Iluka Resources Limited
Annual Report 2020

Plain-text annual report

Annual Report 2020 DELIVER SUSTAINABLE VALUE A B N 3 4 0 0 8 6 7 5 0 1 8 ABOUT ILUKA RESOURCES lluka Resources Limited (Iluka) is an international mineral sands company with expertise in exploration, project development, mining, processing, marketing and rehabilitation. The company’s objective is to deliver sustainable value. With over 60 years’ industry experience, Iluka is a leading global producer of zircon and the high grade titanium dioxide feedstocks rutile and synthetic rutile. In addition, the company has an emerging position in rare earth elements (rare earths). Iluka’s products are used in an increasing array of applications including home, workplace, medical, lifestyle and industrial uses. PRODUCTS With over 3,000 direct employees, the company has operations and projects in Australia and Sierra Leone; and a globally integrated marketing network. Iluka conducts international exploration activities and is actively engaged in the rehabilitation of previous operations in the United States, Australia and Sierra Leone. Listed on the Australian Securities Exchange (ASX) and headquartered in Perth. Iluka holds a 20% stake in Deterra Royalties Limited (Deterra), the largest ASX-listed resources focussed royalty company. TiO2 TITANIUM DIOXIDE Zr ZIRCON Iluka is the largest producer of natural rutile and a major producer of synthetic rutile, which is an upgraded, value added form of ilmenite. Collectively, these products are referred to as high-grade titanium dioxide feedstocks, owing to their high titanium content. Primary uses include pigment (paints), titanium metal and welding. Iluka is a leading global producer of zircon. Zircon is opaque; and heat, water, chemical and abrasion resistant. Primary uses include ceramics; refractory and foundry applications; and zirconium chemicals. RARE EARTHS OTHER PRODUCTS Iluka has an emerging position in rare earths, which are contained in the mineral sands monazite and xenotime. Certain rare earths are considered a critical input across a number of rapidly evolving markets, including permanent magnets used in electric cars, wind turbines and electronics. Iluka recovers and markets activated carbon and iron concentrate, which are produced as a part of the synthetic rutile process. FORWARD LOOKING STATEMENT This document contains certain statements which constitute “forward-looking statements”. While these forward-looking statements reflect Iluka’s expectations at the date of this report, they are not guarantees or predictions of future performance or statements of fact and readers are cautioned against relying on them. Further information regarding forward-looking statements in this Annual Report is provided on page 167. 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. These non-IFRS measures are not subject to audit or review, however, a reconciliation of the measures to Iluka’s statutory accounts is provided on page 33. 1 Iluka Resources Limited, Annual Report 2020 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 the rare earth bearing minerals monazite and xenotime. 2. MINING APPROACH Mineral sands mining involves both dry mining and wet (dredge or hydraulic) operations. All of Iluka’s current mining operations use a dry mining approach. Mining units and wet concentrator plants separate ore from waste material and concentrate the heavy mineral sands. 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, ilmenite, monazite and xenotime from one another 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. MARKETING Iluka transports the final products of zircon, rutile, synthetic rutile, monazite and ilmenite to customers around the world. 6. REHABILITATION As mining progresses, mining pits are backfilled and covered with stockpiled soils that were removed at the start of the mining process. Rehabilitation is undertaken progressively to return land to a form similar to its pre-mining state and suitable for various uses including agricultural, pastoral and native vegetation. 1 2 3 4 5 6 Iluka Resources Limited, Annual Report 2020 1 MINERAL SANDS & RARE EARTHS PART OF EVERYDAY LIFE FABRICATION AEROSPACE Ship building | Welding Titanium minerals are used to make welding electrodes for important end uses such as ship building and construction, as these electrodes produce high quality welds in an outdoor, windy environment. Aircraft engines and frames | Spacecrafts Rare earths in alloying agents create high- strength metals in aircraft engines. Zircon has a strong thermal stability and titanium metal has the highest strength to weight ratio of all metals. AUTOMOTIVE HEALTHCARE TECHNOLOGY Engines | Paint | Electronics Medical equipment Electronics I Batteries Titanium, zircon and rare earths are required for vehicles in the brake linings/ pads, parking sensors, oxygen sensors, engine management systems, paint, catalytic converters, electrics and rubber products. Rare earths are used in catalytic converters and electric vehicles, enabling lighter and more efficient motors. The anti-corrosive nature and biocompatibility of titanium makes it ideal for prosthetics, orthopaedic implants and medical instruments. Zirconia materials are highly desired for medical implants, and zirconium chemicals provide filtering function to home dialysis systems. Rare earths are used in a range of modern technologies including smartphones, televisions, lasers, rechargeable batteries and computer hard drives. Zirconia materials are applied in various electronics, such as piezoelectric components which make smart phones “smart” through sensors, ultra-tough structural casings for mobile phones and watches, and new-generation of higher-capacity and safer solid-state batteries. 2 Iluka Resources Limited, Annual Report 2020 ILUKA’S PRODUCTS ARE CRITICAL INPUTS TO THE MODERN ECONOMY. FROM PAINT AND TILES TO MEDICAL, LIFESTYLE, INDUSTRIAL AND RENEWABLE ENERGY TECHNOLOGIES, THE UNIQUE PROPERTIES OF TITANIUM DIOXIDE, ZIRCON AND RARE EARTHS ARE ESSENTIAL TO A WIDE VARIETY OF APPLICATIONS, PART OF EVERYDAY LIFE. SUSTAINABLE DEVELOPMENT TECHNOLOGIES PHOTOCATALYTICS INDUSTRIAL Wind turbines | Electric vehicles | Solar Rare earths, particularly the high value elements neodymium and praseodymium, are essential for creating extremely strong permanent magnets used in motors for electric vehicles and wind turbines. Emerging solar cell technologies typically use titanium dioxide as the semiconductor doped with zirconium to increase its efficiency. Desalination | Water and air purification The photocatalytic properties of TiO2 are used in self-cleaning windows, air and water purification systems, light emitting diodes and solar cells. Zirconium chemicals are used in water purification systems to remove pollutants, such as heavy metals. Steel and glass production | Casting of parts and engines Refractory linings and foundry castings utilise zircon in their manufacturing to provide chemical, thermal shock and corrosion resistance. CERAMICS HOME APPLICATIONS PIGMENTS & CONSTRUCTION Tiles | Sanitary ware Zircon is hard wearing and water, heat, chemical and wear resistant making it ideal for use in ceramics and sanitary ware. Cosmetics | Pharmaceuticals | Home appliances Iluka products are used in light bulbs, dishes, glasses, clock parts, food colouring, ceramic knives, pans, toothpaste, antiperspirants and sunscreens, glass and faucets for taps. Paint | Plastic | Ceramics Titanium dioxide provides UV and chemical resistance, preventing fading, peeling and cracking when used in paint coatings, inks and plastics. Zircon provides corrosion resistance to glassfibres applied to high-performance concrete for building construction, including 3D-printed concrete structures. Iluka Resources Limited, Annual Report 2020 3 WHERE WE OPERATE OPERATIONS, RESOURCE DEVELOPMENT AND REHABILITATION ACTIVITIES UNITED STATES SIERRA LEONE WESTERN AUSTRALIA Rehabilitation Sierra Rutile mining, concentrating and processing operations Sembehun project Rehabilitation Narngulu processing Cataby mining and concentrating Eneabba monazite processing Capel synthetic rutile processing Corporate support centre Rehabilitation 4 Iluka Resources Limited, Annual Report 2020 SOUTH AUSTRALIA VICTORIA NEW SOUTH WALES Jacinth-Ambrosia mining and concentrating Atacama project Rehabilitation Wimmera project Rehabilitation Hamilton processing (idle) Balranald project Iluka Resources Limited, Annual Report 2020 5 BUSINESS REVIEW 2020 year in review Chairman's and 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 7 10 12 14 18 22 42 46 52 53 63 87 88 145 146 154 156 157 165 167 ABOUT THIS REPORT This Annual Report is a summary of Iluka Resources' and its subsidiaries' operations, activities and financial position as at 31 December 2020. 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 2020 Sustainability Report is expected to be published in April 2021 and will cover the company’s sustainability performance for the period 1 January to 31 December 2020. 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. 6 Iluka Resources Limited, Annual Report 2020 2020 YEAR IN REVIEW FINANCIALS DETERRA ROYALTIES DEMERGER $947m MINERAL SANDS REVENUE 36% MINERAL SANDS EBITDA MARGIN $423m CREATED AUSTRALIA’S LARGEST ASX-LISTED ROYALTY COMPANY $2,247m GAIN FROM DEMERGER 20% stake UNDERLYING GROUP EBITDA RETAINED FOR FINANCIAL STRENGTH $50m NET CASH (as at 31 December 2020) SALES AND MARKETS PRODUCTION AND OPERATIONS MAINTAINED PRICE STABILITY OPERATIONAL CONFIGURATION ALIGNED TO MARKET CONDITIONS MARKET DISCIPLINE IN CHALLENGING CONDITIONS 585kt Z/R/SR PRODUCTION 517kt Z/R/SR SOLD SUSTAINABILITY 44kt MONAZITE CONCENTRATE PRODUCED AND SHIPPED 2.8 28% 576 hectares TOTAL RECORDABLE INJURY FREQUENCY RATE INDIGENOUS EMPLOYMENT AT JACINTH-AMBROSIA LAND REHABILITATED Mining Unit Plant, Jacinth-Ambrosia, South Australia Iluka Resources Limited, Annual Report 2020 7 2020 YEAR IN REVIEW DISCIPLINED FINANCIAL RESULT MARKET CONDITIONS IMPACTED BY COVID-19 • • • • • • • Mineral sands revenue of $947 million, down 21%, as a result of the impact of the COVID-19 pandemic on key markets. Underlying mineral sands EBITDA was $342 million, reflecting Iluka’s financial, operational and market discipline. Mining Area C royalty contributed $81 million. Reported net profit after tax was $2,410 million, inclusive of $2,247 million gain from the demerger of Iluka’s royalty business. Underlying net profit after tax was $151 million. Free cash flow was $36 million, incorporating $71 million in capital expenditure in 2020 and $166 million in tax payments, including a 2019 final tax payment of $98 million made in the second half of 2020. Reported net cash as at 31 December 2020 was $50 million. Iluka declared a full year dividend of 2 cents per share, fully franked, for 2020. DETERRA ROYALTIES DEMERGER DELIVERED • • • Demerger of royalty business completed in November to create Australia’s largest ASX-listed royalty company, Deterra Royalties. Iluka’s existing shareholders received a 1:1 share distribution in Deterra; and Iluka retained a 20% stake in the new company to provide further financial strength. Deterra’s cornerstone asset is a revenue based royalty over the BHP operated Mining Area C in Western Australia. Deterra plans to grow and diversify its portfolio. • • The COVID-19 pandemic significantly affected global mineral sands end markets. Ceramic plants in China and Europe shut down early in the year in response to the pandemic, with operating rates down and a decline in end market demand. This market recovered modestly over the remainder of 2020. Other zircon market segments had mixed results, reflecting exposure to consumables, automotive parts manufacturing and other component industries. • Weighted average zircon price (premium and standard) was US$1,319 per tonne, down 8% from Q4 2019, although stable throughout H2 and indicative of Iluka’s efforts to maintain pricing support through disciplined market participation. • • In titanium dioxide markets, pigment utilisation rates dropped in Q2 and planned pigment plant maintenance was brought forward. Demand for high grade feedstocks subsequently rebounded, with the paint market experiencing strong demand from DIY and professional paint segments. End markets for welding and titanium metal were impacted due to exposure to aeronautics and ship building. Synthetic rutile contracted sales were affected by a dispute with a major customer, resulting in significantly lower synthetic rutile sales volumes. • Weighted average rutile[1] price increased 7% to US$1,220 per tonne. [1] Excluding HYTI Metallurgical Testing Facility, Capel, Western Australia 8 Iluka Resources Limited, Annual Report 2020 Iluka Laboratory, Capel, Western Australia OPERATIONAL SETTINGS ADJUSTED GROWTH PROJECTS PROGRESSED TO DELIVER FUTURE VALUE • • • • • Operational configuration set to balance zircon production in line with market conditions. Production settings at the Narngulu mineral separation plant were adjusted, reducing global zircon supply by around 10%. In August, mining returned from Ambrosia to the Jacinth deposit, improving cash flow from lower operating costs and delaying future capital spend. Record production performance from Synthetic Rutile Kiln 2 (SR2) at Capel. Production from SR2 will be suspended for a period of three to six months from February 2021, to optimise inventory levels and minimise costs. Sierra Rutile production hampered by downtime events and disruptions associated with COVID-19. Travel restrictions limited Iluka’s ability to maintain specialised skill sets typically provided by expatriate workers. ENTRY TO RARE EARTHS MARKET • • • • First production of a 20% monazite-zircon concentrate at Eneabba, now the highest grade rare earths operation globally. Phase 1 involves a simple reclamation and screening of material stored in a former mining void. Revenue from other mineral sands increased 65% to $106 million largely as a result of first sales of monazite from Eneabba. Iluka shipped 44 thousand tonnes of mixed monazite-zircon concentrate for the year. Phase 2, currently under construction, to produce a dedicated monazite concentrate at 90%, suitable as direct feed to a rare earths refinery. Iluka is actively exploring the potential for the downstream processing of rare earths in Australia. • • Pleasing progress on key technology projects in Australia – Balranald (mining); Wimmera (processing); and Eneabba (diversification). Hydraulic mining method field trial at Sembehun in Sierra Leone delayed due to pandemic. The trial is now planned for completion in 2021. SUSTAINABILITY PERFORMANCE • • • • • • • Total recordable injury frequency rate decreased from 2.9 to 2.8 with three less injuries than 2019. Serious incidents or near hits classified as having the potential for a serious complex permanent disabling injury or fatality decreased from 76 to 61. This remains a key area of focus for continual safety improvement. Implementation of COVID-19 site controls and the support of local initiatives maintained operational continuity across all Iluka sites. The company reported zero cases of infection at its Australian operations; and Sierra Rutile received approval for on-site COVID-19 quarantine and isolation facilities for staff as part of extensive safety measures. No major environmental incidents. 576 hectares of land topsoiled and vegetated; and significant rehabilitation earthworks at various sites completed, contributing to future rehabilitation and mitigating Iluka’s closure liability. Ongoing activity to demolish redundant assets and clear former sites. Inclusion in 2020 Australian Dow Jones Sustainability Index and FTSE4Good Index for leading sustainability performance. Iluka Laboratory, Jacinth-Ambrosia, South Australia Laboratory, Narngulu, Western Australia Iluka Resources Limited, Annual Report 2020 9 CHAIRMAN'S AND MANAGING DIRECTOR'S REVIEW Dear Shareholders, 2020 was a year like no other in Iluka’s history. The COVID-19 pandemic, which was only in its very early stages when we last wrote to you, evolved to become the source of several unprecedented challenges for our business, as it did for many others. These challenges spanned substantial threats to operational and supply chain continuity, market demand, timetables for the development of major projects and the planned demerger of our royalty business. Against this backdrop, Iluka delivered a disciplined performance, prioritising the safety of our people and communities; prudent management of the company’s financial position; execution of the demerger; and adjusting production settings in line with market conditions – preserving margins and, ultimately, the value of the mineral products we mine and process. That discipline is reflected in a number of significant achievements detailed throughout this year’s Annual Report. Our financial result included: • • • • NPAT of $2.4 billion, inclusive of the non-cash, non-taxable reported profit associated with the demerger; underlying group EBITDA of $423 million; free cash flow of $36 million; and a net cash position of $50 million as at 31 December 2020. Although the underlying result was modest by historical standards, it is nonetheless notable given the extraordinary circumstances in which it was attained. Iluka declared a full year dividend of 2 cents per share, fully franked. DISCIPLINE IN DELIVERING SUSTAINABLE VALUE – DEMERGER OF ROYALTY BUSINESS A major milestone was accomplished in November via the listing of Deterra Royalties on the ASX, with the Mining Area C (MAC) royalty as its foundational asset and Iluka retaining a 20% stake in the new company. This marked the culmination of a substantial programme of work following the announcement of our demerger plans in February. In liberating two fundamentally different businesses – each with high quality assets and promising futures – the demerger is expected to unlock long term value for shareholders, particularly given the increase in materiality and cash flows from the MAC royalty associated with BHP’s South Flank development. The position of the royalty business within Iluka’s portfolio had been subject to ongoing internal consideration for many years. Iluka is first and foremost a mineral sands business, with our objective to deliver sustainable value. We have always been disciplined in pursuing this objective; and the decision to demerge the royalty business is a further expression of that discipline. Post demerger, Iluka and Deterra have been set up for success, each with the financial flexibility to pursue opportunities and deliver on their respective strategies. The external tumult of 2020 aside, both companies can look to the future with confidence. SUSTAINABILITY DISCIPLINE Safety is always our first focus at Iluka and we intensified our efforts in this area following a concerning rise in potentially serious incidents during 2019. A number of ‘back to basics’ initiatives were implemented, with several of these adapted and amplified in response to the additional health and safety challenges posed by the onset of the pandemic. The company achieved a 20% reduction in serious potential injuries which, while pleasing, remains a target for ongoing improvement and vigilance. Iluka’s total recordable injury frequency rate was steady at 2.8, compared to 2.9 the previous year. Continuity with respect to rehabilitation activities was maintained, with 576 hectares of land topsoiled and vegetated at current and former mines sites. No major environmental incidents were recorded. MARKET AND OPERATIONAL DISCIPLINE 2020 saw market conditions for Iluka’s products split over sectors and quarters. For zircon, we experienced a significant drop in demand in Q1, initially as a result of COVID-19 related factory shutdowns in the Chinese ceramics industry. Key markets in Italy and Spain were also affected by the pandemic’s first wave. A modest recovery ensued over the second half, with increased purchasing most evident in Q4 – a traditionally subdued sales period. This resulted in total sales of 240 thousand tonnes for the year, compared to 274 thousand tonnes in 2019. 10 Iluka Resources Limited, Annual Report 2020 Conditions for our high grade titanium dioxide feedstocks lagged zircon to some extent, with a solid first quarter followed by a period of deterioration in the pigment market; and recovery evident by year end. Iluka’s sales of synthetic rutile were impacted substantially by a contractual dispute with a major customer. While the dispute remains the subject of litigation, sales to this customer recommenced in accordance with the contract in January 2021. Confronted with this volatility, Iluka took a number of measures encompassing: • • • • adjustments to production settings at the Narngulu mineral separation plant and Jacinth Ambrosia mine, reducing global zircon supply by approximately 10%; implementation of a company-wide efficiency programme to improve business processes and cost effectiveness, and changes to the Iluka Executive; protecting our contractual rights in relation to the supply of synthetic rutile; and where possible, progressing planned key investments in the company’s future. The subsequent pricing support we achieved as a result of these actions – maintaining prices across our core product suite – was an excellent outcome given COVID-19’s wide-ranging impacts on market sentiment. Furthermore, that Iluka was able to maintain operational continuity in the face of the pandemic, particularly in Sierra Leone, was in no small part attributable to the dedication and sacrifices made by many of our people. Yet again, our Australian operations demonstrated their flexibility and adaptiveness, with the aforementioned production adjustments executed seamlessly, accompanied by a record production performance at Synthetic Rutile Kiln 2. Iluka’s Indigenous employment at Jacinth-Ambrosia approached 30%, a reflection of our strong working relationship with the Far West Coast people of South Australia. The impact of the pandemic was considerably more severe in Sierra Leone than Australia and this too was reflected at the operational level. Sierra Rutile was hampered by a number of downtime events and reduced throughput, with lockdowns, quarantine and travel restrictions impeding Iluka’s ability to sustain specialised skillsets typically provided by expatriate resources. The significance of maintaining operational continuity should not be underestimated, particularly given Sierra Rutile’s importance to the national economy and to the local communities in the vicinity of our operations. Iluka invested around $3 million on measures to avoid having to suspend operations, including substantial health contributions to our local communities. DEVELOPMENT AND DIVERSIFICATION DISCIPLINE 2020 also saw progress on important aspects of Iluka’s major project pipeline. A period of evolution in the mineral sands industry has been discernible for some time, with increasing depletion of the traditional deposits that have underpinned global production for many years. The strategic choice that follows is for companies to seek out new deposits in new jurisdictions; and/or pursue innovation at technically challenging deposits in mature jurisdictions. While Iluka’s portfolio has both types of projects, more progress was made in Australia than in Sierra Leone over the past year given the various travel and other restrictions in effect. Of particular note are our key technology projects at Balranald (mining); Wimmera (processing); and Eneabba (diversification). Each of these developments is potentially transformative for Iluka and the industry and, while we still have some ground to cover, we are pleased by what has been achieved to date. Over the course of Q3, Iluka completed the third trial of the company’s novel underground mining technology at Balranald, which is aimed initially at commercialising two predominantly rutile deposits distinguished by both their quality and depth. At Wimmera, the focus of our feasibility work is on validating a processing solution that, although challenging, could unlock a multi decade source of zircon and rare earths if realised. April marked Iluka’s entry into the rare earths market, with first production from Eneabba, which is now the world’s highest grade rare earths operation. First sales followed in June. Formerly a prodigious and historic mineral sands province, Eneabba’s quality from a rare earths perspective is less the result of geology than sound foresight on the part of Iluka’s antecedents. Monazite (a mineral containing rare earths) is produced as a by-product of our processing activities at Narngulu. Since the 1990s, this material has been stockpiled directly in a former mine void at Eneabba in anticipation that it would one day be regarded as valuable – that time is now upon us. As is appropriate for a logical and significant diversification, Iluka is pursuing an incremental approach to Eneabba’s development. Phase 1, now in operation, is producing a mixed monazite-zircon concentrate, with the monazite fraction at approximately 20%. Phase 2, currently under construction, will see an upgrade to produce a dedicated monazite concentrate at approximately 90%, suitable as a direct feed to a downstream rare earths refinery. First production from Phase 2 is expected in the first half of 2022. Additionally, Iluka is actively exploring the potential for the downstream processing of rare earths in Australia. Of their many high value applications, some rare earths are essential for the production of permanent magnets, which are in turn used to produce the motors that power electric vehicles, generate power in wind turbines and in other sustainable development technologies. Demand across this supply chain is expected to grow substantially over coming years. As the world pursues widespread electrification, Iluka’s assets at Eneabba and potentially Wimmera provide the company a world class foundation from which to participate. Our emerging position brings with it several options for further development and shareholders can be assured these too will be pursued in a disciplined manner. If 2020 has taught us anything, it is that nothing can be taken for granted. The external environment remains uncertain on any number of fronts; and 2021 will doubtless bring further challenges for the global economy and for business generally. Regardless, over the past year your company undertook all appropriate steps to guide and shape its future. On behalf of the Board and Executive, we would like to pay tribute in particular to Iluka’s people for their steadfast efforts and commitment throughout a most unexpected 12 months. We also gratefully acknowledge the continuing interest and support of our shareholders, for whom we remain focused on our objective of delivering sustainable value. Greg Martin Chairman Tom O'Leary Managing Director and CEO Iluka Resources Limited, Annual Report 2020 11 BOARD OF DIRECTORS AND COMMITTEES GREG MARTIN TOM O’LEARY BEc, LLB, FAIM, MAICD LLB, BJuris Chairman Independent Non-Executive Director Joined Iluka 2013 Managing Director and Chief Executive Officer Joined Iluka 2016 Murchison Metals, The Australian Gas Light Company, Santos, Western Power Wesfarmers Chemicals; Energy & Fertilsers, Wesfarmers, Nikko, Nomura, Allen & Overy, Clayton Utz JAMES (HUTCH) RANCK MARCELO BASTOS BSE (Econ), FAICD BEng Mechanical (Hons, UFMG), MBA (FDC-MG), MAICD ROB COLE LLB (Hons), BSc Independent Non-Executive Director Joined Iluka 2013 Independent Non-Executive Director Joined Iluka 2014 Independent Non-Executive Director Joined Iluka 2018 Elders, CSIRO, DuPont Vale, BHP, MMG, Aurizon Holdings, Golder Associates, Golding Contractors, Anglo American PLC Perenti, GLX Group, Synergy, Southern Ports, St Bartholomew’s House, Woodside Petroleum, King & Wood Mallesons COMMITTEES The Board of Directors comprises six non-executive Directors and one executive Director (the Managing Director). Audit and Risk Committee Chairman - Lynne Saint People and Performance Committee Chairman - James (Hutch) Ranck Nominations and Governance Committee Chairman - Greg Martin SUSIE CORLETT BSc (Geo Hons), GAICD, FAusIMM LYNNE SAINT BCom, GradDip Ed Studies, FCPA, Cert Business Administration, FAICD Independent Non-Executive Director Joined Iluka 2019 Independent Non-Executive Director Joined Iluka 2019 Aurelia Metals, The Foundation for National Parks & Wildlife, Standard Bank, Macquarie Bank, Pacific Road Capital Management Bechtel Group, Fluor Daniel, Placer Dome, NuFarm 12 Iluka Resources Limited, Annual Report 2020 EXECUTIVE TOM O’LEARY LLB, BJuris Managing Director and Chief Executive Officer Joined Iluka 2016 Wesfarmers Chemicals; Energy & Fertilsers, Wesfarmers, Nikko, Nomura, Allen & Overy, Clayton Utz ADELE STRATTON MATTHEW BLACKWELL BA (Hons), FCA, GAICD Chief Financial Officer and Head of Development Joined Iluka 2011 KPMG, Rio Tinto Iron Ore BEng (Mech), Grad Dip (Tech Mgt), MBA, MAICD, MIEAust Head of Major Projects and Marketing Joined Iluka 2004 Asia Pacific Resources, WMC Resources, Normandy Poseidon ROB HATTINGH SUE WILSON SARAH HODGSON MSc (Geochem), GAICD B Juris, LLB, FGIA, FCG, FAICD LLB, GAICD Chief Development Officer, Sierra Rutile Joined Iluka 2008 Richards Bay Minerals, Exxaro General Counsel and Company Secretary Joined Iluka 2016 South32, Bankwest, Herbert Smith Freehills, Western Power General Manager People and Sustainability Joined Iluka 2013 KPMG, Westpac, Mercer DANIEL MCGRATH SHANE TILKA BSc (Math) BCom Chief Technical Officer and Head of Rare Earths Joined Iluka 1993 General Manager, Australian Operations Joined Iluka 2004 The Executive is structured to include eight senior leaders. 