312,000
$125,000
$321,400
$128,800
$35,000
$17,500
$25,000
$12,500
Nil
Nil
$36,100
$18,100
$30,600
$15,350
Nil
Nil
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.
70
Iluka Resources Limited, Annual Report 2018
DIRECTORS’ REPORT
For the year ended 31 December 2018
SECTION 5
REMUNERATION GOVERNANCE
5.1
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, Annual Report 2018
71
DIRECTORS’ REPORT
For the year ended 31 December 2018
5.2
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 5.1. These policies include the following:
5.3
Executive Incentive plan
As foreshadowed in the 2017 Annual Report, in 2018 the EIP replaced both the former STIP and LTIP. The EIP was
designed to enable the Board to ensure that Iluka’s incentives remain fit for purpose and support the achievement of the
company’s key objective – to deliver sustainable value. It strongly aligns Iluka’s executives with the interests of
shareholders through the increased use of equity and fairly rewards executives for delivery of superior results.
The following diagram provides an overview of the EIP elements and timings.
72
Iluka Resources Limited, Annual Report 2018
DIRECTORS’ REPORT
For the year ended 31 December 2018
The structure of Iluka’s 2018 EIP was as follows:
2018 EIP opportunity
Annual performance - measures
and vesting schedule
For the Managing Director the ‘at target’ opportunity was 133% of TFR and the
maximum opportunity was 200% of TFR.
For other executive KMP the ‘at target’ opportunity was 100% of TFR and the
maximum opportunity was 150% of TFR.
The PPC approved the annual EIP scorecard having regard to Iluka's corporate
plan, business conditions and market and shareholder expectations.
Performance targets included Financial, Production, Sustainability and Strategic
(comprising group and individual objectives).
•
Financial measures for the Managing Director and Chief Financial Officer
included return on equity, earnings per share and all in unit cash costs of
production. For other Executive KMP measures included net profit after tax,
return on capital and all in unit cash costs of production.
• Production was measured against production targets across the group’s
operating mines.
• Sustainability targets related to safety and environmental objectives and
were set based on a combination of industry best practice and continual
improvement versus the prior year performance.
• Strategic objectives were linked to major business opportunities and
priorities for the year and risks from the corporate plan, and were directed at
positioning Iluka to deliver sustainable value over the longer term. These
were set at group and individual level
For all scorecard performance measures, a threshold, target and stretch goal was
set at the start of the 2018 performance period. EIP outcomes were calculated
according to the following schedule:
Performance Level
EIP Outcome (% Target)
Threshold
Target
Stretch
50%
100%
150% (maximum)
A sliding scale operated between threshold and target, and between target and
stretch.
Performance assessment
EIP outcomes were determined following testing at the conclusion of the 2018
performance period, in early 2019.
Award type and timing
Outcomes were subject to rigorous one up assessment and, for the Managing
Director and executive KMP, assessment by the Board.
EIP awards for the 2018 performance period will be granted in March 2019. The
EIP relevant outcome will be delivered:
•
•
For the Managing Director, 15% in cash, 52% in restricted shares and 33% in
performance rights; and
For other Executive KMP, 20% in cash, 47% in restricted shares and 33% in
performance rights.
The number of restricted shares and performance rights awarded to each
participant will be 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 the release of
the Company’s full year results.
For EIP awards in 2019 and later years, the Company intends to review the mix of
equity instruments it provides with a view to simplifying the arrangements by
providing a mix of share rights and performance rights (rather than restricted
shares and performance rights).
Iluka Resources Limited, Annual Report 2018
73
DIRECTORS’ REPORT
For the year ended 31 December 2018
Restriction and performance
periods on EIP equity
Restricted Shares
Restricted shares will be granted for nil consideration in March 2019. The
restricted shares will be released from dealing restrictions in three equal tranches
over the three years following the end of the 2018 performance period.
Performance Rights
Performance rights will be granted for nil consideration in March 2019.
Performance rights will vest subject to meeting a further gateway test based on
Iluka’s TSR performance relative to the ASX 200 Resources Index (excluding
companies primarily engaged in the oil and gas sector and non-mining activities).
TSR performance is measured over the four year period commencing at the
beginning of the 2018 performance period.
Voting rights and dividends
Participants will receive dividends and are entitled to exercise voting rights
attaching to the restricted shares.
Cessation of employment
Clawback
Change of control
Board discretion
No dividends are paid on performance rights prior to vesting. For any performance
rights that ultimately vest, a cash payment equivalent to dividends paid by Iluka
during the period between grant of the performance rights and vesting will be
made shortly after the time of vesting. No cash payment will be made in respect
of dividends on performance rights which do not vest.
In the event of an executive KMP ceasing employment for reasons of resignation
or termination for cause, all of their restricted shares and unvested performance
rights will be forfeited or lapse (as applicable). If the executive KMP ceases
employment due to any other circumstances (including death, total and
permanent disability, retirement or redundancy), the unvested restricted shares
and performance rights will remain on foot and be subject to the original terms
of the award.
The Board has power under the relevant rules to clawback incentives that have
vested and that have been paid or awarded to participants in certain
circumstances. For example, restricted shares and performance rights may be
lapsed or forfeited (as appropriate) if a participant acts fraudulently or
dishonestly or if there is a material misstatement or omission in the accounts of
a Group company.
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 performance rights be accelerated and that
dealing restrictions on restricted shares be released.
Where the Board exercises its discretion under the EIP, 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 or deferral period that has elapsed.
74
Iluka Resources Limited, Annual Report 2018
DIRECTORS’ REPORT
For the year ended 31 December 2018
5.4
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
KMP
T O'Leary
Position
Termination Notice Period
by Iluka or Employee
Termination Payments1
Managing Director and Chief Executive
Officer
6 months
6 months
J Andrews
Head of Strategy, Planning and
Business Development
3 months
3 months
M Blackwell Head of Marketing and Procurement
3 months
6 months
S Hay
Head of Resource Development
3 months
3 months
A Stratton
Chief Financial Officer
6 months
-
S Wickham
Chief Operating Officer, Mineral Sands
3 months
6 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.
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
R Cole1
X Liu
J Ranck
J Seabrook
Total
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
$
319,833
312,000
146,167
142,500
132,138
-
146,167
142,500
175,833
167,500
178,958
172,500
1,099,096
937,000
1 R Cole was appointed on 1 March 2018.
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
20,290
19,832
13,886
13,538
12,553
-
13,886
13,538
16,704
15,912
17,001
16,388
94,320
79,208
$
340,123
331,832
160,053
156,038
144,691
-
160,053
156,038
192,537
183,412
195,959
188,888
1,193,416
1,016,208
Iluka Resources Limited, Annual Report 2018
75
DIRECTORS’ REPORT
For the year ended 31 December 2018
6.2
Executive KMP Statutory Remuneration Disclosures
Name
Year
TFR1
$
EIP/STIP
Cash2
$
Managing Director
T O'Leary
2018 1,400,000
323,569
2017 1,400,000
382,620
Non-
Monetary
Benefits3
$
13,406
21,350
Other executive KMP
J Andrews8
2018
2017
500,000
115,350
13,406
-
-
M Blackwell9
2018
655,000
153,729
2017
802,095
175,475
S Hay
2018
600,000
134,820
A Stratton10
D Warden,4,11
S Wickham
2017
608,523
149,940
2018
2017
2018
2017
2018
2017
469,783
132,653
-
506,957
660,000
733,000
734,463
-
-
170,874
155,909
187,795
Total
2018 4,864,740
1,016,030
2017 4,205,081
1,066,704
-
13,406
14,600
13,406
13,402
13,406
-
10,959
13,402
4,434
7,012
82,423
69,766
Termination
Benefits4
$
Other5
$
Share Based
Payments2,6,7
$
Statutory
Total
$
-
-
-
-
-
-
-
-
-
-
174,796
-
-
-
-
-
-
-
-
160,981
-
-
-
-
-
-
73,000
76,237
1,065,428
2.802,403
1,888,909
3,692,879
157,036
785,792
-
373,502
354,269
323,472
294,286
205,213
-
-
1,195,637
1,507,420
1,071,698
1,066,151
821,055
-
(294,399)
398,313
269,155
481,435
403,558
1,113,431
1,447,778
1,409,065
174,796
73,000
2,311,687
8,522,675
-
237,218
3,210,177
8,788,946
1 Includes base salary and superannuation.
2 EIP cash payments and restricted share and performance right awards for 2018 will be made in March 2019.
3 Includes non-monetary benefits which consist of car parking and spouse travel.
4 Includes cessation entitlements relating to payment in lieu of notice and accrued leave entitlements.
5 Includes Sierra Leone travel allowance for S Wickham and 2017 US social security expenses and relocation allowances 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. This includes amounts previously accrued that have been reversed as a result of the
instruments not meeting a performance condition.
7The 2017 comparative Total Share Based Payments information has been corrected to include $414,588 of 2017 STIP remuneration,
granted in March 2018, which is attributable to the prior period.
8J Andrews became a KMP on 22 August 2018. Remuneration disclosures for the full 2018 year are shown.
9 M Blackwell relocated from the US to Australia effective 15 March 2017. TFR for 2017 includes $96,761 of US accrued leave paid out.
The USD denominated portion of his 2017 earnings have been converted from USD to AUD for 2017 using the average foreign exchange
rate for the duration of his 2017 US employment of 0.7510.
10A Stratton became a KMP on 22 August 2018. Remuneration disclosures for the full 2018 year are shown.
11 D Warden ceased to be a KMP on 5 October 2018. Remuneration disclosures for 2018 reflect the period he was a KMP. Share based
payments for 2018 include amounts previously accrued that have been reversed as a result of the instruments being forfeited or lapsing
upon the cessation of Mr Warden’s employment.
76
Iluka Resources Limited, Annual Report 2018
DIRECTORS’ REPORT
For the year ended 31 December 2018
6.3
Executive KMP Share–based Compensation
EIP and STIP restricted shares
Name
T O’Leary
J Andrews
M Blackwell
S Hay
A Stratton
D Warden
S Wickham
2016 STIP1
(restricted
shares)
2017 STIP1
(restricted
shares)
2018 EIP1,2
(restricted
shares)
% of total opportunity awarded %3
(cash and restricted shares)
2016
2017
2018
-
-
16,177
13,208
-
16,124
18,391
36,273
147,206
-
16,635
14,215
-
16,199
17,803
35,574
47,410
41,578
40,910
-
48,082
-
-
35
39
-
37
38
61
-
60
56
-
58
57
77
77
78
75
77
-
71
1 The 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. Restricted shares are awarded in March of the following year (e.g. 2018 EIP
awards will be made in March 2019).
2 Represents the estimated number of restricted shares to be awarded under the 2018 EIP calculated using the opening share price of
$7.62 at 1 January 2019.
3 The percentage achieved of the EIP or STIP maximum incentive opportunity awarded for the financial year.
Share Rights
Number of share rights
Value of share rights
Name
Balance at
1 January
2018
Granted
during
20181
Vested /
exercised
into shares in
2018
Lapsed
during
20182
Balance at
31 December
2018
Value of rights
granted in
2018
$
Value of rights
vested /
exercised into
shares in 2018
$
Managing Director
T O’Leary
1,004,797
Other executive KMP
J Andrews
-
M Blackwell
243,460
S Hay
168,722
A Stratton
29,750
D Warden3
272,162
-
-
-
-
-
-
(73,907)
(73,907)
856,983
-
-
-
(12,771)
(38,311)
192,378
(5,222)
(1,436)
(4,308)
(15,664)
147,836
(23,653)
(188,784)
24,006
59,725
-
-
-
-
-
-
S Wickham
270,730
10,424
(14,352)
(43,056)
223,746
109,950
692,509
-
130,392
53,317
14,662
241,497
146,534
1 Share rights granted in respect of the 2018 LTDR award for the Chief Operating Officer, which form part of share based payments for
2018 to 2020 inclusive.
2 Share rights which lapsed during 2018 relate to the 2015 LTIP award and Tranche 2 of the 2016 LTIP and the 2017 LTIP award for the
former Chief Financial Officer & Head of Strategy and Planning (D Warden).
3 D Warden ceased to be a KMP on 5 October 2018. The balance at 31 December 2018 reflects Tranche 1 of the 2016 LTIP which
remained on foot for testing. On vesting, Mr Warden will be able to elect whether his vested rights under the 2016 LTIP award are settled
with shares or a cash equivalent.
Iluka Resources Limited, Annual Report 2018
77
DIRECTORS’ REPORT
For the year ended 31 December 2018
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
2016 LTIP Tranche 1
May 2016
2016 LTIP Tranche 2
May 2016
2016 STIP3
2016 LTDR4
March 2017
October 2016
2016 LTIP (MD grant)
October 2016
2017 LTIP
2017 STIP3
2017 LTDR5
2018 LTDR5
2018 EIP6
March 2017
March 2018
March 2017
March 2018
March 2019
Fair Value per
Share or Right at
Grant Date1
$
Vesting Year
Expiry year2
5.14
5.07
6.82
4.68
4.57
6.55
10.55
6.82
10.55
7.62
2019
2020
2018 & 2019
2018, 2019 & 2020
2021
2021
2019 & 2020
2021
2021
2020, 2021 & 2022
2026
2026
–
2026
2026
2027
-
2027
2028
-
1 The fair value is calculated in accordance with the measurement criteria of Accounting Standard AASB 2 Share Based Payments.
2 Rights granted under the LTIP and LTDR 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.
3 Awards under these plans are restricted shares; all other plans grant share rights.
42016 LTDR’s awarded to the Managing Director are tested at the end of 2017, 2018 and 2019
5 Represents the face value of the 2018 LTDR award for the Chief Operating Officer being the VWAP of Iluka shares traded over the five
trading days following the release of the Company’s 2017 annual results.
6 Represents the estimated fair value of restricted shares and performance rights to be awarded under the 2018 EIP for which the
performance period concluded on 31 December 2018 calculated using the closing share price of $7.62 at 1 January 2019. The actual
value will be calculated as the VWAP of ordinary shares over the five trading days following the release of the Company’s 2018 annual
results.
78
Iluka Resources Limited, Annual Report 2018
DIRECTORS’ REPORT
For the year ended 31 December 2018
6.4
KMP shareholdings
Shareholdings of executive KMP and their related parties
Name
Balance held at
1 January 2018
Managing Director
T O’Leary
Other executive KMP
J Andrews1
M Blackwell
S Hay
A Stratton2
D Warden3
S Wickham
-
-
53,037
60,867
9,193
49,833
71,967
Number of shares
Vesting/exercise
of share rights
pursuant to LTDR
and LTIP
Awarded as
Restricted
Shares pursuant
to STIP
73,907
36,273
-
12,771
5,222
1,436
23,653
14,352
4,740
16,635
14,215
5,854
16,199
17,803
Other changes1
Balance held at
31 December
20184
-
-
(18,888)
(13,635)
(2,560)
(89,685)
(34,244)
110,180
4,740
63,555
66,669
13,923
-
69,878
1 Other changes may include changes due to personal trades and forfeited shares.
2 J Andrews and A Stratton were appointed to their current roles and became KMP on 22August 2018.
3 D Warden ceased to be a member of KMP on 5 October 2018. The closing balance reflects this date.
4 The Managing Director is required to build a shareholding of 200% of TFR and other executive KMP are required to build a
shareholding of 100% of TFR. Executives are required to build the shareholding over a reasonable time frame taking into account
vesting and requirements to meet taxation obligations.
Shareholdings of Non-executive directors and their related parties
Name
G Martin2
M Bastos2
R Cole2, 3
X Liu2
J Ranck
J Seabrook2
Balance held at
1 January 2018
20,000
11,000
-
10,000
10,000
19,314
Number of shares1
Net movement
10,000
2,985
4,000
2,000
2,412
663
Balance held at
31 December 2018
30,000
13,985
4,000
12,000
12,412
19,977
1 Non-executive directors do not receive share based compensation and movements in their shareholdings reflect on-market trades.
2 Includes shares held indirectly through a nominee or agent (e.g. family trust).
3 R Cole was appointed a non-executive director on 1 March 2018. Remuneration disclosures for 2018 reflect the period he was a non-
executive director.
6.5
On-market Share Purchases
The total number of Iluka shares acquired on-market to satisfy employee incentive schemes in 2018 was 1,215,977 at an
average price of $10.16 per share.
6.6
Transactions with Key Management Personnel
During the financial year there were no product or services purchases by KMP from the Group (2017: nil) and there are
no amounts payable at 31 December 2018 (2017: nil).
There have been no loans to KMP during the financial year (2017: nil).
Iluka Resources Limited, Annual Report 2018
79
AUDITOR'S INDEPENDENCE DECLARATION
For the year ended 31 December 2018
Auditor’s Independence Declaration
As lead auditor for the audit of Iluka Resources Limited for the year ended 31 December 2018, 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
21 February 2019
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.
80
Iluka Resources Limited, Annual Report 2018
80
ILUKA RESOURCES LIMITED ABN 34 008 675 018
FINANCIAL REPORT - 31 DECEMBER 2018
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
ILUKA RESOURCES LIMITED ABN 34 008 675 018
FINANCIAL REPORT - 31 DECEMBER 2018
Directors' declaration
Independent auditor's report to the members
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
82
83
84
85
86
131
132
Page
82
83
84
85
86
131
132
ABOUT THIS REPORT
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 Australian dollars.