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 2020 13 FINANCIAL SUMMARY MINERAL SANDS REVENUE UNDERLYING MINERAL SANDS EBITDA MINING AREA C EBITDA UNDERLYING GROUP EBITDA $947m $342m $81m $423m $m $m $m $m 1,244 1,193 1,018 947 726 545 531 342 301 44% 45% 36% 103 30% 14% 85 81 60 56 48 600 616 423 361 151 16 17 18 19 20 16 17 18 19 20 16 17 18 19 20 16 17 18 19 20 Underlying group EBITDA was $423 million, demonstrating Iluka’s discipline in the face of unprecedented challenges posed by COVID-19. The Mining Area C royalty contributed $81 million EBITDA in 2020, representing 100% of royalty receipts to the September quarter, prior to the demerger of Deterra Royalties and subsequent earnings from Iluka’s 20% stake in Deterra Royalties during the December quarter. EBITDA EBITDA margin Underlying mineral sands EBITDA was $342 million. Iluka adjusted zircon operational settings in response to the uncertain market conditions, including changes to settings at the Narngulu mineral separation plant and a return to mining at the Jacinth deposit from Ambrosia. Despite the challenging market conditions, minerals sands continued to generate strong EBITDA margins at 36% (2019: 45%). Mineral sands revenue was $947 million in 2020, down 21% from 2019. Z/R/SR sales volumes were down 24% and average revenue per tonne declined 2%. Zircon sales volumes declined 13% to 240 thousand tonnes with markets, particularly ceramics, impacted by COVID-19 shutdowns in the first half. Despite a subsequent, gradual recovery, demand remained down on the previous year. Iluka’s weighted average zircon price was down only 8% from Q4 2019 as a result of efforts to ensure pricing stability in uncertain market conditions. High grade titanium feedstock markets experienced a decrease in demand in the second quarter of 2020 though rebounded strongly. Synthetic rutile sales were lower largely due to a contractual dispute with major customer, Chemours. The decline in rutile sales reflects production constraints. Iluka’s weighted average rutile price increased 7% from 2019 due to ongoing market tightness. Ilmenite and other revenue increased 65% to $106 million, including the commencement of sales of monazite-zircon concentrate from Eneabba, with 44 thousand tonnes shipped in 2020. 14 Iluka Resources Limited, Annual Report 2020 Rehabilitation site, Gingin, Western Australia NET PROFIT AFTER TAX FREE CASH FLOW $2,410m $36m NET CASH (DEBT) $50m ROE AND ROC ROE 284% ROC 311% $m $m $m % 2,410 322 304 32% 17% 2 43 50 311 284 304 (224) (172) (300) 140 (183) 47 36 (506) 54 32 7 (25) (17) (12) (18) (20) 16 17 18 19 20 16 17 18 19 20 16 17 18 19 20 16 17 18 19 20 Reported net profit after tax was $2,410 million. This result includes the $2,247 million gain on sale from the demerger of Iluka’s royalty business, completed in November. Underlying net profit after tax was $151 million (2019: $279 million). Free cash flow was $36 million. Operating cash flow was $184 million reflecting the impact of COVID-19 on mineral sands markets. Iluka also continued to progress the innovative Balranald field trial at a cost of $34 million in 2020. Cash flow contribution from the Mining Area C royalty was $92 million. Capital expenditure was $71 million, down from $198 million in 2019. The lower spend reflects both completion of major projects in 2019 and COVID-19 related travel restrictions hampering Iluka’s ability to progress some site- based aspects of projects, particularly in Sierra Leone. Total tax payments of $166 million include a $98 million 2019 final tax payment paid in the second half of 2020. Net Cash (Debt) Gearing % Return on equity Return on capital As at 31 December 2020, Iluka reported a net cash position of $50 million, up from $43 million net cash as at 31 December 2019. Reported return on equity of 284% and return on capital of 311%, both encompassing the gain from the demerger of Deterra Royalties. Underlying return on equity of 19.2% and return on capital of 36.0% are excluding the demerger of Deterra Royalties (but including Sri Lanka impairment and IFC Put Option). Iluka prioritised maintenance of a strong balance sheet, with a focus on managing operational settings in line with market conditions, minimising costs and reducing discretionary spending, while also maintaining operational continuity and progressing growth projects. Iluka Resources Limited, Annual Report 2020 15 BALANCE SHEET As at 31 December 2020, Iluka had total debt facilities of $500 million and net cash of $50 million. The company has a Multi Optional Facility Agreement (MOFA), which comprises a series of committed five-year unsecured bilateral revolving credit facilities with several domestic and foreign institutions. The facilities are denominated in both AUD and USD, and mature in 2024. Drawings under the MOFA at 31 December 2020 were $38 million (2019: $56 million). Of the above interest-bearing liabilities, $38 million is subject to an effective weighted average floating interest rate of 1.5% (2019: 3.1%). Note 21 of Iluka’s Financial Report provides details of the maturity profile and interest rate exposure. NET DEBT, GEARING AND DEBT FACILITIES DEBT FACILITIES MATURITY PROFILE Gearing % 500 100 80 60 40 20 0 618 519 500 43 50 2 0 0 0 0 21 22 23 24 25 $m 1000 800 600 400 200 0 -200 -400 -600 1,015 695 32% 17% (183) (506) 16 17 18 19 20 Debt facilities $m Net cash (debt) Gearing (%) 16 Iluka Resources Limited, Annual Report 2020 Synthetic Rutile Kiln 2, North Capel, Western Australia DIVIDEND FRAMEWORK 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. This framework is unchanged following the demerger of Deterra. Iluka declared a full year dividend of 2 cents per share, fully franked, for 2020. This is consistent with the company’s dividend framework, after adjusting for the voluntary refund of the JobKeeper subsidy which will occur in 2021. HEDGING Iluka manages a component of its foreign exchange risk via a foreign exchange hedging program. US$98.4 million in foreign exchange collar contracts in relation to expected USD revenue, predominantly from contracted sales to 31 December 2022, remain open as at 31 December 2020. The following hedging contracts matured during the year: • • US$63.6 million in foreign exchange forward contracts at a weighted average rate of 70.7 cents; and US$94.7 million in foreign exchange collar contracts consisting of US$94.7 million of bought AUD call options with weighted average strike prices of 78.4 cents and US$94.7 million of sold AUD put options with weighted average strike prices of 68.6 cents. No further hedging was undertaken in 2020. Note 22 of Iluka’s Financial Report provides details of Iluka’s open hedge contracts at 31 December 2020. Iluka Resources Limited, Annual Report 2020 17 STRATEGY AND BUSINESS MODEL THE ILUKA PLAN OUR CORE We are an INTERNATIONAL MINERAL SANDS COMPANY with expertise in exploration, development, mining, processing, marketing and rehabilitation. OUR VALUES Act with INTEGRITY Demonstrate RESPECT Show COURAGE Take ACCOUNTABILITY COLLABORATE OUR DIRECTION - LONGER TERM GROW WHERE WE CAN ADD VALUE Mineral Sands opportunities and diversification OUR DIRECTION - NEAR TERM DELIVER TO GROW OUR FUTURE EXECUTE our projects EXCEL in our core MATURE our options OUR PURPOSE DELIVER SUSTAINABLE VALUE 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 VALUES INTEGRITY RESPECT COURAGE ACCOUNTABILITY COLLABORATION 18 Iluka Resources Limited, Annual Report 2020 DELIVER TO GROW OUR FUTURE SAFETY OF PEOPLE AND COMMUNITIES PRUDENT FINANCIAL MANAGEMENT DEMERGER OF BUSINESS – LISTING OF DETERRA ROYALTIES ADJUSTMENTS TO PRODUCTION SETTINGS GROW WHERE WE CAN ADD VALUE The COVID-19 pandemic was the source of several unprecedented challenges for Iluka’s business in 2020. These challenges spanned substantial threats to operational and supply chain continuity, market demand, timetables for the development of major projects and the planned demerger of the company’s royalty business. In response, Iluka prioritised the safety of its people and communities; prudent management of the company’s financial position; adjusting production settings in line with market conditions; and execution of the MAC royalty demerger. Iluka delivered a disciplined performance against these priorities, as reflected in the company’s financial result. Protecting the safety, health and wellbeing of Iluka’s employees is the company’s enduring and highest priority. The implementation of protective measures in response to COVID-19 enabled Iluka to maintain operational continuity in both Australia and Sierra Leone. Measures included site-specific, risk-based Infectious Disease Management Plans; and extensive mental health programmes and support. Iluka invested around $3 million to avoid a suspension of operations in Sierra Leone, which included significant health contributions to local communities. This encompassed funding to disseminate COVID-19 safety educational messages; and donations of medical supplies and personal protective equipment. The operation also received approval for on-site COVID-19 quarantine and isolation facilities, in addition to the progression of faster in-house polymerase chain reaction (PCR) testing capabilities. Iluka’s ongoing focus on maintaining a strong balance sheet saw the company end 2020 in a net cash position of $50 million. Free cash flow was $36 million, incorporating investment of $71 million in capital expenditure and payment of $166 million in tax. Iluka declared a full year dividend of 2 cents per share, fully franked. The company received $13.6 million in JobKeeper subsidies from the Australian Government following a significant decline in zircon demand and associated revenue in Q1. Given Iluka’s subsequent financial performance, the company has decided to return this voluntarily, which will occur in 2021. Iluka is also implementing an efficiency programme to ensure business improvement and cost effectiveness; and has made changes to the Iluka Executive. The demerger of Iluka’s royalty business was completed in November and resulted in the creation of Australia’s largest ASX-listed royalty company, Deterra Royalties. Deterra has the Mining Area C (MAC) royalty as its foundational asset, with Iluka retaining a 20% stake in the new company. The demerger is expected to unlock significant value and enables the Board and management of each company to focus on their distinct growth strategies. Iluka’s operational flexibility enabled the company to preserve margins across its core product suite throughout a period of uncertainty and market instability. Production adjustments at both the Narngulu mineral separation plant in Western Australia and Jacinth-Ambrosia mine in South Australia, reduced global zircon supply by approximately 10%. Mine planning adjustments at Jacinth-Ambrosia also resulted in improved cash flow, lower operating costs, and deferred capital spend. Narngulu has the ability to return to normal production settings quickly, as and when required. Iluka also made important progress on key aspects of its major project pipeline in Australia. The company entered the rare earths market with first sales from the world’s highest grade rare earths operation at Eneabba in Western Australia. The third trial (T3) of Iluka’s innovative underground mining technology was completed successfully at Balranald in New South Wales. At the Wimmera deposit in Victoria, work focussed on validating a zircon processing solution that could unlock a multi-decade source of zircon and rare earths. Progress was more challenging in Sierra Leone as a result of travel and other restrictions associated with the pandemic. Centred on one of the largest and highest quality known rutile deposits in the world, all field work at the Sembehun project was suspended. A field trial of an alternative hydraulic mining method is planned for commencement in H1 2021. Iluka Resources Limited, Annual Report 2020 19 FINANCIAL AND OPERATIONAL REVIEW Cataby, Western Australia 20 Iluka Resources Limited, Annual Report 2020 In this section PROJECT PIPELINE SALES AND MARKETS PRODUCTION AND OPERATIONS PROJECTS EXPLORATION Iluka Resources Limited, Annual Report 2020 21 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 Major projects, exploration and innovation Corporate and other costs Foreign exchange Underlying mineral sands EBITDA EBITDA from discontinued operations Share of profit in associate Underlying Group EBITDA Depreciation and amortisation Inventory movement - non-cash Rehabilitation costs for closed sites Demerger transaction costs Gain on demerger of Deterra Royalties Gain on change of ownership of Deterra Royalties Gain on remeasurement of IFC Put Option Impairment of Sri Lanka interests Write-down of Sierra Rutile Limited Group EBIT Net interest and bank charges Rehabilitation unwind and other finance costs Profit before tax Tax expense Profit for the period (NPAT) Average AUD/USD rate for the period (cents) 22 Iluka Resources Limited, Annual Report 2020 2020 841.0 106.0 947.0 (558.7) 142.3 (20.9) (22.3) (27.7) (1.5) (62.3) (54.6) 0.7 342.0 81.0 0.1 423.1 (184.8) 39.9 7.2 (13.3) 1,808.1 452.0 19.4 (12.4) - 2,539.2 (7.1) (26.6) 2,505.5 (95.5) 2,410.0 69.1 2019 1,128.7 64.4 1,193.1 (539.6) 63.4 (19.7) (39.4) (35.0) (3.5) (42.2) (48.0) 1.8 530.9 85.1 - 616.0 (163.2) 15.5 (3.2) - - - - - (414.3) 50.8 (13.8) (38.0) (1.0) (298.7) (299.7) 69.5 % change (25.5) 64.6 (20.6) (3.5) 124.4 (6.1) 43.4 20.9 57.1 (47.6) (13.8) (61.1) (35.6) (4.8) - (31.3) (13.2) 157.4 - - - - - - - - 48.6 30.0 - 68.0 - (0.6) MOVEMENT IN UNDERLYING NPAT $ million NPAT Non-recurring adjustments: Rehabilitation for closed sites - Total (post tax) Sri Lanka exploration impairment Derecognition of SRL Tax assets Write-down of Sierra Rutile Limited Put Option revaluation (post tax) MAC Demerger Gain (net of transactions costs) Underlying NPAT 300 250 200 (31) m $ 150 279 (98) 23 6 5 2020 2,410.0 5.0 (12.4) - - 19.4 2,246.8 151.2 2019 (299.7) (2.2) - (161.9) (414.3) - - % change - - - - - - - 278.7 (45.7) 100 50 0 9 1 0 2 r e b m e c e D 1 3 10 17 7 11 (91) (20) (4) (7) e c i r P l o V i x M X F r e h t o & m l I S G O C t i n U r e h t O & e d l I j s t c e o r P r o a M j C A M p r o C t n I r e h t o & d n w n U i s e i t l a y o R t n e m n r e v o G 45 x a T 151 0 2 0 2 c e D 1 3 Sales commentary is contained on pages 24-25. The Australian dollar remained steady in 2020, with an average exchange rate of 69.1 cents compared to 69.5 cents in 2019. The Group has hedging contracts to assist in managing exchange rate exposure, which are detailed on page 126 of this report. Foreign exchange impacts on operating costs, mainly those related to Sierra Rutile operations, are included in the overall movement in unit cost of goods sold. Cash costs of production increased by $19 million despite lower finished goods production volumes. Mining at all operations continued throughout the year, with production settings reduced at the final stage of finished goods production at the Narngulu mineral separation plant. Australian operations increased to $730 per tonne from $650 per tonne due to higher material movements as a result of lower ore grades at Jacinth-Ambrosia (2020: 4% HM ore grade; 2019: 6% HM ore grade) combined with higher cost synthetic rutile production as the ilmenite feed transitioned to Cataby ilmenite. Idle and restructure costs reflect ongoing maintenance and land management costs for idle plant and operations at Eneabba, Tutunup South, Murray Basin and the United States, as well as restructure costs in Australia. The International Finance Corporation (IFC) increased its interest in Sierra Rutile in November 2020 to 10% and the Put Option was revalued following the negotiations, resulting in a reduction in the liability of $19 million. The Cataby mine operated for a full 12 months (compared with only 8 months in 2019) and the Synthetic Rutile Kiln 2 also operated for a full year, with 16% higher production. This led to $34 million higher costs in the Southwest/Cataby business unit. Shifts in the mine plan at Jacinth-Ambrosia and changes in production settings at the Narngulu mineral separation plant resulted in lower overall production as the Group managed inventory levels, with $31 million lower costs at that operation. Sierra Rutile was operating all 4 mining units throughout the year resulting in marginally higher heavy mineral concentrate (HMC) produced. Sierra Rutile suffered from increased maintenance and unplanned outage events, along with additional costs to manage the COVID-19 pandemic. Unit cost of goods sold increased to $1,032 per tonne compared to $889 per tonne in 2019. This reflected a cost of US$1,455 per tonne at Sierra Rutile, up from US$1,175 per tonne in 2019, due to higher cash costs of production from unplanned maintenance, higher costs in managing COVID-19 and lower production volumes. Corporate cost increases arose from restructure and redundancy costs as activities and personnel were streamlined to increase efficiency in Australia. Major projects, exploration, and innovation included the conclusion of the Balranald T3 field trials which were expensed as research and development as new mining methods were explored to open new areas of extraction. Government royalties decreased on lower assessable sales volumes. Tax expense had an effective tax rate of 4% as the gain on the demerger of Deterra was a non-taxable event. Adjusting for the gain, the effective tax rate was 39%, driven by Sierra Leone’s minimum tax rate of 3.5% of Sierra Rutile’s revenue. The corporate tax rate applicable in the main operating jurisdictions of Australia and Sierra Leone remained at 30%. Iluka Resources Limited, Annual Report 2020 23 FINANCIAL AND OPERATIONAL REVIEW SALES AND MARKETS ZIRCON RUTILE[1] SYNTHETIC RUTILE ILMENITE MONAZITE Sales volumes (kt) Sales volumes (kt) Sales volumes (kt) Sales volumes (kt) Sales volumes (kt) 380 379 339 264 233 200 274 240 172 162 244 215 207 187 225 203 256 44 116 171 16 17 18 19 20 16 17 18 19 20 16 17 18 19 20 16 17 18 19 20 16 17 18 19 20 18 0 0 0 0 Notes: [1] Includes HYTI Zircon Iluka’s zircon sales profile in 2020 reflected the challenging and evolving market conditions over the course of the year. Zircon sales in the first half of 2020 were significantly impacted by lockdowns associated with COVID-19. Ceramics account for over half of zircon use around the world and some of the largest ceramic producing countries, including China, Spain and Italy, all halted production over various periods in H1. However, with easing of restrictions, operating rates at customer plants gradually increased over H2, though total demand remained down on previous years. Demand for zircon in the foundry market was also considerably less in 2020, with the idling of car manufacturing plants in every region and a marked reduction of consumer goods exports from China. The zircon chemicals market experienced mixed conditions over the year with periods of strong demand for Chinese exports from the United States and Japan, followed by a short period of inventory build and then rundown. The refractory and fused zirconia markets, though not immune from impacts of lower demand globally, were relatively stable. Overall, consumer inventories remained low throughout the year as businesses preserved cash in the uncertain environment. It is anticipated that consumers will have to increase purchasing to build stock to a safe level and support production. Mindful of both short-term challenges and the longer-term opportunities, Iluka adjusted its product mix. This resulted in sales of zircon sand remaining at levels similar to 2019 and proportionally lower sales of zircon in concentrate. Iluka sold 187 thousand tonnes of zircon sand, down a very modest 2% from 2019. Overall, 2020 zircon sales of 240 thousand tonnes (including zircon in concentrate) were 12% lower than 2019 sales. Iluka’s weighted average price for zircon premium and standard in 2020 was US$1,319 per tonne, down 8% from Q4 2019. This was considered a solid result given the market conditions and Iluka’s efforts to preserve margins. 24 Iluka Resources Limited, Annual Report 2020 High-Grade Titanium Feedstocks High grade titanium feedstocks markets serviced by Iluka, including the pigment, welding and titanium sponge markets, experienced a rapid slowdown in demand associated with the COVID-19 pandemic in Q2. Pigment plants reduced capacity utilisation and many brought forward planned maintenance. Over the remainder of 2020, the pigment industry rebounded strongly, bolstered by strong DIY and professional paint demand. Pigment plant utilisation rates have gradually increased as a result. The welding market remained strong despite the global pandemic, buoyed by increased government stimulus measures and infrastructure spending in emerging economies, especially in South East Asia and India. Titanium sponge producers outside of China continue to experience the impacts of reduced demand from the aerospace industry. Iluka’s synthetic rutile product is largely sold under multi-year contracts. Iluka announced in June 2020, that it had issued a Notice of Default to a major synthetic rutile customer, Chemours. Following this, Iluka commenced proceedings against Chemours for breach of contract regarding failure to take or pay for scheduled shipments in May and July. Chemours took no further synthetic rutile shipments in 2020. Full year rutile sales of 162 thousand tonnes were also down from 2019 reflecting production constraints at Sierra Rutile. Iluka’s weighted average price of rutile (excluding HYTI and TIC) in 2020 was US$1,220 per tonne, up 7% from 2019. Monazite Iluka commenced sales of a 20% monazite concentrate in H1 2020, following completion of Eneabba Phase 1. The sales contract includes a fixed price which is commercial in confidence. The Board approved Eneabba Phase 2 in August 2020, which produces a 90% monazite concentrate. No sales contracts are in place for that offtake.  % OF TOTAL 2020 MINERAL SANDS SALES REVENUE 31% EUROPE AMERICAS 8% MIDDLE EAST 5% 33% CHINA ASIA 23% Weighted Average Received Prices – US$/t FOB Zircon (premium and standard) Zircon (all products)1 Rutile (excluding HYTI and TIC)2 Synthetic rutile3 Notes: 2020 1,319 1,217 1,220 - 2019 1,487 1,380 1,142 - 2018 1,351 1,321 952 - 2017 2016 958 940 790 - 810 773 716 - (1) (2) (3) Zircon prices reflect the weighted average price for zircon premium, zircon standard and zircon-in-concentrate. The prices for each product vary considerably, as does the mix of such products sold period to period. In 2020, the split of zircon sand and concentrate by zircon sand-equivalent was approximately: 78%,22% (2019: 70%,30%). Included in rutile sales volumes reported elsewhere in this Annual Report are lower titanium dioxide products, HYTI and titanium-in-concentrate (TIC). HYTI that typically has a titanium dioxide content of 70 to 91%. This product sells at a lower price than rutile, which typically has a titanium dioxide content of 95%. 2020 full year sales of the lower grade HYTI material were 29% of rutile sales (2019: 23%). 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 Resources Limited, Annual Report 2020 25 FINANCIAL AND OPERATIONAL REVIEW PRODUCTION AND OPERATIONS AUSTRALIA AUSTRALIA SIERRA LEONE Iluka’s operational configuration in 2020 was based on settings in line with market conditions; minimising costs and improving cash flow. Synthetic Rutile Kiln 2 (SR2) at Capel, Western Australia, delivered record annual production of 227 thousand tonnes of synthetic rutile. In April, Iluka announced changes to its Australian operational settings in response to the impact of COVID-19 on mineral sands markets. At the Narngulu mineral separation plant in Western Australia, the amended settings reduced expected zircon production for the year by around 110 thousand tonnes. The plant retained its flexibility to return to full production settings when required. In 2020, Narngulu processed 367 thousand tonnes of material to produce 134 thousand tonnes of zircon and 47 thousand tonnes of rutile. The Eneabba operation in Western Australia began production in April. Phase 1 of the operation consists of reclamation and screening of a strategic monazite stockpile, stored from Iluka’s historic mineral processing operations. The first shipment of a mixed monazite-zircon concentrate left Geraldton port in June, ahead of schedule. Operations continued on a campaign basis, with 44 thousand tonnes of concentrate being shipped. SIERRA LEONE At Jacinth-Ambrosia in South Australia, the mine plan was adjusted with mining returned to Jacinth from Ambrosia in August. This change improved cash flow with lower operating costs, including a lower strip ratio. Unit costs were also lowered due to less heavy mineral concentrate haulage and pumping distance to the concentrator. The adjustment also deferred capital spend required for future tailings facilities. The operation produced 357 thousand tonnes of heavy mineral concentrate for the year. Sierra Rutile faced a number of challenges in 2020. Iluka focussed on the health and safety of its employees and local communities, providing additional assistance in managing the local impacts of the COVID-19 pandemic where possible. COVID-19 controls were implemented at all locations and operations were able to continue throughout the year, however disruptions and travel restrictions hampered Iluka’s ability to maintain specialised skillsets typically provided by expatriate resources. Iluka’s Cataby mine in Western Australia was fully operational, producing 520 thousand tonnes of heavy mineral concentrate. Of this, 345 thousand tonnes of magnetic material (mainly ilmenite) was trucked to Capel for further processing and upgrading to synthetic rutile, and 164 thousand tonnes of non-magnetic material was transported to the Narngulu mineral separation for processing to final products (zircon and rutile). The operation produced 120 thousand tonnes of rutile (down from 137 thousand tonnes in 2019). Output was affected by a number of downtime events, leading to lower mining and processing throughputs. 26 Iluka Resources Limited, Annual Report 2020 ZIRCON RUTILE[1] SYNTHETIC RUTILE ILMENITE MONAZITE Production volumes (kt) Production volumes (kt) Production volumes (kt) Production volumes (kt) Production volumes (kt) 347 349 312 322 302 211 185 184 173 163 118 220 211 196 227 456 448 395 329 319 44 16 17 18 19 20 16 17 18 19 20 16 17 18 19 20 16 17 18 19 20 16 17 18 19 20 0 0 0 0 Notes: [1] Includes HYTI Heavy mineral concentrate (HMC) produced and processed HMC produced HMC processed Cash costs Cash costs of production Unit cash production cost per tonne Z/R/SR produced1 Unit cost of goods sold per tonne Z/R/SR sold Jacinth-Ambrosia / Mid west Cataby / South west Australia Total Sierra Rutile Total Notes: (1) Cash cost of production excluding by-products, divided by Z/R/SR production Mineral sands operations results kt kt $m $/t $/t 2020 1,182 1,008 2020 558.7 918 592 915 730 2,015 1,032 Revenue EBITDA EBIT $ million Jacinth-Ambrosia /Mid west Cataby / South west Idle Ops SRL Support and corporate Elimination - interco sales Total 2020 389.0 300.4 34.5 223.1 0.0 0.0 947.0 2019 482.7 414.2 (38.6) 257.6 - (12.3) 1,193.1 2020 270.2 163.1 10.1 26.4 (141.0) 0.0 328.8 2019 343.3 220.6 4.0 63.3 (88.6) (2.1) 530.9 2020 245.5 120.1 11.0 (40.8) 2,203.4 0.0 2,539.2 2019 1,087 961 % change 8.7 4.9 2019 % change 539.6 753 473 816 650 1,692 889 3.4 21.9 25.1 12.2 12.2 19.1 16.1 2019 330.2 172.7 (4.3) (427.6) (36.7) (2.1) 50.8 Iluka Resources Limited, Annual Report 2020 27 FINANCIAL AND OPERATIONAL REVIEW OPERATIONS JACINTH-AMBROSIA/MID WEST Production volumes Zircon Rutile Total Z/R production Ilmenite Total saleable production HMC produced HMC processed Unit cash cost of production - Z/R/SR Mineral sands revenue Cash costs of production Inventory movement - cash Restructure, idle capacity and other non-production costs Government royalties Marketing and selling costs EBITDA Depreciation and amortisation Inventory movement - non-cash Rehabilitation costs for closed sites EBIT 2020 2019 % change kt kt kt kt kt kt kt $/t $m $m $m $m $m $m $m $m $m $m $m 114.9 24.5 139.4 67.7 207.1 357 232 940 389.0 (131.0) 26.7 (3.2) (6.4) (4.9) 270.2 (36.2) 9.8 1.7 245.5 260.2 31.2 291.4 107.0 398.4 558 455 557 482.7 (162.3) 57.8 (2.4) (23.6) (8.9) 343.3 (28.9) 14.2 1.6 330.2 (55.8) (21.5) (52.2) (36.7) (48.0) (36.1) (49.0) (68.8) (19.4) 19.3 (53.8) 33.3 72.9 44.9 (21.3) (25.3) 31.0 6.2 (25.7) Lower market demand resulted in a 10% increase in inventories held to $260 million at year end and lower mineral sands revenue. Lower demand for zircon also resulted in lower volumes of HMC transported from the mine to the Narngulu mineral separation plant. Cash costs of production reduced due to changes in the mine plan, with mining returned to Jacinth from Ambrosia in August. This change improved cash flow with lower operating costs, including a lower strip ratio. Costs were also lowered due to less heavy mineral concentrate haulage and pumping distance to the concentrator. The adjustment also deferred capital spend required for future tailings facilities. The operation produced 357 thousand tonnes of heavy mineral concentrate for the year. Government royalties for Jacinth-Ambrosia are predominantly calculated on a mine gate departure, with lower movements of HMC reducing the royalty payable. Gross margin remained robust at 66%, down from 75% in 2019. 