ABOUT THIS REPORT
Iluka Resources Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered
These financial statements are the consolidated financial statements of the Group consisting of Iluka Resources
office and principal place of business is:
Limited and its subsidiaries (the Group). The financial statements are presented in Australian dollars.
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 14
240 St Georges Terrace
Perth WA 6000
Iluka Resources Limited
Level 14
240 St Georges 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.
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 20 February 2019. The directors have the
The financial statements were authorised for issue by the directors on 20 February 2019. The directors have the
power to amend and reissue the financial statements.
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
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.
releases, financial reports and other relevant information are available at www.iluka.com.
81
81
Iluka Resources Limited, Annual Report 2018
81
ILUKA RESOURCES LIMITED
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2018
For the year ended 31 December 2018
Notes
2018
$m
2017
$m
Revenue
Other income
Expenses
Impairment of assets
Share of losses of investments accounted for using the equity method
Interest and finance charges
Rehabilitation and mine closure provision discount unwind
Total finance costs
Profit/(loss) before income tax
Income tax expense
Profit/(loss) for the period 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
Movements in foreign exchange cash flow hedges, net of tax
Items that will not be reclassified to profit or loss
Actuarial (losses) gains on defined benefit plans, net of tax
Total other comprehensive income/(loss) for the year, net of tax
5
6
7
14(d)
10
16
16
16
1,350.9
1,077.8
3.1
(870.3)
-
-
(15.0)
(16.7)
(31.7)
2.1
(1,023.9)
(185.4)
(3.3)
(18.8)
(14.1)
(32.9)
452.0
(165.6)
(148.1)
303.9
(6.0)
(171.6)
43.2
(2.1)
(7.9)
0.6
33.8
(38.4)
14.8
(2.2)
(0.5)
(26.3)
Total comprehensive income/(loss) for the year attributable to owners
337.7
(197.9)
Cents
Cents
Profit/(loss) per share attributable to ordinary equity holders
Basic profit/(loss) per share
Diluted profit/(loss) per share
18
18
72.2
71.8
(41.0)
(41.0)
The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes.
82
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Iluka Resources Limited, Annual Report 2018
ILUKA RESOURCES LIMITED
CONSOLIDATED BALANCE SHEET
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2018
As at 31 December 2018
ASSETS
Current assets
Cash and cash equivalents
Receivables
Inventories
Derivative financial instruments
Current tax receivables
Total current assets
Non-current assets
Derivative financial instruments
Property, plant and equipment
Deferred tax assets
Intangible asset - MAC Royalty
Inventories
Total non-current assets
BS-.1
Total assets
LIABILITIES
Current liabilities
Payables
Derivative financial instruments
Current tax payable
Provisions
Total current liabilities
Non-current liabilities
Interest-bearing liabilities
Derivative financial instruments
Provisions
Total non-current liabilities
BS-.1
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Accumulated losses
Total equity
Notes
2018
$m
2017
$m
14
12
13
20
20
9
11
5(c)
13
20
8
14
20
8
15
16
16
51.3
162.6
387.1
-
7.7
608.7
-
1,379.1
215.6
3.9
4.6
1,603.2
(0.1)
53.6
171.4
469.6
0.2
20.0
714.8
2.4
1,029.8
185.9
4.3
9.8
1,232.2
2,211.9
1,947.0
153.2
4.4
143.6
105.6
406.8
49.5
7.3
638.3
695.1
0.1
114.2
3.4
3.8
83.8
205.2
236.1
-
620.2
856.3
-
-
1,101.9
1,061.5
1,110.0
885.5
1,154.0
42.6
(86.6)
1,110.0
1,119.7
9.4
(243.6)
885.5
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
83
Iluka Resources Limited, Annual Report 2018
83
ILUKA RESOURCES LIMITED
CONSOLIDATED STATEMENT OF
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2018
For the year ended 31 December 2018
Attributable to owners of
Iluka Resources Limited
Share
capital
$m
Other
reserves
$m
Retained
earnings
$m
Total
equity
$m
Balance at 1 January 2017
1,117.2
32.2
(46.4) 1,103.0
Notes
Loss for the year
Other comprehensive income (loss)
Total comprehensive income
Transactions with owners in their capacity as owners:
Transfer of shares to employees, net of tax
Share-based payments, net of tax
Dividends paid
space
Balance at 31 December 2017
Adjustment on adoption of AASB 15 (net of tax)
Restated total equity at 1 January 2018
Profit for the year
Other comprehensive income (loss)
Total comprehensive income
Transactions with owners in their capacity as owners:
Transfer of shares to employees, net of tax
Share-based payments, net of tax
Dividends paid
Purchase of treasury shares, net of tax
space
Balance at 31 December 2018
16
16
16
16
32
16
16
16
16
-
-
-
-
(25.8)
(25.8)
(171.6)
(0.5)
(172.1)
(171.6)
(26.3)
(197.9)
2.5
-
-
2.5
(2.5)
5.5
-
3.0
-
-
(25.1)
(25.1)
-
5.5
(25.1)
(19.6)
1,119.7
9.4
(243.6)
885.5
-
1,119.7
-
9.4
(0.6)
(244.2)
(0.6)
884.9
-
-
-
-
33.2
33.2
303.9
0.6
304.5
303.9
33.8
337.7
4.6
-
38.6
(8.9)
34.3
(4.6)
4.6
-
-
-
-
-
(146.9)
-
(146.9)
-
4.6
(108.3)
(8.9)
(112.6)
1,154.0
42.6
(86.6) 1,110.0
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
84
84
Iluka Resources Limited, Annual Report 2018
ILUKA RESOURCES LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2018
For the year ended 31 December 2018
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
Sri Lanka deposit - instalment payment
Payments for options contracts
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 outflow from financing activities
Net decrease in cash and cash equivalents
.
Cash and cash equivalents at 1 January
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at end of period
Notes
2018
$m
2017
$m
1,277.4
(683.2)
594.2
1.0
(7.6)
(5.2)
(11.7)
55.8
626.5
(311.5)
2.4
-
(0.6)
(309.7)
(366.0)
166.0
(12.4)
(108.3)
-
(320.7)
(3.9)
53.6
1.6
51.3
994.1
(602.4)
391.7
0.7
(16.0)
(10.0)
(12.6)
59.9
413.7
(90.5)
3.6
(2.6)
(2.3)
(91.8)
(403.7)
62.5
-
(25.1)
(1.4)
(367.7)
(45.8)
101.3
(1.9)
53.6
27
22(c)
17
14
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
85
Iluka Resources Limited, Annual Report 2018
85
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
CONTENTS OF THE NOTES TO THE FINANCIAL STATEMENTS
Basis of preparation
1. Reporting entity
2. Basis of preparation
3. Critical accounting estimates and judgements
Key numbers
4. Segment information
5. Revenue
Expenses
6.
7.
Impairment of assets
8. Provisions
9. Property, plant and equipment
10.
11. Deferred tax
12. Receivables
Inventories
13.
Income tax
Capital
14. Net debt and finance costs
15. Contributed equity
16. Reserves and retained earnings
17. Dividends
18. Profit/(loss) per share
Risk
19. Financial risk management
20. Hedging
Group structure
21. Controlled entities and deed of cross guarantee
Other notes
22. Contingent liabilities
23. Events occurring after the reporting period
24. Commitments
25. Remuneration of auditors
26. Share-based payments
27. Reconciliation of profit/(loss) after income tax to net cash inflow from operating activities
28. Post-employment benefit obligations
29. Key Management Personnel
30. Parent entity financial information
31. Related party transactions
32. New accounting standards and interpretations
Page
87
87
87
89
89
89
92
93
95
96
98
100
102
104
105
106
106
107
108
110
110
111
111
114
116
116
119
119
120
120
121
122
124
125
126
127
128
128
86
86
Iluka Resources Limited, Annual Report 2018
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
The notes include information which is required to understand the financial statements and is material and
Information is
relevant to the operations and the financial position and performance of the Iluka Group.
considered relevant and material if:
• 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.
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. 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 21.
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, mining operations, processing and marketing.
The consolidated financial statements of Iluka Resources Limited also comply with International Financial
Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
These financial statements have been prepared under the historical cost convention except for financial assets
and liabilities which are required to be measured at fair value.
New and amended standards adopted by the Group, and the related impacts on the financial statements, are
detailed in note 32.
(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 2018 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. A list of controlled
entities (subsidiaries) at year-end is contained in note 21.
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.
Intercompany transactions, balances, and unrealised gains on transactions between Group companies, are
eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of
the asset transferred.
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.
87
Iluka Resources Limited, Annual Report 2018
87
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
(ii) Associates
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
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% and 50% 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 are recognised as a reduction in the carrying amount of the
investment.
The carrying amount of equity-accounted investments is tested for impairment in accordance with the policy
described in note 7.
(iii) Employee Share Trust
The Group's Employee Share Schemes are administered through the Iluka Resources Limited Employee Share
Plan 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
The consolidated financial statements are presented in Australian dollars, which is the Company's functional and
presentation currency.
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 each 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.
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 are translated into Australian dollars at average
exchange rates each month. Foreign currency differences are recognised in other comprehensive income and
accumulated in the foreign currency translation reserve.
The Group had US dollar denominated borrowings that were used to hedge against translation differences arising
from assets held by the Group's Sierra Rutile Limited operations (see note 20 for more information).
To the extent that these borrowings did not exceed the net assets of these operations, 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.
(c) 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.
88
88
Iluka Resources Limited, Annual Report 2018
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
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 noted 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.
Estimates and assumptions which are material to the financial report are found in the following notes:
Impairment of assets
Rehabilitation and mine closure provisions
Tax balances
Deferred tax asset recognition
Net realisable value and classification of product inventory
Note 7
Note 8
Note 10
Note 11
Note 13
KEY NUMBERS
4 SEGMENT INFORMATION
(a) Description of segments
The Group has identified its operating segments based on the internal reports that are reviewed and used by the
executive management team (the chief operating decision-makers) in assessing performance and in determining
the allocation of resources.
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 the year ended 31 December 2018, $10.8 million of saleable material was transferred from the US
to Australia (2017: nil) and $1.6 million was transferred from SRL to Australia (2017: nil). These transfers are
excluded from the results below.
Cash, debt, and tax balances are managed at a group level together with exploration and other corporate
activities and are not allocated to segments.
The segments are unchanged from those reported at 31 December 2017.
Australia (AUS) comprises the integrated mineral sands mining and processing operations in Western Australia,
South Australia and Victoria. 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 rehabilitation obligations in both Virginia and Florida. Mining and processing
activities were substantially ceased in Virginia in December 2015, although sale of remnant product remains an
activity.
Mining Area C (MAC) comprises a deferred consideration iron ore royalty interest over certain mining tenements
in Australia operated by BHP Group Iron Ore.
89
Iluka Resources Limited, Annual Report 2018
89
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
(b) Segment information
2018
Total segment sales of mineral sands¹
Total segment freight revenue¹
Total segment result²
Depreciation and amortisation expense
Changes in rehabilitation for closed sites (credit)
Segment assets
Segment liabilities
Additions to non-current segment assets
2017
Total segment sales of mineral sands¹
Total segment result²
Impairment of assets
Depreciation and amortisation expense
Changes in rehabilitation for closed sites (expense)
Segment assets
Segment liabilities
Additions to non-current segment assets
AUS
$m
US
$m
SRL
$m
MAC
$m
Total
$m
1,011.4
39.4
522.3
48.8
(3.3)
1,196.0
492.3
275.8
AUS
$m
833.7
43.2
155.0
67.7
7.9
1,073.3
458.5
49.7
28.8
3.9
(2.9)
-
-
60.3
235.3
5.3
US
$m
40.0
(126.3)
-
-
119.5
73.2
225.9
-
203.9
7.0
(14.5)
41.1
(1.3)
621.0
137.6
109.9
-
-
55.2
0.4
-
17.5
-
-
1,244.1
50.3
560.1
90.3
(4.6)
1,894.8
865.2
391.0
SRL
$m
MAC
$m
Total
$m
143.8
(2.5)
-
39.4
-
487.9
108.5
58.1
-
59.2
-
0.4
-
18.1
-
-
1,017.5
(26.4)
155.0
107.5
127.4
1,652.5
792.9
107.8
¹The Group has adopted AASB 15 during the current reporting period. Segment revenue is shown separately for the sale of
mineral sands and freight revenue for the year ended 31 December 2018. Comparative segment revenue has not been
disaggregated. Refer to note 32.
²Total segment result includes the impairment charge, depreciation and amortisation expenses and rehabilitation and holding
costs for closed sites that are also separately reported above.
Mineral sands 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
2018
$m
2017
$m
462.3
198.4
304.5
230.7
48.2
1,244.1
333.6
138.2
267.9
132.5
145.3
1,017.5
Revenue of $147.3 million and $143.0 million was derived from two external customers of the mineral sands
segments, which individually account for greater than 10% of the total segment revenue (2017: revenues of
$147.0 million and $121.5 million from two external customers).
Segment result is reconciled to profit/(loss) before income tax as follows:
90
90
Iluka Resources Limited, Annual Report 2018
NOTES TO FINANCIAL STATEMENTS
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
For the year ended 31 December 2018
Segment result
Interest income
Asset sales and other income
Other expenses
Marketing and selling
Corporate and other costs
Depreciation
Resource development
Interest and finance charges
Net foreign exchange gains
Impairments (Metalysis)
Metalysis losses
Profit/(loss) before income tax
2018
$m
560.1
1.0
1.0
(0.2)
(13.6)
(48.2)
(3.3)
(30.1)
(15.1)
0.4
-
-
452.0
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
1,894.8
42.5
51.3
7.7
215.6
2,211.9
865.2
43.6
143.6
49.5
1,101.9
2017
$m
(26.4)
0.7
(0.8)
(0.7)
(11.3)
(47.1)
(3.5)
(24.6)
(18.8)
0.6
(30.4)
(3.3)
(165.6)
1,652.5
35.0
53.6
20.0
185.9
1,947.0
792.9
28.7
3.8
236.1
1,061.5
91
Iluka Resources Limited, Annual Report 2018
91
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
5 REVENUE
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
Sales revenue
Sale of goods
Freight revenue
Other revenue
Mining Area C royalty income
Interest
(a) Sale of mineral sands
Notes
2018
$m
2017
$m
5(a)
5(b)
5(c)
5(d)
1,244.1
50.3
1,017.5
-
55.6
0.9
56.5
59.6
0.7
60.3
1,350.9
1,077.8
The Group earns revenue by mining, processing, and subsequently selling mineral sands (including zircon, rutile,
synthetic rutile and ilmenite) by export to customers based in the Americas, Europe, China, the rest of Asia, and
other countries under a range of commercial terms.
Revenue from the sale of product is recognised when control has been transferred to the customer, generally
being when the product has been dispatched and is no longer under the physical control of the Group. In cases
where control of product is transferred to the customer before dispatch takes place, revenue is recognised when
the customer has formally acknowledged their legal ownership of the product, which includes all inherent risks
associated with control of the product. In these cases, product is clearly identified and immediately available to
the customer.
Sales to customers are generally denominated in US Dollars, which are translated into the functional currency of
the Group using the spot exchange rate applicable on the transaction date. The effect of variable consideration
arising from rebates, discounts and other similar arrangements with customers is included in revenue to the
extent that it is highly probable that there will be no significant reversal of the cumulative amount of revenue
recognised when any pricing uncertainty is resolved. Revenue is recognised net of duties and other taxes.
The Group does not expect to have any contracts where the period between the transfer of the promised goods
or services to the customer and payment by the customer exceeds one year. Accordingly, the group does not
adjust transaction prices for the time value of money.
(b) Freight revenue
The Group also earns revenue from freighting its products to customers in accordance with the incoterms in
each particular sales contract. Freight revenue is recognised to the extent that the freight service has been
delivered, specifically with reference to the proportion of completed freight distance to total freight distance,
which is determined by the Group at each reporting date.
Freight revenue is allocated from the overall contract price at its standalone selling price (where observable) or
otherwise at its estimated cost plus margin.
Included within freight revenue is $0.9 million that relates to contracts in place at the end of the prior year and
included within the opening adjustment to retained earnings, as set out in note 32. Freight revenue of $2.4 million
has been deferred at the end of the current year in relation to unfulfilled shipping obligations.
The Group adopted AASB 15 from the beginning of the period using the cumulative effect method, which does
not require comparative information to be restated. Accordingly, freight revenue is not shown separately for the
comparative year. Refer to note 32.
92
92
Iluka Resources Limited, Annual Report 2018
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
(c) Mining Area C royalty income and amortisation of royalty asset
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
Iluka holds a royalty stream over BHP’s Mining Area C (MAC) iron ore mine. The royalty stream is paid as 1.232%
of Australian dollar denominated revenue from the royalty area and a one-off payment of $1 million per million
tonne increase in annual production capacity.
Royalty income is recognised on an accrual basis and is received on a quarterly basis in arrears. The royalty
entitlement asset is an intangible asset and is amortised on a straight-line basis over its estimated useful life.
(d) Interest income
Interest income is recognised in profit or loss as it accrues, using the effective interest method.