28 Iluka Resources Limited, Annual Report 2020 CATABY/SOUTH WEST Production volumes Zircon Rutile Synthetic rutile Total Z/R/SR production Ilmenite - saleable and upgradeable Total saleable production HMC produced HMC processed Unit cash cost of production - Z/R/SR Mineral sands revenue Cash costs of production Inventory movement - cash Restructure, idle capacity and other non-production costs Government royalties Marketing and selling costs Asset sales and other income EBITDA Depreciation and amortisation Inventory movement - non-cash Rehabilitation costs for closed sites EBIT 2020 2019 % change kt kt kt kt kt kt kt kt $/t $m $m $m $m $m $m $m $m $m $m $m $m 58.8 27.9 227.4 314.1 342.4 656.5 520 483 739 300.4 (232.2) 112.6 (3.3) (6.8) (7.7) 0.1 163.1 (72.3) 29.1 0.2 120.1 53.5 15.6 196.2 265.3 152.4 417.7 240 217 747 414.2 (198.1) 24.9 (6.8) (4.2) (9.4) - 220.6 (54.0) 6.2 (0.1) 172.7 9.9 78.8 15.9 18.4 124.7 57.2 116.5 122.5 (2.9) (27.5) (17.2) 339.8 51.5 61.9 18.1 - (26.1) (33.9) 354.8 - (30.5) Mineral sands revenue of $300 million decreased 28% on lower synthetic rutile sales largely reflecting the contractual dispute with Chemours. Restructure and idle costs related to holding costs for idle and closed operations in the Southwest, along with restructuring activities. Cash costs of production increased, with a full year of mining at Cataby (mine commenced in April 2019) as well as higher synthetic rutile production, with Synthetic Rutile Kiln 2 achieving record production following the 45 day major maintenance undertaken in 2019 to reset the kiln for its next 4 year campaign. Inventories increased to $294 million as Cataby recorded a full year of production, coupled with reduced sales, also reflected in the change in inventory movements year on year. Increased Cataby production resulted in increased charges for government royalties on increased kiln feed to produce synthetic rutile. Depreciation and amortisation increased to reflect a full 12 months charge at the Cataby mine (only 9 months in 2019). Gross margin remained steady at 46% (2019: 47%). Iluka Resources Limited, Annual Report 2020 29 FINANCIAL AND OPERATIONAL REVIEW OPERATIONS SIERRA RUTILE Production volumes Zircon Rutile Total Z/R production Ilmenite Total production HMC produced HMC processed Unit cash cost of production - Z/R/SR Mineral sands revenue Cash costs of production Inventory movement - cash Restructure, idle capacity and other non-production costs 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 Write-down expense EBIT 2020 2019 % change kt kt kt kt kt kt kt $/t $m $m $m $m $m $m $m $m $m $m $m $m $m 6.6 120.2 126.8 45.8 172.6 306 293 1,450 223.1 (183.8) 7.7 (5.3) (8.6) (3.4) (3.3) 26.4 (72.2) 1.9 3.1 - (40.8) 8.5 137.2 145.7 59.2 204.9 288 290 1,185 257.6 (172.6) (7.9) 1.2 (10.7) (3.7) (0.6) 63.3 (74.6) (2.0) - (414.3) (427.6) (22.4) (12.4) (13.0) (22.6) (15.8) 6.1 1.2 22.3 (13.4) (6.5) - - 19.6 8.1 - (58.3) 3.2 - - - - Mineral sands revenue decreased 13% on lower rutile sales as constrained production limited available product for sale. Other non-production costs reflected additional expenses for managing Sierra Rutile’s COVID-19 pandemic response. Sierra Rutile was operating all 4 mining units throughout the year resulting in marginally higher HMC produced. Sierra Rutile suffered from increased maintenance and unplanned outage events, resulting in increased cash costs of production. 30 Iluka Resources Limited, Annual Report 2020 IDLE OPERATIONS (UNITED STATES/MURRAY BASIN) Production volumes Zircon Mineral sands revenue Cash costs of production Inventory movement - cash Restructure, idle capacity and other non-production costs 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 EBIT 2020 2019 % change 4.9 34.5 (11.7) (4.7) (9.1) (0.5) (0.2) 1.8 10.1 (0.4) (0.9) 2.2 11.0 - - 38.6 (6.5) (11.4) (11.6) (0.9) (1.3) (2.9) 4.0 (0.6) (3.0) (4.7) (4.3) (10.6) 80.0 58.8 21.6 44.4 84.6 - 170.0 33.3 70.0 - - kt $m $m $m $m $m $m $m $m $m $m $m $m Discontinued and idle operations reflect rehabilitation obligations in the United States (Florida and Virginia) and certain idle assets in Australia (Murray Basin). Production in 2020 represented sale of remnant stockpiles in the United States. The United States successfully sold its remaining inventory in the year and the Murray Basin continues to hold $2 million of inventory. Cash costs of production were largely driven by activities associated with product transportation and processing costs for the remnant stockpiles. Restructure and idle costs reflect regional management and holding costs following closure of operations and care and maintenance of idled assets. These costs decreased by 22% in 2020 but are expected to continue to be broadly consistent until all stockpiles are diminished, and rehabilitation is complete. Rehabilitation costs reflected a decrease in the United States rehabilitation provision, with changes for closed sites taken directly to profit and loss. While the rehabilitation programme for the Virginia operation continues to be discussed with regulators, positive early indications resulted in a minor reduction of the rehabilitation provision in the year. Iluka Resources Limited, Annual Report 2020 31 FINANCIAL AND OPERATIONAL REVIEW MOVEMENT IN NET (DEBT) CASH Movement in net debt ($million) H1 2019 H2 2019 H1 2020 H2 2020 Opening net cash (debt) Operating cash flow MAC royalty Exploration Interest (net) Tax Capital expenditure Proceeds from changes in SRL ownership interests Government grants Principal element of lease payments AASB 16 Asset sales Share purchases Free cash flow Dividends Net cash flow Exchange revaluation of USD net debt Amortisation of deferred borrowing costs Increase in net cash/(debt) Closing net cash/(debt) 1.8 179.9 30.4 (5.0) (2.9) (143.9) (145.0) 28.5 - (4.0) 1.8 (5.0) (65.2) (79.6) (144.8) 1.8 (0.3) (143.3) (141.5) (141.5) 228.2 48.1 (6.3) (2.8) (3.5) (52.5) - - (4.1) 0.2 (2.4) 204.9 (20.3) 184.6 1.1 (0.9) 184.8 43.3 43.3 96.7 41.6 (5.5) (1.0) (39.4) (49.6) - 4.3 (4.8) 3.9 - 46.2 (32.6) 13.6 5.5 (0.3) 18.8 62.1 62.1 87.1 50.6 (4.5) (1.5) (125.3) (21.6) - 9.6 (4.5) 1.2 - (9.9) - (9.9) (1.6) (0.3) (11.9) 50.2 Net cash increased to $50.2 million as a disciplined approach to cash management was adopted while the COVID-19 crisis unfolded, with reduced capital and other expenditures preserving cash balances. Operating cash flow of $183.8 million was a 55% decrease from 2019 due to lower underlying EBITDA from weaker market conditions as COVID-19 impacted key industries. Cash flows from discontinued operations from the MAC royalty were lower due to the demerger of Deterra Royalties in November 2020, though royalties collected until the demerger benefitted from rising iron ore prices throughout the year. Iluka invested $71 million on capital developments during 2020, including planned mine development at Cataby; completing Eneabba Phase 1 and commencing Phase 2; progressing Sembehun study options; early works on other development options; and sustaining capital at Australian sites and at Sierra Rutile. No dividend was paid in September. Iluka declared a full year dividend of 2 cents per share, fully franked, will be paid on 8 April 2021. 32 Iluka Resources Limited, Annual Report 2020 Narngulu, Western Australia 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. 2020 JA/MW C/SW US/MB SRL Expl & Oth Corp Mineral sands revenue 389.0 300.4 AASB 15 freight revenue 20.6 8.5 34.5 6.1 223.1 (0.0) 7.8 - (139.4) (145.8) (30.5) (204.5) (73.9) Expenses Mining Area C Share of profit in associate FX Corporate costs EBITDA - - - - - - - - 270.2 163.1 Depreciation and amortisation (36.2) (72.3) Inventory movement - non-cash 9.8 29.1 - - - - 10.1 (0.4) (0.9) - - - - - - - - 1.9 Rehabilitation for closed sites 1.7 0.2 2.2 3.1 Mineral Sands 947.0 43.0 (594.1) - 0.1 0.7 - - - - 0.1 0.7 (54.6) (54.6) MAC Group - - - 947.0 43.0 (594.1) 81.0 81.0 - - - 0.1 0.7 (54.6) 26.4 (73.9) (53.8) 342.1 81.0 423.1 (72.2) (0.3) (3.1) (184.5) (0.3) (184.8) - - - - - - 39.9 7.2 2,246.8 2,246.8 19.4 19.4 (12.4) - (12.4) - - - - - 39.9 7.2 2,246.8 19.4 (12.4) - - - - - - - - - - - - 245.5 120.1 11.0 (40.8) (86.6) 2,209.3 2,458.5 80.7 2,539.2 (1.0) (2.5) (0.5) (2.8) (0.1) (11.1) (0.2) (10.2) - - (5.3) (7.1) - (26.6) - - (7.1) (26.6) Demerger Gain Gain on re-measurement of Put Option Impairment EBIT Net interest costs Rehab unwind and other finance costs Profit Before tax 242.0 116.8 Segment result 242.0 116.8 (0.2) (0.2) (51.2) (86.6) 2,204.0 2,424.8 80.7 2,505.5 (51.2) n/a n/a 307.4 80.7 388.1 Iluka Resources Limited, Annual Report 2020 Capel, Western Australia 33 Cataby, Western Australia FINANCIAL AND OPERATIONAL REVIEW PROJECTS ENEABBA The company develops and progressively gates projects towards execution subject to: (i) improving confidence and satisfaction with the risk-return attributes, (ii) continued strategic alignment, and (iii) sequencing to take advantage of economic and market outlook. In 2020, travel restrictions associated with COVID-19 hampered access to some sites. Nevertheless, material progress was made on a number of projects, as outlined here. ENEABBA WESTERN AUSTRALIA DEVELOPMENT STAGE Project Execution The Eneabba project in Western Australia involves the extraction, processing and sale of a strategic stockpile rich in monazite (a mineral containing rare earths) and zircon. This stockpile is stored in a mining void resulting from Iluka’s historic mineral sands operations at Eneabba. Phase 1 of the project, involving a simple reclamation and screening of the stockpile to produce a 20% monazite-zircon concentrate, began production in April 2020. The first shipment of material occurred ahead of schedule in June. Eneabba is now the highest grade rare earths operation globally. Phase 2, involving the upgrade to a 90% monazite concentrate, was approved by the Board in August and has progressed in line with plans over the remainder of the year. The concentrate produced during Phase 2 will be a direct feed to a rare earths refinery. Iluka is actively exploring the potential for the downstream processing of rare earths in Australia. 34 Iluka Resources Limited, Annual Report 2020 BALRANALD WIMMERA CATABY BALRANALD NEW SOUTH WALES WIMMERA VICTORIA DEVELOPMENT STAGE Preliminary Feasibility Study DEVELOPMENT STAGE Preliminary Feasibility Study Wimmera is a large-scale, fine-grained heavy mineral sands deposit in the Victorian Murray Basin with the potential to support the long term supply of ceramic-grade zircon and rare earths. The project aims to apply innovative mineral processing to overcome technical challenges associated with impurities in the zircon. If successful, this approach would enable the development of other similar challenging projects in the region. Project work in 2020 focussed on validating a processing solution to remove impurities and produce a ceramic grade zircon that would be eligible for the ceramics market. Environmental baseline studies were also progressed. Balranald and Nepean are two rutile-rich deposits in the northern Murray Basin, New South Wales. Owing to their relative depth, Iluka is assessing the potential to develop these deposits via a novel, internally developed, underground mining technology. In 2020, Iluka undertook a third technology trial (T3) to determine whether the technology is economically viable. Field activities were delayed in the first half of the year due to COVID-19 related travel restrictions, however the trial was able to commence in Q3 and fieldwork was completed in Q4. The trial confirmed the effectiveness of the underground mining method and validated key elements of the mining unit design, such as materials of construction that have thwarted previous attempts to mine for extended periods of time. Attempts to undertake continuous backfilling of tailings into the mining void were not successful. This is not considered a fatal flaw, as the more traditional on-surface placement is a low-risk alternative. Work has commenced to scope the Definitive Feasibility Study (DFS) and the company is targeting a decision on whether to proceed with a DFS in mid-2021. Iluka Resources Limited, Annual Report 2020 35 FINANCIAL AND OPERATIONAL REVIEW PROJECTS SEMBEHUN MINE SR KILN 1 SEMBEHUN MINE SIERRA LEONE SR KILN 1 RESTART AND SOUTH WEST DEPOSITS, WESTERN AUSTRALIA DEVELOPMENT STAGE DEVELOPMENT STAGE Scoping Study / Preliminary Feasibility Study Definitive Feasibility Study The Sembehun group of deposits are situated 20 to 30 kilometres north-west of the existing Sierra Rutile operations. Sembehun is one of the largest and highest quality known rutile deposits in the world. Iluka is focussed on determining an approach which balances the risk and reward associated with the development of Sembehun and has commenced a process to identify third parties willing to invest in the next phase of Sierra Rutile’s growth. Study work in 2019 identified a potentially suitable alternative mining method, hydraulic mining. A field trial was planned for the first half of 2020, however, in response to COVID-19 restrictions, all field work was suspended. For much of the year project work focussed on progressing critical preliminary feasibility study activities that protected the project schedule but did not require site access or significant third-party interaction. Iluka is progressing plans to undertake a field trial of hydraulic mining at the current mining area in early 2021. The Synthetic Rutile Kiln 1 (SR1) is located adjacent to Iluka’s operational SR2 kiln. Refurbishing SR1 represents a low capital expenditure, low risk opportunity to produce up to an additional 110ktpa of high grade synthetic rutile. The project to restart the kiln is execute ready. Initiation is subject to securing satisfactory commercial arrangements, ilmenite feedstock and the market outlook. Iluka retains a number of tenements in south west Western Australia containing chloride ilmenite suitable as a feedstock to the synthetic rutile kilns. A preliminary feasibility study to develop these sites has begun. Any development, or re-start of SR1, will be subject to market conditions. 36 Iluka Resources Limited, Annual Report 2020 ATACAMA PUTTALAM QUARRY ATACAMA SOUTH AUSTRALIA PUTTALAM QUARRY SRI LANKA DEVELOPMENT STAGE Preliminary Feasibility Study Atacama is a satellite deposit located approximately five kilometres from Ambrosia. The deposit has the potential to supplement and extend zircon production at Jacinth-Ambrosia and also provide a meaningful supply of ilmenite (nearly two thirds of valuable mineral assemblage at Atacama relates to ilmenite) by utilising existing infrastructure. Viability of the project is dependent on a processing solution which enables upgrading or selling of ilmenite; work continues to validate a processing route. Puttalam Quarry (PQ) is a large, predominantly sulphate ilmenite deposit, located in the Puttalam District of Sri Lanka, approximately 170 kilometres from the capital Colombo. Iluka’s exploration lease covering the PQ Resource (approximately 333Mt) expired in September 2020. At the time, outstanding key approvals prevented Iluka from lodging an application to convert the exploration lease to an Industrial Mining License. The write down of the PQ Resource has been reflected in Iluka’s 2020 Ore Reserves and Mineral Resources Statement and Iluka recorded an associated impairment charge of $12 million. Iluka retains an interest in Sri Lanka, with step-in rights that can be exercised if progress is made on a number of key areas to further the development of deposits in Sri Lanka. Iluka Resources Limited, Annual Report 2020 37 2020 PROJECT PIPELINE REGION AND MINERAL RESOURCE 1 ASSESS Scoping Study SELECT Preliminary Feasibility Study EUCLA BASIN 345Mt @ 4.8% HM for 16.6 Mt in Situ HM MURRAY BASIN 195Mt @ 17.2% HM for 33.4Mt in Situ HM 1 MID WEST / SOUTH WEST WA 986Mt @ 5.6% HM for 54.9Mt in Situ HM SIERRA LEONE 715Mt @ 1.1% Rutile for 7.9Mt in Situ Rutile ATACAMA WIMMERA BALRANALD SEMBEHUN SOUTH WEST DEPOSITS STAGE DESCRIPTION: Determine what it could be Determine what it should be ESTIMATE ACCURACY RANGE: (AT END OF PHASE) -30% to +60% -15% to +30% The Mineral Resource information on this indicative growth pipeline summary is extracted from the company’s previously published statements and are available at: www.iluka.com.au. Iluka confirms that it is not aware of any new information or data that materially affects the information included in the original market announcements and, in the case of estimates of Mineral Resources or Ore Reserves, that all material assumptions and technical parameters underpinning the estimates in the relevant market announcement continue to apply and have not materially changed. Iluka confirms that the form and context in which the Competent Person’s findings are presented have not been materially modified from the original market announcement. All Mineral Resource figures are estimates. This table should be read in conjunction with the disclaimers and compliance statement on page 167. 38 Iluka Resources Limited, Annual Report 2020 Cataby, Western Australia DEVELOP EXECUTE PRODUCE Definitive Feasibility Study Project Execution Operate and Maximise SR1 KILN RESTART ENEABBA (PHASE 2) JACINTH- AMBROSIA ENEABBA (PHASE 1) CATABY LANTI GANGAMA Determine what it will be Deliver the project Extract value -10% to +15% n/a n/a No Resource estimate Resource estimate Reserve estimate Other Iluka Resources Limited, Annual Report 2020 39 FINANCIAL AND OPERATIONAL REVIEW EXPLORATION Growing and improving the quality of Iluka’s Mineral Resource and Ore Reserves is integral to the company’s ability to deliver sustainable value. Exploration opportunity assessment is managed through a structured, stage-gated process considering a combination of technical and economic factors, taking a risk-weighted approach. Near Mine exploration seeks to add value in areas adjacent to existing assets, where synergies can deliver additional value through mine life extension or progressive development. New Mine exploration focusses on identifying new high quality mineralisation that can deliver a new operation and longer term growth. Please refer to the Ore Reserves and Mineral Resources Statement section for changes and updates to Resources on page 157. GENERATION AND EXTERNAL OPPORTUNITIES Travel restrictions impacted activities throughout 2020, limiting Iluka’s ability to complete field work and testing on existing and newly identified opportunities. The company focussed on completing a comprehensive review of opportunities within Australia and the United States jurisdictions to augment the existing project pipeline. More than 100 opportunities were reviewed, identifying a number of high priority prospects. Substantial areas of exploration access are being sought, with tenure applications submitted over approximately 4,300km2. A structured review program is currently ongoing covering other global jurisdictions. AUSTRALIA Prior to travel limitations impacting the ability to complete on-ground work, substantial near mine and new mine exploration programs were completed in Western Australia, South Australia, Victoria and New South Wales. At Cataby, 9,341m were completed in 209 drill holes to improve confidence, expand existing Resources and support mining operations. At Jacinth, in the northern extension of the main deposit, 1,221m in 58 drill holes were completed to infill existing data and improve Resource confidence ahead of mining. At Wimmera, 4,429m in 144 drill holes were completed, focussed on specific geological and metallurgical definition as part of the on-going preliminary feasibility study. Regional exploration was carried out in the Balranald district to test new mineralisation targets, with 1,361m completed in 14 drill holes. A total of 1,791 km2 of new tenure was granted during the year providing new access for exploration, with budget and plans developed to progress work. UNITED STATES Following the implementation of detailed COVID-19 risk management plans, Iluka was able to progress one of several regional scale new mine opportunities. A total of 2,109m from 46 drill holes were completed. The exploration review also identified a number of priority opportunities in the United States and work is progressing to secure access and implement exploration processes during 2021. 40 40 Iluka Resources Limited, Annual Report 2020 Iluka Resources Limited, Annual Report 2020 CANADA SIERRA LEONE Early in 2020, Iluka, with its Canadian joint venture partner Societe d’Exploration Miniere Vior Inc (now renamed Vior Inc), continued to explore for high-grade rutile bearing ilmenite bodies. A total of 9 diamond holes for 1,515m were drilled based on 7 geophysical targets. Vior made an announcement on the 20 May in respect of this programme. Analysis of the core and results have been extensively delayed due to laboratory closures related to COVID-19, with results expected during Q1 2021. Infill drilling of existing resources within both Area 1 and the Sembehun project continued throughout the year. A total of 10,200m of drilling was completed in both Area 1 (current operational area) and Area 5 (Sembehun) in 1,177 drilling holes, including a combination of hollow flight auger and aircore drilling. This focussed on improving the geological models, collecting metallurgical and geometallurgical data and improving Resource confidence as part of the ongoing Life of Mine programme and Sembehun Feasibility process. Granted tenement position as at 31 December 2020 Tenement applications as at 31 December 2020 Region Eucla Basin, (SA) Murray Basin (NSW & VIC) Perth Basin (WA) Other - Australia (QLD) Sierra Leone Sri Lanka Other - International Total Approx. square kilometres Region Approx. square kilometres 10,427 Eucla Basin (SA & WA) 3,650 574 1,791 559 105 0 Murray Basin (NSW & VIC) Perth Basin (WA) Other - Australia (QLD) Sierra Leone Sri Lanka Other - International 17,106 Total 4,072 874 268 0 858 0 0 6,072 Exploration and Geology Expenditure 2020 – $9.4M Administration + Other $1.1M, 12% Australian Exploration $3.1M, 33% International Exploration $0.1M, 1% Operations & Project Support $2.2M, 23% US + Canada $2.9M, 31% Iluka Resources Limited, Annual Report 2020 41 FINANCIAL AND OPERATIONAL REVIEW SUSTAINABILITY CLIMATE CHANGE • Iluka recognises that the physical and transitional impacts of climate change may affect its assets, productivity, supply chains and markets. Several opportunities are available and the risks identified are broadly within the company’s control, with the overall risk presented by climate manageable. Iluka understands that close monitoring and continued focus on this is important. Iluka is committed to the Paris Agreement objectives and accepts the Intergovernmental Panel on Climate Change (IPCC) assessment of climate change science. During 2020, Iluka progressed the implementation of the recommendations of the Task Force For Climate Related Disclosures (TCFD), building on the analysis of physical risks undertaken in 2019. The company undertook an assessment of the key transition risks which may impact its business. A response is being developed and a group of metrics and targets identified. In year one of the TCFD work, Iluka had an external review (by KPMG) to ascertain whether climate-related risks could be recorded and addressed under Iluka’s risk management approach. The strategic risk register records and describes mitigations and plans in relation to climate related risks that extend out to 10 years. Risks beyond this period will be recorded as emerging risks. Risks related to the physical risk assessment, and which are apparent from year one, are now identified and addressed at the group and site level. Furthermore, as the world manages and adapts to the impacts of climate change, Iluka produces critical mineral products that both support and facilitate this transition. • • End uses for the company’s mineral sands products include sustainable development applications in renewable energy technologies, water and air purification and catalytic converters, among others. For its titanium dioxide business, Iluka operates almost exclusively in the very high-grade segment of the market, with the products rutile and synthetic rutile each containing titanium content in excess of 90%. Pigment is the most prominent application for titanium dioxide; and the quality of Iluka’s products enables our pigment customers to operate their plants more efficiently, with less impact on the environment. 42 Iluka Resources Limited, Annual Report 2020 Iluka has an emerging position in rare earths. Of their many high value applications, some rare earths (neodymium and praseodymium in particular) are essential for the production of permanent magnets, which are in turn used to produce the motors that power electric vehicles, generate power in wind turbines and in other sustainable development technologies. Demand across this supply chain is expected to grow substantially over coming years as the world pursues widespread electrification. Iluka’s assets at Eneabba and Wimmera have the potential to play a significant role in the global supply of rare earths as essential building blocks for a low carbon future. GOVERNANCE The Board Charter stipulates that the Board is required to conduct an annual review of climate-related risks and approve climate-related disclosures. Duties also extend to measuring and reviewing Iluka’s performance against climate change and sustainability targets. In 2020 the Board was provided an update on Iluka’s roadmap to implementing the recommendations of the TCFD, together with an overview of scenario analysis used to identify climate-related transition risks and opportunities. RISK MANAGEMENT Iluka’s scenario analysis, aligned to the TCFD, included three climate scenarios: 1.5°C, to reflect rapid decarbonisation; a 2°C-3°C, to reflect delayed action; and >3°C, to reflect minimal action on climate change. Physical risks associated with a >3°C ‘business as usual’ scenario was detailed in Iluka’s 2019 Sustainability Report. Cross-functional workshops were conducted covering Iluka’s entire value chain (including both upstream supply chains and downstream customers). For each risk or opportunity identified, Iluka has selected a series of signposts that will indicate a change in impact on our business. The company will continue to monitor these signposts to guide its climate strategy. Iluka’s Material Transition Risks Risk Type Description Response Policy and legal A price on carbon will impact the cost of production and operations, as well as downstream production costs for Iluka’s customers. Iluka will assess the feasibility of implementing an internal price on carbon to monitor the impact of a carbon price on operations and future capital projects. Reputation Investor and key stakeholder reputational risk may materialise if Iluka fails to manage key ESG issues such as land assets, emissions strategies, or other climate-related risks. Technology Assets may become ‘stranded’ in a rapid transition to a low-carbon economy. Iluka continues to respond to queries from investors relating to our climate-related risks and commitments. The company is continually working to improve disclosures and to support increased understanding of the impact of both climate change risks and opportunities on the business. Iluka completes assessments as part of the project evaluation process to understand the impact of future scenarios on the life of an asset. Where applicable, this will include carbon pricing and other climate-related risks. Iluka’s Material Transition Opportunities Description Response Opportunity Type Energy Source Increased use of renewable energy Resource Efficiency Utilisation of by-products Markets Improved market position due to lower whole-of-life emissions Iluka has an opportunity to work with renewable energy generators to reduce overall emissions footprint through the utilisation of clean energy. End use applications of Iluka’s mineral sands and rare earth products are critical in renewable energy technologies; including permanent magnets essential for the construction of wind turbines; and in emerging solar cell technologies. Iluka maintains stockpiles of by-products which may experience an increase in demand in a low-carbon economy. The company continues to support research and development into increased use for these products. Iluka has a continued focus on providing high-quality products to its customers. These products allow our customers to produce a lower whole-of-life emissions footprint for final goods when compared to lower quality products. Demonstrated through Iluka’s titanium products, their high quality enables pigment customers to operate their plants with greater efficiency. End use applications of Iluka’s products are critical in growing sectors such as electric vehicles, water and air purification, and catalytic converters. Iluka Resources Limited, Annual Report 2020 43 FINANCIAL AND OPERATIONAL REVIEW SUSTAINABILITY METRICS AND TARGETS Iluka has begun a process to identify internal metrics for each of the company’s material climate-related risks and opportunities. As the company develops its response, it is expected that targets will be established and published. Iluka’s 2020 Sustainability Report will be released in April 2021. HUMAN RIGHTS AND MODERN SLAVERY Iluka progressed its Modern Slavery Work Programme, implementing a governance framework and commencing vendor risk assessments and modern slavery and human rights training. The company has continued to participate in the resource and energy industries’ modern slavery group, working collaboratively on the development of measures to support compliance with the Australian modern slavery legislation. Iluka plans to release its first Modern Slavery Statement in 2021. ABORIGINAL ENGAGEMENT AND CULTURAL HERITAGE Iluka acknowledges the special connection that Indigenous peoples have with land and seeks to build constructive and authentic relationships. Relationships with Iluka’s Aboriginal stakeholders extend from Board level through to day-to-day relationships at our operational sites. Indigenous employment at Iluka’s Jacinth- Ambrosia operation in South Australia approached 30% in 2020, a reflection of the strong working relationship between the Far West Coast people and Iluka. At any location where cultural heritage is identified, engagement is undertaken and a Cultural Heritage Management Plan is implemented to ensure the protection of sites and artefacts. To develop internal capability to build and maintain strong, effective relationships with Aboriginal groups, Iluka has commenced the development of an Aboriginal cultural awareness and engagement programme, which commenced at the end of January 2021. 44 Iluka Resources Limited, Annual Report 2020 ZIRCON AND HIGH GRADE TITANIUM DIOXIDE PRODUCTS (RUTILE AND SYNTHETIC RUTILE) HAVE WIDE RANGING ENVIRONMENTAL BENEFITS; FROM LOWER ENVIRONMENTAL IMPACTS IN PRODUCTION COMPARED TO ALTERNATIVES, TO THE ENHANCEMENT OF VARIOUS END-USE APPLICATIONS AND THEIR SUSTAINABILITY. LOWER GLOBAL WARMING POTENTIAL [1] Zircon has approximately a 16% lower Global Warming Potential than alumina, the main alternative product, when used as ceramic whitener and opacifier in porcelain stoneware tile production. Using zircon generates lower overall environmental impacts in production versus alumina, over a range of environmental indicators. LOWER PRODUCT ENVIRONMENTAL FOOTPRINT [5] TiO2 pigment is used in approximately 95% of paints; and is the main end-use of Iluka’s rutile and synthetic rutile products. Paints with high TiO2 pigment content have the highest opacity, meaning fewer coats of paint are needed. The closest potential alternative opacifier is around 35% less effective, requiring a higher raw material demand and producing greater waste generation. REDUCE AIR POLLUTION [5] Specialty TiO2 pigments are helping to reduce air pollution through photocatalysis on the surface of buildings; converting nitrogen oxides into harmless soluble nitrate salts which wash away in rain. Zirconium (derived from zircon) is used as a dopant to further increase the photocatalytic activity of TiO2 in air quality improvement. ESSENTIAL IN THE CONSTRUCTION OF WIND TURBINES AND ELECTRIC VEHICLES [6] High value rare earth elements (rare earths) such as neodymium (Nd) and praseodymium (Pr), are the key inputs required to produce high strength permanent magnets. These ultra-strong, long life magnets are essential in the production of the motors and generators that power electric vehicles and wind turbines. Other rare earths such as Terbium (Tb) and Dysprosium (Dy) can be used to improve the performance in some of these applications. HIGHER ENGINE EFFICIENCY AND LOWER VEHICLE EMISSIONS [2] [3] [8] [9] Zirconia oxygen sensors are essential in ensuring top performance outcomes from modern car engines. The oxygen sensors avoid fuel wastage and enhance environmentally- friendly operation. Also, zirconia together with rare earth compounds are used as sub-catalysts and catalyst supports in emissions reduction of carbon monoxide, hydrocarbons, nitrogen oxides and other toxic substances. Rare earths are also used in automotive catalytic converters for gasoline and diesel powered vehicles to convert harmful pollutants in the vehicle’s exhaust stream into less harmful emissions. GREATER EFFICIENCY FOR NUCLEAR ENERGY AND ZERO GREENHOUSE EMISSIONS [1][4] [10] Zirconium-containing alloys are widely used across structural components in the nuclear industry. The alloys offer excellent corrosion and irradiation creep resistance, as well as low neutron-absorption, critical for increasing the efficiency of the nuclear reactor. Nuclear power plant operations produce zero greenhouse gas emissions. REDUCE URBAN HEAT ISLAND EFFECT [7] [5] Zircon-containing tiles used as a building envelope, could improve a building’s thermal comfort as zircon increases the tiles solar reflectance index. Ceramics with zircon-containing glazes are also able to reduce maintenance costs compared to other ‘cool materials’ thanks to its high chemical and abrasion resistance. TiO2 pigments in paint applied to the surfaces of buildings and ‘cool roofs’ can also help to reduce heat build-up. TiO2 pigment has a very high refractive index, reflecting the heat generated by the rays of the sun Source: [1] Zircon Industry Association [zircon-association.org] [2] CO2 Meter [CO2Meter.com] [3]. ABMARC [fcai.com.au] [4] World Nuclear Association [world-nuclear.org] [5] TDMA [tdma.info] [6] Journal of Cleaner Production [sciencedirect.com] [7] Institute of Materials, Minerals and Mining [IOM3.org] [8] US Environmental Protection Agency [epa.gov] [9] Journal of Physics: Conference Series [iopscience.iop.org] [10] World Nuclear Association [www.world-nuclear.org] Iluka Resources Limited, Annual Report 2020 45 BUSINESS RISK AND MITIGATION 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 and implementing effective controls to management. Management reports to the Board those risks which could have a material impact on the business. The Audit and Risk Committee assists the Board with regard to oversight of the company’s risk management practices. Through its risk management framework Iluka seeks to: • • • • • • • • • apply a structured and systematic risk management process across the Group; embed a culture of risk awareness by integrating risk management into 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 the effectiveness of controls in line with agreed risk tolerances; ensure material risks are effectively identified, communicated and appropriately elevated to Executives and to the Board; implement appropriate insurance risk retention and transfer strategies; assess regularly the effectiveness of the risk management processes and controls; and continue to fulfill risk management governance requirements. Iluka applies a structured and systematic approach to assess the consequence of risk in areas such as injury, illness, community, environment, compliance, financial, company objectives and reputation. Company risks, and how they are being managed, are reviewed and updated by the Executive regularly and the company’s risk profile is provided to the Board for endorsement 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 adversely affect future performance. Emerging risk is a standing Board agenda item. Risks identified through this process are incorporated into the Iluka Corporate Plan development. 46 Iluka Resources Limited, Annual Report 2020 HEALTH AND SAFETY RISKS Iluka faces risks relating to the health and safety of its workforce and it is the company’s top priority to manage the wellbeing of both employees and contractors. Iluka has continued to manage the resultant COVID-19 related risks through the implementation of targeted protective measures. Iluka works actively to protect the health and safety of its people by identifying and taking appropriate action to eliminate workplace fatalities, life-changing injuries, minimise injuries and illnesses through the delivery of effective training, capturing accurate safety statistics, conducting thorough incident investigations and sharing learnings. SUSTAINING OPERATIONS RISKS Maintaining a pipeline of Ore 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. Tailings dam management is an ongoing Executive and Board focus at Iluka across all of its mines. Iluka has dedicated geotechnical resources and draws on external tailings and dam management experts to continue to improve designs and monitoring activities to reflect best practice. Annual reviews are conducted of the company’s resources and reserves, asset integrity, short and long term planning, geotechnical and hydrogeological modelling. ATTRACTING AND RETAINING KEY PEOPLE RISKS Attracting and retaining key personnel is a priority and Iluka has plans in place to develop and deliver ongoing training and leadership capability building combined with succession planning and talent management processes. PROJECT DEVELOPMENT RISKS Iluka regularly assesses its ability to enhance its production profile or extend the economic life of deposits through the development of new projects 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 in New South Wales and the Wimmera 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. PRODUCTION DEMAND AND PRICE RISKS FINANCIAL 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 changes that reduce the level of feedstock required by our customers (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 settings and inventory levels in the context of market demand. CYBER RISKS Iluka takes a risk-based approach to manage cyber security with a focus on ensuring good practice across standard processes. Iluka leverages leading frameworks such as National Institute of Standards and Technology (NIST) and guidance from Australian Government’s Cyber Security Centre. Iluka has a range of measures to manage cyber security risk including: • • • • • • a cybersecurity strategy program as part of Iluka’s overall IT strategy; clear responsibilities with a centralised IT function and dedicated capability of a cyber team; governance reporting and regular assurance including external audits, penetration testing, and assessment against standards and leading guidance such as the Australian Cyber Security Centre Essential Eight; a focus on ‘good basics’ including awareness and training, patching, accurate asset and software registers, authentication controls, management of change, physical access controls to critical centres and servers and cyber risk reviews; a range of technical platforms and controls from leading providers; and cyber response plan including post incident review processes with root cause analysis. The Sierra Rutile operation has a stand-alone separate IT environment and team, including locally set and managed cyber controls. Iluka faces risks relating to the cost of and access to funds, movement in interest rates and foreign exchange rates (refer Note 21 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 evaluation 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. GLOBAL ECONOMIC UNCERTAINTY RISK Iluka operates in a context of global economic uncertainty. Contributing factors currently include subdued economic growth, trade tensions and the impact of COVID-19 on resultant product demand. The company maintains a strong business focus to detect and respond to changes in demand which inform changes to the operational settings of Iluka’s assets. Iluka Resources Limited, Annual Report 2020 47 BUSINESS RISK AND MITIGATION GOVERNMENT AND REGULATORY RISK ENVIRONMENTAL RISKS 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 to fiscal or regulatory regimes, adverse changes to tax laws, difficulties in interpreting or complying with local laws, material differences in sustainability standards and practices, or changes to existing political, judicial or administrative policies and changing community expectations. 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. COMMUNITY/SOCIAL EXPECTATIONS RISK Iluka operates in different jurisdictions with varying community, heritage and social laws and expectations which are addressed through dedicated internal resources to deal with these issues. Community expectations are continually evolving and Iluka can best manage these through the development of robust strategies, maintaining strong relationships with communities and delivering on its commitments. Iluka is committed to leading practice in environmental management as outlined in the Iluka Health, Safety, Environment and Community 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 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. 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 remediation. The company monitors these risks as part of the ongoing remediation of its former operational sites. BUSINESS INTERRUPTIONS RISK Circumstances may arise which preclude sites from operating including natural disaster, material disruption to Iluka’s logistics chain, critical plant failure or industrial action. The company undertakes regular reviews for mitigation of property and business continuity risks. Iluka utilised the company’s Crisis and Emergency Management Processes to manage the COVID-19 outbreak and to conduct detailed site-based risk assessments, procedures and processes, and minimise the health, safety and business impacts. The Emergency Management Processes and COVID-19 Management Plans are still fully active in Sierra Leone to protect the health and safety of Iluka’s employees and the communities in which it operates. Appropriate business plans, policies and training exercises at Iluka sites provide support to mitigate the company’s risk. Iluka also maintains a prudent insurance programme that may offset a portion of the financial impact of a major business interruption event. SUSTAINABILITY RISK Iluka’s safety, health, environmental, people and community performance expectations are clearly articulated in its policies which are overseen by the Board. The company's Sustainability Report contains further information on Iluka's operating conditions, as well as elements of the business strategy. This document (for the 2019 year), as well as other company information, is available on Iluka’s website www.iluka.com. The Iluka Sustainability Report in respect to the 2020 year, is planned for release in April 2021. 48 Iluka Resources Limited, Annual Report 2020 CLIMATE CHANGE RISK Iluka is committed to managing its climate change risks and taking advantage of associated business opportunities. The company is committed to the Paris Agreement objectives and accepts the Intergovernmental Panel on Climate Change (IPCC) assessment of climate change science. Iluka is taking steps to implement the recommendations made by the Task Force on Climate related Financial Disclosures (TCFD) over a three-year period. This has included the company assessing the potential physical and transition climate risks and opportunities which may impact its operations. Physical risks may include: • • • • • decreased rainfall and prolonged drought; increased number of very hot days and heatwaves; less frequent, but more intense rainfall; reduced access to consumables; and reduced availability of water. Transition risks may include: • • • the implementation of a carbon price; investor and key stakeholder reputational risk; and stranded asset risk for equipment and machinery. Transition opportunities may include: • • • increased utilisation of renewable energy by sites; increased utilisation of by-products; and Improved market position due to higher demand for products, due to lower whole-of-life emissions, and due to increased demand for rare earths as a result of global shift toward renewable power generation and electrification. Iluka Resources Limited, Annual Report 2020 49 DELIVER SUSTAINABLE VALUE 50 Iluka Resources Limited, Annual Report 2020 FINANCIAL REPORT AND REMUNERATION 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 52 53 63 87 88 89 91 92 93 94 145 146 Iluka Resources Limited, Annual Report 2020 51 RESULTS FOR ANNOUNCEMENT TO THE MARKET ILUKA RESOURCES LIMITED 31 DECEMBER 2020 For the year ended 31 December 2020 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 2020 (the 'financial year') compared with the year ended 31 December 2019 (the 'comparative year'). All currencies shown in this report are Australian dollars unless otherwise indicated. Revenue from ordinary activities - continuing operations Net profit after tax for the period from ordinary activities - continuing operations Net profit after tax for the period attributable to equity holders of the parent Down 19.7% to $990.6m Up to $103.5m Up to $2,411.9m Dividends 2020 final: 2 cents per ordinary share (100% franked) to be paid in April 2021 2019 final: 8 cents per ordinary share (100% franked) paid in April 2020 Demerger dividend of $1,808.1 million, distributed in November 2020 Key ratios Basic profit/(loss) per share (cents) - continuing operations Diluted profit/(loss) per share (cents) - continuing operations Free cash flow per share (cents)¹ Return on Equity² Net tangible assets per share ($) 2020 24.5 24.4 5.2 283.7 3.03 2019 (71.0) (71.0) 33.0 (26.6) 1.63 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. Commentary on the consolidated results and outlook are set out in the Operating and Financial Review section of the Directors' Report. Dividend Reinvestment Plan (DRP) The current Dividend Reinvestment Plan (DRP) was approved by the Board of Directors, effective for all dividends from the 2017 final dividend onwards. Under the plan, eligible shareholders can reinvest either all or part of their dividend payments into additional fully paid Iluka shares. The DRP remains active for the 2020 final dividend. The Directors have determined that no discount will apply for the DRP in respect of the 2020 final dividend. Shares allocated to shareholders under the DRP for the 2020 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 15 March 2021. The last date for receipt of election notices for the DRP is 11 March 2021. Independent auditor's report The Consolidated Financial Statements upon which this Appendix 4E is based have been audited. 52 52 Iluka Resources Limited, Annual Report 2020 DIRECTORS’ REPORT For the year ended 31 December 2020 DIRECTORS' REPORT ILUKA RESOURCES LIMITED 31 DECEMBER 2020 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 2020. The information appearing on pages 14 to 49 forms part of the Directors' Report for the financial year ended 31 December 2020 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 T O'Leary M Bastos R Cole S Corlett J Ranck L Saint J Seabrook (retired 9 April 2020) DIRECTORS' PROFILES Name: Qualifications: Age: Role: Appointed: Independent: Greg Martin BEc, LLB, FAIM, MAICD 61 Chairman and Non-executive Director January 2013 Yes Current positions: • Chairman of the Board • Nominations and Governance Committee - Chairman • People and Performance Committee - Member Relevant skills and experience: Greg contributes to Iluka 40 years’ experience in the utilities, financial services , energy and energy related infrastructure sectors in Australia, New Zealand and internationally. Greg held the position of Managing Director and Chief Executive Officer of The Australian Gas Light Company for five years. After AGL, Greg joined Challenger Financial Services Group as Chief Executive, Infrastructure, principally engaged in the management of predominantly European and North and South American infrastructure investments. Greg is a previous Non-Executive Director of Energy Developments Limited and the Australian Energy Market Operator Limited; Chairman of the Royal Botanic Gardens & Domain Trust of New South Wales; and Deputy Chairman of the Australian Gas Association. Greg also previously served as inaugural Chairman of the Energy Supply Association of Australia. He is also a past member of the Business Council of Australia and Committee for the Economic Development of Australia. 53 Iluka Resources Limited, Annual Report 2020 53 DIRECTORS’ REPORT For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 Other relevant directorships and offices (current and recent): • Prostar Investments (Australia) Ply Ltd - Non-executive Chairman (retired December 2017) • Sydney Desalination Plant Pty Ltd - Non-executive Chairman (retired July 2019) • Coronado Global Resources Inc. - Non-executive Chairman (retired February 2019) • Western Power Corporation - Non-executive Deputy Board Chair (appointed April 2015) • Spark Infrastructure - Non-executive Director (appointed January 2017) • Santos Limited - Non-executive Director (retired August 2017) • Cosmos Capital Limited - Non-executive Chairman (appointed July 2020) • Hunter Water Corporation - Non-executive Chair (appointed January 2021) Name: Qualifications: Age: Role: Appointed: Independent: Tom O'Leary LLB, BJuris 57 Managing Director October 2016 No Relevant skills and experience: Tom contributes to Iluka more than 30 years’ experience in executive management, business development and investment banking in the energy and banking sectors. Tom 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 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 - Non-executive Director (appointed June 2006) • Edith Cowan University Council - Non-executive Member (retired June 2017) Name: Qualifications: Age: Role: Appointed: Independent: Marcelo Bastos BEng Mechanical (Hons, UFMG), MBA (FDC-MG), MAICD 57 Non-executive Director February 2014 Yes Current positions: • Audit and Risk Committee - Member • Nominations and Governance Committee - Member Relevant skills and experience: Marcelo contributes to Iluka more than 35 years’ of operational and project experience in the mining industry across numerous commodities and geographies, particularly in Australia, Africa and South America. Marcelo has extensive experience in major projects development and operation, and company management in the metals and mining industry. Marcelo was formerly the Chief Operating Officer of the global resources company, MMG Limited, with responsibility for its global operations. Prior to MMG, Marcelo held senior executive positions with BHP and Vale, including CEO BHP Billiton Mitsubishi Alliance (BMA), President of BHP’s Nickel West, President of Cerro Matoso and Nickel Americas, and Vale Director of Copper Operations. Marcelo is a former Member of the Western Australia Chamber of Mines and Energy and served as Vice President of the Queensland Resources Council. 54 54 Iluka Resources Limited, Annual Report 2020 DIRECTORS’ REPORT For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 Other relevant directorships and offices (current and recent): • Golder Associates - Non-executive Director (appointed July 2017) • Aurizon Holdings Limited - Non-executive Director (appointed November 2017) • OZ Minerals Limited - Non-executive Director (retired April 2019) • Anglo American PLC - Non-executive Director (appointed April 2019) Name: Qualifications: Age: Role: Appointed: Independent: Rob Cole LLB (Hons), BSc 58 Non-executive Director March 2018 Yes Current positions: • Nominations and Governance Committee - Member • People and Performance Committee - Member Relevant skills and experience: Rob contributes to Iluka more than 30 years’ of commercial, business strategy and planning experience in the energy and resources sectors. Rob was previously Managing Director of oil and gas production and exploration company, Beach Energy. Rob 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, Rob was a Partner at the law firm King & Wood Mallesons. Rob is currently a non-executive director of various public, government-owned and not for profit companies and an external advisor (gas industry) to the Power and Water Corporation of the Northern Territory. Other relevant directorships and offices (current and recent): • Southern Ports Authority - Non-executive Chair (resigned February 2020) • GLX Group - Non-executive Chair (resigned April 2020) • St Bartholomew's House Inc. - Non-executive Director (appointed November 2016) • Synergy - Non-executive Chair (appointed November 2017) • Perenti Global Limited - Non-executive Director (appointed July 2018) • Power & Water Corporation (Northern Territory) - external member of the Regulation & Market Operations subcommittee (appointed June 2020) • Landgate - Non-executive Chair (appointed August 2020) 55 Iluka Resources Limited, Annual Report 2020 55 DIRECTORS’ REPORT For the year ended 31 December 2020 Name: Qualifications: Age: Role: Appointed: Independent: Susie Corlett BSc (Geo, Hons), FAusIMM, GAICD 50 Non-executive Director June 2019 Yes Current positions: • Audit and Risk Committee - Member • Nominations and Governance Committee - Member ILUKA RESOURCES LIMITED 31 DECEMBER 2020 Relevant skills and experience: Susie contributes to Iluka more than 25 years’ experience in exploration, mining operations, mining finance and investment. Susie is a professional non-executive director following an executive career spanning mine operations, investment banking and private equity A geologist, Susie's background is in mining operations and exploration for RGC Ltd and Goldfields Ltd. Susie was most recently an Investment Director for Pacific Road Capital Ltd (a global mining private equity fund), following a career in mining project finance and credit risk management for Standard Bank Limited, Deutsche Bank and Macquarie Bank. Other relevant directorships and offices (current and recent): • Australian Institute of Mining & Metallurgy (AusIMM) Education Endowment Fund - Trustee (appointed June 2018) • Foundation for National Parks and Wildlife - Non-executive Director (appointed June 2018) • Aurelia Metals Ltd - Non-executive Director (appointed October 2018) • The David Burgess Foundation - Non-executive Director (retired June 2019) • Mineral Resources Limited - Non-executive Director (appointed January 2021) Name: Qualifications: Age: Role: Appointed: Independent: James (Hutch) Ranck BSE (Econ), FAICD 72 Non-executive Director January 2013 Yes Current positions: • People and Performance Committee - Chairman • Nominations and Governance Committee - Member Relevant skills and experience: Hutch contributes to Iluka a combination of over 40 years’ experience covering a wide mix of industries, geographies as well as management practices, and extensive experience in mentoring leaders. Hutch has held senior management positions with DuPont, both in Australia and internationally 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 2010. Hutch previously served as a director in a variety of companies and organisations including: CSIRO; Business Council of Australia; Australian Government Statutory Authority - APVMA; Chemical and Plastics Association - PACIA; and was a member of the Prime Minister’s Science, Engineering and Innovation Council - PMSEIC. 56 56 Iluka Resources Limited, Annual Report 2020 DIRECTORS’ REPORT For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 Other relevant directorships and offices (current and recent): • Elders Limited - Non-executive Chairman (retired December 2018) • CSIRO - Non-executive Member of the Board (retired May 2018) • Autopak-Vetlab Group - Non-executive Chairman (appointed April 2019) • J.L.Lennard - Non-executive Chairman (appointed May 2020) Name: Qualifications: Age: Role: Appointed: Independent: Lynne Saint BCom, GradDip Ed Studies, FCPA, FAICD, Cert Business Administration 58 Non-executive Director October 2019 Yes Current positions: • Audit and Risk Committee - Chairman • Nominations and Governance Committee - Member Relevant skills and experience: Lynne contributes to Iluka over 30 years’ financial, auditing, corporate governance, enterprise risk, supply chain management, project management, and commercial experience both within Australia and internationally. Lynne joins the Board from Bechtel Group, where she acquired more than 19 years’ leadership experience in her executive career. Having most recently served as Chief Audit Executive, Lynne was formerly Chief Financial Officer of Bechtel’s Mining and Metals Global Business Unit. Prior to Bechtel, Lynne worked in commercial roles at Fluor Daniel and Placer Dome. Lynne also held consulting and auditing roles with PwC and KPMG. In 2003, Lynne was recognised as the Telstra Queensland Business Woman of the Year. Other relevant directorships and offices (current and recent): • NuFarm Ltd (appointed December 2020) 57 Iluka Resources Limited, Annual Report 2020 57 DIRECTORS’ REPORT For the year ended 31 December 2020 MEETINGS OF DIRECTORS ILUKA RESOURCES LIMITED 31 DECEMBER 2020 In 2020, the Board met on 13 occasions, of which seven were scheduled meetings. In addition to these formal meetings, the Board spent a day dedicated to strategic planning. Due to the COVID-19 pandemic, site visits were not able to be carried out during 2020. The Chairman chaired all the meetings. In addition, the non-executive directors meet independent of management to discuss relevant issues at each board meeting. Directors’ attendance at Board and committee meetings during 2020 is detailed below: (1) “Held” indicates the number of meetings held during the period of each director’s tenure. Where a director is not a member but attended meetings during the period, only the number of meetings attended is shown. (2) “Attended” indicates the number of meetings attended by each director. (3) Ms Saint was appointed Chairman of the Audit and Risk Committee on 9 April 2020. (4) Ms Seabrook retired as a director on 9 April 2020. DIRECTORS SHAREHOLDING Directors shareholding is set out in the Remuneration Report, section 7. EXECUTIVE TEAM PROFILES Matthew Blackwell, BEng (Mech), Grad Dip (Tech Mgt), MBA, MAICD, MIEAust Head of Projects and Marketing Mr Blackwell joined Iluka in 2004 as President of US Operations. He had responsibilities for Land Management and as General Manager, USA, before being appointed Head of Marketing, Mineral Sands in February 2014. In 2019, Mr Blackwell was made Head of Major Projects, Engineering & Innovation. In late 2020, Mr Blackwell reassumed responsibility for Sales and Marketing. Prior to joining Iluka he was Executive Vice President of TSX listed Asia Pacific Resources, based in Thailand. Mr Blackwell’s background in the mining industry includes varied roles spanning multiple commodities. 