6 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
Ilmenite concentrate and by-product costs
Depreciation (idle, corporate and other)
Restructure and idle capacity charges
Rehabilitation costs for closed sites
Impairment of assets
Government royalties
Marketing and selling costs¹
Corporate and other costs
Resource development costs
Net loss on disposal of property, plant and equipment
Notes
6(a)
6(b)
6(c)
6(d)
6(e)
2018
$m
443.6
84.1
68.5
28.3
624.5
11.5
9.4
24.7
(4.6)
-
38.1
88.5
48.1
30.1
-
870.3
2017
$m
362.2
90.5
141.5
66.8
661.0
10.2
20.5
73.3
127.4
185.3
25.2
33.8
47.1
24.6
0.9
1,209.3
(1,395.2)
¹Marketing and selling costs were presented net of freight revenue in the comparative period. As detailed in notes 5 and 32,
revenue that was previously netted against marketing and selling costs is now presented separately as freight revenue.
(1,086.0)
(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; but
exclude Australian state and Sierra Leone government royalties which are reported separately.
93
Iluka Resources Limited, Annual Report 2018
93
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
(b) Cost of goods sold
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
Cost of goods sold is the inventory value of each tonne of finished product sold. All production is added to
inventory at cost, which includes direct costs and an appropriate portion of fixed and variable overhead
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 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
Idle capacity charges reflect ongoing costs incurred during periods of no or restricted production.
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.
(e) Rehabilitation costs for closed sites
These costs relate to adjustments to the rehabilitation provision for closed sites arising from the annual review
of rehabilitation programmes and estimates. These adjustments are recognised in profit or loss in accordance
with the policy described in note 8.
(f) Other required disclosures
Expenses also include the following:
Employee benefits (excluding share-based payments)
Share-based payments
Exploration expenditure (included in Resource development expenses)
Operating leases
Inventory NRV write-downs - finished goods and WIP
2018
$m
2017
$m
174.5
6.2
11.8
11.8
11.4
148.4
7.4
12.7
12.2
5.2
(215.7)
(185.9)
94
94
Iluka Resources Limited, Annual Report 2018
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
7 IMPAIRMENT OF ASSETS
(a) Impairment policy
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
Assets are 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. 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 -
CGUs). The recoverable amount of each CGU is determined as the higher of value-in-use and fair value less costs
of disposal (FVLCD) estimated on the basis of discounted present value of 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.
Indicators of impairment may include significant changes in business performance or future operating plans
along with changes in technology.
Key estimate: Recoverable amount calculation
Where an impairment assessment is needed, the estimates of discounted future cash flows for each CGU used
in determining its FVLCD are based on significant assumptions including:
• estimates of the quantities of mineral reserves and ore resources for which there is a high degree of
confidence of economic extraction and the timing of access to these reserves and ore resources;
• future production levels and the ability to sell that production;
• future product prices based on the Group’s assessment of short and long-term prices for each of the key
products;
• future exchange rates for the Australian dollar compared to the US dollar using external forecasts by
recognised economic forecasters;
• 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.
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 prior years, or the recognition of new impairment charges in the future.
(b) Impairment review
During the reporting period, the Group noted an impairment indicator resulting from an increase in estimated
development costs associated with the Sembehun project at Sierra Rutile. The post-tax recoverable amount of
the CGU was estimated using the key estimates for Group recoverable amount calculations noted above, as well
as estimates specific to SRL, including the assumption of the successful development and operation of the
Sembehun project at costs consistent with latest forecasts, and a stable operating environment and fiscal
regime. The fair value was found to exceed the carrying value of the CGU. Furthermore, the potential IFC
consideration for a 10% non-controlling interest in SRL supports the carrying value of the SRL CGU. Therefore no
impairment charge has been recognised in the current year.
(c) 2017 impairment
The Group recorded an impairment charge of $185.3 million for the year ended 31 December 2017. The
impairment charge predominantly related to the Hamilton Mineral Separation Plant which was placed on care
and maintenance in October 2017 ($151 million), and the write off of the investment in Metalysis Limited, an
unlisted UK-based technology company focused on the development and commercialisation of solid state
production of metal powder to titanium alloys ($30 million).
95
Iluka Resources Limited, Annual Report 2018
95
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
8 PROVISIONS
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
Current
Rehabilitation and mine closure
Employee benefits - long service leave
Workers compensation and other provisions
BS-.1
Non-current
Rehabilitation and mine closure
Employee benefits - long service leave
Retirement benefit obligations
Other provisions
Notes
8(a)
8(b)
8(a)
8(b)
28
2018
$m
87.7
12.2
5.7
105.6
0.1
616.1
2.0
17.9
2.3
638.3
2017
$m
69.8
10.4
3.6
83.8
-
599.4
3.0
14.8
3.0
620.2
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past
event, it is probable that resources will be expended to settle the obligation and a reliable estimate can be made
of the amount of the obligation.
(a) Rehabilitation and mine closure
The movements in the rehabilitation and mine closure provision are set out below:
Movements in rehabilitation and mine closure provisions
Balance at 1 January 2018
Change in provisions - credit for closed sites
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
Balance at 31 December 2018
Notes
$m
6
9
14(d)
669.2
(4.6)
47.9
28.3
16.7
(53.7)
703.8
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 increase in the provision associated with unwinding of the discount rate is recognised as a finance cost.
96
96
Iluka Resources Limited, Annual Report 2018
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
The total rehabilitation and mine closure provision of $703.8 million (2017: $669.2 million) includes $464.0
million (2017: $493.8 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 credit to profit or loss of
$4.6 million (2017: cost of $127.4 million) which is reported within the expense item Rehabilitation costs for
closed sites in note 6.
Key estimate: Rehabilitation and mine closure provisions
The Group’s assessment of the present value of the rehabilitation and mine closure provisions requires the use
of significant estimates and judgements, including the future cost of performing the work required, timing of the
cash flows, discount rates, final remediation strategy, and future land use requirements. The provision can also
be impacted prospectively by changes to legislation or regulations.
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 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.
Key estimate: Discount rate for provisions
Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current
market assessments of the time value of money and the risks specific to the liability to the extent they are not
included in the cash flows.
Rehabilitation and mine closure provisions have been calculated by discounting risk adjusted cash flows at
discount rates of between 2% and 4% (2017: 2% and 4%).
(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.
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.
97
Iluka Resources Limited, Annual Report 2018
97
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
9 PROPERTY, PLANT AND EQUIPMENT
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
At 1 January 2017
Cost
Accumulated depreciation¹
Opening written down value
Additions
Disposals
Depreciation and amortisation
Exchange differences
Impairment of assets
Transfers/reclassifications
Closing written down value
At 31 December 2017
Cost
Accumulated depreciation¹
Closing written down value
Plant
Year ended 31 December 2018
Additions
Disposals
Depreciation and amortisation
Exchange differences
Transfers
Closing written down value
Plant
At 31 December 2018
Cost
Accumulated depreciation¹
Closing written down value
Plant,
machinery &
equipment
$m
Mine
reserves &
development
$m
Exploration
&
evaluation
$m
Land &
buildings $m
209.3
(43.3)
166.0
6.6
-
(3.7)
(5.7)
(7.2)
-
156.0
2,030.4
(1,391.8)
638.6
71.6
(3.8)
(77.0)
(14.9)
(147.8)
(4.3)
462.4
943.0
(560.2)
382.8
31.9
-
(29.9)
(14.6)
-
19.3
389.5
47.8
(17.0)
30.8
3.3
-
-
2.8
-
(15.0)
21.9
Total
$m
3,230.5
(2,012.3)
1,218.2
113.4
(3.8)
(110.6)
(32.4)
(155.0)
-
1,029.8
230.1
(74.1)
156.0
2,252.2
(1,789.8)
462.4
1,049.0
(659.5)
389.5
38.9
(17.0)
21.9
3,570.2
(2,540.4)
1,029.8
9.5
(1.0)
(2.9)
7.9
6.6
176.1
235.4
(0.4)
(68.7)
22.2
7.8
658.7
152.1
-
(20.1)
15.8
(11.2)
526.1
0.2
-
(1.9)
1.2
(3.2)
18.2
397.2
(1.4)
(93.6)
47.1
-
1,379.1
256.4
(80.3)
176.1
2,541.4
(1,882.7)
658.7
1,066.5
(540.4)
526.1
35.1
(16.9)
18.2
3,899.4
(2,520.3)
1,379.1
¹Accumulated depreciation includes cumulative impairment charges.
(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 12 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.
98
Iluka Resources Limited, Annual Report 2018
98
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
As set out in note 8, 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
related to changes in the rehabilitation provision,
predominantly related to developing the new mine at Cataby.
include $47.9 million (2017: $4.7 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 capital in nature or 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
lives. The
Items of property, plant and equipment are depreciated on a straight-line basis over their useful
estimated useful life of buildings is the shorter of applicable mine life or 25 years; plant and equipment is
between 2 and 20 years. Land is not depreciated.
Expenditure on mine reserves and development is amortised over the life of mine, based on the rate of depletion
If production has not yet
of the economically recoverable reserves (units of production methodology).
commenced, or the mine is idle, amortisation is not charged.
(d) Assets not being depreciated
Included in plant, machinery and equipment, mine reserves and development, and land and buildings are amounts
totalling $218.7 million, $86.2 million and $2.3 million respectively (2017: $46.6 million, $5.4 million and $0.2
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 and land assets, are amounts totalling
$218.5 million which have not been depreciated in the year as mining of the related area of interest has not yet
commenced (2017: $196.8 million).
(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.
99
Iluka Resources Limited, Annual Report 2018
99
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
(f)
Impairment of PPE
Refer to note 7 for details on impairment testing.
10 INCOME TAX
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
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.
(a) Income tax expense (benefit)
Current tax
Deferred tax
Under (over) provided in prior years
Notes
11
(b) Reconciliation of income tax expense to prima facie tax payable
Profit (loss) before income tax expense
Tax at the Australian tax rate of 30% (2017: 30%)
Tax effect of amounts not deductible (taxable) in calculating taxable income:
Research and development credit
Deferred tax losses not recognised by overseas operations
Metalysis write-down
SRL minimum tax (3.5% of revenue)
Non-deductible expenses
Other items
Difference in overseas tax rates
Under provision in prior years
Income tax expense (benefit)
2018
$m
157.3
(10.1)
0.9
148.1
452.0
135.6
(0.7)
1.3
-
7.4
2.1
1.5
147.2
-
0.9
148.1
2017
$m
(0.4)
5.2
1.2
6.0
(165.6)
(49.7)
(1.1)
35.7
10.1
5.2
4.3
(0.5)
4.0
0.8
1.2
6.0
159.5
No tax benefits have been recognised in respect of exploration activities of overseas operations as their recovery
is not currently considered probable.
(600.1)
The idling of the US operations at the end of 2015 means that the recovery of US state tax losses are not
considered probable. Unrecognised US state tax losses for which no deferred tax asset has been recognised are
US$ 193.4 million at 31 December 2018 (31 December 2017: US$162.9 million).
Unused capital losses for which no deferred tax asset has been recognised are approximately $92.7 million
(2017: $92.7 million) (tax at the Australian rate of 30%: $27.9 million (2017: $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.
100
100
Iluka Resources Limited, Annual Report 2018
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
Tax transparency code
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
Iluka has adopted the Board of Taxation’s voluntary Tax Transparency Code (TTC). The TTC requires additional
tax disclosures in two parts (Part A and Part B). The Part A requirements are addressed by this note and income
tax note 10 by providing:
• a reconciliation of accounting profit to tax expense and to current year income tax payable;
• the identification of material temporary and non-temporary differences; and
• the effective company tax rates for Iluka's Australian and global operations.
Part B disclosure requirements will be addressed in the Sustainability Report 2018.
Effective income tax rate: Australian and global operations
Effective income tax rate¹
Australia²
Global³
Current year income tax payable reconciliation
Profit/(loss) before income tax
Income tax at the statutory rate of 30%
Non-temporary differences - income tax expense
Non-temporary differences - equity⁴
Temporary differences: deferred tax expense
Total
2018
2017
30.5%
32.8%
42.9%
(3.6)%
$m
452.0
135.6
11.8
(0.2)
10.1
157.3
$m
(165.6)
(49.7)
54.5
2.0
(5.2)
1.6
¹Effective income tax rate = Income tax expense / profit before income tax.
²Australian effective tax rate is higher than the Australian corporate tax rate of 30% primarily due to non-deductible expenditure
incurred in relation to non-Australian operations.
³Effective tax rate arises from impact of US operations and 2018 Sierra Leone income tax liability calculated as 3.5% of revenue
(minimum tax).
⁴Income tax impact of non-deductible Australian share based payments recognised in the share option reserve.
(c) Tax expense relating to items of other comprehensive income
Hedge of net investments in foreign operations
Changes in fair value of foreign exchange cash flow hedges
Actuarial gains (losses) on retirement benefit obligation
2018
$m
(0.9)
(3.4)
0.2
(4.1)
2017
$m
6.3
(0.9)
(0.2)
5.2
The income tax expense or benefit 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.
101
Iluka Resources Limited, Annual Report 2018
101
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
Key estimate: Tax balances
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
Tax balances are based on management's best estimate and interpretation of the tax legislation in a number of
jurisdictions. This treatment can be subject to changes due to modification to legislation or differences in
interpretation by authorities. Where the amount of tax payable or recoverable includes some uncertainty, the
Group recognises amounts based on management’s best estimate of the most likely outcome.
11 DEFERRED TAX
Deferred tax asset:
The balance comprises temporary differences attributable to:
Tax losses
Employee provisions
Provisions
Cash flow hedge reserve (in equity)
Other
Gross deferred tax assets
2018
$m
2017
$m
209.3
6.9
160.2
4.3
8.3
389.0
185.6
6.1
146.1
1.0
2.2
341.0
Amount offset to deferred tax liabilities pursuant to set-off provision
Net deferred tax assets
(173.4)
215.6
(155.1)
185.9
Deferred tax liability:
The balance comprises temporary differences attributable to:
Property, plant and equipment
Inventory
Receivables
Treasury shares (in equity)
Other
Gross deferred tax liabilities
Amount offset to deferred tax assets pursuant to set-off provision
Net deferred tax liabilities
Movements in net deferred tax balance:
Balance at 1 January
Credited to the income statement
Under provision in prior years
Charged directly to equity
Transfers
Balance at 31 December
(153.9)
(12.9)
(4.4)
(1.9)
(0.4)
(173.5)
173.5
-
185.9
10.1
(2.2)
21.8
-
215.6
(127.9)
(19.1)
(4.3)
(0.1)
(3.7)
(155.1)
155.1
-
208.2
(5.2)
(1.1)
(15.9)
(0.1)
185.9
102
102
Iluka Resources Limited, Annual Report 2018
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
Deferred tax policy
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
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.
Income taxes relating to items recognised directly in equity are also 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 recognised
The net deferred tax asset of $215.6 million (2017: $185.9 million) includes an amount of $209.3 million (2017:
$185.6 million) representing the value of carried forward losses incurred by SRL.
Key estimate: Deferred tax asset recognition
Deferred tax assets are based on tax laws (and tax rates) that have been enacted or substantively enacted at
the balance sheet date.
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.
103
Iluka Resources Limited, Annual Report 2018
103
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
12 RECEIVABLES
Trade receivables
Mining Area C royalty receivable
Other receivables
Prepayments
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
2018
$m
114.4
13.6
26.7
7.9
162.6
2017
$m
118.9
13.8
19.5
19.2
171.4
Trade receivables are recognised initially at the value of the invoice sent to the customer and subsequently at the
amount considered recoverable, translated using the spot exchange rate at balance date with translation
differences accounted for in line with the Group's accounting policy (refer note 2). Recognition occurs at the
earlier of dispatch or formal acknowledgement of legal ownership by a customer, as this is the point in time that
the consideration is unconditional because only the passage of time is required before payment is due. Trade
receivables are generally due within 45 days of the invoice being issued (2017: 50 days).
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 based on the expected credit loss approach.
Expected credit losses for the Group’s trade receivables are reviewed on an ongoing basis based on groups of
receivables with shared risk characteristics.
There was $1.7 million overdue at balance date (2017: $4.1 million), of which $1.4 million are less than 28 days
overdue (2017: $4.1 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 for the sale of eligible trade receivables. Under the agreement Iluka
transfers the majority of the risks and rewards of ownership, including credit risk (subject to a maximum first
loss).
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 $114.4 million excludes $70.6 million (31 December 2017: excludes $64.0 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 $11.5 million (2017:
$10.9 million). An asset for the loss amount has been recognised within other receivables offset by a
corresponding continuing involvement liability in payables.
(b) Credit risk
At 31 December 2018 the trade receivables balance was $114.4 million, with $85.1 million covered by credit risk
insurance and a further $29.2 million by letters of credit. As a result, the Group had no uninsured receivables at
31 December 2018 (2017: $nil).
104
104
Iluka Resources Limited, Annual Report 2018
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
13 INVENTORIES
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
Current
Work in progress
Finished goods
Consumable stores
Total current inventories
Non-current
Work in progress
Finished goods
Total non-current inventories
2018
$m
2017
$m
139.3
178.9
68.9
387.1
4.6
-
4.6
144.0
261.5
64.1
469.6
4.8
5.0
9.8
Inventories are valued at the lower of weighted average cost and estimated net realisable value. The net
realisable value is the estimated selling price in the normal course of business, less any anticipated costs of
completion and the estimated costs to sell, including royalties.
There are separate inventory stockpile values for each product, including Heavy Mineral Concentrate (HMC) and
other intermediate products, at each inventory location.
Weighted average cost includes direct costs and an appropriate portion of 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.
Finished goods inventory of $2.0 million (2017: $14.3 million) is carried at net realisable value, with all other
product inventory carried at cost.
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.
Inventories expected to be sold (or consumed in the case of stores) within 12 months after the balance sheet
date are classified as current assets; all other inventories are classified as non-current assets.