58 58 Iluka Resources Limited, Annual Report 2020 DIRECTORS’ REPORT For the year ended 31 December 2020 Rob Hattingh, MSc (Geochem), GAICD Chief Development Officer, Sierra Rutile ILUKA RESOURCES LIMITED 31 DECEMBER 2020 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’ mineral sands business (now part of 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. Sarah Hodgson, LLB, GAICD General Manager, People and Sustainability Ms Hodgson joined the People team at Iluka in 2013 and was appointed to her current role in March 2018. 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. Daniel McGrath, B.Sc (Math) Chief Technology Officer and Head of Rare Earths Mr McGrath joined Iluka in 1993 and has held technical and operations management roles throughout Iluka for many years. Mr McGrath is now focused on developing Iluka's rare earths business as well as serving as chief technology officer. His most recent appointment was as General Manager - Cataby and Southwest Operations where he oversaw mining and synthetic rutile operations along with the technical development and metallurgy functions. Prior to this Mr McGrath has held senior operational positions at Iluka’s Western Australian, Eastern Australian, and USA operations while also having held metallurgy and process engineering roles in Australia, Indonesia and Sierra Leone. Adele Stratton, BA (Hons), FCA, GAICD Chief Financial Officer and Head of Development Ms Stratton joined Iluka in 2011, was appointed Chief Financial Officer in August 2018 and assumed accountabilities for Head of Development in October 2020. She is a qualified chartered accountant with 20 years’ experience working in both public 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. Shane Tilka, BCom General Manager, Australian Operations Mr Tilka joined Iluka in November 2004 and has held operations management roles throughout Iluka. His most recent appointment was General Manager - Jacinth Ambrosia and Midwest. Prior to this Mr Tilka was the Chief Operating Officer for Sierra Rutile Ltd, General Manager for Iluka’s US Operations and has held other senior roles at Iluka’s Western Australian and South Australian operations. Sue Wilson, BJuris, LLB, FGIA, FCG, FAICD General Counsel and Company Secretary Ms Wilson joined Iluka in December 2016. She was previously the Head of Company Secretariat at South32 following the demerger from BHP Billiton. She was also General Counsel and Company Secretary and a member of the executive team at Bankwest and HBOS Australia. Prior to joining Bankwest, Ms Wilson was a partner of law firm Parker & Parker (now part of Herbert Smith Freehills). She was the Pro Chancellor and a member of the Council at Curtin University until March 2020. She is also a former Chairman of the WA State Council of the Governance Institute of Australia and non-executive director of Western Power. She is currently Deputy Chair and a member of the Board at Amana Living, an aged care provider. 59 Iluka Resources Limited, Annual Report 2020 59 DIRECTORS’ REPORT For the year ended 31 December 2020 COMPANY SECRETARY ILUKA RESOURCES LIMITED 31 DECEMBER 2020 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 FCG (CS, CGP) 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 63 to 86 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, and rehabilitation. Iluka has an emerging position in rare earths elements, which are contained in the mineral sands monazite and xenotime. Iluka holds a 20% stake in Deterra Royalties Limited (Deterra), the largest ASX-listed resources focused royalty company. 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 has, from time to time, employed 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 28 of the financial report. 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 60 60 Iluka Resources Limited, Annual Report 2020 DIRECTORS’ REPORT For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 • 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 87. 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 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 in respect of alleged breaches of Iluka’s continuous disclosure obligations and misleading or 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 the Applicant on behalf of Iluka shareholders for alleged breaches of Iluka’s continuous disclosure obligations, and misleading or deceptive conduct in relation to disclosures made by Iluka to the market between April and July 2012. The trial of the class action is scheduled to commence on 8 March 2021 in the New South Wales registry of the Federal Court of Australia. 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. The status of the proceedings has still not reached a stage where Iluka is able to reliably estimate the quantum of liability, if any, that Iluka may incur in respect of the class action. Sierra Leone environmental class action On 22 January 2019, SRL 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 SRL 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 SRL’s mining operations. The claims primarily relate to environmental matters that arose prior to the Group acquiring its interest in SRL. The Representatives allege, in part, that SRL engaged in improper mining practices resulting in environmental degradation and contamination, did not meet certain rehabilitation obligations and violated local mining laws. SRL denies liability in respect of the allegations and intends to defend the claims. SRL filed its defence in March 2019 and also applied to the Court for an order requiring the Representatives to provide further detail on their claims. As at 31 December 2020, the status of the proceedings has still not reached a stage where SRL is able to reliably estimate the quantum of liability, if any, that SRL may incur in respect of the class action. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR The directors are not aware of any other matter or circumstance not otherwise dealt with in the Financial Report or 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. 61 Iluka Resources Limited, Annual Report 2020 61 DIRECTORS’ REPORT For the year ended 31 December 2020 DIVIDEND ILUKA RESOURCES LIMITED 31 DECEMBER 2020 The directors have declared a fully franked final dividend of 2 cents per ordinary share payable on 8 April 2021. 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 20 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 2020 may be accessed from the Company’s website at http://www.iluka.com/about-iluka/governance. ROUNDING OF AMOUNTS The Company is of a kind referred to in "ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191", issued by the Australian Securities and Investments Commission, relating to the 'rounding off' of amounts in the Directors' Report and accompanying Financial Report. Amounts in the Directors' Report have been rounded off in accordance with that Rounding Instrument to the nearest hundred thousand dollars, or in certain cases, to the nearest dollar. This report is made in accordance with a resolution of the directors. G Martin Chairman T O'Leary Managing Director 25 February 2021 62 62 Iluka Resources Limited, Annual Report 2020 DIRECTORS’ REPORT For the year ended 31 December 2020 REMUNERATION REPORT MESSAGE FROM THE CHAIRMAN OF THE PEOPLE & PERFORMANCE COMMITTEE Dear Shareholders I am pleased to present Iluka’s 2020 Remuneration Report. As the Chairman and the Managing Director have reflected, the company delivered a disciplined performance over the past year across a number of areas – operations, marketing, growth opportunities and sustainability – all in the face of unprecedented challenges. This included the demerger of the royalty business, which was an especially important milestone. IMPACT OF COVID-19 The COVID-19 pandemic presented a particularly unique challenge and whilst the focus for the company was on maintaining business outcomes, the care and welfare of our people has also been at the forefront of our actions and decision making. We are proud of the willingness of our employees to respond to the changing circumstances throughout the year. Their commitment to Iluka has ensured the delivery of a disciplined operational performance. In light of the exceptional circumstances of 2020, the Board has carefully considered remuneration outcomes. This consideration encompassed company performance and achievements; the experience of shareholders; rewarding executives appropriately; and alignment with stakeholder expectations. The Board also appreciates the feedback provided by shareholders and proxy advisers as part of the consideration process. For 2020, the Board has determined that all Executive awards under the Executive Incentive Plan (EIP) will be delivered fully in equity, with no cash incentive paid. This is in addition to the change in structure for the Managing Director’s award which will be fully delivered in equity from 2020 onwards. Scorecard objectives approved by the Board at the beginning of the year, prior to the onset of the pandemic, remained assessable throughout, with no adjustment for the business impact of COVID-19. EXECUTIVE REMUNERATION APPROACH Iluka’s approach to executive remuneration is designed to operate through changing circumstances and environments. Executives are rewarded through a single incentive plan (the EIP). Outcomes are determined based on an annual scorecard set by the Board, with the award delivered predominately in equity that vests over 5 years (for 2020, all awards are in equity). A significant proportion of the equity awarded is also subject to a relative total shareholder return hurdle. A number of changes have been made to the EIP, effective for the 2020 year, following engagement with and feedback from shareholders. These changes were detailed in our 2019 Remuneration Report and received strong support with the report receiving a 97.35% ‘for’ vote. 2020 changes to Executive Incentive Plan: • • • • • extending performance and vesting periods so the plan operates over a five year period; increasing the proportion of the award that is subject to a second performance test at the end of the (extended) five year period; reshaping our performance scorecard and increasing the weighting of financial performance to 50%; introducing scale vesting for the Relative Total Shareholder Return test on the performance rights portion of the award; and a modest increase to target EIP incentive opportunities following detailed benchmarking against Iluka’s peers Further detail is provided in Section 3 of this Report. 2020 PERFORMANCE OUTCOMES While Iluka’s reported financial result was very strong as a consequence of the profit on demerger (of Deterra Royalties) underlying earnings were modest but notable given the circumstances in which they were achieved. Notwithstanding the company’s disciplined approach to production settings and markets, the threshold set for financial performance was not met. The Board is, however, pleased with the way in which management has driven the financial performance of the company given the circumstances faced through 2020. Threshold targets for production performance, which related exclusively to Sierra Rutile, were also not achieved. Sustainability targets were partially met. On safety, the total recordable injury frequency rate was marginally lower at 2.8 (compared to 2.9 in 2019) and the company’s rehabilitation target was met. Disappointingly, threshold performance for environmental incidents was not met. Strong performance was achieved across a number of strategic objectives. In particular, the demerger of Iluka’s royalty business was executed in November, with the listing of Deterra Royalties on the ASX, and is expected to unlock significant value over the longer term. Key growth projects were also progressed, including Iluka’s Rare Earth initiative. These are detailed further in Section 4 of this report. Key 2020 Highlights: • • MD Executive Incentive Plan outcome was 30% of maximum (45% of target). Executive Key Management Personnel outcomes were between 23 % and 30% of maximum (34% and 45% of target). Further detail is provided in Section 4 of this Report. 1 Iluka Resources Limited, Annual Report 2020 63 DIRECTORS’ REPORT For the year ended 31 December 2020 The Board believes these outcomes fairly recognise the strong, disciplined performance of a management team confronted by truly exceptional circumstances. HISTORICAL INCENTIVE PLAN OUTCOMES The performance period relating to the 2017 Long Term Incentive Plan (LTIP), the last grant under the legacy LTIP, ended on 31 December 2020 and 43.57% of this award will vest. In addition, the performance period for the Managing Director’s 2016 LTIP award came to an end in December 2020. 35.72% of this award will vest. Further detail relating to these awards can be found in Section 4. IMPACT OF DETERRA ROYALTIES DEMERGER As part of the demerger, the Board put arrangements in place relating to outstanding equity awards. These arrangements preserve the overall value of the incentives following the demerger; and ensure that Executives and employees are not materially advantaged or disadvantaged by the transaction. They are detailed further in Section 8. On behalf of the Board, I invite you to review our Remuneration Report. We look forward to your ongoing feedback and continuing discussions with our shareholders and their proxy advisers on our remuneration approach. Thank you for your ongoing support. Yours sincerely Hutch Ranck People and Performance Committee Chair 64 Iluka Resources Limited, Annual Report 2020 2 DIRECTORS’ REPORT For the year ended 31 December 2020 CONTENTS 1. Who is covered by this report? 2. 3. 4. 5. 6. 7. 8. Iluka’s approach to executive remuneration Executive remuneration framework and details 2020 performance highlights and alignment to Executive KMP remuneration outcomes Remuneration governance Non-executive director fees Statutory disclosures Impact of the demerger of Deterra Royalties on Executive incentives 65 66 67 71 77 80 81 85 1. WHO IS COVERED BY THIS REPORT? This Report details the remuneration arrangements for Iluka’s key management personnel (KMP). KMP in 2020 comprised the Managing Director and other key executives (Executive KMP), as well as non-executive directors. Name Position Managing Director Term as KMP T O’Leary Managing Director and Chief Executive Officer Full year Current Executive KMP M Blackwell A Stratton Head of Projects and Sales & Marketing1 Chief Financial Officer and Head of Development2 Full year Full year S Tilka General Manager, Australian Operations Appointed 27 October 2020 Former Executive KMP J Andrews Head of Strategy, Planning and Business Development C Barbier Head Of Marketing Ceased 30 October 20203 Ceased 30 October 20204 Current Non-Executive Directors G Martin M Bastos R Cole S Corlett J Ranck L Saint Chairman, Independent Non-Executive Director5 Independent Non-Executive Director Independent Non-Executive Director6 Independent Non-Executive Director Independent Non-Executive Director7 Independent Non-Executive Director Former Non-Executive Directors Full year Full year Full year Full year Full year Full year J Seabrook Independent Non-Executive Director Ceased 9 April 20208 1 Prior to 27 October 2020 M Blackwell held the role of Head of Major Projects, Innovation and Engineering. 2 Prior to 27 October 2020 A Stratton held the role of Chief Financial Officer. 3J Andrews was a member of KMP until 30 October when he ceased employment with the company and became Managing Director of Deterra Royalties 4C Barbier ceased to be a KMP on 30 October and is expected to cease employment with the company in 1H 2021. 5G Martin was appointed to the People and Performance committee (previously Remuneration and Nomination Committee) on 21 February 2014. 6R Cole was appointed to the People and Performance Committee on 1 March 2018. 7J Ranck was appointed Chair of the People and Performance Committee on 18 May 2016. 8J Seabrook was appointed Chair of Deterra Royalties Limited on 15 June 2020. Iluka Resources Limited, Annual Report 2020 65 3 DIRECTORS’ REPORT For the year ended 31 December 2020 2. ILUKA’S APPROACH TO EXECUTIVE REMUNERATION Remuneration Principles Iluka’s Remuneration Principles provide the foundations for how remuneration is structured and awarded to achieve the following: • • • • • • Remuneration which is comparable and competitive within the relevant market; Performance based with targets that reflect both prevailing business expectations and minimum time requirements; Trailing exposure to company performance through deferred equity plans and minimum shareholding requirements; An appropriate balance between fixed and ‘at risk’ remuneration; Alignment to shareholder returns through performance objectives which support improved shareholder returns, and Fair and transparent remuneration based on performance, compliance with legislated frameworks and clear and concise disclosure. EXECUTIVE REMUNERATION APPROACH Our purpose: to deliver sustainable value, is key to Iluka’s approach to executive remuneration. Our Executive Incentive Plan (EIP) is designed to ensure remuneration received by Executive KMP is closely linked to the company’s performance, aligning it with the returns generated for our shareholders over the long term. The EIP design, guided by our Remuneration Principles, reflects that we operate in a cyclical industry with volatile results largely influenced by price, volume and foreign exchange. The Board sets an annual scorecard to focus our Executive KMP on financial and strategic imperatives they can influence and are critical to Iluka’s long-term sustainability. In 2020 objectives for Executive KMP covered: • • • • Financial performance; Optimisation of production and price settings; Sustainability focusing on protecting our people, our environment and our communities; and Key strategic projects to deliver sustainable value over the long-term and progression of longer term growth including the strategic review of the royalty business and implementation of the Board’s preferred approach. In setting objectives, the Board aims to ensure that targets are quantifiable and drive the right commercial and strategic outcomes for Iluka. Section 4 provides a detailed explanation of the specific targets set in 2020, how they were measured and our assessment of performance. The EIP award is delivered with a large proportion of ‘at risk’ remuneration in equity, deferred over several years. This, coupled with requiring our Executive KMP to maintain a personally significant shareholding in Iluka, aligns Executive KMP with and ensures they are exposed to the same financial consequences as shareholders. 66 Iluka Resources Limited, Annual Report 2020 4 DIRECTORS’ REPORT For the year ended 31 December 2020 3. EXECUTIVE REMUNERATION FRAMEWORK AND DETAILS Attract and retain highly skilled and engaged executives to Iluka. Pay for performance and delivering shareholder value Reward for results and ties executives to long-term company performance. Fixed remuneration Executive Incentive Plan (FY20) Set after considering: - Trajectory of the company’s growth and key strategic objectives Relevant market, comparators and scarcity of talent Executive KMP’s experience and performance Executive KMP’s role responsibilities - - - Annual scorecard of financial and strategic measures. Board assesses scorecard performance at the end of the year with resulting award normally split into three components: Cash – To be delivered as restricted rights in lieu of cash for 20201 2 Restricted rights - vest in equally weighted tranches on the first, second, third and fourth anniversary of the grant. Performance rights are subject to performance testing at two stages. Initial scorecard performance determines the amount of the grant. A further performance test relating to Iluka’s relative TSR is undertaken at the end of five years and the award will vest on a straight line basis if relative TSR meets or exceeds the median TSR performance of the selected peer group over the period. Remuneration principles and structure are supported by policies and mechanisms including security trading and minimum shareholding policies and clawback arrangements. Governance 1 As noted in last year’s report, from 2020 the Managing Director’s award will be delivered entirely in equity. In addition, for 2020 only, for other Executive KMP the cash component will be awarded as restricted rights. From 2021 the cash component will be reinstated for Executive KMP. 2J Andrews will receive his pro-rated 2020 EIP award in cash as agreed as part of his arrangements on appointment to Deterra Royalties. Iluka Resources Limited, Annual Report 2020 5 67 DIRECTORS’ REPORT For the year ended 31 December 2020 EXECUTIVE REMUNERATION MIX For the Managing Director, all variable remuneration is delivered in equity. For other Executive KMP, the design of the EIP includes a component of variable remuneration delivered in cash. However, in order to better reflect the circumstances of 2020, the Board has determined to award all of the EIP outcomes in equity. The following diagram sets out the mix for fixed and “at risk” remuneration for Executive KMP during 2020. 2020 remuneration mix (at maximum opportunity) Managing Director Other Executive KMP 41% 41% 38% 38% 37% 37% 32% 32% 27% 27% 25% 25% Fixed At Risk – Restricted Rights At Risk – Performance Rights Fixed At Risk – Restricted Rights At Risk – Performance Rights FIXED REMUNERATION FOR 2020 The Board regularly reviews executive remuneration levels against the market comparators based on a number of factors including revenue, industry and operational factors including international scope and complexity. Whilst the market capitalisation of the company has reduced following the demerger of Deterra Royalties, and remuneration positioning against the market has increased when measured on a market capitalisation basis, the scope and complexity of Executive roles have not changed materially. The Board also notes that the competition for talent within the resources industry remains extremely tight, particularly in Western Australia. There has been no increase to the Managing Director’s fixed remuneration since his appointment to the role in September 2016. No changes were made to Adele Stratton’s or Matthew Blackwell’s remuneration on the broadening of their accountabilities to include Development (A Stratton) and Sales and Marketing (M Blackwell) in October 2020. The Board will continue to monitor remuneration levels and appropriate remuneration arrangements will be put in place for any new appointments. Executive KMP T O’Leary M Blackwell A Stratton S Tilka Former executives C Barbier J Andrews Fixed Remuneration At 31 December 2019 Fixed Remuneration At 31 December 2020 $1,400,000 $655,000 $630,000 N/A $575,000 $580,000 $1,400,000 $655,000 $630,000 $550,000 N/A N/A 68 Iluka Resources Limited, Annual Report 2020 6 DIRECTORS’ REPORT For the year ended 31 December 2020 EXECUTIVE INCENTIVE PLAN FOR 2020 As foreshadowed in the 2019 Remuneration Report, the following changes have been made to the EIP effective for the 2020 financial year: • • Increasing the vesting periods, so that over half of the award vests over a four and five year period; The second test on performance rights has been changed so that 50% of the performance rights will vest for median performance (which is also the threshold for any vesting), increasing on a sliding scale to 100% of the award vesting where TSR is at or above the 75th percentile relative to the selected comparator group; The scorecard has been simplified by increasing the weighting of the financial metrics to 50% and applying the same set of financial metrics for all participants. Group and individual strategic objective will no longer be measured separately; and, A modest increase to target EIP incentive opportunities following detailed benchmarking against Iluka’s peers. • • For 2020, the EIP will operate as below1. Legend Award Vesting 2021 2022 2023 2024 2025 Annual Performance Period Scorecard outcome determines value of entire EIP award Relative TSR (5 years) Grant subject to EIP scorecard performance Restricted rights 25% vesting (1 years) Restricted rights 25% vesting (2 years) Restricted rights 25% vesting (3 years) Restricted rights 25% vesting (4 years) Performance rights Four year vesting period based on five year relative TSR performance Five year relative TSR performance 1In 2021, the EIP structure for other Executive KMP will revert to 3 components, which includes a cash payment, delivered at the end of the annual performance period. The Managing Director award will continue to be delivered fully in equity. Iluka Resources Limited, Annual Report 2020 7 69 DIRECTORS’ REPORT For the year ended 31 December 2020 KEY DESIGN FEATURES OF 2020 EIP 2020 EIP opportunity The EIP opportunity is expressed as a percentage of fixed remuneration (FR). Managing Director Other Executive KMP Target (% of FR) 140% 110% Maximum (% of FR) 210% 165% Performance Measures Scorecard is based on financial (50%), production (10%), sustainability (15%), individual strategic (25%) measures. Vesting schedule EIP scorecard outcomes are calculated based on the following schedule, with a sliding scale operating between threshold and target, and between target and stretch: Performance Level Threshold Target Stretch (maximum) EIP Outcome (% Target) 50% 100% 150% Performance assessment EIP outcomes are determined following assessment of performance measures at the end of the 2020 performance period. Outcomes are subject to one up assessment and, for the Managing Director and Executive KMP, assessment by the Board. Award type and timing For 2020, EIP awards will be delivered in the form of 60% restricted rights and 40% performance rights. (This was a change from 2019 with the proportion of performance rights increasing from 33%). The award will be granted for nil consideration in March 2021. Allocation Methodology Restriction and performance periods on EIP equity1 The number of restricted rights and performance rights awarded to each participant is based on face value. This is determined by dividing the dollar value of the deferred component by the Volume Weighted Average Price (VWAP) of Iluka shares traded on the ASX over the five trading days following the release of the company’s full year results. EIP equity is subject to restriction or performance conditions: Restricted Rights Performance Rights Restricted rights will be granted following the end of the 2020 performance period and vest in equally weighted tranches on the first, second, third and fourth anniversary of the grant, subject to continued service. Performance rights will be subject to an additional performance test prior to vesting. TSR performance will be measured over a five-year period commencing on 1 January 2020 against the S&P / ASX 200 Resources Index (excluding companies primarily engaged in the oil and gas sector and non-mining activities). Vesting is subject to sliding scale. Performance level to be achieved Below 50th percentile 50th percentile Between 50th and 75th percentile 75th percentile Percentage vesting 0% 50% Sliding scale vesting 100% Voting rights and dividends No dividends are paid on restricted rights or performance rights prior to vesting. For any restricted rights or performance rights that ultimately vest, a cash payment equivalent to dividends paid by Iluka during the period between grant of the awards and vesting will be made. No cash payment will be made in respect of dividends on awards which do not vest. 1Treatment on termination is detailed in section 5. 70 Iluka Resources Limited, Annual Report 2020 8 DIRECTORS’ REPORT For the year ended 31 December 2020 4. 2020 PERFORMANCE HIGHLIGHTS AND ALIGNMENT TO EXECUTIVE KMP REMUNERATION OUTCOMES NNPPAATT ((UUnnddeerrllyyiinngg)) $$115511mm DDeetteerrrraa DDeemmeerrggeerr 9999..99%% SShhaarreehhoollddeerr SSuuppppoorrtt EEDDIITTDDAA MMAARRGGIINN 4411%% MMaaiinnttaaiinn SSttrroonngg BBaallaannccee SShheeeett $$5500mm Outlined below is the 2020 performance compared to the historic performance of the Group. HISTORICAL COMPANY PERFORMANCE Net profit/(loss) after tax ($m) - Reported (224.0) (171.6) 20161 20171 Net profit/(loss) after tax ($m) – Underlying2 Underlying EBITDA (Group) ($m)2 EBITDA (Group) margin (%) Free cash flow ($ million) Earnings per share (cents) Return on equity (%) Closing share price ($)4 Dividends paid (cents)5 Franking credit level (%) Average AUD : USD spot exchange rate (cents) Revenue per tonne Z/R/SR sold ($/t) (23.8) 150.5 13.9 47.3 (53.3) (17.1) 3.69 3 100 74.4 999 95.6 360.5 35.4 321.9 (41.0) (20.1) 5.17 31 100 76.7 2018 303.9 300.7 600.1 48.2 304.4 72.2 31.8 3.87 29 100 74.8 20191 20201 (299.7) 2,410 278.7 151.23 616.0 423.1 51.6 139.7 (71.0) (26.6) 4.73 13 100 69.5 44.7 36.3 570.4 283.7 6.49 2 100 69.1 1,079 1,426 1,654 1,625 1Reported earnings in 2016, 2017, 2019 and 2020 were impacted by significant impairments and write-downs; profit on demerger and/or changes to rehabilitation provisions for closed sites. 2Underlying Net profit/(loss) after tax and Group EBITDA excludes adjustments including impairments and write-downs; profit on demerger; and changes to rehabilitation provisions for closed sites. 3The reconciliation for the 2020 Underlying Net profit/(loss) after tax can be found on pages 22-23 of the Financial Results. 42016, 2017, 2018 and 2019 represent the historical closing share price adjusted for the demerger of Deterra Royalties, sourced from FactSet via Nasdaq Excel Add-in. 5 Dividends paid in relation to the year. Iluka Resources Limited, Annual Report 2020 9 71 DIRECTORS’ REPORT For the year ended 31 December 2020 2020 EIP SCORECARD AND OUTCOMES ACHIEVED The EIP Scorecard is approved by the Board at the commencement of the financial year and focuses executives on business priorities that support the delivery of Iluka’s Corporate five year plan. Outlined below are the targets that were set in 2020, and the performance achieved. These targets were not adjusted for the impact of COVID-19. The Board did, however, exercise discretion to exclude the impact of the profit on demerger of Deterra Royalties from performance outcomes. Scorecard measure and target Weight Performance and outcome Threshold – Target - Stretch FINANCIALS 50% Outcome – 0% of target; 0% of maximum Group ROC (%)1 Target 2020 budget 20% Group NPAT1 15% All in Unit Cash Costs of Production $/t Target $1,129 / t 15% 1Disclosure of financial targets Below threshold Return on capital of 311% was adjusted to exclude the impact of the profit on the demerger of Deterra. The adjusted return on capital of 36% was below threshold. Adjusted returns were lower due to reduced sales volumes resulting from the COVID-19 pandemic, whilst product pricing was maintained throughout this challenging period. Below threshold Similarly, Group NPAT was adjusted to exclude the profit on demerger; adjusted NPAT was below threshold. 2020 saw market demand for zircon and titanium dioxide feedstocks hampered by the ensuing global lockdowns caused by COVID- 19. This reduction in demand had a direct impact on the NPAT generated in comparison to what was originally targeted prior to the pandemic and this had the largest impact on financial performance. Pleasingly, sales prices were maintained despite this backdrop due to Iluka’s market discipline demonstrated through the adjustment to production settings. Below threshold Zircon production settings were reduced, removing ~10% of global supply – preserving price margins and, ultimately, the value of the mineral products mined and processed. The lower production resulted in higher unit costs, despite the cost saving measures introduced throughout the year. No specific targets are disclosed in relation to the financial earnings measures due to commercial sensitivity. Iluka’s approach to the marketing and pricing of its products is key to achievement of the company’s objective to deliver sustainable value. We believe maintaining confidentiality on financial earnings targets, even on a retrospective basis, is critical to our competitive advantage and is in the best interests of shareholders. PRODUCTION 10% Outcome – 0% of target; 0% of maximum Below threshold Sierra Rutile Z/R kt Target 170 10% Overall production of 127kt was below threshold. Operations in Sierra Leone were impacted by a number of downtime events and reduced throughput and COVID-19 quarantine and travel restrictions which limited the ability to maintain specialised expatriate skillsets 72 Iluka Resources Limited, Annual Report 2020 10 DIRECTORS’ REPORT For the year ended 31 December 2020 Scorecard measure and target Weight Performance and outcome Threshold – Target - Stretch SUSTAINABILITY 15% Outcome – 60% of target; 40% of maximum Group Total Recordable Injury Frequency Rate Reduction to 2.6 Group Closure Index (%) Reduction of rehabilitation liability through closure index target of 103% Group environmental level 3 and above incidents Target of 13 or less 5% 5% Threshold The targeted reduction was not met although the TRIFR decreased from 2.9 at the end of 2019 to 2.8 at the end of 2020. Total Recordable Injuries reduced from 30 in 2019 to 27 in 2020. Target Target performance was achieved as a result of rehabilitation of 576 hectares during 2020. Despite expansion of our operating sites, this outcome has enabled Iluka’s total open area to remain steady at 10,125 hectares. Below Threshold 2.5% There were 15 level 3 (or above) environmental incidents during 2020 compared to 13 in 2019. The majority (11) were associated with non-toxic slurry, sediment or saline water releases. The remainder comprised land disturbance (2), a single hydrocarbon spill and air emission exceedance. Threshold Closed actions by due date 95% of actions (excluding SRL) closed out by initial set due date GROUP SCORECARD2 Outcome – 12% of target; 8% of maximum 2.5% 91% of actions (identified through incident investigations, planned workplace inspections and safety visits) were closed out by initial due date on a rolling 12 month basis. Performance improved from March 2020 where target performance was generally achieved across the Australian operations. 2 Financials, Production, Sustainability Iluka Resources Limited, Annual Report 2020 11 73 DIRECTORS’ REPORT For the year ended 31 December 2020 MANAGING DIRECTOR INDIVIDUAL OBJECTIVES Individual strategic objectives were set based on individual KMP accountabilities. Outlined below is assessment of the Managing Director’s performance against the Individual Strategy scorecard measure and corresponding EIP outcome. Given the unprecedented external circumstances presented in 2020, initially as a direct result of the COVID-19 pandemic, the Board considered carefully its assessment of the delivery of strategic objectives. In determining the final outcome, the Board assessed the Managing Director’s performance highly, in particular his strong leadership in delivering the demerger of Deterra Royalties, the management of price and volume settings, the phased advancement of Iluka’s rare earths initiative, and the focus on costs as evidenced by the efficiency programme commenced in H2 2020, all achieved in the circumstances of the 2020 year. Scorecard measure (weight) INDIVIDUAL STRATEGY (25%) Complete strategic review of royalty business and implement Board’s preferred approach Pursue value accretive opportunities to deliver sustainable value over the long term Performance Threshold – Target - Stretch Outcome – 144% of target; 96% of maximum Strategic review resulted in decision to proceed with demerger of Deterra Royalties (Deterra) in February 2020 and successfully implemented in H2 2020, despite the challenges presented by the COVID-19 pandemic. The demerger resolution was supported by 99.92% of shareholders who voted in the October 2020 shareholder extraordinary general meeting. Field activities associated with the third trial (T3) of Iluka’s innovative underground mining method at Balranald were completed during the year. The field activities confirmed the effectiveness of the underground mining method and the company will determine whether to proceed with a Definitive Feasibility Study in 2021. Iluka’s rare earths initiative continues to develop. Phase 1 at Eneabba is operational and exporting a 20% monazite-zircon concentrate. Phase 2 was approved in August 2020 and is in execute, with the objective of producing a 90% monazite concentrate. Iluka is also exploring the possibility of implementing Phase 3: the establishment of a rare earths refinery at Eneabba, comprising a cracking and leaching plant, together with separation and finishing facilities, with a view to producing refined rare earth oxides. Other potential developments have been progressed and are continuing in feasibility study phase. Progress Sembehun feasibility study and implement Board’s preferred approach to further investment in Sierra Rutile The hydro mining trial scheduled for Q1 2020 to inform the Sembehun development was not possible as a result of COVID-19 related travel restrictions in Sierra Leone. As a result the feasibility study has not been completed and the focus shifted, early in 2020, to maintaining the safety and continuity of operations. While continuity has been maintained and the health and safety of the employees and community members has been prioritised through treatment of impacted people, contact tracing, isolating and quarantining; production and financial performance were impacted and returns continued to disappoint; Iluka continues to consider the most appropriate path to generate value from the investment. Optimise price and volume settings As a consequence of COVID-19 related impacts on global zircon consumption, Iluka adjusted its production settings to withdraw approximately 10% of global supply from the market in 2020. The more balanced supply/demand settings led to relatively stable zircon prices across the year. Iluka’s titanium dioxide feedstocks are largely contracted on take or pay terms with the aim of safeguarding shareholder returns on significant capital investments (particularly the Cataby development). Iluka has taken appropriate steps, negotiation followed by the commencement of litigation under Iluka’s long term contract with Chemours, to defend those returns. OVERALL EIP SCORECARD OUTCOME FOR THE MD Scorecard measure Weight Outcome Group Scorecard Individual Strategy MD Outcome OVERALL MD RESULT 75% 25% 12% 144% Weighted Outcome 9% 36% 45% Threshold – Target - Stretch The Individual strategy scorecard area outcomes for other Executive KMP ranged from 100 – 143% of target. 74 Iluka Resources Limited, Annual Report 2020 12 DIRECTORS’ REPORT For the year ended 31 December 2020 EIP AWARDS FROM 2020 SCORECARD OUTCOMES The following table presents the outcomes of the EIP award attributed to the 2020 performance year. The face value of restricted rights and performance rights has been presented, as the fair value will not be determined until the grant is made in March 2021. Executive KMP Maximum EIP opportunity % of target EIP earned % of maximum EIP earned Cash Restricted Rights Performance Rights Total T O’Leary A Stratton M Blackwell S Tilka1 $2,940,000 $1,039,500 $1,080,750 $677,582 Former Executives C Barbier2 J Andrews2, 3 $788,033 $475,885 45 45 43 43 34 39 30 30 29 29 23 26 $0 $0 $0 $0 $529,200 $186,071 $185,889 $118,796 $352,800 $124,047 $123,926 $74,315 $882,000 $310,118 $309,815 $193,111 $0 $123,730 $107,173 $0 $71,448 $0 $178,621 $123,730 1S Tilka’s maximum EIP opportunity and outcome reflects the change to a KMP role part way through the year. 2Represents the period that C Barbier and J Andrews were members of KMP. 3Under the demerger arrangements as set out in the demerger scheme booklet, the Board determined to deliver J Andrews’ 2020 pro-rata EIP award in cash. SUMMARY OF REALISED REMUNERATION PAID TO EXECUTIVE KMP IN 2020 This section uses non-IFRS information to explain the “realised remuneration” received by Executive KMP for 2020. This is a voluntary disclosure intended to demonstrate the link between the remuneration received by Executive KMP and the performance of Iluka over 2020 (in the case of Fixed Remuneration and EIP Restricted Rights) and over the period since the award of the LTIPs (from 2016 & 2017 for Mr O’Leary and from 2017 for other Executive KMP). Executive KMP Fixed Remuneration $1,400,000 $630,000 $655,000 $100,000 T O’Leary A Stratton M Blackwell S Tilka3 Former Executives C Barbier4 J Andrews5 Other $12,463 $12,463 $12,463 $0 EIP Cash Restricted Rights $0 $0 $0 $0 $529,200 $186,071 $185,889 $118,796 LTIP vesting Performance Rights1,2 $2,338,990 $51,388 $296,950 $77,082 Total $4,280,653 $879,922 $1,150,302 $295,878 $479,167 $485,719 $21,877 $59,448 $0 $123,730 $107,173 $0 $84,039 $0 $679,665 $668,897 1 The estimated value of the 2016 Managing Director LTIP and 2017 LTIP awards (both of which reached the end of their performance periods in 2020; see below under Legacy Arrangements) was calculated using the closing share price of $6.49 at 31 December 2020. The actual value will be calculated using the closing price at the date of vesting (1 March 2021). 2 The estimated value of the LTIP vesting for Executive KMP other than T O’Leary, relates to the 2017 LTIP award only (which reached the end of its performance period in 2020) and was calculated using the closing share price of $6.49 at 31 December 2020. The actual value will be calculated using the closing price at the date of vesting (1 March 2021). 3 Represents the period that S Tilka was a member of KMP. 4 Represents the period that C Barbier was a member of KMP. 5 Represents the period that J Andrews was a member of KMP. “Fixed Remuneration (FR)” includes base salary and superannuation earned in 2020. “Other” payments include non-monetary benefits received in 2020, including car parking, relocation benefits, 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 right award receivable by executive KMP in respect of performance in 2020 (awarded in March 2021 following the release of the 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” reflects previous awards of shares as a consequence of rights from prior years which reached the end of their performance period in 2020 and vested in 2021. It does not include awards which may vest in future years subject to performance conditions. Iluka Resources Limited, Annual Report 2020 13 75 DIRECTORS’ REPORT For the year ended 31 December 2020 LEGACY ARRANGEMENTS MANAGING DIRECTOR 2016 LTIP OUTCOME At the time of appointment the Managing Director received a 2016 Performance Rights LTIP initial grant. The Board determined the performance period would commence on appointment (rather than the start of the 2016 year) and would be tested over an extended period of 4 years and 3 months. Performance was measured against both ROE and relative TSR performance targets as detailed in the table below. For all other Executives the performance period for the 2016 LTIP concluded on 31 December 2019 and was reported in the 2019 Remuneration Report. Performance Measure/ Weighting ROE (50%) Relative TSR (50%) (S&P/ASX 200 Materials Index) Performance Target Actual Performance Vesting outcome 50% vesting at Threshold of 10% with full vesting at target of 14% over performance period Did not reach threshold 0% 50% vesting at 50th percentile and full vesting for 75th percentile 60.7 percentile rank (58.64% TSR) 71.43% Based on the results of testing, the Board determined that 35.72% (164,807 Rights) of the award would vest. 2017 LTIP OUTCOME – APPLICABLE TO ALL EXECUTIVE KMP In making the 2017 Performance Rights LTIP grant, the Board wanted to ensure ongoing alignment of the whole the Executive team and set this award consistently with a 4 year performance period commencing on 1 January 2017, including the Managing Director. The performance period ended on 31 December 2020. Performance was measured against both ROE and relative TSR performance targets as detail in the table below. Performance Measure/ Weighting ROE (50%) Relative TSR (50%) (S&P/ASX 200 Materials Index) Performance Target Actual Performance Vesting outcome 50% vesting at Threshold of 10% with full vesting at target of 14% over performance period Did not reach threshold 0% 50% vesting at 50th percentile and full vesting for 75th percentile 68.6 percentile rank (71.55% TSR) 87.14% Based on the results of testing, the Board determined that 43.57%1 of the award would vest. 1In the case of the Managing Director, this gave rise to 195,592 Rights. 76 Iluka Resources Limited, Annual Report 2020 14 DIRECTORS’ REPORT For the year ended 31 December 2020 5. REMUNERATION GOVERNANCE We have established a governance framework around remuneration, to ensure that decisions around remuneration of our executive and employees reflects our remuneration principles. REMUNERATION GOVERNANCE FRAMEWORK BOARD Delegation and oversight of remuneration decisions to People and Performance Committee (PPC) WITH ADVICE FROM: PPC Reports on, and recommends people and remuneration strategy, frameworks and outcomes to the Board to support the company’s purpose to deliver sustainable value. Operating in accordance with a Charter as approved by the Board, responsibilities include: • Overall remuneration strategy of the company; • • • • Incentive plan offers and outcomes including all equity offers to employees; Succession planning for key roles; Performance and remuneration for the Managing Director and Executives, and remuneration of non- executive; and Diversity strategy, policies and practices of the company. BASED ON: MANAGEMENT Propose appointments, succession plans, policies, remuneration structures and remuneration outcomes for the PPC for review and recommendation to the Board. INDEPENDENT EXTERNAL ADVISORS Engaged by the company to provide information on remuneration related issues including current market practice, remuneration benchmarking and market data. REMUNERATION PRINCIPLES Aligned with Iluka’s People Policy and form the basis of Iluka’s remuneration framework (See section 2 for detail on principles). EXTERNAL ADVICE PROVIDED TO PPC External remuneration consultants were engaged by the PPC in 2020 to provide advice and market insights in relation to executive remuneration arrangements. The remuneration consultants did not provide a ‘Remuneration Recommendation’ as defined in the Corporations Act 2011 during the 2020 financial year. EIP GOVERNANCE FRAMEWORK AND MECHANISMS The structure of the EIP provides different ways to allow the PPC and the Board the flexibility to ensure remuneration outcomes reflect the performance of Iluka and each individual. Cessation of employment Unless the Board determines otherwise, in the event of an Executive KMP ceasing employment for: Resignation or termination for cause: all restricted shares and unvested performance rights and restricted rights will be forfeited or lapse (as applicable). Any other circumstances (including death, total and permanent disability, retirement or redundancy): unvested restricted shares, restricted rights, and performance rights will remain on foot and be subject to the original terms of the award. Clawback & Malus The Board has power to clawback incentives that have vested and that have been paid or awarded to participants in certain circumstances. For example, restricted shares, restricted rights 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. Change of control Board discretion to determine that vesting of some or all of the performance rights and restricted rights be accelerated and that dealing restrictions on restricted shares be released, in the event of a takeover or other transaction that in the Board’s opinion should be treated as a change of control event. Iluka Resources Limited, Annual Report 2020 15 77 DIRECTORS’ REPORT For the year ended 31 December 2020 Board discretion Where the Board exercises its discretion under the EIP, the Board will consider all relevant factors at the time, which may include the participant's performance against the performance targets and the proportion of the performance or deferral period that has elapsed. MINIMUM SHAREHOLDING REQUIREMENT Executive KMP Executive KMP are required to acquire and hold a personally significant shareholding in Iluka to align executives to the interests of shareholders. Through shareholding, executives are exposed to the experience of shareholders (e.g. share price appreciation and dividends). Executive KMP are required to build the shareholding over a reasonable time frame taking into account vesting and taxation obligations. As at 31 December 2020, 2 members of Executive KMP have met the minimum shareholding requirement (see below at Section 7). No adjustment has been made to the minimum shareholding requirement as a result of the demerger of Deterra Royalties. It is anticipated that Executive KMP will require additional time to meet the requirements. MSR requirement Managing Director Other KMP % of FR (year-end) 200% 100% Non- executive directors The Board is committed to non-executive directors acquiring and holding a shareholding within three years of appointment. In December 2020 the Board approved an increase to the number of shares required to be held by the Chairman and other NEDs, reflecting the lower share price following the demerger of Deterra Royalties. As a result of this change as at 31 December 2020 no Board members meet the minimum shareholding requirement. MSR requirement Chairman Other NEDs No of shares 55,000 (increased from 30,000) 22,000 (increased from 12,000) See Section 7 for details of current KMP and NED shareholdings SECURITIES TRADING POLICY Security Trading Policy Directors and employees (including Executive KMP) are prohibited from trading in financial products issued or created over the company’s securities created by third parties, and from trading in associated products and entering into transactions which operate to limit the economic risk of their security holdings in the company. The Security Trading Policy is available on the company’s website at www.iluka.com. 78 Iluka Resources Limited, Annual Report 2020 16 DIRECTORS’ REPORT For the year ended 31 December 2020 EXECUTIVE EMPLOYMENT AGREEMENTS Iluka’s Executive KMP are employed on terms set out in individual employment agreements which do not contain a fixed term. Key terms of the agreements are as follows: Executive KMP T O'Leary Managing Director A Stratton Chief Financial Officer and Head of Development M Blackwell Head of Projects and Sales and Marketing S Tilka General Manager, Australian operations Former Executives J Andrews Head of Strategy, Planning and Business Development C Barbier Head of Marketing Termination Notice Period by Iluka or Employee 6 months 6 months 3 months 3 months 3 months 3 months If the executive’s employment is terminated by Iluka (other than for gross misconduct or on other grounds for summary dismissal), the executive may be eligible to receive a termination payment to a maximum of 6 months TFR (inclusive of any payment made 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. Iluka Resources Limited, Annual Report 2020 17 79 DIRECTORS’ REPORT For the year ended 31 December 2020 6. NON-EXECUTIVE DIRECTOR FEES Non-executive director fees are paid from an aggregate fee pool of $1.8 million as approved by shareholders at Iluka’s AGM in May 2015. The total amount paid to non-executive directors in 2020 (including superannuation) was $1,217,559. There were no increases to the non-executive directors’ fees in 2020. 2020 NON-EXECUTIVE DIRECTOR FEE POLICY Board and Committee Fees Board Audit and Risk Committee People and Performance Committee Nomination Committee Chair Member 2019 $321,400 $ 36,100 $ 30,600 Nil 2020 $321,400 $36,100 $30,600 Nil 2019 $128,800 $ 18,100 $ 15,350 Nil 2020 $128,800 $18,100 $15,350 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. 2020 NON-EXECUTIVE DIRECTOR STATUTORY REMUNERATION DISCLOSURES Outlined below are the fees paid to non-executive directors in 2020, prepared in accordance with the requirements of the Corporations Act 2001 (Cth) and the relevant Australian Accounting Standards. Name Year Current Non-Executive Directors Board, Committee Fees Non- Monetary Benefits Superannuation Statutory Total G Martin M Bastos R Cole S Corlett J Ranck L Saint 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Former Non-Executive Directors J Seabrook1 Total fees 2020 2019 2020 2019 $321,400 $321,400 $146,900 $146,900 $144,150 $144,150 $146,900 $85,692 $159,400 $172,975 $159,923 $27,677 $45,597 $176,412 $1,124,270 $1,075,206 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $21,348 $20,767 $13,956 $13,956 $13,694 $13,694 $13,956 $8,141 $15,143 $16,433 $15,193 $2,629 $0 $16,759 $93,289 $92,379 $342,748 $342,167 $160,856 $160,856 $157,844 $157,844 $160,856 $93,833 $174,543 $189,408 $175,115 $30,306 $45,597 $193,171 $1,217,559 $1,167,585 1 J Seabrook retired effective 9 April 2020. 80 Iluka Resources Limited, Annual Report 2020 18 DIRECTORS’ REPORT For the year ended 31 December 2020 7. STATUTORY 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. EXECUTIVE KMP STATUTORY REMUNERATION DISCLOSURES Name Year FR1 EIP Cash2 Current Executives T O’Leary A Stratton M Blackwell S Tilka7 2020 2019 2020 2019 2020 2019 2020 2019 Former Executives C Barbier8 J Andrews9 Total10 2020 2019 2020 2019 2020 2019 $1,400,000 $1,400,000 $630,000 $612,708 $655,000 $655,000 $100,000 N/A $479,167 $312,569 $485,719 $553,125 $3,749,886 $3,533,402 N/A $179,031 $0 $82,164 $0 $83,971 $0 N/A $0 $39,399 $123,730 $74,671 $123,730 $459,236 Non- Monetary Benefits3 $12,463 $11,499 $12,463 $11,499 $12,463 $11,499 $0 N/A $21,877 $67,217 $10,362 $11,499 $69,628 $113,213 Termination Benefits4 Share Based Payments5,6 Statutory Total $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $49,086 $0 $49,086 $0 ($73,871) $1,590,547 $249,891 $258,970 $180,114 $465,032 $180,871 N/A $131,041 $185,194 ($78,418) $204,440 $589,628 $2,704,183 $1,338,592 $3,181,077 $892,354 $965,341 $847,577 $1,215,502 $280,871 NA $632,085 $604,379 $590,479 $843,735 $4,581,958 $6,810,034 1 Includes base salary and superannuation. 2 No cash payments made in relation to 2020, except for J Andrews (See footnote 9). 3 Represents car parking for KMP and car parking and immigration support for Christian Barbier 4 Includes cessation entitlements relating to payment in lieu of notice and accrued leave entitlements. 5 Amounts relate to the fair value of awards made under various incentive plans attributable to the year measured in accordance with AASB 2 Share Based Payments. The 2020 share based payments expense has been impacted as a result of the non-market ROE performance conditions not being met for the 2016 and 2017 grants. Amounts previously recognised in relation to these awards have been reversed in 2020, reducing the expense. 6Additional rights were granted in the year in relation to the 2016 & 2017 LTIP and 2018 & 2019 EIP schemes due to the impact on the awards from the demerger of Deterra. The granting of these additional rights to compensate for the demerger, led to the awards having the same or lower fair value as the rights held just before the demerger and therefore no additional expense is recognised. 7 S Tilka became a KMP on 27 October 2020. Remuneration disclosures reflect the period he was a KMP. 8 C Barbier ceased to be KMP on 30 October 2020. Remuneration disclosures for 2020 reflect the period he was KMP. 9 J Andrews ceased to be a KMP on 30 October 2020. Remuneration disclosures for 2020 reflect the period he was a KMP. 2018 Performance Rights were cancelled and 2019 EIP Restricted and Performance Rights grants were not granted to him. The amounts previously recognised have been reversed in 2020, reducing the expense. 10 The total for 2019 disclosed in this report is different to the total disclosed in 2019 Annual Report. The difference is due to S Hay's and S Wickham's remuneration figures being excluded in this report as they are no longer employees of Iluka. Iluka Resources Limited, Annual Report 2020 19 81 DIRECTORS’ REPORT For the year ended 31 December 2020 KMP SHARE–BASED COMPENSATION EIP AND STIP RESTRICTED SHARES AND RESTRICTED SHARE RIGHTS Name 2017 STIP1 2018 EIP1 2019 EIP1 2020 EIP2 2019 EIP Additional Rights3 % of maximum opportunity awarded4 (restricted shares) (restricted shares) (restricted rights) (restricted rights) (restricted rights) 2017 2018 2019 2020 T O’Leary A Stratton M Blackwell S Tilka5 Former Executives C Barbier5 J Andrews5 36,273 - 16,635 - - - 119,991 33,348 38,646 - - 28,998 67,563 21,018 21,480 - 13,878 18,868 81,541 28,670 28,642 18,304 16,513 - 55,484 17,261 17,640 6,926 11,397 - 61 - 60 - - - 77 77 78 - - 77 43 44 43 - 41 45 30 30 29 29 23 Nil The terms and conditions of previous years’ incentive awards are outlined in the relevant year’s Remuneration Report, available at www.iluka.com.’ 