Key estimate: 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.
During the year, inventory write-downs of $11.4 million occurred for work in progress or finished goods (2017:
$5.2 million). If finished goods future selling prices were 5% lower than expected, no inventory write-down
would be required at 31 December 2018 (2017: no write down).
Inventory of $4.6 million (2017: $9.8 million) was classified as non-current as it is not expected to be sold within
12 months of the balance sheet date.
105
Iluka Resources Limited, Annual Report 2018
105
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
CAPITAL
14 NET (CASH)/DEBT AND FINANCE COSTS
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
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
2018
$m
51.3
51.3
50.4
(0.9)
49.5
2017
$m
53.6
53.6
238.6
(2.5)
236.1
49.5
236.1
(1.8)
182.5
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% and 2.5% (2017: 0.0% and 2.12%) 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.
(i) Multi Optional Facility Agreement
The Multi Optional Facility Agreement (MOFA) comprises a series of unsecured five year bilateral revolving credit
facilities with several domestic and foreign institutions, totalling A$618.3 million (2017: A$695.1 million).
The table below details the facility expiries:
A$million
At 31 December 2018
At 31 December 2017
Total
facility
618.3
695.1
Facility Expiry
2018
-
-
2019
-
96.2
2020
77.1
72.5
2021
-
2022
541.2
-
526.4
Drawings under the MOFA at 31 December 2018 were A$50.4 million (2017: A$238.6 million). Undrawn MOFA
facilities at 31 December 2018 were A$567.9 million (2017: A$456.5 million).
106
106
Iluka Resources Limited, Annual Report 2018
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
(c) Interest rate exposure
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
Of the above interest-bearing liabilities, $50.4 million is subject to an effective weighted average floating interest
rate of 4.2% (2017: interest-bearing liabilities of $238.6 million at 3.1%). The contractual repricing date of all of
the floating rate interest-bearing liabilities at the balance date is within one year.
(d) Finance costs
Rehabilitation discount rate changes
Rehabilitation discount rate changes
Interest charges on interest-bearing liabilities
Bank fees and similar charges
Amortisation of deferred borrowing costs
Rehabilitation and mine closure provision discount unwind
Total finance costs
(i) Amortisation of deferred borrowing costs
2018
$m
0.1
0.1
7.2
6.2
1.6
16.7
31.7
2017
$m
-
-
15.4
0.8
2.6
14.1
32.9
Fees paid on establishment of borrowing facilities are recognised as transaction costs and amortised over the
period until the next expected facility extension. No transaction costs associated with the extension of the MOFA
were incurred and capitalised in 2018 (2017: $1.5 million), as the facility was not extended in the current year.
(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
with the increase in the provision due to passage of time being recognised as a finance cost in accordance with
the policy described in note 8(a).
15 CONTRIBUTED EQUITY
(a) Share capital
Ordinary shares - fully paid
Treasury shares - net of tax
2018
Shares
2017
Shares
422,395,677
(675,521)
421,720,156
418,701,360
(53,218)
418,648,142
2018
$m
1,158.6
(4.6)
1,154.0
2017
$m
1,120.0
(0.3)
1,119.7
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.
107
Iluka Resources Limited, Annual Report 2018
107
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
Movements in ordinary share capital
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
The Group issues ordinary shares to shareholders who elect to receive shares instead of cash dividends as part
of the Dividend Reinvestment Plan (DRP), the terms of which are detailed in the ASX announcement dated 27
February 2018. During the year, the Group issued the following shares under the DRP:
space
2017 final
2018 interim
(b) Treasury shares
Date issued
Price per share
23 April 2018
27 September 2018
$10.56
$9.54
Number of ordinary
shares issued
3,340,866
353,451
3,694,317
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.
Opening balance at 1 January 2017
Employee share issues, net of tax
Balance at 31 December 2017
Acquisition of shares by the Trust
Employee share issues, net of tax
Balance at 31 December 2018
16 RESERVES AND RETAINED EARNINGS
Asset revaluation reserve
Balance at 1 January
Transfer to retained earnings on disposal
Balance at 31 December
blank
Hedge reserve
Balance at 1 January
Deferred costs of hedging
Changes in the fair value of hedging instruments recognised in equity
Reclassified to profit or loss
Deferred tax
Balance 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
Notes
16(a)
16(b)
16(c)
Number of
shares
466,050
(412,832)
53,218
1,246,312
(624,009)
675,521
2018
$m
11.8
(0.4)
11.4
(2.2)
(14.4)
(5.4)
8.5
3.4
(10.1)
1.9
(4.6)
5.0
2.3
$m
2.8
(2.5)
0.3
8.9
(4.6)
4.6
2017
$m
11.8
-
11.8
-
(0.6)
(4.0)
1.4
1.0
(2.2)
(1.1)
(2.5)
5.5
1.9
108
108
Iluka Resources Limited, Annual Report 2018
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
Foreign currency translation
Balance at 1 January
Currency translation of US operation
Currency translation of Sierra Rutile
Translation differences on other foreign operations
Hedge of net investment in Sierra Rutile
Deferred tax
Balance at 31 December
blank
Total reserves
blank
Retained earnings
Balance at 1 January
Adjustment on adoption of AASB 15 (net of tax)
Net profit/(loss) for the period
Dividends paid
Actuarial gains/(losses) on retirement benefit obligation, net of tax
Balance at 31 December
(a) Asset revaluation reserve
Notes
20(a)
16(d)
2018
$m
(2.1)
(15.7)
59.7
(0.8)
(3.0)
0.9
39.0
42.6
(243.6)
(0.6)
303.9
(146.9)
0.6
(86.6)
2017
$m
21.5
(0.3)
(37.9)
(0.2)
21.1
(6.3)
(2.1)
9.4
(46.4)
-
(171.6)
(25.1)
(0.5)
(243.6)
The asset revaluation reserve records revaluations of non-current assets prior to the adoption of AIFRS.
Transfers are made to retained earnings on disposal of previously revalued assets.
(b) Hedge reserve
Iluka uses two types of hedging instruments as part of its foreign currency risk management strategy associated
with its US denominated sales, as described in note 20. These include foreign currency forward contracts and
foreign currency collars, both of which are designated in cash flow hedge relationships. To the extent these
hedges are effective, the change in fair value of the hedging instrument is recognised in the cash flow hedge
reserve.
(c) Share-based payments reserve
The employee share-based payments reserve is used to recognise the fair value of equity instruments granted
but not yet issued to employees under the Group's various equity-based incentive schemes. Shares issued to
employees are acquired on-market prior to the issue. Shares not yet issued to employees are shown as treasury
shares. When shares are issued to employees the cost of the on-market acquisition, net of tax, is transferred
from treasury shares (refer note 15) to the share-based payment reserve.
(d) Foreign currency translation reserve
Exchange differences arising on translation of the net investment in foreign operations, including US dollar
denominated debt used as a hedge of the net investment, are taken into the foreign currency translation reserve
net of applicable income tax, as described in note 2(b). At 31 December 2018, US$nil was designated as a hedge
of the net investment in Sierra Rutile Limited (2017: US$120.7 million). The reserve is recognised in profit or loss
when the net investment is disposed of.
109
Iluka Resources Limited, Annual Report 2018
109
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
17 DIVIDENDS
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
Final dividend
for 2017 of 25 cents per share, fully franked
Interim dividend
for 2018 of 10 cents per share, fully franked
for 2017 of 6 cents per share, fully franked
Total dividends
2018
$m
104.7
104.7
42.2
-
42.2
146.9
2017
$m
-
-
-
25.1
25.1
25.1
Of the total $42.2 million interim dividend declared for 2018 and the total $104.7 million final dividend declared
for 2017, shareholders respectively took up $3.4 million and $35.2 million as ordinary shares as part of the
Dividend Reinvestment Plan. Refer to note 15(a).
Since balance date the directors have determined a final dividend for 2018 of 19 cents per share, fully franked
(2017: 25 cents per share, fully franked). The dividend is payable on 4 April 2019 for shareholders on the register
as at 8 March 2019. The aggregate amount of the proposed dividend is $80.1 million, which has not been
included in provisions at balance sheet date as it was not declared on or before the end of the financial year.
Franking credits
The balance of franking credits available as at 31 December 2018 is $27.9 million (2017: $89.3 million). This
balance is based on a tax rate of 30% (2017: 30%).
18 PROFIT/(LOSS) PER SHARE
Basic profit/(loss) per share (cents)
Diluted profit/(loss) per share (cents)
2018
Cents
72.2
71.8
2017
Cents
(41.0)
(41.0)
Earnings/(loss) per share (EPS) is the amount of post-tax earnings or loss attributable to each share.
Basic EPS is calculated on the profit for the period attributable to equity owners of $303.9 million (2017: loss of
$171.6 million) divided by the weighted average number of shares on issue during the year, excluding treasury
shares, being 420,797,114 shares (2017: 418,525,273 shares).
Diluted EPS takes into account the dilutive effect of all outstanding share rights vesting as ordinary shares. The
weighted average share rights outstanding were not dilutive in 2017 as they would reduce the loss per share and
therefore were not included in the calculation of diluted EPS in the comparative period.
110
110
Iluka Resources Limited, Annual Report 2018
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
RISK
19 FINANCIAL RISK MANAGEMENT
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
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
The Group operates internationally and is exposed to foreign exchange risk arising predominantly from the US
dollar, which is the currency the Group’s sales are generally denominated in.
The Group has operations in Sierra Leone and rehabilitation obligations in the US, which both have a USD
functional currency. The balance sheet translation risk is managed by designating, to the extent possible, a
portion of the Group’s borrowings in US dollars as a hedge against the net US dollar investment in the Sierra
Rutile operation (with associated translation differences taken to the foreign currency translation reserve in
equity).
Net US dollar-denominated working capital and cash balances act as a ‘natural’ hedge against movements in US
dollar receivables from Australian sales (with associated translation differences taken to profit or loss).
Foreign exchange risk is also managed through entering into forward foreign exchange contracts and collar
contracts detailed in note 20.
The treasury function of the Group manages foreign currency risk centrally. The Group hedges foreign exchange
exposures for firm commitments relating to a portion of sales, where the hedging instrument must be in the
same currency as the hedged item.
The objective of Iluka’s policy on foreign exchange hedging is to protect the Group from adverse currency
fluctuations.
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
Derivative financial instruments
2018
$m
9.0
59.4
(16.7)
(50.4)
(7.3)
(6.0)
2017
$m
21.9
85.6
(25.1)
(238.6)
2.4
(153.8)
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 0.7479 (2017: 0.7668). The US dollar spot rate at 31
December 2018 was 0.7050 (31 December 2017: 0.7784). Based on the Group's net financial assets at 31
December 2018, the following table demonstrates the estimated sensitivity to a -/+ 10% 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:
111
Iluka Resources Limited, Annual Report 2018
111
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
-10%
Strengthen
Profit (loss)
$m
0.4
(0.2)
Equity
$m
(37.1)
(11.9)
+10%
Weaken
Profit (loss)
$m
0.2
0.2
Equity
$m
24.5
9.7
31 December 2018
31 December 2017
(iii) Interest rate risk
Interest rate risk arises from the Group’s borrowings and cash deposits. During 2018 and 2017, the Group's
borrowings at variable rates were denominated in Australian dollars and US dollars. At 31 December 2018, if
variable interest rates for the full year were -/+ 1% 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 2018
31 December 2017
+1%
$m
0.5
3.6
-1%
$m
(0.5)
(3.6)
The sensitivity is calculated using the average debt position for the year ended 31 December 2018. The interest
charges in note 14(d) of $7.2 million (2017: $15.4 million) reflect interest-bearing liabilities in 2018 that range
between $38.4 million and $236.1 million (2017: $236.1 million and $607.6 million).
(b) Credit risk
Credit risk arises from cash and cash equivalents and hedging instruments 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
policies limit the amount of credit exposure to any one financial institution.
institutions and
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
14(b)(i)) of $567.9 million at balance date as well as cash and cash equivalents of $51.3 million and prudent cash
flow management.
112
112
Iluka Resources Limited, Annual Report 2018
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
(d) Maturities of financial liabilities
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
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 2020 to 2022 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 non-derivative financial liabilities are due within 12 months. Derivative cash flows include the net amounts
expected to be paid for foreign exchange forward contracts and net amounts expected to be received for foreign
exchange collar contracts.
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
%
4.2
153.2
0.3
153.5
-
3.8
3.8
-
-
-
0.6
3.1
3.7
-
50.4
50.4
-
4.2
4.2
153.2
50.7
203.9
153.2
50.4
203.6
0.6
11.1
11.7
0.6
11.1
11.7
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 2018
Non-derivatives
Payables
Interest-bearing variable rate
Total non-derivatives
Derivatives
Forward foreign exchange contracts
Foreign exchange collar contracts
Total derivatives
At 31 December 2017
Non-derivatives
Payables
Interest-bearing variable rate
Total non-derivatives
3.1
114.2
1.5
115.7
-
-
-
-
238.6
238.6
114.2
240.1
354.3
114.2
238.6
352.8
Derivatives
Forward foreign exchange contracts
Foreign exchange collar contracts
Total derivatives
3.4
(0.2)
3.2
-
(1.2)
(1.2)
-
(1.2)
(1.2)
3.4
(2.6)
0.8
3.4
(2.6)
0.8
Refer to note 20 for detail on derivative instruments.
113
Iluka Resources Limited, Annual Report 2018
113
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
20 HEDGING
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
Current assets/(liabilities)
Foreign exchange collar hedges
Foreign exchange forward contracts
Non-current assets/(liabilities)
Foreign exchange collar hedges
2018
$m
(3.8)
(0.6)
(4.4)
2017
$m
0.2
(3.4)
(3.2)
(7.3)
2.4
The Group is exposed to risk from movements in foreign exchange in relation to its forecast US dollar
denominated sales and as part of the risk management strategy has entered into foreign exchange forward
contracts and foreign exchange collar contracts.
(a) Recognition
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are
subsequently re-measured to their fair value at the end of each reporting period. The accounting for subsequent
changes in fair value depends on whether the derivative is designated as a hedging instrument and, if so, the
nature of the item being hedged and the type of hedge relationship designated.
(b) Fair value of derivatives
Derivative financial instruments are the only assets and liabilities measured and recognised at fair value at 31
December 2018 and 31 December 2017. The fair value of these instruments is determined using valuation
techniques with inputs that are observable market data (a level 2 measurement). The valuation of forward
contracts is determined using forward exchange rates at the balance date. The valuation of the options making
up the collars is determined using forward foreign exchange rates, volatilities and interest rates at the balance
date. The only unobservable input used in the calculations is the credit default rate, movements in which would
not have a material effect on the valuation.
(c) Hedge accounting
At the start of a hedge relationship, the Group formally designates and documents the hedge relationship,
including the risk management strategy for undertaking the hedge. This includes identification of the hedging
instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the
hedging instrument’s effectiveness. Hedge accounting is only applied where effective tests are met on a
prospective basis.
Iluka will discontinue hedge accounting prospectively only when the hedging relationship, or part of the hedging
relationship, no longer qualifies for hedge accounting. This includes where there has been a change to the risk
management objective and strategy for undertaking the hedge and instances when the hedging instrument
expires or is sold, terminated or exercised. The replacement or rollover of a hedging instrument into another
hedging instrument is not treated as an expiration or termination if such a replacement or rollover is consistent
with our documented risk management objective.
The foreign exchange forward contracts and foreign exchange collars Iluka holds are classified as cash flow
hedges. Hedges are classified as cash flow hedges when they hedge a particular risk associated with the cash
flows of recognised assets and liabilities and highly probable forecast transactions.
114
114
Iluka Resources Limited, Annual Report 2018
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
Cash flow hedges
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
For cash flow hedges, the portion of the gain or loss on the hedging instrument that is effective is recognised
directly in equity, while the ineffective portion is recognised in profit or loss. The ineffective portion was
immaterial in the current and prior periods. The maturity profile of these hedges is shown in note 19(d). The
recognition of the future gain or loss is expected to be consistent with this timing.
The group is exposed to risk from movements in foreign exchange in relation to its forecast US Dollar
denominated sales and as part of the risk management strategy enters into foreign exchange forward contracts
and foreign exchange collar hedges. The following contracts in relation expected USD revenue from contracted
sales to 31 December 2022 remain open at the reporting date:
•
•
foreign exchange forward contracts covering US$31.6 million at an average rate of 72.1 cents (31 December
2017: US$95.6 million at an average rate of 80.1 cents); and
foreign exchange collar hedges covering US$311.0 million of expected USD revenue to 31 December 2022.
The collars comprise US$311.0 million worth of purchased AUD call options with a weighted average strike
price of 79.2 cents and US$311.0 million of AUD put options at a strike price of 69.1 cents.
The period above corresponds with the long-term sales contracts entered into in 2017 including those in support
of the development of the Cataby project. However, the hedged USD revenues do not represent the full value of
expected sales under these contracts over this period. The following hedging contracts matured during the year:
•
•
US$95.0 million in forward foreign exchange contracts at a weighted average rate of 80.1 cents; and
US$24.0 million in foreign exchange collar contracts consisting of US$24.0 million of bought AUD call
options with strike prices of 80.0 cents and US$24.0 million of sold put options with strike prices of 70.0
cents.
Amounts recognised in equity are transferred to the income statement when the hedged sale occurs or when the
hedging instrument is exercised.