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. 2019 EIP awards were made in March 2020). 2 Represents the estimated number of restricted rights to be awarded under the 2020 EIP additional awards calculated using the closing share price of $6.49 at 31 December 2020. 3 Relates to additional rights allocations in connection with the demerger of Deterra Royalties. See section 8. 4 The percentage achieved of the EIP or STIP maximum incentive opportunity awarded for the financial year. 5 Disclosures reflect period individuals were members of the KMP. PERFORMANCE RIGHTS Number of share rights Value of share rights Value of rights vested / exercised into shares in 20206 $ $384,743 $0 $0 $0 $0 $0 $243,113 $83,678 $85,521 $0 $10,378 $0 Balance at 1 January 2020/KMP start date1 739,047 40,406 152,154 32,925 Granted during 20202 551,118 54,301 97,106 27,040 Name T O’Leary A Stratton M Blackwell S Tilka Former Executives Vested / exercised into shares in 2020 Lapsed during 20203 Balance at 31 December 2020/ KMP end date4 Granted in 20205 $ (46,579) - - - (116,452) (7,014) (67,358) - 1,127,134 87,693 181,902 59,965 C Barbier J Andrews 46,463 20,360 10,378 - - - (17,953) (20,360) 38,888 - 1Balance at KMP commencement date of 27 October 2020 for S Tilka. 2Share rights granted in respect of the 2019 EIP, which form part of the share based payments for 2019 to 2022 inclusive. Additional share rights were also granted in relation to Performance Rights awarded for the 2016 Managing Director LTIP, 2017 LTIP, 2018 EIP and 2019 EIP as a result of the Demerger. This was to ensure that the value of the holdings were kept 'whole'. 3Share rights which lapsed during 2020 relate to the 2016 LTIP award and MD LTDR (Tranche 3) and 2018 share rights lapsed and 2019 EIP entitlements not awarded to Julian Andrews on his departure. 4Balance at KMP end date for C Barbier. 5Value at point of grant. 6Value at point of vest. 82 Iluka Resources Limited, Annual Report 2020 20 DIRECTORS’ REPORT For the year ended 31 December 2020 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. FAIR VALUE OF EQUITY GRANTS Incentive Plan Grant Date Fair Value per Share or Right at Grant Date1 $ 2016 LTIP (MD grant) October 2016 3.71/5.42 March 2017 7.44/5.66 March 2018 10.55 Vesting Year Expiry year2 2021 2021 2020 2026 2027 2019,2020 March 2019 5.67/9.35 2020, 2021, 2022 2020,2021,2022 March 2020 6.83/9.19 2021, 2022, 2023 2021,2022,2023 March 2021 6.49 2022, 2023, 2024, 2025 2025 20173 LTIP 2017 STIP 2018 EIP4 2019 EIP5 2020 EIP6 1The fair value is calculated in accordance with the measurement criteria of Accounting Standard AASB 2 Share Based Payments. 2Rights granted under the LTIP 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 Represents the fair value of ROE and TSR tranches of 2017 LTIP. 4 Represents the 5 day WAP to the date of grant of restricted shares, and fair value of performance rights awarded under the 2018 EIP for which the performance period concluded on 31 December 2018. 5Represents the 5 day WAP to the date of grant of restricted shares, and fair value of performance rights to be awarded under the 2019 EIP for which the performance period concluded on 31 December 2019 . 6Represents the estimated fair value of restricted rights and performance rights to be awarded under the 2020 EIP for which the performance period concluded on 31 December 2020, calculated using the closing share price of $6.49 at 31 December 2020. The actual value will be calculated as the VWAP of ordinary shares over the five trading days following the release of the company’s 2020 annual results. Iluka Resources Limited, Annual Report 2020 21 83 DIRECTORS’ REPORT For the year ended 31 December 2020 SHAREHOLDINGS OF EXECUTIVE KMP AND THEIR RELATED PARTIES Name Balance held at 1 January 2020/ KMP start date1,2 T O’Leary A Stratton M Blackwell S Tilka5 Former Executives C Barbier6 J Andrews 299,459 49,025 82,437 68,220 31,377 33,738 Number of shares Vesting/ exercise of share rights pursuant to LTDR and LTIP 46,579 - - - - - Awarded as Restricted Shares pursuant to EIP 123,047 38,279 39,120 6,926 13,878 N/A Other changes3 - (5,765) (35,314) - - N/A Balance held at 31 December 2020/KMP end date 469,085 81,539 86,243 75,146 45,255 33,738 Minimum shareholding met? 4 Yes No No Yes N/A N/A 1 J Andrews ceased to be a member of KMP on 30 October 2020. The closing balance reflects the period he was a KMP. 2 Includes shares held directly or through a nominee or agent (e.g. family trust). 3 Other changes may include changes due to personal trades and forfeited shares. 4 As at 31 December with share price of $6.49. 5 S Tilka became a KMP on 27 October 2020. The opening balance reflects the balance on the date he became a KMP and includes 10,893 restricted shares granted to Mr Tilka in March 2018 as his 2018 Restricted Share Plan award (which will be released to him in March 2021) and 12,718 restricted shares granted to Mr Tilka in March 2019 as his 2019 Restricted Share Plan award (which will be released to him in March 2022). 6 C Barbier ceased to be a member of KMP on 30 October 2020. The closing balance reflects the period he was a KMP. SHAREHOLDINGS OF NON-EXECUTIVE DIRECTORS AND THEIR RELATED PARTIES Name Balance held at 1 January 2020 30,000 14,379 12,000 5,588 12,762 - 20,540 G Martin3 M Bastos3 R Cole3 S Corlett J Ranck L Saint Former Non-Executive Directors J Seabrook4 Number of shares1 Net movement Balance held at 31 December 2020 Minimum shareholding met? 2 - 165 - 4,405 147 3,500 236 30,000 14,544 12,000 9,993 12,909 3,500 20,776 No No No No No No N/A 1 Non-executive directors do not receive share based compensation and movements in their shareholdings reflect on-market trades. 2Minimum shareholding requirements increased in December 2020. 3 Includes shares held indirectly through a nominee or agent (e.g. family trust). 4Reflects final balance as a director. On-market Share Purchases There were no Iluka shares acquired on market in 2020 by the company. Transactions with Key Management Personnel During the financial year there were no product or services purchases by KMP from the Group (2019: nil) and there are no amounts payable at 31 December 2020 (2019: nil). There have been no loans to KMP during the financial year (2019: nil). 84 Iluka Resources Limited, Annual Report 2020 22 DIRECTORS’ REPORT For the year ended 31 December 2020 8. IMPACT OF THE DEMERGER OF DETERRA ROYALTIES ON EXECUTIVE KMP INCENTIVES As outlined above, during 2020, Iluka undertook a demerger of Deterra Royalties by way of an in specie dividend and capital return to existing Iluka shareholders. This transaction impacted on Iluka incentive awards on foot at the time of demerger, including those held by Executive KMP. In general, Iluka participants holding restricted share awards under the EIP and legacy Iluka plans were able to participate in the demerger and received Deterra Royalties shares in line with other Iluka shareholders. For members of Iluka’s Executive Team (including the Executive KMP), a holding lock was applied to these Deterra Royalties shares to align vesting with vesting of the underlying Iluka restricted share award. Restricted rights and performance rights under the EIP and legacy Iluka plans were not able to participate in the demerger and, as a result of the transaction, the value of Iluka shares underlying each restricted right or performance right was reduced. To address the reduction in value, the Board determined that additional allocations of rights (‘additional rights’) would need to be made, in order to preserve the overall value of the incentives following the demerger, and to ensure that participants were no better or worse off as a result of the demerger. A summary of the additional rights granted to Executive KMP during 2020 is outlined below. Detailed information on the treatment of Iluka incentive awards on demerger of Deterra Royalties is set out in section 4 of the demerger scheme booklet. The demerger scheme booklet and other details relating to the demerger are available in Iluka’s demerger suite: https://iluka.com/deterra-royalties/demerger-suite. Additional rights allocations The additional rights were granted in December 2020 on substantially the same terms and conditions as the original awards. The terms and conditions of the original awards are set out in the relevant Remuneration Reports1. The calculation method used to determine the number of additional rights to be granted, (round down to the nearest whole right) was as follows: No. of Restricted/Performance Rights under the Award held before the Demerger ( X Iluka 5-day post- Demerger VWAP + Iluka 5-day post-Demerger VWAP Deterra 5-day post- Demerger VWAP ) – No. of Restricted/Performance Rights under the Award held before the Demerger 1The terms and conditions of the relevant plans are set out as follows: • • • • Managing Director 2016 LTIP: 2016 Remuneration Report; 2017 LTIP: 2017 Remuneration report; 2018 EIP: 2018 Remuneration report; and 2019 EIP: 2019 Remuneration Report. Iluka Resources Limited, Annual Report 2020 23 85 DIRECTORS’ REPORT For the year ended 31 December 2020 SUMMARY OF TOP UP ALLOCATIONS The table below sets out additional top up rights granted to Executive KMP in 2020 in relation to their existing awards. Name Plan Current Executives T O’Leary A Stratton M Blackwell S Tilka Former Executives C Barbier 2016 LTIP 2017 LTIP 2018 EIP 2019 EIP 2017 LTIP 2018 EIP 2019 EIP 2017 LTIP 2018 EIP 2019 EIP 2017 LTIP 2018 EIP 2019 EIP 2017 LTIP 2018 EIP 2019 EIP Number of original rights Number of additional rights Restricted Rights Performance Rights Restricted Rights1 Performance Rights1 253,375 246,493 76,148 42,877 9,978 23,414 14,758 57,662 27,134 15,083 14,966 10,898 7,061 16,318 12,192 10,378 67,563 21,018 21,480 8,433 13,878 208,074 202,422 62,534 35,211 8,195 19,228 12,120 47,353 22,283 12,387 12,291 8,950 5,799 13,401 10,013 8,523 55,484 17,261 17,640 6,926 11,397 The original value of the Share rights immediately prior to the demerger was $9,613,959. Following the allocation of the additional rights, the total value of the Share rights, inclusive of the additional allocations was $9,214,4002. 1It was determined that as the granting of these additional rights to compensate for the demerger led to the awards having the same or lower fair value as the rights held just before the demerger, no additional expense was to be recognised. The maximum value of an additional right is the face value of an Iluka share at the time of vesting and the minimum value is nil. 2The value of the share rights prior to demerger was determined by using Iluka’s closing share price of $9.90 immediately prior to separation. The value of the share rights inclusive of additional allocation was determined using Iluka 5 day VWAP of $5.21 immediately following separation. DEPARTING KMP REPLACEMENT AWARDS Julian Andrews transferred to and was appointed as Managing Director and CEO of the newly demerged Deterra Royalties, effective 2 November 2020. As a result of his appointment, and to create immediate alignment with the new entity, a number of Mr Andrews’ existing Iluka awards/entitlements were cancelled or not granted to him. Instead, Deterra Royalties will provide Mr Andrews’ with alternative incentive award arrangements following demerger. These awards will be outlined in Deterra Royalties’ first Remuneration Report to be released later in 2021. The table below sets out Mr Andrews’ Iluka awards which were impacted as a result of his appointment to Deterra Royalties. Plan Number of Restricted rights J Andrews 2018 EIP award (lapsed) 2019 EIP award (not granted) N/A 19,103 Number of performance rights 20,360 13,413 86 Iluka Resources Limited, Annual Report 2020 24 AUDITOR'S INDEPENDENCE DECLARATION For the year ended 31 December 2020 Iluka Resources Limited, Annual Report 2020 87 ILUKA RESOURCES LIMITED ABN 34 008 675 018 FINANCIAL REPORT ILUKA RESOURCES LIMITED ABN 34 008 675 018 FINANCIAL REPORT - 31 DECEMBER 2020 31 December 2020 Financial statements Consolidated statement of profit or loss Consolidated statement of comprehensive income Consolidated balance sheet Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the financial statements Directors' declaration Independent auditor's report to the members 89 90 91 92 93 94 145 146 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. 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 17 240 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. The financial statements were authorised for issue by the directors on 25 February 2021. The directors have the power to amend and reissue the financial statements. Through the use of the internet, we have ensured that our corporate reporting is timely and complete. All ASX releases, financial reports and other relevant information are available at www.iluka.com. 88 88 Iluka Resources Limited, Annual Report 2020 ILUKA RESOURCES LIMITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2020 For the year ended 31 December 2020 CONTINUING OPERATIONS Revenue Other income Expenses Write-down of Sierra Rutile Limited Equity accounted share of profit - Deterra Interest and finance charges Rehabilitation and mine closure provision discount unwind Total finance costs +0.1 DR Profit/(loss) before income tax Income tax expense Profit/(loss) after income tax from continuing operations DISCONTINUED OPERATIONS Profit after tax from discontinued operations Profit/(loss) for the period, attributable to: Equity holders of Iluka Resources Limited Non-controlling interest Earnings/(loss) per share from continuing operations attributable to the ordinary equity holders of the parent Basic earnings per share Diluted earnings per share Earnings/(loss) per share attributable to ordinary equity holders of the parent Basic profit/(loss) per share Diluted profit/(loss) per share Notes 2020 $m 2019 $m - - - 5 6 7 8 23 16 12 23 24 20 20 20 20 990.6 1,232.9 - 21.2 (799.3) - 0.1 (7.7) (26.6) (34.3) 2.4 (853.7) (414.3) - (15.0) (38.0) (53.0) - (0.1) 178.3 (85.7) (74.8) - 103.5 (273.3) (359.0) 2,306.5 - 2,410.0 2,411.9 (1.9) - - - Cents 59.3 - (299.7) (279.9) (19.8) - - Cents 24.5 24.4 (85.0) (85.0) 570.4 568.0 (71.0) (71.0) The above consolidated statement of profit or loss should be read in conjunction with the accompanying notes. 89 Iluka Resources Limited, Annual Report 2020 89 ILUKA RESOURCES LIMITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2020 For the year ended 31 December 2020 Notes 2020 $m 2019 $m Profit/(loss) for the period 2,410.0 (299.7) 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 for the year, net of tax Total comprehensive income/(loss) for the year, attributable to: Equity holders of Iluka Resources Limited Non-controlling interest [] Total comprehensive income/(loss) for the year attributable to the equity holders of the parent arises from: Continuing operations Discontinued operations - - - 18 18 18 23 6.2 - 5.7 (4.2) 7.7 - 2,417.7 2,419.6 (1.9) - 2.7 (2.6) 4.7 (3.9) 0.9 - (298.8) (279.0) (19.8) 113.1 2,306.5 (338.3) 59.3 The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. 90 90 Iluka Resources Limited, Annual Report 2020 CONSOLIDATED BALANCE SHEET ILUKA RESOURCES LIMITED CONSOLIDATED BALANCE SHEET As at 31 December 2020 AS AT 31 DECEMBER 2020 ASSETS Current assets Cash and cash equivalents Receivables Inventories Derivative financial instruments Current tax receivables FY20 -0.1 CR FY20 +0.1 DR Total current assets Non-current assets Investments accounted for using the equity method Derivative financial instruments Property, plant and equipment Deferred tax assets Intangible asset - MAC Royalty (discontinued operation) Inventories Right of use assets Total non-current assets +0.1 DR Total assets LIABILITIES Current liabilities Payables Derivative financial instruments Current tax payable Provisions Lease liabilities Total current liabilities -0.1 CR Non-current liabilities Interest-bearing liabilities Derivative financial instruments Provisions Financial liabilities at fair value through profit or loss Lease liabilities Total non-current liabilities +0.1 DR -0.1 CR Total liabilities Net assets EQUITY Contributed equity Reserves Retained earnings/(accumulated losses) Non-controlling interests Total equity +0.1 DR Notes 2020 $m 2019 $m 16 14 15 22 23 22 10 13 23 15 11 22 9 11 16 22 9 24 11 17 18 18 24 87.1 95.5 504.1 1.9 - (0.1) 0.1 688.6 452.1 0.6 1,066.8 28.4 - 112.0 15.4 1,675.3 2,363.9 129.4 - 29.3 95.0 7.5 261.2 36.9 - 750.5 7.2 15.8 810.4 1,071.6 1,292.3 1,150.5 37.1 104.3 0.4 1,292.3 - - - - - 97.3 196.3 341.1 - 3.3 638.0 - - 1,126.2 22.1 3.5 84.1 20.5 1,256.4 1,894.4 - - 0.1 140.8 3.7 96.1 112.6 9.2 362.4 0.1 54.0 1.6 715.6 28.4 20.8 820.4 (0.1) 0.1 1,182.8 711.6 1,157.6 24.0 (472.0) 2.0 711.6 (0.1) The above consolidated balance sheet should be read in conjunction with the accompanying notes. 91 Iluka Resources Limited, Annual Report 2020 91 ILUKA RESOURCES LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2020 For the year ended 31 December 2020 Attributable to owners of Iluka Resources Limited Share capital $m Other reserves $m Retained earnings $m Total $m NCI¹ $m Total equity $m Notes 18 18 1,154.0 42.6 (86.6) 1,110.0 - 1,110.0 - - - - - 4.8 4.8 0.1 (279.9) (3.9) (283.8) (279.9) 0.9 (279.0) (19.8) - (19.8) (299.7) 0.9 (298.8) (0.1) - - - Balance at 1 January 2019 Profit for the year Other comprehensive income (loss) Total comprehensive income Transfer of asset revaluation reserve Transactions with owners in their capacity as owners: Transfer of shares to employees, net of tax Purchase of treasury shares, net of tax Share-based payments, net of tax Dividends paid Transactions with non-controlling interests 18 18 space Balance at 31 December 2019 8.0 (6.0) - 1.6 - 3.6 (8.0) - 5.9 - (21.4) (23.5) - - - (101.5) - (101.5) - (6.0) 5.9 (99.9) (21.4) (121.4) - - - - 21.8 21.8 - (6.0) 5.9 (99.9) 0.4 (99.6) 1,157.6 24.0 (472.0) 709.6 2.0 711.6 Balance at 1 January 2020 Profit for the year Other comprehensive income (loss) Total comprehensive income Notes 18 18 Transfer of asset revaluation reserve space Transactions with owners in their capacity as owners: Transfer of shares to employees, net of tax Share-based payments, net of tax Dividends paid Transactions with non-controlling interests Return of capital 18 18 24 23 Attributable to owners of Iluka Resources Limited Share capital $m Other reserves $m Retained earnings $m Total $m NCI¹ $m Total equity $m 1,157.6 24.0 (472.0) 709.6 2.0 711.6 - - - - 2,411.9 2,411.9 - 11.9 7.7 (4.2) 11.9 2,407.7 2,419.6 (1.9) 2,410.0 7.7 (1.9) 2,417.7 - (0.5) 0.5 - - - 1.7 - 1.2 - (10.0) (7.1) - - (1.7) 3.7 - (0.3) - - 3.7 (1,831.9) (1,830.7) (0.3) - (10.0) - 1.7 (1,831.9) (1,837.3) - - - 0.3 - - 3.7 (1,830.7) - (10.0) 0.3 (1,837.0) space Balance at 31 December 2020 ¹Non-controlling interest - refer to note 23. 1,150.5 37.1 104.3 1,291.9 0.4 1,292.3 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 92 92 Iluka Resources Limited, Annual Report 2020 ILUKA RESOURCES LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2020 For the year ended 31 December 2020 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 Net cash outflow from investing activities Cash flows from financing activities Repayment of borrowings Proceeds from borrowings Purchase of treasury shares Proceeds from changes in ownership interests Dividends paid Principal element of lease payments Debt refinance costs Net cash outflow from financing activities Net increase/(decrease) in cash and cash equivalents . Cash and cash equivalents at 1 January Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of period Notes 2020 $m 2019 $m 1,043.0 (846.3) 196.7 0.7 (3.2) (164.7) (10.0) 92.2 111.7 (71.2) 5.1 (66.1) (304.5) 295.1 - - (32.6) (9.3) - (51.3) (5.7) 97.3 (4.5) 87.1 1,189.8 (781.7) 408.1 1.2 (6.9) (147.4) (11.3) 78.5 322.2 (197.5) 2.0 (195.5) (324.7) 332.7 (7.4) 28.5 (99.9) (8.2) (2.0) (81.0) 45.7 51.3 0.3 97.3 31 19 16 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 93 Iluka Resources Limited, Annual Report 2020 93 CONTENT OF THE NOTES TO FINANCIAL STATEMENTS ILUKA RESOURCES LIMITED 31 DECEMBER 2020 For the year ended 31 December 2020 CONTENTS OF THE NOTES TO THE FINANCIAL STATEMENTS Page 95 95 95 97 97 97 100 101 101 103 105 107 109 111 113 114 115 116 116 118 119 121 122 123 123 126 128 128 131 132 135 135 136 137 138 139 141 142 143 144 144 Basis of preparation 1. 2. 3. Reporting entity Basis of preparation Critical accounting estimates and judgements Key numbers 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Capital 16. 17. 18. 19. 20. Risk 21. 22. Segment information Revenue Other income Expenses Impairment of assets Provisions Property, plant and equipment Leases Income tax Deferred tax Receivables Inventories Net cash and finance costs Contributed equity Reserves and retained earnings Dividends Earnings/(loss) per share Financial risk management Hedging Group structure 23. 24. 25. Demerger of Deterra Changes in ownership interests held in controlled entities Controlled entities and deed of cross guarantee Other notes 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. Contingent liabilities Commitments Remuneration of auditors Share-based payments Post-employment benefit obligations Reconciliation of profit/(loss) after income tax to net cash inflow from operating activities Key Management Personnel Parent entity financial information Related party transactions New and amended standards 94 94 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 Iluka Resources Limited and its subsidiaries together are referred to in this financial report as the Group. The notes include information which is required to understand the financial statements and is material and relevant to the operations and the financial position and performance of the Iluka Group. Information is 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 25. 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 Group previously held a royalty business, with a cornerstone asset over BHP’s Mining Area C in Western Australia. Details of the demerger and its impact on the financial statements are contained in note 23. 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 their related impacts on the financial statements (if any), are detailed in note 35. (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 2020 and the results of all subsidiaries for the year then ended. A list of controlled entities (subsidiaries) at year-end is contained in note 25. 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. 95 Iluka Resources Limited, Annual Report 2020 95 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 The Group accounts for business combinations using the acquisition method when control is transferred to the Group. Cost is measured as the fair value of the assets given, shares issued, or liabilities incurred or assumed at the date of exchange. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. (ii) Associates Associates are all entities over which the Group has significant influence but not control or joint control. This is generally the case where the Group holds between 20% 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. During the year, Deterra became an associate of the Group. The accounting implications are detailed in note 23. The carrying amount of equity-accounted investments is tested for impairment in accordance with the policy described in note 8. (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. 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) Government grants The Group received $13.6 million in government grant income during the reporting period under the Australian Government's Jobkeeper Payment scheme. The scheme was a response by the Australian Government to assist businesses impacted by the economic effects of COVID-19. It subsidised employee costs of eligible nominated employees, provided the employer met certain eligibility criteria and elected to participate in the scheme. Iluka was eligible following a significant decline in zircon demand and associated revenue in Q1. Given the company's subsequent financial performance, Iluka has voluntarily decided to return amounts received under the scheme. The income statement reflects no amounts associated with Jobkeeper. The balance sheet reflects cash of $13.6 million, and an associated payable of $13.6 million in respect of Jobkeeper. 96 96 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 (d) Rounding of amounts ILUKA RESOURCES LIMITED 31 DECEMBER 2020 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 of amounts in the financial statements. In accordance with that Rounding Instrument, amounts in the financial statements have been rounded to the nearest hundred thousand dollars, or in certain cases, the nearest thousand dollars or nearest dollar. 3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The Group makes estimates and assumptions concerning the future in applying its accounting policies. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are 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 Net realisable value and classification of product inventory Determining the fair value of Deterra KEY NUMBERS 4 SEGMENT INFORMATION (a) Description of segments Note 7 8 11 14 23 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. The operating segments of the Group are: Jacinth-Ambrosia/Mid West (JA/MW) comprises the mining operations at Jacinth-Ambrosia located in South Australia, and associated processing operations at the Narngulu mineral separation plant in mid-west Western Australia. Cataby/South West (C/SW) comprises mining activities at Cataby and processing of ilmenite at Synthetic Rutile Kiln 2, both located in Western Australia. Sierra Rutile (SRL) comprises the integrated mineral sands mining and processing operations in Sierra Leone. Mining Area C (MAC) comprised a deferred consideration iron ore royalty interest over certain mining tenements in Australia operated by BHP Group, which was demerged from the Group as outlined in note 23. The results of the MAC operating segment have been reclassified in the current and prior reporting period as a discontinued operation (refer to note 23). United States/Murray Basin (US/MB) comprises rehabilitation obligations in the United States (Florida and Virginia), where mining and processing activities were substantially completed in December 2015, although sale of remnant product remains an activity; and certain idle assets located in Australia (Murray Basin). 97 Iluka Resources Limited, Annual Report 2020 97 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 Cash, debt and tax balances are managed at a group level, together with exploration and other corporate activities, and are not allocated to segments. 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. No such transfers took place between segments during the year ended 31 December 2020 (2019: $nil). (b) Segment information 2020 JA/MW $m C/SW $m SRL $m MAC² $m US/MB $m Total $m Total segment sales of mineral sands Total segment freight revenue Depreciation and amortisation expense Changes in rehabilitation for closed sites Total segment result¹ Segment assets Segment liabilities Additions to non-current segment assets 389.0 20.6 (36.2) 1.7 242.0 609.6 270.2 44.6 300.4 8.5 (72.3) 0.2 116.8 860.2 284.8 80.0 223.1 7.8 (72.2) 4.0 (51.2) 138.7 139.2 20.9 - - - - - - - - 34.5 6.1 (0.4) 2.2 (0.2) 135.7 255.0 0.8 947.0 43.0 (181.1) 8.1 307.4 1,744.2 949.2 146.3 2019 JA/MW $m C/SW $m SRL $m MAC² $m US/MB $m Total $m Total segment sales of mineral sands Total segment freight revenue Write-down of Sierra Rutile Limited Depreciation and amortisation expense Changes in rehabilitation for closed sites Total segment result¹ Segment assets Segment liabilities Additions to non-current segment assets 482.7 19.8 - (28.9) 1.6 316.8 588.4 248.1 78.0 414.2 7.4 - (54.0) (0.1) 160.4 717.2 254.7 113.1 257.6 8.1 (414.3) (74.6) - (430.0) 220.2 169.3 79.9 - - - - - - 23.7 - - 38.6 3.3 - (0.6) (4.7) (14.8) 154.1 304.6 2.0 1,193.1 38.6 (414.3) (158.1) (3.2) 32.4 1,703.6 976.7 273.0 ¹Total segment result includes impairment charges, depreciation and amortisation expenses, and rehabilitation and holding costs for closed sites that are also separately reported above. ²MAC operating segment results have been reclassified as a discontinued operation in the consolidated statement of profit or loss in the current and prior reporting period. Segment assets of $23.7 million comprise MAC royalties receivable of $20.2 million and the carrying amount of the MAC royalty entitlement asset of $3.5 million at 31 December 2019. Refer to notes 14 and 23. 