If the forecast transaction is no longer expected to occur, amounts previously recognised in equity are
transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without
replacement or roll over, or if its designation as a hedge is revoked, amounts previously recognised in equity
remain in equity until the forecast transaction occurs.
Net investment hedge
The Group also designates US denominated debt as a hedge against the Group's net investment in Sierra Leone,
which has a US dollar functional currency. During the period the Group's net investment hedge resulted in the
foreign currency translation reserve being reduced by $2.1 million (2017: $14.8 million reserve increase).
115
Iluka Resources Limited, Annual Report 2018
115
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
GROUP STRUCTURE
21 CONTROLLED ENTITIES AND DEED OF CROSS GUARANTEE
The consolidated financial statements incorporate the following subsidiaries:
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
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
Equity holding
2017
2018
%
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
95.8
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
95.8
100
100
100
100
100
100
100
100
100
100
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
* Iluka International (ERO) Pty Ltd
* 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
116
116
Iluka Resources Limited, Annual Report 2018
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
Associated Minerals Consolidated Investments
Iluka (USA) Investments Inc
Iluka Resources Inc
Iluka Resources (NC) LLC
Iluka Resources (TN) 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
SRL Acquisition No. 3 Limited
Sierra Rutile (UK) Limited
Sierra Rutile Holdings Limited
Sierra Rutile Limited
Sierra Rutile Marketing Limited
Iluka South Africa (Pty) Limited
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
South Africa
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
* 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 ASIC Corporations
(Wholly-owned Companies) Instrument 2016/785. The closed group is also the extended closed group.
(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 for the period
Other comprehensive income
Changes in the fair value of cash flow hedges
Total comprehensive income for the period
2018
$m
1,118.7
(605.1)
(24.1)
(143.9)
345.6
2017
$m
894.9
(839.3)
(28.7)
(16.1)
10.8
(7.9)
337.7
(2.2)
8.6
Summary of movements in consolidated retained earnings
Retained earnings/(accumulated loss) at the beginning of the financial year
Profit for the period
Dividends paid
Retained earnings/(accumulated loss) at the end of the financial year
(10.9)
345.6
(146.9)
187.8
3.4
10.8
(25.1)
(10.9)
117
Iluka Resources Limited, Annual Report 2018
117
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
Condensed balance sheet
Current assets
Cash and cash equivalents
Receivables
Inventories
Derivative financial instruments
Current tax receivables
Total current assets
Non-current assets
Derivative financial instruments
Property, plant and equipment
Deferred tax assets
Intangible assets
Inventories
Other financial assets - investments in non-closed group entities
Total non-current assets
Total assets
Current liabilities
Payables
Derivative financial instruments
Current tax payable
Provisions
Total current liabilities
Non-current liabilities
Interest-bearing liabilities
Derivatives
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total equity
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
2018
$m
2017
$m
18.4
118.0
292.5
-
-
428.9
-
838.3
46.3
3.9
4.6
729.2
1,622.3
27.1
157.7
365.1
0.2
3.7
553.8
2.4
615.8
38.0
4.3
4.7
617.8
1,283.0
2,051.2
1,836.8
100.0
4.4
137.3
82.2
323.9
49.5
7.3
336.0
392.8
716.7
73.6
3.4
-
58.0
135.0
236.1
-
343.9
580.0
715.0
1,334.5
1,121.8
1,154.0
(7.3)
187.8
1,334.5
1,119.7
13.0
(10.9)
1,121.8
118
118
Iluka Resources Limited, Annual Report 2018
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
OTHER NOTES
22 CONTINGENT LIABILITIES
(a) Bank guarantees
The Group has a number of bank guarantees in favour of various government authorities and service providers to
meet its obligations under exploration and mining tenements. At 31 December 2018, the total value of
performance commitments and guarantees was $123.6 million (2017: $120.4 million).
(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$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 October 2019; and
the payment of an annual trailing payment calculated at 1% 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) Shareholder class action
On 24 March 2014 Iluka became aware that a litigation funder proposed to fund claims that current or former
shareholders may have against Iluka Resources Limited (Iluka) in respect of alleged breaches of Iluka’s
continuous disclosure obligations and misleading and deceptive conduct in 2012.
On 23 April 2018, Iluka was served with an originating application and statement of claim in respect of a
shareholder class action filed in the Federal Court of Australia. The proceedings have been brought by a group of
Iluka shareholders for alleged breaches of Iluka’s continuous disclosure obligations, and misleading and
deceptive conduct in relation to disclosures made by Iluka to the market between April and July 2012. On 9 May
2018, Iluka was informed that the class action had received funding from the applicant’s third party litigation
funder, Harbour Fund II LP. Iluka denies liability in respect of the allegations and is defending the proceedings.
This contingent liability was first disclosed in Iluka’s 2018 Interim Report. Given the status of the proceedings,
Iluka is unable to reliably estimate the quantum of liability, if any, that Iluka may incur in respect of the class
action.
(e) 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.
119
Iluka Resources Limited, Annual Report 2018
119
NOTES TO FINANCIAL STATEMENTS
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
For the year ended 31 December 2018
23 EVENTS OCCURRING AFTER THE REPORTING PERIOD
(a) Acquisition of interest in Sierra Rutile Limited by the International Finance Corporation (IFC)
On 21 February 2019, the Group announced the potential for the IFC to acquire a 10% equity interest in Sierra
Rutile Limited for the consideration of US$60 million, subject to due diligence, documentation and Board
approvals by both the Group and the IFC.
The financial effects of this transaction have not been recognised at 31 December 2018. Subsequent to the
completion of the potential transaction, the Group will retain a controlling interest in Sierra Rutile Limited.
Accordingly the Group will continue to consolidate it as a subsidiary. From finalisation of the potential
agreement, the ownership interest held by the IFC will give rise to a liability measured at fair value, which reflects
the terms of ownership that apply to IFC.
(b) Sierra Leone environmental class action
On 22 January 2019 Sierra Rutile Limited was served with a writ and statement of claim in respect of an action
filed in the High Court of Sierra Leone Commercial And Admiralty Division against both Sierra Rutile Limited and
The Environmental Protection Agency.
The proceedings have been brought by a group of landowner representatives (Representatives) who allege that
they suffered loss as a result of Sierra Rutile Limited’s mining operations. The claims primarily relate to
environmental matters. The Representatives allege, in part, that Sierra Rutile Limited engaged in improper mining
practices resulting in environmental degradation and contamination, did not meet certain rehabilitation
obligations and violated local mining laws. Sierra Rutile Limited denies liability in respect of the allegations and
intends to defend the claims.
Given the early stage of proceedings, it is not practicable for Iluka to estimate the quantum of liability, if any, that
Iluka may incur in respect of the class action.
24 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
2018
$m
2017
$m
15.7
32.7
47.0
95.4
18.3
34.3
46.7
99.3
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
7.2
15.8
14.3
37.3
11.5
7.8
0.4
19.7
120
120
Iluka Resources Limited, Annual Report 2018
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
The Group leases various storage facilities, offices, mining equipment and motor vehicles under non-cancellable
operating leases expiring within one to 10 years with varying terms.
(c) Capital commitments
Capital expenditure contracted for and payable, but not recognised as liabilities are $57.8 million (2017: $27.0
million). All of the commitments relate to the purchase of property, plant and equipment and are payable within
one year of the reporting date.
25 REMUNERATION OF AUDITORS
During the year the following fees were paid or payable for services provided by the auditor of the parent entity,
its related practices and non-related audit firms:
(a) PricewaterhouseCoopers Australia
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
(c) Non-PricewaterhouseCoopers audit firms
Audit and review of financial statements
Other compliance and advisory services
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
2018
$000
2017
$000
514
-
514
10
-
10
524
156
34
190
76
142
218
746
-
10
176
932
619
13
632
-
52
52
684
181
22
203
48
-
48
848
13
-
74
935
121
Iluka Resources Limited, Annual Report 2018
121
NOTES TO FINANCIAL STATEMENTS
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
For the year ended 31 December 2018
26 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.
122
122
Iluka Resources Limited, Annual Report 2018
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
The share-based payment expense recognised in profit or loss of $6.2 million (2017: $7.4 million) results from
several schemes summarised below.
Schemes
STIP (i)
2018
2017
2016
2015
LTIP - TSR (ii)
2017
2016 MD Grant
2016
2016
2015
LTIP - ROE (ii)
2017
2016 MD Grant
2016
2016
2015
EIP (iii)
MD LTDR (iv)
COO LTDR (v)
COO LTDR (v)
Employee Share Plan (vi)
Restricted Share Plan (vii)
(i) Short Term Incentive Plan (STIP)
Fair
value
Shares /
rights at
Expense
2018
Shares /
rights at
Expense
2017
Grant
date
Vesting
date
$
31 Dec 18
$m
31 Dec 17
$m
Mar-19 Mar-20/21
7.62
Mar-18 Mar-19/20
10.55
Mar-17 Mar-18/19
Mar-16 Mar-17/18
May-17
Oct-16
May-16
May-16
Feb-15
May-17
Oct-16
May-16
May-16
Feb-15
Mar-21
Mar-21
Mar-20
Mar-19
Mar-18
Mar-21
Mar-21
Mar-20
Mar-19
Mar-18
6.82
6.63
5.66
3.71
4.27
4.27
5.02
7.44
5.42
5.86
6.01
6.74
Mar-18 Mar-20/21/22 7.62
-
-
-
-
401,657
126,688
237,217
267,739
-
401,681
126,687
237,234
267,757
-
-
Oct-16 Mar-18/19/20 4.68
357,115
Mar-17
Mar-18
Mar-20
Mar-21
6.82
10.55
9.01
6.82
16,133
10,424
-
-
1.5
1.4
0.4
-
0.5
(0.3)
0.2
0.1
-
0.7
0.3
0.3
(0.9)
(1.6)
2.5
0.1
0.1
0.1
0.4
0.4
6.2
-
-
-
431,698
126,688
270,656
270,656
261,984
431,724
126,687
270,674
270,674
261,984
504,929
16,133
-
-
-
1.3
0.7
0.3
0.6
-
0.2
0.3
0.3
0.8
-
0.4
0.4
-
1.3
0.1
-
0.5
0.2
7.4
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 2017 LTIP takes into account the exercise price of $nil, the share price at grant
date of $8.39, the expected price volatility of the share price (based on historical volatility), the expected dividend
yield of 3.08% and the risk free rate of return of 1.88%. The fair value of the total shareholder return 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.
(iii) Executive Incentive Plan (EIP)
Equity awarded under the 2018 executive incentive plan will be allocated on 1 March 2019. The number of
restricted shares and performance rights to be awarded will be determined based on a volume weighted average
market price of Iluka shares for the five days following the release of the 2018 results. The values disclosed
represent the face value.
123
Iluka Resources Limited, Annual Report 2018
123
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
(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 2016 Remuneration Report. The fair value of
$4.68 per right is the weighted average for all share rights in the LTDR.
(v) Chief Operating Officer's Long Term Deferred Rights (LTDR)
The fair value at grant date for the Chief Operating Officer's LTDR represents the face value of 26,557 (2017:
16,133) share rights.
(vi) Employee share plan
A total of 37,400 (2017: 45,954) 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 $11.28
(2017: $9.01) for the five days following the close of the offer period.
(vii) Restricted share plan
52,029 (2017: 95,674) restricted shares were issued to seven (2017: eight) eligible employees who participated in
the plan. Shares were issued to participants based on a volume weighted average price of $10.55 (2017: $6.82)
calculated over the five trading days following the release of the Company’s 2017 annual results.
27 RECONCILIATION OF PROFIT/(LOSS) AFTER INCOME TAX TO NET CASH INFLOW
FROM OPERATING ACTIVITIES
2018
$m
303.9
93.6
(1.4)
(1.3)
1.6
16.7
6.2
1.6
-
-
11.4
(4.6)
7.5
85.9
152.1
(6.7)
(35.3)
(4.7)
626.5
2017
$m
(171.6)
111.0
1.3
0.9
(1.9)
14.1
7.4
2.6
3.3
185.4
5.2
127.4
(31.1)
203.4
(8.5)
3.8
(7.0)
(32.0)
413.7
Profit (loss) for the year
Depreciation and amortisation
Doubtful debts/(reversed)
Net loss (gain) on disposal of property, plant and equipment
Net exchange differences
Rehabilitation and mine closure provision discount unwind
Non-cash share-based payments expense
Amortisation of deferred borrowing costs
Equity accounted share of losses
Impairment of assets
Inventory NRV write-down
Changes in rehabilitation provisions for closed sites
Change in operating assets and liabilities
Decrease in receivables
Decrease in inventories
Increase in net current tax liability
Decrease (increase) in net deferred tax
Increase in payables
Increase in provisions
Net cash inflow from operating activities
124
124
Iluka Resources Limited, Annual Report 2018
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
28 POST-EMPLOYMENT BENEFIT OBLIGATIONS
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
(a) Superannuation plan
(i) Australia
Iluka previously provided defined lump sum and pension benefits to employees of the Group who did not elect a
fund under the Superannuation Fund Choice legislation via the Iluka Resources Superannuation Plan. Iluka has
closed this defined benefits plan to new members and there are no remaining members. The Group has no
further legal or contructive obligation in relation to 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 trade unions representing employees. On 1 January 2018,
this benefit was extended to include senior and management employees, in addition to all other employees, with
the obligation to the newly added senior and management employees becoming effective from 1 January 2019.
The post-employment benefit obligation recognised in the balance sheet represents the present value of the
defined benefit obligation in relation to this arrangement.
The following sets out details in respect of the defined benefit sections only for Australia, US and SRL.
(b) Financial position
The net financial position of the Group’s defined benefit plans based on information supplied from the plans'
actuarial advisors per the table below.
Australia
United States
Sierra Rutile
Total
Net plan position
Surplus
Deficit
Deficit
2018
$m
0.4
(12.1)
(6.2)
(17.9)
2017
$m
0.4
(11.1)
(4.1)
(14.8)
A net deficit of $17.9 million (2017: deficit $14.8 million) is included in non-current provisions in note 8. The table
below provides a summary of the net financial position at 31 December for the past five years.
Defined benefit plan obligation
Plan assets
Deficit
2018
$m
(39.4)
21.5
(17.9)
2017
$m
(36.0)
21.2
(14.8)
2016
$m
(35.0)
20.3
(14.7)
2015
$m
(31.1)
20.4
(10.7)
2014
$m
(29.5)
19.3
(10.2)
125
Iluka Resources Limited, Annual Report 2018
125
NOTES TO FINANCIAL STATEMENTS
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
For the year ended 31 December 2018
(c) Defined benefits superannuation expense
In 2018, $2.3 million (2017: $1.7 million) was recognised in expenses for the year in respect of the defined benefit
plans.
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.
29 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 58 to 79.
The below provides a summary:
Short-term benefits
Post-employment benefits
Termination benefits
Share-based payments
Total
2018
$000
6,997
232
175
2,312
9,716
2017
$000
6,412
183
-
2,796
9,391
(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 financial report, or the discharge of
accountability by the Key Management Personnel; and
the transactions are trivial or domestic in nature.
126
126
Iluka Resources Limited, Annual Report 2018
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
30 PARENT ENTITY FINANCIAL INFORMATION
(a) Summary financial information for Iluka Resources Limited
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
Balance sheet
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Shareholders' equity
Contributed equity
Other reserves
Profit reserve¹
Accumulated loss
space
Profit/(loss) for the year
Other comprehensive income
Changes in the fair value of cash flow hedges, net of tax
Total comprehensive loss (income)
¹Profits have been appropriated to a profits reserve for future dividend payments.
2018
$m
2017
$m
165.6
1,393.9
1,559.5
196.4
390.1
586.5
203.5
1,228.4
1,431.9
34.0
393.9
427.9
973.0
1,004.0
1,158.7
0.5
22.3
(208.5)
973.0
1,120.0
10.4
82.1
(208.5)
1,004.0
86.8
(208.5)
(7.9)
78.9
2.2
210.7
(b) Contingent liabilities of the parent entity
The parent had contingent liabilities for performance commitments and guarantees of $42.8 million as at 31
December 2018 (2017: $40.0 million). In addition, the parent has a contingent liability related to the shareholder
class action, as detailed in note 22.
(c) Contractual commitments for the acquisition of property, plant or equipment
As at 31 December 2018, the parent entity had contractual commitments for the acquisition of property, plant or
equipment totalling $26.1 million (2017: $22.3 million).
127
Iluka Resources Limited, Annual Report 2018
127
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
(d) Parent entity financial information
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
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.
31 RELATED PARTY TRANSACTIONS
The only related party transactions are with Directors and Key Management Personnel (refer note 29). Details of
material controlled entities are set out in note 21. The ultimate Australian controlling entity and the ultimate
parent entity is Iluka Resources Limited.
32 NEW AND AMENDED STANDARDS
New standards and amendments adopted
Iluka Resources Limited is required 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 2018.
The affected policies and standards are:
(i)
AASB 15 Revenue from Contracts with Customers
The Group has adopted AASB 15 Revenue from Contracts with Customers from 1 January 2018 which resulted in
changes in accounting policies and adjustments to the amounts recognised in the financial statements. AASB 15
supersedes AASB 118 Revenue.
Adoption of the new standard has had neither an impact on the timing of recognition, nor on the measurement of
revenue in respect of the sale of mineral sands. Similarly, there was no impact on royalty income and interest
income. Certain freight revenue that was previously recognised in marketing and selling costs was identified as a
separate performance obligation upon adopting the new standard.
In accordance with the transition provisions in the standard, the group has adopted AASB 15 using the
cumulative effect method. Under this approach, comparatives are not restated, instead, the cumulative effect of
adopting the new standard is recognised in the opening balance of retained earnings in the current reporting
period. The new standard is only applied to contracts that remain in force as at the date of adoption.
128
128
Iluka Resources Limited, Annual Report 2018
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
Adoption adjustments to the opening balance of retained earnings
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
Certain freight revenue was identified at 31 December 2017 for which the related performance obligation was
partially completed as at that date. This resulted in a decrease to the opening balance of retained earnings as
follows:
Opening retained earnings 1 January as previously reported
Decrease due to deferral of freight revenue
Deferred tax effect
Restated opening retained earnings
$'m
(243.6)
(0.9)
0.3
(244.2)
This adjustment is reflected in the statement of changes in equity, net of tax. The above deferred freight revenue
(and related tax effect) has been fully recognised in the current reporting period, as detailed below.
Impact of adoption on the current reporting period
Freight revenue that was previously presented net of the related expenses in marketing and selling costs is now
required to be presented as revenue, resulting in a net increase to marketing and selling costs in expenses as
well as revenue.
Freight revenue that was deferred at the beginning of the reporting period has been fully recognised in the current
reporting period, along with related tax effects. The Group identified certain freight revenue as at 31 December
2018 for which the related performance obligation was partially completed as at that date, and has accordingly
deferred $2.4 million, with the deferred revenue liability included in payables.
Pre-adoption
$’m
Adoption
adjustments
$’m
AASB 15
amounts
$’m
Profit or loss impact
(spacer)
Freight revenue
Gross freight revenue for the year
Deferred revenue at the beginning of the year
Deferred revenue at the end of the year
Freight revenue for the year
Marketing and selling costs
(spacer)
Income tax expense
(spacer)
(spacer)
Balance sheet impact
Payables¹
Deferred tax asset
¹Deferred revenue is included in payables.
-
-
-
-
36.7
148.6
150.8
215.9
51.8
0.9
(2.4)
50.3
51.8
(0.5)
2.4
0.7
51.8
0.9
(2.4)
50.3
88.5
148.1
153.2
215.6
129
Iluka Resources Limited, Annual Report 2018
129
NOTES TO FINANCIAL STATEMENTS
For the year ended 31 December 2018
(ii)
AASB 9 Financial Instruments
ILUKA RESOURCES LIMITED
31 DECEMBER 2018
The Group elected to early adopt AASB 9 Financial Instruments from 1 January 2017 (the comparative period)
because the new accounting standard provides more relevant information for the users of the financial report.
AASB 9 replaced the provisions of AASB 139 Financial Instruments that relate to the recognition, classification
and measurement of financial assets and financial liabilities, including derecognition, impairment and changes to
hedge accounting rules. AASB 9 also amends other standards dealing with financial instruments such as AASB 7
Financial Instruments: Disclosures.
The adoption of AASB 9 did not result in a significant change to the recognition or measurement of financial
instruments for the Group as presented in the financial report. The new hedge accounting rules aligned the
accounting for hedging instruments more closely to the Group’s risk management practices, which allows the
Group’s natural hedge relationship and derivatives to qualify for hedge accounting under AASB 9. See note 20.
On adoption of AASB 9 Iluka has also reclassified its financial assets as subsequently measured at amortised
cost or fair value depending on the business model for those assets and their contractual cash flow
characteristics. There was no change in the classification or measurement of financial liabilities. The principal
impact on Iluka's financial assets at 1 January 2017 was the reclassification of the trade receivables from ‘loans
and receivables’ under AASB 139 to ‘financial assets at amortised cost’ under AASB 9. This did not change the
balance of trade receivables recognised at 31 December 2018 (31 December 2017: no change).
(iii)
Other new standards and amendments adopted
In addition to those listed above, the Group has adopted the following applicable new standards and
amendments, which do not have a material impact on the current or prior period, and are not expected to have a
material impact on future periods:
• AASB 2016-5 Amendments to Australian Accounting Standards - Classification and Measurement of Share-based
Payment Transactions
• Interpretation 22 Foreign Currency Transactions and Advance Consideration
Forthcoming standards and amendments not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory for 31
December 2018 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.
(i)
AASB 16 Leases (effective from 1 January 2019)
AASB 16 Leases replaces AASB 117 Leases and Interpretation 4 Determining whether an Arrangement contains a
Lease. The new standard sets out a comprehensive model for the identification of lease arrangements and their
treatment in the financial statements of both lessees and lessors. It applies a control model for the identification
of leases, distinguishing between leases and service contracts on the basis of whether there is an identified
asset controlled by the lessee.
The new standard removes the distinction between operating and finance leases. Instead, all leases other than
short term or low value asset leases are recognised on the balance sheet as a right of use asset representing the
lessee's entitlement to the benefits of the identified asset over the lease term, and a lease liability representing
the lessee's obligation to make lease payments in future. For leases currently classified and treated under AASB
117 as operating leases, lease expenses will be replaced with amortisation of the right of use asset and interest
expense on the lease liability.
The Group has evaluated the impact of current lease arrangements for the lease of office buildings, warehouses,
equipment and other assets. The impact on the balance sheet on this date was an increase in lease related
assets, and an increase in lease liabilities, of $37.2 million.
The Group has implemented the new standard effective from 1 January 2019.
(ii)
Other forthcoming standards and amendments
There are no other forthcoming standards and amendments that are expected to have a material impact on the
entity in the current or future reporting periods, or on foreseeable future transactions.
130
130
Iluka Resources Limited, Annual Report 2018
DIRECTOR'S DECLARATION
For the year ended 31 December 2018
Iluka Resources Limited, Annual Report 2018
131
ILUKARESOURCESLIMITED31DECEMBER2018DIRECTORS'DECLARATIONInthedirectors'opinion:(a)thefinancialstatementsandnotessetoutonpages81to130areinaccordancewiththeCorporationsAct2001,including:(i)complyingwithAccountingStandardsandothermandatoryprofessionalreportingrequirementsasdetailedabove,andtheCorporationsRegulations2001;and(ii)givingatrueandfairviewoftheGroup'sfinancialpositionasat31December2018andofitsperformanceforthefinancialyearendedonthatdate,and(b)therearereasonablegroundstobelievethattheCompanywillbeabletopayitsdebtsasandwhentheybecomedueandpayable,and(c)atthedateofthisdeclaration,therearereasonablegroundstobelievethatthemembersoftheextendedclosedgroupidentifiedinnote21willbeabletomeetanyobligationsorliabilitiestowhichtheyare,ormaybecome,subjectbyvirtueofthedeedofcrossguaranteedescribedinnote21.Note2confirmsthatthefinancialstatementsalsocomplywithInternationalFinancialReportingStandardsasissuedbytheInternationalAccountingStandardsBoard.ThedirectorshavebeengiventhedeclarationsbytheChiefExecutiveOfficerandChiefFinancialOfficerrequiredbysection295AoftheCorporationsAct2001.Thisdeclarationismadeinaccordancewitharesolutionofthedirectors.GMartinChairmanTO'LearyManagingDirector21February2019131 INDEPENDENT AUDITOR'S REPORT
To the members of Iluka Resources Limited
For the year ended 31 December 2018
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 2018 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 financial report comprises:
●
●
●
●
●
●
the consolidated balance sheet as at 31 December 2018
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the consolidated statement of profit or loss and other comprehensive income for the year then
ended
the notes to the consolidated financial statements, which include a summary of significant
accounting policies, and
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
Standards 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.
132
Iluka Resources Limited, Annual Report 2018
132
INDEPENDENT AUDITOR'S REPORT
To the members of Iluka Resources Limited
For the year ended 31 December 2018
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 titanium dioxide products including 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’s Mining Area C province in Western Australia.
Materiality
● For the purpose of our audit we used overall Group materiality of $10 million, which represents
approximately 1% of the Group’s total revenue.
● 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.
● 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, 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.
● We utilised a 1% threshold based on our professional judgement, noting it is within the range of
commonly acceptable thresholds.
Audit Scope
● Our audit focused on where the Group made subjective judgements; for example, significant
accounting estimates involving assumptions and inherently uncertain future events.
● Component auditors, operating under our instructions, performed audit procedures over the
Group's Sierra Leone operations' financial information. These procedures, combined with the
work performed by us which included reviewing component auditors' work, as the Group
engagement team, provided sufficient appropriate audit evidence as a basis for our opinion on the
Group financial report as a whole.
133
Iluka Resources Limited, Annual Report 2018
133
INDEPENDENT AUDITOR'S REPORT
To the members of Iluka Resources Limited
For the year ended 31 December 2018
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. 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. We communicated the key audit matters to the
Audit and Risk Committee.
Key audit matter
Closure and rehabilitation provisions in
Virginia
Refer to Critical accounting estimates and
judgements in note 3 and note 8 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 and
remove related infrastructure. Rehabilitation
activities are governed by a combination of
legislative requirements and Group policies. At
31 December 2018 the balance sheet included
provisions for such obligations of $703.8m. We
placed particular focus on the closure and
rehabilitation provisions for the Group’s legacy
operations in Virginia and related disclosure due to
the significant estimates made by the Group in
determining the likely outcome of the matters
identified and the quantum of possible outcomes
which may result in further costs to the
Group. These provisions comprise a substantial
portion of the $235.3m US segment liabilities.
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.
How our audit addressed the key audit
matter
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, including those
for Virginia.
We evaluated key assumptions utilised in these
models by performing the following procedures:
●
●
●
●
●
●
evaluating the competency and independence of
the experts retained by the Group to assist with
the assessment of its rehabilitation obligations
visiting the Group’s former operations in
Virginia along with a US-based PwC
rehabilitation expert to observe the impacted
sites to further understand the key inputs to
provision estimates and the Group’s
rehabilitation strategy
examining the Group’s assessment of significant
changes in future cost estimates from the prior
year
comparing the estimated future rehabilitation
costs to actual costs being incurred at the
Group’s sites for similar activities to assess the
extent to which 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 2018 to those forecast as part
of the provision in previous years
assessing the Group’s judgments about the
likelihood of potential outcomes in relation to
the manner in which the rehabilitation of legacy
sites in Virginia is likely to occur, and
134
Iluka Resources Limited, Annual Report 2018
134
INDEPENDENT AUDITOR'S REPORT
To the members of Iluka Resources Limited
For the year ended 31 December 2018
Key audit matter
Impairment assessment for non-current
assets in Sierra Rutile
Refer to Critical accounting estimates and
judgements in note 3 and note 7 to the financial
report
The Group performed an assessment for
impairment indicators across its CGUs given this is
required by Australian Accounting Standards.
During the year, the Group identified that previous
capital estimates relating to the undeveloped
Sembehun deposit in Sierra Leone may increase by
40% to 60%, which has resulted in the deferral of
the development to allow further financial and
operational evaluations. The Group has identified
this as an indicator of potential impairment for the
Group’s property, plant and equipment cash
generating unit in Sierra Leone (the Sierra Rutile
CGU) at year end.
This assessment did not result in an impairment
charge as the Group concluded the fair value less
cost of disposal (FVLCOD) of the Sierra Rutile CGU
exceeded its carrying value at 31 December 2018.
When an impairment assessment is performed,
there are significant judgements made in relation to
assumptions, such as:
● long term mineral sands pricing
● reserve estimates and production and processing
volumes
● operating costs, capital costs for future
developments, foreign exchange rates and
inflation rates, and
● discount rates.
This was a key audit matter due to the significant
carrying value of the Sierra Rutile CGU’s non-
current assets which are subject to the judgements
and assumptions outlined above in determining
whether there is an impairment to the CGU’s assets.
How our audit addressed the key audit
matter
●
considering the appropriateness of the discount
rates and inflation rates utilised in calculating
the provision by comparing them to current
market consensus.
We evaluated the Group’s assessment of whether
there were any indicators of asset impairment at 31
December 2018 for its CGUs, including considering
whether there were any further impairment
indicators for these CGUs which had not been
considered by the Group.
We performed the following procedures on the
Group’s impairment assessment for the Sierra Rutile
CGU:
● assessing whether the Sierra Rutile CGU
appropriately included all directly attributable
assets and liabilities
● considering 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
● testing whether forecast cash flows used in the
impairment model were consistent with the
most recent Corporate Plan formally approved
by directors
● considering whether the forecast cash flows used
in the impairment model were reasonable and
based on supportable assumptions by:
o comparing long term mineral sands pricing
data used in the impairment model to
independent industry forecasts
o comparing the forecasted cash flows to actual
cash flows for previous years to assess the
accuracy of the Group’s forecasting
o assessing the objectivity and competence of
internal engineering experts responsible for
developing capital cost estimates for the
Sierra Rutile CGU’s future developments
o comparing foreign exchange rate and
inflation rate assumptions in the impairment
model to current economic forecasts, and
135
Iluka Resources Limited, Annual Report 2018
135
INDEPENDENT AUDITOR'S REPORT
To the members of Iluka Resources Limited
For the year ended 31 December 2018
Key audit matter
Recognition and measurement of deferred
tax assets in Sierra Leone
Refer to Critical accounting estimates and
judgements in note 3 and note 11 to the financial
report
The Group has recognised $209.3 million of
deferred tax assets relating to Sierra Rutile Limited,
primarily comprising the anticipated future benefit
of the utilisation of previously incurred tax losses
against future taxable profit above the minimum
3.5% turnover tax. The tax losses arose both prior to
the acquisition of Sierra Rutile Limited on 7
December 2016 and from its operating performance
from acquisition through to 31 December 2018,
The recognition and measurement of these deferred
tax assets was a key audit matter given that there
was significant judgement in:
● Assessing whether the losses will continue
to be available for use. This included
assessing the impact, if any, of the
Extractive Industries Revenue Act 2018,
which was enacted into law in Sierra Leone
during the year; and
● Determining the sufficiency of future
taxable profits against which the losses
could be utilised.
How our audit addressed the key audit
matter
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
● testing the mathematical accuracy of the
impairment model’s calculations, and
● evaluating the adequacy of the disclosures made
in note 7 including those regarding key
assumptions used in the impairment
assessment, in light of the requirements of
Australian Accounting Standards.
We evaluated the Group’s analysis supporting the
continued recognition and measurement of deferred
tax assets of $209.3 million.
This included the Group’s analysis of the application
of the Extractive Industries Revenue Act 2018 to
Sierra Rutile Limited, particularly whether it could
restrict the utilisation of losses previously forecast
by the Group. In doing so, we utilised PwC tax
experts from the region.
In considering the Group’s assessment of the
sufficiency of future taxable profits, we evaluated
the Group’s supporting financial model. We
assessed the consistency of the model with the
model utilised to assess the Sierra Rutile CGU for
impairment and compared the calculation of taxable
income within the model to the relevant tax
legislation.
We also tested the reconciliation of tax losses at the
beginning of the year to assessments issued by the
Sierra Leonean National Revenue Authority and for
the current year to the Group’s tax calculation.
Other information
The directors are responsible for the other information. The other information comprises the
information included in the annual report for the year ended 31 December 2018, but does not include
the financial report and our auditor’s report thereon.
136
Iluka Resources Limited, Annual Report 2018
136
INDEPENDENT AUDITOR'S REPORT
To the members of Iluka Resources Limited
For the year ended 31 December 2018
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
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 on the other information that we obtained prior to the date of
this auditor’s report, 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 ability of the Group 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 the 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_responsibilities/ar1.pdf. This description forms part of our
auditor's report.
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 58 to 79 of the directors’ report for the
year ended 31 December 2018.
In our opinion, the remuneration report of Iluka Resources Limited for the year ended 31 December
2018 complies with section 300A of the Corporations Act 2001.
137
Iluka Resources Limited, Annual Report 2018
137
INDEPENDENT AUDITOR'S REPORT
To the members of Iluka Resources Limited
For the year ended 31 December 2018
Responsibilities
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
21 February 2019
138
Iluka Resources Limited, Annual Report 2018
138
PHYSICAL, FINANCIAL
AND CORPORATE
INFORMATION
In this section
FIVE YEAR PHYSICAL AND FINANCIAL SUMMARY
OPERATING MINES PHYSICAL DATA
ORE RESERVES AND MINERAL RESOURCES STATEMENT
SHAREHOLDER AND INVESTOR INFORMATION
CORPORATE INFORMATION
Cataby, Western Australia, Australia
Iluka Resources Limited, Annual Report 2018
Iluka Resources Limited, Annual Report 2018
139
139
FIVE YEAR PHYSICAL AND FINANCIAL SUMMARY
2018
2017
2016
2015
2014
348.6
163.2
219.9
731.7
395.1
379.3
233.2
214.6
827.1
224.5
312.3
302.1
210.8
825.2
448.1
380.4
264.3
244.4
889.1
202.7
347.1
117.6
210.9
675.6
329.4
338.8
172.1
186.8
697.7
17.7
388.6
136.5
164.9
690
466.1
346.2
133.6
171.2
651
299.8
1,351
1,321
952
Not
disclosed
74.8
70.4/81.2
958
940
790
Not
disclosed
76.7
71.8/80.6
810
773
716
Not
disclosed
74.4
68.6/78.0
986
961
721
Not
disclosed
75.2
69.2/82.3
357.6
177.2
-
534.8
365.4
352.2
182.0
82.0
616.2
316.6
1,054
1,033
777
750
90.3
81.1/94.9
1,415
1,079
606
750
2018
1,179.0
65.1
1,244.1
(455.1)
(68.5)
(24.7)
(38.1)
(38.1)
1.8
(48.1)
(30.1)
544.5
55.6
600.1
4.6
-
(93.6)
(28.3)
-
-
(30.8)
(148.1)
303.9
594.2
(311.5)
304.4
1.8
439
743
2017
959.1
58.4
1,017.5
(372.4)
(141.5)
(73.3)
(25.2)
(33.8)
0.7
(47.1)
(24.6)
300.9
59.6
360.5
(127.4)
-
(111.0)
(66.8)
(3.3)
(185.4)
(32.2)
(6.0)
(171.6)
391.7
(93.1)
321.9
(182.5)
999
373
700
2016
696.8
29.5
726.3
(260.6)
(107.6)
(69.5)
(20.4)
(36.3)
(0.6)
(53.8)
(79.4)
103.0
47.5
150.5
(42.6)
(14.1)
(79.9)
(57.3)
(3.3)
(201.0)
(30.0)
53.7
(224.0)
137.3
(82.5)
47.3
(506.3)
1,136
1,030
558
780
2015
739.7
80.1
819.8
(392.5)
9.6
(38.3)
(21.0)
(32.0)
1.4
(52.7)
(58.4)
231.8
61.6
293.4
(2.7)
-
(132.0)
(15.3)
-
-
(56.4)
(33.1)
53.5
222.2
(66.4)
155.0
6.0
668
862
2014
634.8
90.1
724.9
(381.9)
14.7
(40.1)
(10.6)
(30.1)
6.0
(48.4)
(45.3)
189.2
66.8
256.0
1.0
-
(191.7)
-
-
(82.0)
(31.8)
(14.0)
(62.5)
254.8
(48.3)
196.3
(59.0)
Production volumes (kt)
- Zircon
- Rutile
- Synthetic rutile
Total Z/R/SR
- Ilmenite
Sales volumes (kt)
- Zircon
- Rutile
- Synthetic rutile
Total Z/R/SR
- Ilmenite
Weighted average annual prices (US$/t)
- Zircon (premium and standard)
- Zircon (all products)
- Rutile (excluding HYTI)
- Synthetic rutile
Average AUD:USD spot exchange rate (cents)
AUD:USD range (cents)
Unit revenue and cash cost ($/t)
Revenue per tonne Z/R/SR sold (A$/t)
Unit cash costs of production per tonne Z/R/SR
produced including by-product costs
Unit cost of goods sold per tonne of Z/R/SR
Summary financials ($m)
Z/R/SR revenue
Ilmenite and other revenue
Revenue from operations
Cash costs of production
Inventory movement – cash costs of production
Restructure and idle capacity charges
Government royalties
Marketing and selling costs
Asset sales and other income
Corporate and other costs
Resources development
Underlying mineral sands EBITDA1
Mining Area C EBITDA
Underlying Group EBITDA1
Rehabilitation and holding costs for closed sites
SRL transaction costs
Depreciation and amortisation
Inventory movement
– non-cash production costs
Share of Metalysis Ltd losses (associate)
Significant non-cash items
Net interest and finance charges
Income tax (expense) benefit
Net profit (loss) after tax for the period (NPAT)
Operating cash flow
Capital expenditure
Free cash (outflow) inflow2 ($m)
Net (debt) cash
140
Iluka Resources Limited, Annual Report 2018
Capital and dividends
Ordinary shares on issue (millions)
Dividends per share in respect of the year
(cents)
Franking level %
Opening year share price ($)
Closing year share price ($)
Financial ratios
Underlying Group EBITDA/revenue margin %
Mineral sands EBITDA/revenue margin %
Basic earnings (loss) per share (cents)
Free cash flow per share (cents)
Return on shareholders’ equity3 %
Return on capital4 %
Gearing (net debt/net debt + equity) %
Financial position as at 31 December ($m)
Total assets
Total liabilities
Net assets
Shareholders’ equity
Net tangible asset backing per share ($)
Employees as at 31 December
Full-time equivalent employees5
Iluka Ore Reserves and Mineral Resources
Mineral Resources in situ HM tonnes
Ore Reserves in situ HM tonnes
HM Grade (%) Ore Reserves
Assemblage6 (%)
Zircon
Rutile
Ilmenite
Sierra Rutile Ore Reserves and Mineral Resources
Mineral Resources in situ rutile tonnes
Ore Reserves in situ rutile tonnes
2018
2017
2016
2015
2014
422.4
418.7
418.7
418.7
418.7
29
100
10.01
7.62
48.2
43.8
72.2
72.1
31.8
54.0
n/a
31
100
7.27
10.17
35.4
29.6
(41.0)
76.9
(20.1)
(11.6)
17.1
3
100
6.13
7.27
20.7
14.2
(53.6)
11.3
(17.1)
(18.3)
31.5
25
100
5.95
6.13
35.8
28.3
12.8
37.0
3.8
6.8
n/a
19
100
8.63
5.95
35.3
26.1
(15.0)
46.9
(4.1)
(2.0)
3.9
2,211.9
1,101.9
1,110.0
1,110.0
2.1
1,947.0
(1,061.5)
885.5
885.5
1.7
2,442.3
(1,339.3)
1,103.0
1,103.0
2.2
2,103.3
(694.7)
1,408.6
1,408.6
3.3
2,173.4
(738.8)
1,434.6
1,434.6
3.4
3,421
2,543
687
876
827
2018
2017
2016
2015
2014
172.9
23
5.7
18
6
53
176.4
24.9
5.4
18
6
52
167.8
15.7
5.8
17
4
54
169.4
16.4
5.8
19
4
52
170.5
16.7
5.9
19
4
52
2018
2017
2016
8.0
3.8
7.3
3.8
7.5
3.9
Notes
1 Underlying Group EBITDA excludes non-recurring adjustments including impairments, Sierra Rutile Limited 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.
2
Free cash flow is determined as cash flow before any debt 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.
3 Calculated as NPAT for the year as a percentage of the average monthly shareholders equity over the year.
4 Calculated as EBIT for the year as a percentage of average monthly capital employed for the year.
5
2016 data excludes Sierra Rutile Limited.
6 Mineral assemblage is reported as a percentage of the in situ heavy mineral content.
Refer pages 143 to 149 for Iluka’s Ore Reserves and Mineral Resource Statement or refer Iluka’s website www.iluka.com
Iluka Resources Limited, Annual Report 2018
141
OPERATING MINES PHYSICAL DATA
12 MONTHS TO 31 DECEMBER 2018
Jacinth-
Ambrosia
Murray
Basin
Western
Australia
Australia
Total
Sierra
Leone Virginia
Mining
Overburden moved kbcm
Ore mined kt
Ore grade HM %
VHM grade %
Concentrating
HMC produced kt
VHM produced kt
VHM in HMC assemblage %
- Zircon
- Rutile
- Ilmenite
Processing
HMC processed kt
Finished product[1] kt
- Zircon
- Rutile
- Ilmenite
(saleable/upgradeable/WHIMS)
Synthetic rutile produced kt
3,010
10,312
8.2
7.3
674
597
88.7
62.9
5.9
19.9
530
289.1
38.0
121.7
-
-
-
-
-
-
-
-
-
-
-
-
1,457
1,653
14.0
11.6
4,467
11,965
9.0
7.9
20
18
86.9
13.5
9.1
64.3
694
615
88.6
61.4
6.0
21.2
-
8,227
3.0
2.3
240
171
71.4
3.7
47.7
20.0
265
795
242
-
-
-
-
-
-
-
-
-
-
-
Group
total
2018
Group
total
2017
4,467
20,192
n/a
n/a
1,037
13,381
n/a
n/a
934
786
84.2
46.6
16.7
20.9
612
485
79.2
9.7
31.4
38.1
1,037
1,280
0.1
-
38.7
3.7
50.8
-
168.1
219.9
327.9
41.7
340.6
219.9
11.4
121.5
54.5
-
9.3
-
-
-
348.6
163.2
395.1
219.9
312.3
302.1
448.1
210.8
[1] Finished product includes material from heavy mineral concentrate (HMC) initially processed in prior periods.
GLOSSARY
Overburden moved (bank cubic metres): refers to material moved to enable mining of an ore body. Ore mined (thousands of
tonnes) refers to material moved containing heavy mineral ore.
Ore grade HM % refers to percentage of heavy mineral (HM) found in the ore mined.
VHM grade % refers to percentage of valuable heavy mineral (VHM) – titanium dioxide (rutile and ilmenite), and zircon found in a
deposit.
Concentrating refers to the production of heavy mineral concentrate (HMC) through a concentrating process at the mine site, which
is then transported for final processing into finished product at a mineral processing plant.
HMC produced refers to HMC, which includes the valuable heavy mineral concentrate (zircon, rutile, ilmenite) as well as other non-
valuable heavy minerals (gangue).
VHM produced refers to an estimate of valuable heavy mineral in heavy mineral concentrate expected to be processed.
VHM produced and the VHM assemblage – provided to enable an indication of the valuable heavy mineral component in HMC.
HMC processed provides an indication of material emanating from each mining operation to be processed.
Finished product is provided as an indication of the finished production (zircon, rutile, ilmenite – both saleable and upgradeable)
attributable to the VHM in HMC production streams from the various mining operations. Finished product levels are subject to
recovery factors which can vary. The difference between the VHM produced and finished product reflects the recovery level by
operation, as well as processing of finished material/concentrate in inventory. Ultimate finished product production (rutile, ilmenite,
and zircon) is subject to recovery loss at the processing stage – this may be in the order of 10 per cent.
Ilmenite is produced for sale or as a feedstock for synthetic rutile production. Typically, one tonne of upgradeable ilmenite will
produce between 0.56 to 0.60 tonnes of synthetic rutile. Iluka also purchases external ilmenite for its synthetic rutile production
process. Refer Iluka’s website www.iluka.com – Mineral Sands Technical Information for more detailed information on the mineral
sands mining and production process.
142
Iluka Resources Limited, Annual Report 2018
ORE RESERVES AND MINERAL
RESOURCES STATEMENT
HM ORE RESERVES
Iluka HM Ore Reserve breakdown by country, region and JORC category at 31 December 2018
Summary of Ore Reserves for Iluka(1,2,3)
Ore
Reserve
category
Proved
Probable
Proved
Probable
HM Assemblage(4)
Ore
tonnes
millions
88
4
92
88
92
180
176
96
272
In situ HM
tonnes
millions
3.1
0.1
3.2
5.5
7.0
12.5
8.7
7.0
15.7
HM
grade
(%)
3.5
2.2
3.5
6.3
7.5
6.9
4.9
7.3
5.8
Ilmenite
grade
(%)
29
20
29
60
61
60
49
60
54
Zircon
grade
(%)
48
52
48
9
8
9
23
9
17
Rutile
grade
(%)
5
4
5
4
4
4
4
4
4
Change HM
tonnes
millions
(0.7)
(0.0)
(0.7)
Country
Australia
Region
Eucla Basin
Total
Australia
Eucla Basin
Perth Basin
Perth Basin(5)
Proved
Probable
Total
Total
Total
Grand total
Notes:
(1) 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).
(2) Ore Reserves are a sub-set of Mineral Resources.
(3) Rounding may generate differences in last decimal place.
(4) Mineral assemblage is reported as a percentage of in situ HM content.
(5) Rutile component in Perth Basin south west operations is sold as a leucoxene product.
(6) The quoted figures are stated as at the 31st of December 2018 and have been depleted for all production conducted to this date.
Iluka Resources Limited, Annual Report 2018
143
ORE RESERVES AND MINERAL
RESOURCES STATEMENT
RUTILE ORE RESERVES (SIERRA RUTILE)
Iluka Rutile Ore Reserve for Sierra Leone by JORC Category at 31 December 2018
Summary of Ore Reserves for Iluka(1,2,3)
Ore
Reserve
category
Proved
Probable
Region
Sierra Rutile
Sierra Leone
Ore
tonnes
millions
26
264
290
In situ
rutile
tonnes
millions
0.4
3.6
3.9
In situ mineral content(4)
Rutile
grade
(%)
1.4
1.3
1.4
Ilmenite(5)
grade
(%)
-
-
-
Zircon(5)
grade
(%)
-
-
-
Change
rutile
tonnes
millions
0.1
Country
Sierra Leone
Total
Notes:
(1) Competent Person - Ore Reserves: C Lee (MAusIMM(CP))
(2) Ore Reserves are a sub-set of Mineral Resources.
(3) Rounding may generate differences in last decimal place.
(4) Mineral content is reported as a percentage of in situ material.
(5) The ilmenite and zircon are only considered to be at an Inferred level of confidence in the Mineral Resource estimates, and while present, currently
have a low value ascribed in the reserve optimisation process for Sierra Leone. This is not material to the economic viability.
(6) The quoted figures are stated as at the 31st of December 2018 and have been depleted for all production conducted to this date.
Ore Reserves are estimated using all available geological, 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 focused on the in situ 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 2018, HM Ore Reserves decreased by 0.7Mt HM associated with mining depletion and adjustments, down from
16.4Mt HM to 15.7Mt HM.
The main factors contributing to the movement in Iluka’s HM Ore Reserves during 2018 include the following:
•
•
The Eucla Basin Ore Reserves decreased by 0.72Mt HM associated with mining depletion and pit re-design at Jacinth.
The Perth Basin Ore Reserves decreased by 0.02Mt HM as a result of mine depletion and adjustment at Tutunup South.
144
Iluka Resources Limited, Annual Report 2018
HM ORE RESERVES MINED AND ADJUSTED
Iluka HM Ore Reserves mined and adjusted by country and region at 31 December 2018
Summary of Ore Reserve depletion(1)
In situ
HM
tonnes
millions
2017
2.0
2.0
3.9
0.0
12.5
12.5
2.3
14.4
16.4
In situ
HM
grade
(%)
2017
4.3
3.5
3.8
10.2
6.9
6.9
In situ HM
tonnes
millions
mined
2018
(0.6)
-
(0.6)
(0.0)
-
(0.0)
In situ
HM
tonnes(2)
millions
adjusted
2018
(0.1)
-
(0.1)
(0.0)
-
(0.0)
In situ
HM
tonnes
millions
2018
1.3
2.0
3.2
-
12.5
12.5
In situ HM
grade
(%)
2018
3.5
3.5
3.5
-
6.9
6.9
4.6
6.1
5.8
(0.2)
(0.1)
2.0
-
(0.7)
-
(0.1)
14.4
15.7
4.3
6.1
5.8
In situ
HM
tonnes(3)
millions
net
change
(0.7)
-
(0.7)
(0.0)
-
(0.0)
(0.3)
-
(0.7)
Country
Australia
Region
Eucla Basin
Total
Australia
Eucla Basin
Perth Basin
Total
Perth Basin
Total
Total
Total
Notes:
Ore Reserves
Category
Active mines
Non-active sites
Active mines
Non-active sites
Active mines
Non-active
sites
(1) Rounding may generate differences in last decimal place.
(2) Adjusted figure includes write-downs and modifications in mine design.
(3) Net change includes depletion by mining and adjustments.
RUTILE ORE RESERVES MINED AND ADJUSTED
Iluka Rutile Ore Reserves mined and adjusted for Sierra Rutile at 31 December 2018
Summary of Ore Reserve depletion(1)
In situ
rutile
tonnes
millions
2017
0.9
2.9
3.8
In situ
rutile
grade
(%)
2017
1.4
1.2
1.3
In situ
rutile
tonnes
millions
mined
2018
(0.1)
-
(0.1)
In situ
rutile
tonnes(2)
millions
adjusted
2018
(0.0)
0.2
0.2
In situ
rutile
tonnes
millions
2018
0.8
3.1
3.9
In situ
rutile
grade
(%)
2018
1.4
1.3
1.4
In situ
rutile
tonnes(3)
millions
net change
(0.1)
0.2
0.1
Country
Sierra Leone Sierra Rutile
Region
Category
Active mines
Non-active sites
Total
Notes:
Sierra Leone
(1) Rounding may generate differences in last decimal place.
(2) Adjusted figure includes write-downs and modifications in mine design.
(3) Net change includes depletion by mining and adjustments.
The rutile Ore Reserves for Sierra Rutile increased by 0.1Mt rutile associated with mining depletion and adjustment at Lanti, Gangama
and Gbeni and re-optimisation of Benduma, Dodo, Kamatipa, Kibi and Komende up from 3.8Mt rutile to 3.9Mt rutile.
Iluka Resources Limited, Annual Report 2018
145
ORE RESERVES AND MINERAL
RESOURCES STATEMENT
HM MINERAL RESOURCES
Iluka HM Mineral Resources breakdown by country, region and JORC category at 31 December 2018
Summary of Mineral Resources for Iluka(1,2,3)
HM assemblage(4)
In situ
HM
grade
(%)
2.9
9.5
5.1
4.8
27.6
21.0
11.6
17.2
5.9
5.4
5.2
5.6
4.9
5.3
3.1
4.8
10.4
8.6
7.0
8.2
6.8
8.6
6.8
7.1
Ilmenite
grade
(%)
34
65
60
53
62
56
49
54
58
54
55
56
67
64
60
64
70
69
66
67
60
58
60
60
Zircon
grade
(%)
42
20
20
28
11
11
10
11
10
10
9
10
9
11
11
10
3
4
4
4
11
12
7
10
Rutile
grade
(%)
4
2
2
3
11
14
14
13
5
5
4
5
-
-
-
-
4
3
5
4
5
8
6
6
Change HM
tonnes
millions
(0.7)
0.4
(0.6)
(0.6)
-
(1.6)
Country
Australia
Region
Eucla Basin
Total
Australia
Eucla Basin
Murray Basin
Total
Australia
Murray Basin
Perth Basin
Total
USA
Perth Basin(5)
Atlantic Seaboard
Total
Sri Lanka
Atlantic Seaboard(6)
Sri Lanka
Total
Sri Lanka(7)
Total
Total
Total
Grand total
Notes:
Mineral
resource
category
Measured
Indicated
Inferred
Measured
Indicated
Inferred
Measured
Indicated
Inferred
Measured
Indicated
Inferred
Measured
Indicated
Inferred
Measured
Indicated
Inferred
Material
tonnes
millions
218
85
74
377
16
88
91
195
485
311
203
999
27
47
16
91
214
36
440
690
925
568
824
2,351
In situ HM
tonnes
millions
6.4
8.1
3.7
18.2
4.4
18.5
10.5
33.4
28.4
16.7
10.5
55.6
1.3
2.5
0.5
4.4
22.2
3.1
31.0
56.3
62.7
48.9
56.2
167.8
(1) Competent Person - Mineral Resources: B Gibson (MAIG).
(2) Mineral Resources are inclusive of Ore Reserves.
(3) Rounding may generate differences in last decimal place.
(4) Mineral assemblage is reported as a percentage of the in situ HM component.
(5) Rutile component in Perth Basin South West operations is sold as a leucoxene product.
(6) Rutile is included in ilmenite for the Atlantic Seaboard region.
(7) 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.
146
Iluka Resources Limited, Annual Report 2018
RUTILE MINERAL RESOURCES (SIERRA RUTILE)
Iluka Rutile Mineral Resources for Sierra Rutile by JORC category at 31 December 2018
Summary of Mineral Resources (1,2,3) for Iluka
Mineral
Resource
category
Measured
Indicated
Inferred
Material
tonnes
millions
42
507
165
714
In situ
rutile
tonnes
millions
0.5
5.7
1.8
8.0
In situ mineral content(4)
Rutile
grade
(%)
1.2
1.1
1.1
1.1
Ilmenite(5)
grade
(%)
0.3
0.9
0.6
0.8
Zircon(5)
grade
(%)
0.1
0.1
0.1
0.1
Change
rutile
tonnes
millions
0.7
Country
Sierra Leone
Region
Sierra Rutile
Total
Notes:
Sierra Leone
(1) Competent Person - Mineral Resources; B Gibson (MIAG).
(2) Mineral Resources are reported inclusive of Ore Reserves.
(3) Rounding may generate differences in last decimal place.
(4) Mineral assemblage is reported as a percentage of in situ material.
(5)
Ilmenite and zircon are included for tabulation purposes under the Measured and Indicated Resource categories. The confidence in the Mineral
Resource 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 are estimated using all available geological, drill hole and assay data, including mineralogical sampling and test
work on mineral and final product qualities. Resource estimates are prepared in accordance with the 2012 JORC Code and consider
geology, heavy mineral (HM) cut-off grades, mineralisation thickness vs. depth of burial ratios and the potential mining and extraction
methodology. These factors may vary significantly between deposits.
For the year ending 2018, Mineral Resources (excluding the Mineral Resources attributable to Sierra Rutile) decreased by 1.6Mt HM
net of mining depletion and adjustments (write-downs) down from 169.4Mt HM to 167.8Mt HM.
The change in Mineral Resources for 2018 was driven by the following:
•
•
•
•
Eucla Basin Mineral Resources decreased by 0.72Mt HM as a result of mining depletion and write-down at Jacinth.
The Murray Basin Mineral Resource increased by 0.41Mt HM as a result of re-estimation and re-reporting of the Boulka Deposit.
The Perth Basin Mineral Resources decreased by 0.61Mt HM principally associated with mining depletion and write-down of
Tutunup South (0.04Mt HM) and re-estimation and write-down for Northern Leases (0.56Mt HM).
Atlantic Seaboard Mineral Resources decreased by 0.64Mt HM as a result of write-down at Old Hickory.
The rutile Mineral Resources for Sierra Leone increased by 0.67Mt rutile, up from 7.3Mt rutile to 7.97Mt rutile, net of mining depletion
and adjustments (updated resource estimation or write-downs).
The change in Mineral Resources for 2018 was driven by the following:
•
•
Mining depletion and write-down for Lanti (decreased 0.03Mt of rutile), Gangama (decreased 0.09Mt of rutile) and Gbeni
(decreased 0.02Mt of rutile).
Updated estimation and re-reporting for Benduma (increased 0.49Mt of rutile), Dodo (increased 0.27Mt of rutile), Gbap
(decreased 0.13Mt of rutile), Kamatipa (increased 0.11Mt of rutile), Kibi (increased 0.15Mt of rutile), Komende (decreased 0.12Mt
of rutile), Ndendemoia (increased 0.03Mt of rutile) and Taninahun (increased 0.01Mt of rutile).
Iluka Resources Limited, Annual Report 2018
147
ORE RESERVES AND MINERAL
RESOURCES STATEMENT
HM MINERAL RESOURCES MINED AND ADJUSTED
Iluka Mineral Resources mined and adjusted by country and region at 31 December 2018
Summary of Mineral Resource depletion(1)
In situ
HM
tonnes
millions
2017
2.3
16.6
18.9
-
33.0
33.0
0.0
56.1
56.2
-
5.0
5.0
-
56.3
56.3
Category
Active mines
Non-active sites
Active mines
Non-active sites
Active mines
Non-active sites
Active mines
Non-active sites
Active mines
Non-active sites
Active mines
Non-active sites
2.3
167.0
In situ
HM
grade
(%)
2017
3.8
5.1
4.9
-
17.5
17.5
8.5
5.6
5.6
-
4.5
4.5
-
8.2
8.2
4.3
7.1
In situ
HM
tonnes
millions
mined
2018
(0.6)
-
(0.6)
-
-
-
(0.0)
-
(0.0)
In situ
HM
tonnes(2)
millions
adjusted
2018
(0.1)
-
(0.1)
-
0.4
0.4
(0.0)
(0.6)
(0.6)
-
-
-
-
-
-
(0.7)
-
-
(0.6)
(0.6)
-
-
-
(0.1)
(0.8)
In situ
HM
tonnes
millions
2018
1.6
16.6
18.2
-
33.4
33.4
-
55.6
55.6
-
4.4
4.4
-
56.3
56.3
1.6
166.2
169.4
7.1
(0.7)
(0.9)
167.8
In situ
HM
tonnes(3)
millions
net
change
(0.7)
-
(0.7)
-
0.4
0.4
(0.0)
(0.6)
(0.6)
In situ
HM
grade
(%)
2018
3.2
5.1
4.8
-
17.2
17.2
-
5.6
5.6
-
4.8
4.8
-
8.2
8.2
3.2
7.2
7.1
-
(0.6)
(0.6)
-
-
-
(0.8)
(0.8)
(1.6)
Country
Australia
Region
Eucla Basin
Total
Australia
Eucla Basin
Murray Basin
Total
Australia
Murray Basin
Perth Basin
Total
USA
Total
Sri Lanka
Perth Basin
Atlantic
Seaboard
Atlantic
Seaboard
Sri Lanka
Total
Sri Lanka
Total
Total
Total
Notes:
Mineral
Resources
(1) Rounding may generate differences in last decimal place.
(2) Adjusted figure includes write-downs and modifications in mine design.
(3) Net difference includes depletion by mining and adjustments.
RUTILE MINERAL RESOURCES MINED AND ADJUSTED (SIERRA RUTILE)
Iluka Rutile Mineral Resources mined and adjusted for Sierra Rutile at 31 December 2018
Summary of Mineral Resource depletion(1)
In situ
rutile
tonnes
millions
2017
1.8
5.5
7.3
In situ
rutile
grade
(%)
2017
1.2
1.0
1.0
In situ
rutile
tonnes
millions
mined
2018
In situ
rutile
tonnes(2)
millions
adjusted
2018
In situ
rutile
tonnes
millions
2018
(0.1)
-
(0.1)
(0.0)
0.8
0.8
1.7
6.3
8.0
In situ
rutile
tonnes(3)
millions
net
change
(0.1)
0.8
0.7
In situ
rutile
grade
(%)
2018
1.2
1.1
1.1
Country
Sierra
Leone
Total
Notes:
Region
Category
Sierra Rutile
Sierra Leone
Active mines
Non-active sites
(1) Rounding may generate differences in last decimal place.
(2) Adjusted figure includes write-downs and modifications in mine design.
(3) Net difference includes depletion by mining and adjustments.
148
Iluka Resources Limited, Annual Report 2018
ANNUAL STATEMENT OF MINERAL RESOURCES AND ORE RESERVES
The Annual Statement of Mineral Resources and Ore Reserves as at 31 December 2018 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 the 20/02/2017. 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.
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 (MAIG).
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 (MAUSIMM).
Mr Gibson and Mr Lee are full time employees of Iluka Resources.
Mr Gibson and Mr Lee each 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 as 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's 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 2018
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 2018. 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.
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 (PwC).
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.
Iluka Resources Limited, Annual Report 2018
149
SHAREHOLDER AND INVESTOR INFORMATION
As at 31 January 2019
AUSTRALIAN SECURITIES EXCHANGE LISTING
Iluka’s shares are listed on the Australian Securities Exchange (ASX) Limited. The company is listed as Iluka Resources Limited with an
ASX code of ILU.
SHARES ON ISSUE
The company had 422,395,677 shares on issue as at 31 January 2019. A total of 675,521 ordinary shares are restricted pursuant to
the directors, executives and employees share acquisition plan, equity incentive plan and employee share plan.
SHAREHOLDINGS
There were 19,953 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)
TOP 20 SHAREHOLDERS (NOMINEE COMPANY HOLDINGS)
Shareholder
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd (Agency Lending DRP A/C)
BNP Paribas Noms Pty Ltd (DRP)
Citicorp Nominees Pty Limited (Colonial First State Inv A/C)
National Nominees Limited (N A/C)
BNP Paribas Nominees Pty Ltd (Agency Lending Collateral)
HSBC Custody Nominees (Australia) Limited (NT-Comnwlth Super Corp A/C)
CS Third Nominees Pty Limited (HSBC Cust Nom Au Ltd 13 A/C)
CS Fourth Nominees Pty Limited (HSBC Cust Nom Au Ltd 11 A/C)
Argo Investments Limited
Australian Foundation Investment Company Limited
HSBC Custody Nominees (Australia) Limited - A/C 2
AMP Life Limited
UBS Nominees Pty Ltd
R O Henderson (Beehive) Pty Limited
HSBC Custody Nominees (Australia) Limited-GSCO ECA
BNP Paribas Noms (NZ) Ltd (DRP)
Number of holders
11,338
6,877
1,064
633
22
18
1,325
Number of shares
% of issued capital
130,797,857
96,419,738
53,716,845
36,478,382
15,698,340
15,323,746
3,156,739
2,885,154
2,594,500
2,528,599
2,418,371
2,251,539
1,700,000
1,666,999
1,339,634
1,291,680
1,235,000
1,150,000
870,343
869,448
30.97
22.83
12.72
8.64
3.72
3.63
0.75
0.68
0.61
0.60
0.57
0.53
0.40
0.39
0.32
0.31
0.29
0.27
0.21
0.21
SUBSTANTIAL SHAREHOLDERS (AS PROVIDED IN DISCLOSED SUBSTANTIAL SHAREHOLDER
NOTICES TO THE COMPANY)
Shareholder
Sumitomo Mitsui Trust Holdings
BlackRock Group
Schroder Investment Management Australia Limited
Paradice Investment Management Pty Ltd
National Australia Bank Limited
The Vanguard Group
150
Iluka Resources Limited, Annual Report 2018
Size of shareholding
% of issued capital
40,994,285
40,196,434
30,511,324
22,012,536
21,596,240
21,125,614
9.71%
9.52%
7.22%
5.21%
5.11%
5.00%
CALENDAR OF KEY EVENTS 2019
21 February
14 April 9:30am (WST)
15 April
16 April 9:30am (WST)
24 July
21 August
25 October
31 December
Announcement of financial results
Closure of acceptances of proxies for AGM
March Quarterly Review
Annual General Meeting – Perth
June Quarterly Review
Announcement of half year financial results
September Quarterly Review
31 December financial year end
All dates are indicative and subject to change. Shareholders are advised to check with the company to confirm timings.
SHAREHOLDER AND NEW INVESTOR INFORMATION
Key shareholder information – Iluka website
To assist those considering an investment in the company, the investors and media section of the Iluka website contains key
shareholder information, which includes the calendar of events. This site contains information on Iluka’s products, marketing,
operations, ASX releases and financial and quarterly reports. It also contains links to other sites, including the share registry.
INVESTOR RELATIONS ENQUIRIES
Investor Relations
Level 14, 240 St Georges Terrace
Perth WA 6000
Telephone: +61 8 9360 4700
Email: investor.relations@iluka.com
DIVIDENDS
Iluka’s Board of Directors typically makes a determination on dividend payments twice each year. Iluka introduced a dividend
reinvestment plan (DRP) in 2018.
SHARE REGISTRY SERVICES
Shareholders who require information about their shareholdings, dividend payments or related administrative matters should contact
the company’s share registry:
Computershare Investor Services Pty Limited
Level 11, 172 St Georges Terrace
Perth, WA 6000
Telephone: 1300 733 043 (within Australia) or +61 3 9415 4001 (outside Australia)
Facsimile: +61 3 9473 2500
Postal address
GPO Box 2975
Melbourne VIC 3001
Website: www.investorcentre.com
ANNUAL REPORTS AND EMAIL NOTIFICATION OF MAJOR ACCOUNTS
Shareholders can elect to receive a printed copy of the Annual Report and/or receive an email notification related to major company
events. Please contact Computershare. Each enquiry should refer to the shareholder number which is shown on issuer-sponsored
holding statements and dividend statements.
Iluka Resources Limited, Annual Report 2018
151
CORPORATE INFORMATION
COMPANY DETAILS
COMPANY SECRETARY
POSTAL ADDRESS
Sue Wilson, Company Secretary
Nigel Tinley, Joint Company Secretary
GPO Box U1988 Perth,
Western Australia, 6845 Australia
Telephone: +61 8 9360 4700
Facsimile: +61 8 9360 4777
Iluka Resources Limited
ABN: 34 008 675 018
REGISTERED OFFICE
Level 14, 240 St Georges Terrace Perth,
Western Australia, 6000
WEBSITE
www.iluka.com
The site contains information on Iluka’s products, marketing, operations, ASX releases and financial and quarterly reports. It also
contains links to other sites, including the share registry.
NOTICE OF ANNUAL GENERAL MEETING
Iluka’s 64th Annual General Meeting of Shareholders will be held in River View Room 5 at the Perth Convention and Exhibition Centre,
21 Mounts Bay Road, Perth, Western Australia, on Tuesday, 16 April 2019 commencing at 9:30am (WST).
DISCLAIMER – FORWARD-LOOKING STATEMENTS
This document has been prepared by Iluka Resources Limited (Iluka). By viewing this document you acknowledge that you have read
and understood the following statement.
Forward-looking statements
This document contains certain statements which constitute “forward-looking statements”. Often, but not always, forward-
looking statements can generally be identified by the use of forward-looking words such as “may”, “will”, “expect”, “plan”, “believes”,
“estimate”, “anticipate”, “outlook” and “guidance”, or similar expressions, and may include, without limitation, statements regarding
plans; strategies and objectives of management; anticipated production and production potential; estimates of future capital
expenditure or construction commencement dates; expected costs or production outputs; 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 document will in fact be achieved or prove to be correct. The information is based on
Iluka forecasts and as such is subject to variation related to, but not restricted to, economic, market demand/supply and competitive
factors. It is Iluka’s approach to modify its production settings based on market demand, and this can have a significant effect on
operational parameters and associated physical and financial characteristics of the company. Forward-looking statements are only
predictions and are subject to known and unknown risks, uncertainties, assumption and other important factors that could cause
the actual results, performances or achievements of Iluka to differ materially from future results, performances or achievements
expressed, projected or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date thereof. 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; increased costs and demand for
production inputs; and environmental or social factors which may affect a licence to operate, including political risk.
Capital estimates include contingency and risk allowances commensurate with international estimating classification systems.
To the extent permitted by law, Iluka, its officers, employees and advisors expressly disclaim any responsibility for the accuracy or
completeness of the material contained in this document and exclude all liability whatsoever (including in negligence) for any loss
or damage which may be suffered by a person as a consequence of any information in this document or any error or omission
therefrom. Iluka does not undertake to release publicly any revisions to any forward-looking statement to reflect events or
circumstances after the date of this document, or to reflect the occurrence of unanticipated events, except as may be required under
applicable securities laws. No independent third party has reviewed the reasonableness of the forward-looking statements or any
underlying assumptions.
NON-IFRS FINANCIAL INFORMATION
This document contains non-IFRS financial measures including cash production costs, non-production costs, mineral sands EBITDA,
Underlying Group EBITDA, EBIT, free cash flow, and net debt amongst others. Iluka management considers these to be key financial
performance indicators of the business and they are defined and/or reconciled in Iluka’s annual results materials and/or Annual
Report. Non-IFRS measures have not been subject to audit or review. All figures are expressed in Australian dollars unless stated
otherwise.
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