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: 2020 $m 316.7 211.4 341.6 76.7 0.6 947.0 2019 $m 403.1 218.2 398.0 135.6 38.2 1,193.1 China Asia excluding China Europe Americas Other countries Sale of goods 98 98 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 The Group changed the classification of certain revenue included above (together with comparative amounts) to more accurately report its geographical grouping. Revenue of $144.1 million and $90.7 million was derived from two external customers of the mineral sands segments, which individually account for greater than 10% of the total segment revenue (2019: revenues of $187.7 million and $136.9 million from two external customers). Segment result is reconciled to profit/(loss) before income tax as follows: Segment result Interest income Asset sales and other income Marketing and selling Corporate and other costs Major Projects, Engineering and Innovation Depreciation Interest and finance charges Net foreign exchange gains Equity accounted profit - Deterra Gain on remeasurement of Put Option Impairment - Sri Lankan exploration assets Profit/(loss) before income tax from continuing operations 2020 $m 307.4 0.6 (0.2) (11.5) (54.6) (62.3) (3.4) (6.0) 1.2 0.1 19.4 (12.4) 178.3 Total segment assets and total segment liabilities are reconciled to the balance sheet as follows: Segment assets Corporate assets Investment in Deterra Resources Limited 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 1,744.2 50.1 452.1 86.9 - 28.4 2,361.7 949.2 54.0 29.3 36.9 1,069.4 2019 $m 32.4 - 1.8 (11.9) (47.3) (42.2) (4.6) (13.9) - - - - (85.7) 1,703.6 68.1 - 97.3 3.3 22.1 1,894.4 976.7 56.0 96.1 54.0 1,182.8 99 Iluka Resources Limited, Annual Report 2020 99 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 5 REVENUE Continuing operations -0.1 CR Sales revenue Sale of goods Freight revenue Other revenue Interest (a) Sale of mineral sands Notes 2020 $m 2019 $m 5(a) 5(b) 5(c) - 0.1 947.0 43.0 0.6 990.6 1,193.1 38.6 1.2 1,232.9 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. Freight revenue includes $1.5 million relating to contracts in place at the end of the prior year (2019: $2.4 million). Freight revenue of $0.7 million has been deferred at the end of the current year in relation to unfulfilled shipping obligations. (c) Interest income Interest income is recognised in profit or loss as it accrues, using the effective interest method. 100 100 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 (d) Mining Area C royalty income and amortisation of royalty asset - discontinued operation Iluka held a royalty over BHP’s Mining Area C (MAC) iron ore mine, which it demerged in the current reporting period. Amounts previously recognised as revenue have been reclassified to discontinued operations - refer to note 23. 6 OTHER INCOME Other income includes a remeasurement gain of $19.4 million resulting from the revaluation of the put option held by the IFC (refer to note 24), and other sundry income. 7 EXPENSES Expenses Cash costs of production Depreciation and amortisation Inventory movement - cash costs of production Inventory movement - non-cash production costs Cost of goods sold Ilmenite concentrate and by-product costs Depreciation (idle, corporate and other) Restructure and idle capacity charges Rehabilitation costs for closed sites Government royalties Marketing and selling costs, including freight Corporate and other costs Resource development costs Net loss on disposal of property, plant and equipment Impairment - Sri Lankan exploration assets Write-down of Sierra Rutile Limited Impairment recognised against property, plant and equipment Write-down of inventory to net realisable value Notes 7(f) 8 8 2020 $m 537.1 178.9 (142.3) (39.9) 533.8 21.6 5.9 20.9 (7.2) 22.3 70.7 54.6 62.3 2.0 12.4 799.3 - - - 2019 $m 528.7 155.6 (63.4) (15.5) 605.4 10.9 7.6 19.7 3.2 39.4 73.6 48.0 42.2 4.1 - 854.1 375.2 39.1 414.3 (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. (799.3) (1,268.4) 101 Iluka Resources Limited, Annual Report 2020 101 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 (b) Cost of goods sold ILUKA RESOURCES LIMITED 31 DECEMBER 2020 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, monazite treatment, 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. (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 9. (f) Resource development costs These costs relate to activities associated with developing our resources, planning. underground mining technology at Balranald that has been expensed as research and development costs. including exploration and mine Included in the costs is $34.3 million (2019: $6.0 million) relating to work on the innovative (g) Other required disclosures Expenses also include the following: Employee benefits (excluding share-based payments) Share-based payments Exploration expenditure Operating leases Inventory NRV write-downs - finished goods and WIP Inventory NRV write-downs - Sierra Rutile Limited consumables 2020 $m 2019 $m 202.6 4.1 12.8 3.0 13.0 - 194.7 6.2 11.3 4.8 2.7 39.1 (235.5) (258.8) 102 102 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 8 IMPAIRMENT OF ASSETS ILUKA RESOURCES LIMITED 31 DECEMBER 2020 Assets are assessed for the presence of impairment indicators whenever events or changes in circumstances suggest that their carrying amounts may not be recoverable. For the purposes of impairment indicator assessments (and, if required, impairment testing) operating assets are grouped at the lowest levels for which there are separately identifiable cash flows (Cash Generating Units - CGUs). If an impairment indicator is found to be present for a CGU, then the Group estimates its recoverable amount and compares it to its carrying amount. The recoverable amount of each CGU is determined as the higher of value-in-use and fair value less costs of disposal (FVLCD) estimated based on the discounted present value of future cash flows (a level 3 fair value estimation method) and other adjustments. Assets that are not currently in use and not scheduled to be brought back into use (idle assets) are considered on a standalone basis. If necessary, an impairment charge is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. (a) Impairment indicator assessments The Group assessed all CGUs for the presence of impairment indicators at the reporting date, including those which may have arisen due to the global economic impact of the COVID-19 pandemic. Impairment indicators were found to be present in the Cataby/South West and SRL CGUs, largely due to the impact on Cataby of the contractual dispute with Chemours; and potential impact of COVID-19 interruptions and current operational performance at Sierra Rutile, respectively. Impairment indicators were also found to be present in respect of certain Sri Lankan exploration assets due to the expiration of certain exploration licences in that country. Accordingly, the Group performed impairment tests on the Cataby/South West and SRL CGUs, and the Sri Lankan exploration assets - refer to (b), below. The Group did not note any conditions that suggest previously recognised impairments can be reversed. (b) Impairment testing Cataby/South West and SRL CGUs The Cataby/South West CGU has a net asset carrying value of $575.4 million at 31 December 2020 (2019: $462.5 million), including $276.3 million and $251.1 million of working capital and rehabilitation provision liabilities, respectively. The SRL CGU has a net liability carrying value of $0.5 million at 31 December 2020 (2019: net asset carrying value of $50.9 million), including $52.6 million and $99.5 million of working capital and rehabilitation provision liabilities, respectively. The Group estimated the recoverable amounts of the Cataby/South West and SRL CGUs, and determined that in both instances the carrying amount of the CGU exceeds its recoverable amount. Accordingly, no impairment has been recognised in respect of these CGUs in the current reporting period. 103 Iluka Resources Limited, Annual Report 2020 103 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 Key estimate: recoverable amount calculations - Cataby/South West and SRL CGUs In determining the recoverable amount of assets, estimates are made regarding the present value of future cash flows in the absence of quoted market prices. These estimates require significant levels of judgement and are subject to risk and uncertainty that may be beyond the control of the Group, including political risk, climate change risk, and other global uncertainty risks, like the impacts of the COVID-19 pandemic. Given the nature of the Group’s mining activities, changes in assumptions upon which these estimates are based may give rise to material adjustments. This could lead to recognition of new impairment charges in the future, or the reversal of impairment charges already recognised. Where an impairment assessment is needed, the estimates of discounted future cash flows for each CGU used in determining its recoverable amount 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 using external forecasts (2020 long term AUD:USD exchange rate of 0.75, unchanged from 2019 assessment); • 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 (Australian operations: 10%; SRL: 12%, unchanged from 2019 assessment). Sri Lankan exploration assets Following the impairment indicator identified in (a) above, the Group estimated the recoverable amount of its Sri Lankan exploration assets. The carrying amount of $21.2 million was found to exceed the recoverable amount of $8.8 million, and accordingly the exploration assets were written down to their recoverable amount. An impairment of $12.4 million is included in expenses, refer to note 7. (c) Impairment of Sierra Rutile Limited CGU in the prior reporting period The Group recognised a $414.3 million write-down in respect of its Sierra Rutile CGU in the prior reporting period (comprising impairment of $375.2 million for property, plant and equipment, and write-down of $39.1 million for consumables). 104 104 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 9 PROVISIONS Current Rehabilitation and mine closure Employee benefits - long service leave Workers compensation and other provisions FY20 -0.1 CR Non-current Rehabilitation and mine closure Employee benefits - long service leave Retirement benefit obligations -0.1 CR FY20 +0.1 DR ILUKA RESOURCES LIMITED 31 DECEMBER 2020 Notes 9(a) 9(b) 9(c) 9(a) 9(b) 30 2020 $m 77.3 13.0 4.7 95.0 0.1 720.7 3.0 26.8 750.5 - (0.1) 2019 $m 97.7 12.7 2.2 112.6 - 690.8 2.4 22.4 715.6 0.1 - 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 2020 Amounts spent during the year Rehabilitation and mine closure provision discount unwind Change in provision - additions to property, plant and equipment Change in provision - credit for closed sites Rehabilitation discount rate changes - for closed sites Foreign exchange rate movements Balance at 31 December 2020 Notes $m 16(d) 10 7 788.5 (70.3) 14.4 86.6 (8.1) 12.2 (25.3) 798.0 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 and rehabilitating 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 - refer to note 16(d). 105 Iluka Resources Limited, Annual Report 2020 105 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 The total rehabilitation and mine closure provision of $798.0 million (2019: $788.5 million) includes $375.2 million (2019: $450.8 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 reduction in the expected rehabilitation liability and an associated credit to profit or loss of $8.1 million (2019: charge of $3.2 million) which is reported within the expense item Rehabilitation costs for closed sites in note 7. Open site rehabilitation liabilities increased by $86.6 million, mainly associated with an increased mining footprint at Cataby ($45.4 million) due to the progression of mining at this new operation, which commenced mining in April 2019. The move to Ambrosia and subsequent return to Jacinth North has resulted in a larger open area, increasing the rehabilitation liability for the site by $37.2 million to $125.3 million. 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 risk-free discount rates, representing government bond rates for the associated currencies. Rehabilitation and mine closure provisions for Australia have been calculated by discounting risk adjusted cash flows at discount rates of 1.3% (2019: 1.3%). Iluka has re-set the risk free discount rates used in calculating rehabilitation provisions in the US and Sierra Leone to 0.5% and 1.0%, respectively (2019: 2.5% and 2.5%, respectively), due to the continuing decline in applicable US Treasury Bond Rates. The 5- and 10- year US Treasury Bond rates are used as a proxy for risk-free discount rates. This has resulted in an increase of $12.2 million to the provision which is reported within finance costs item ‘Rehabilitation discount rate changes’ in note 16(d), and relates entirely to closed sites. (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. 106 106 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 (c) Workers compensation and other provisions ILUKA RESOURCES LIMITED 31 DECEMBER 2020 The Group commenced an internal efficiency review of its activities during the year, during which it identified a number of changes to employee roles that are required to be made. The Group has recognised a provision for the costs of implementing these changes, including costs that arise from roles being made redundant or being consolidated, which is included in workers compensation and other provisions. 10 PROPERTY, PLANT AND EQUIPMENT At 1 January 2019 Cost Accumulated depreciation¹ Opening written down value Additions Disposals Depreciation and amortisation Exchange differences Impairment of Sierra Rutile Limited Transfers/reclassifications Closing written down value At 31 December 2019 Cost Accumulated depreciation¹ Closing written down value Plant Year ended 31 December 2020 Additions Disposals Depreciation and amortisation Exchange differences Transfers Impairment of assets Closing written down value Plant At 31 December 2020 Cost Accumulated depreciation¹ Closing written down value Plant, machinery & equipment $m Mine reserves & development $m Exploration & evaluation $m Land & buildings $m Total $m 256.4 (80.3) 176.1 10.3 (1.9) (11.4) (0.1) (57.0) 55.6 171.6 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) 1,379.1 109.1 (3.6) (86.1) (2.8) (154.8) (61.9) 458.6 165.0 - (57.3) 0.8 (154.7) (1.8) 478.1 - - - 0.3 (8.7) 8.1 17.9 284.4 (5.5) (154.8) (1.8) (375.2) - 1,126.2 320.5 (148.9) 171.6 2,536.7 (2,078.1) 458.6 1,265.4 (787.3) 478.1 43.6 (25.7) 17.9 4,166.2 (3,040.0) 1,126.2 1.1 (3.7) (19.9) (5.7) 1.2 - 144.6 38.1 (0.2) (87.4) (4.9) (4.8) - 399.4 106.9 - (68.9) (3.1) 3.6 (4.4) 512.2 - (0.1) - 0.8 - (8.0) 10.6 146.1 (4.0) (176.2) (12.9) - (12.4) 1,066.8 301.1 (156.5) 144.6 2,382.1 (1,982.7) 399.4 1,283.6 (771.4) 512.2 42.7 (32.1) 10.6 4,009.5 (2,942.7) 1,066.8 ¹Accumulated depreciation includes cumulative impairment charges. 107 Iluka Resources Limited, Annual Report 2020 107 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 (a) Property, plant and equipment ILUKA RESOURCES LIMITED 31 DECEMBER 2020 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 and rehabilitating the site on which it is located. As set out in note 9, in the case of rehabilitation provisions for assets which remain in use, adjustments to the carrying value of the provision are offset by a change in the carrying value of the related asset. Total additions in the year include $86.6 million (2019: $94.9 million) relating to rehabilitation. (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 Items of property, plant and equipment are depreciated on a straight-line basis over their useful lives. The 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 $26.9 million, $7.9 million and $0.6 million, respectively, relating to assets under construction which are currently not being depreciated as the assets are not ready for use (2019: $33.0 million, $17.7 million and $10.1 million, respectively). In addition, within property, plant and equipment, excluding exploration and land assets, are amounts totalling $62.3 million which have not been depreciated in the year as mining of the related area of interest has not yet commenced (2019: $61.2 million). 108 108 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 (e) Exploration, evaluation and development expenditure ILUKA RESOURCES LIMITED 31 DECEMBER 2020 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 achieves JORC reserve status (reported in accordance with JORC, 2012) and has been included in the life of mine plan. All of the above expenditure is carried forward up to commencement of operations at which time it is amortised in accordance with the reserves and development depreciation policy noted in (c) above. (f) Impairment of PPE Refer to note 8 for details on impairment testing. 11 LEASES (a) Amounts recognised in the statement of financial position Right-of-use assets Buildings Plant, machinery and equipment Lease liabilities Current Non-current 2020 $m 9.2 6.2 15.4 (7.5) (15.8) (23.3) 2019 $m 9.0 11.5 20.5 (9.2) (20.8) (30.0) Additions to the right-of-use assets during the reporting period were $2.6 million (2019: $2.2 million). Right-of-use assets are reflected net of incentives received. The maturity analysis of lease liabilities is included in note 21(d). 109 Iluka Resources Limited, Annual Report 2020 109 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 (b) Amounts recognised in the statement of profit or loss Amortisation charge of right-of-use assets Buildings Plant, machinery and equipment Borrowing costs Expense relating to short term leases, low value leases and leases with variable payments ... Total cash flow for leases ILUKA RESOURCES LIMITED 31 DECEMBER 2020 2020 $m 2019 $m 1.3 7.5 8.8 1.3 1.8 9.3 1.7 6.7 8.4 1.5 2.0 8.2 The group leases various offices, warehouses, equipment and vehicles. Rental contracts are typically made for fixed periods of 6 months to 10 years, but may have extension options as described below. Contracts may contain both lease and non-lease components. The group allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes. Lease liabilities Liabilities arising from a lease are initially measured on a present value basis by discounting the following lease payments to their present value: • fixed payments (including in-substance fixed payments), less any lease incentives receivable • variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the commencement date • amounts expected to be payable by the group under residual value guarantees • the exercise price of a purchase option if the group is reasonably certain to exercise that option, and • payments of penalties for terminating the lease, if the lease term reflects the group exercising that option. Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. The weighted average borrowing rate used for the year was 4.9% (2019: 4.3%). Subsequent to initial recognition, lease liabilities are carried at amortised cost. Payments are allocated between repayment of principal and borrowing costs, which are charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. 110 110 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 Right-of-use assets ILUKA RESOURCES LIMITED 31 DECEMBER 2020 Right-of-use assets are initially recognised at cost, comprising: • The amount of the lease liability • Any lease payments made at or before the commencement date, less any incentives received • Initial direct costs, and • Restoration costs. Subsequently, right-of-use assets are depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. Where the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life. Short term leases, leases of low value assets and leases containing variable payments Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. 12 INCOME TAX 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 Income tax expense is attributable to: Profit from continuing operations Profit from discontinued operation Aggregate income tax expense (b) Reconciliation of income tax expense to prima facie tax payable Profit/(loss) from continuing operations before income tax expense Profit from discontinued operations before income tax expense Tax at the Australian tax rate of 30% (2019: 30%) Notes 13 23 23 2020 $m 98.4 (3.1) 0.2 95.5 74.8 20.7 95.5 178.3 2,327.2 2,505.5 751.7 2019 $m 111.6 188.6 (1.5) 298.7 (324.1) 25.4 (298.7) (85.7) 84.7 (1.0) (0.3) 111 Iluka Resources Limited, Annual Report 2020 111 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 Tax effect of amounts not deductible (taxable) in calculating taxable income: Demerger gain Research and development credit Deferred tax losses not recognised (SRL) Recognition of historical alternative minimum tax (AMT) credits Deferred tax balances derecognised by Sierra Rutile Limited Tax benefit not recognised by Sierra Rutile Limited¹ SRL minimum tax (3.5% of revenue) Non-assessable income Non-deductible expenses Other items Difference in overseas tax rates¹ Under/(over) provision in prior years Income tax expense (680.7) (3.2) 3.0 (4.5) - - 27.0 (8.0) 6.1 4.1 95.5 (0.2) 0.2 95.5 - (1.3) 4.1 (7.2) 161.9 131.4 9.2 - 1.7 (1.3) 298.2 2.0 (1.5) 298.7 (297.7) ¹Sierra Rutile Limited did not recognise a tax benefit associated with the write-down of $414.3 million of assets expensed in the prior year. (2,601.0) No tax benefits have been recognised in respect of exploration activities of overseas operations as their recovery is not currently considered probable. The idling of the US operations at the end of 2015 means that 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$237.1 million at 31 December 2020 (31 December 2019: US$216.3 million). Unused capital losses for which no deferred tax asset has been recognised are approximately $79.4 million (2019: $90.7 million) (tax at the Australian rate of 30%: $23.8 million (2019: $27.2 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. The write-down of Sierra Rutile Limited in the prior year means that the recovery of Sierra Leone tax losses are not considered probable. Unrecognised Sierra Leone tax losses for which no deferred tax asset has been recognised are US$502.3 million at 31 December 2020 (31 December 2019: US$500.7 million). (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 2020 $m - (2.6) (1.8) (4.4) 2019 $m (1.1) (2.0) (1.7) (4.8) 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. 112 112 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 Key estimate: Tax balances ILUKA RESOURCES LIMITED 31 DECEMBER 2020 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. 13 DEFERRED TAX Deferred tax asset: The balance comprises temporary differences attributable to: Employee provisions Provisions Cash flow hedge reserve (in equity) Other Lease liabilities Gross deferred tax assets 2020 $m 2019 $m 8.1 166.3 - 10.2 7.0 191.6 7.4 149.3 2.1 8.0 8.9 175.7 Amount offset to deferred tax liabilities pursuant to set-off provision Net deferred tax assets (163.2) 28.4 (153.6) 22.1 Deferred tax liability: The balance comprises temporary differences attributable to: Property, plant and equipment Inventory Receivables Treasury shares (in equity) Other Right-of-use assets 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 (Charged)/credited to the income statement Under provision in prior years Charged directly to equity Transfers Balance at 31 December (138.7) (17.3) (0.2) (0.5) - (6.5) (163.2) 163.2 - 22.1 5.9 7.4 (2.6) (4.4) 28.4 (119.2) (18.1) (6.7) (1.2) (0.1) (8.3) (153.6) 153.6 - 215.6 (188.6) (7.0) 2.1 - 22.1 113 Iluka Resources Limited, Annual Report 2020 113 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 Deferred tax policy ILUKA RESOURCES LIMITED 31 DECEMBER 2020 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 As at 31 December 2020, there were no carried forward tax losses recognised by SRL (2019: $nil million). 14 RECEIVABLES Trade receivables Other receivables Prepayments Mining Area C royalty receivable (discontinued operation) FY20 +0.1 DR 2020 $m 55.0 26.6 13.9 - 95.5 0.1 2019 $m 130.9 29.3 15.9 20.2 196.3 - 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 43 days of the invoice being issued (2019: 41 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 $6.6 million overdue at balance date (2019: $9.4 million), of which $0.5 million is less than 28 days overdue (2019: $3.6 million). Subsequent to the reporting date, a receivable paid $2.7 million in respect of an overdue balance included in this amount. Due to the short-term nature of the Group’s receivables, their carrying value is considered to approximate fair value. 114 114 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 (a) Trade receivables purchase facilities ILUKA RESOURCES LIMITED 31 DECEMBER 2020 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). The trade receivables balance of $55.0 million excludes $39.1 million (31 December 2019: excludes $117.3 million) of receivables sold under the trade receivables purchase facility. 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 which reduces the exposure to credit risk. 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 specified in the insurance policy. An asset of $12.0 million is included in other receivables, and a corresponding continuing involvement liability is included in payables, comprising the maximum first loss specified under the trade receivables purchase facility and deductible amounts specified by the insurance policy (2019: $16.7 million). (b) Credit risk At 31 December 2020 the trade receivables balance was $55.0 million, with $51.0 million covered by credit risk insurance and a further $4.0 million by letters of credit. As a result, the Group had no uninsured receivables at the reporting date (2019: $nil). 15 INVENTORIES Current Work in progress Finished goods Consumable stores -0.1 CR FY20 -0.1 CR Total current inventories Non-current Work in progress Total non-current inventories Total inventories 2020 $m 156.6 312.6 34.9 504.1 - (0.1) 112.0 112.0 2019 $m 110.5 208.7 21.9 341.1 (0.1) - 84.1 84.1 616.1 425.2 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 $34.4 million (2019: $nil 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. 115 Iluka Resources Limited, Annual Report 2020 115 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 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 $13.0 million occurred for work in progress or finished goods (2019: $41.8 million). If finished goods future selling prices were 5% lower than expected, an inventory write-down of $1.5 million would be required at 31 December 2020 (2019: no write-down). Inventory of $112.0 million (2019: $84.1 million) was classified as non-current as it is not expected to be sold within 12 months of the balance sheet date. CAPITAL 16 NET CASH AND FINANCE COSTS Cash and cash equivalents Cash at bank and in hand Total cash and cash equivalents Non-current interest-bearing liabilities (unsecured) Multi Optional Facility Agreement Deferred borrowing costs Total interest-bearing liabilities Net cash (a) Cash and cash equivalents 2020 $m 87.1 87.1 (38.0) 1.1 (36.9) 2019 $m 97.3 97.3 (55.7) 1.7 (54.0) 50.2 43.3 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 3.0% (2019: 0.0% and 2.7%) 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. 116 116 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 (i) Multi Optional Facility Agreement ILUKA RESOURCES LIMITED 31 DECEMBER 2020 The Multi Optional Facility Agreement (MOFA) comprises a series of unsecured committed five year bilateral revolving credit facilities with several domestic and foreign institutions, totalling A$500.1 million (2019: A$519.3 million). The facilities are denominated in both AUD and USD. The table below details the facility expiries: A$million At 31 December 2020 At 31 December 2019 Total facility 500.1 519.3 Facility Expiry 2021 - - 2022 - - 2023 - 2024 500.1 - 519.3 2025 - - Undrawn MOFA facilities at 31 December 2020 were A$462.1 million (2019: A$463.6 million). (c) Interest rate exposure Of the above interest-bearing liabilities, $38.0 million is subject to an effective weighted average floating interest rate of 1.5% (2019: interest-bearing liabilities of $55.7 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 Interest charges on interest-bearing liabilities Bank fees and similar charges Amortisation of deferred borrowing costs Lease borrowing costs Rehabilitation and mine closure provision discount unwind Rehabilitation provision discount rate changes Total finance costs (i) Amortisation of deferred borrowing costs 2020 $m 1.9 3.9 0.6 1.3 14.4 12.2 34.3 2019 $m 7.3 5.0 1.2 1.5 19.7 18.3 53.0 Fees paid on establishment of borrowing facilities are recognised as transaction costs and amortised over the period until the next expected facility extension. (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 9(a). (iii) Rehabilitation provision discount rate changes Any change in the discount rate for closed sites is recorded as a finance cost. Iluka has re-set the risk free discount rates used in calculating rehabilitation provisions in the US and Sierra Leone to 0.5% and 1.0%, respectively (2019: 2.5% and 2.5%) due to the continuing decline in applicable US Treasury Bond Rates. The 5- and 10-year US Treasury Bond Rates are used as a proxy for risk-free discount rates. 117 Iluka Resources Limited, Annual Report 2020 117 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 17 CONTRIBUTED EQUITY ILUKA RESOURCES LIMITED 31 DECEMBER 2020 Balance on 1 January, comprising Ordinary shares - fully paid Treasury shares - net of tax Movements in ordinary share capital 2018 Final Dividend - DRP 2019 Interim Dividend - DRP 2019 Final Dividend - DRP Redemption of capital - Deterra Demerger - Movements in treasury shares, net of tax Acquisition of treasury shares by trust Employee share issues - 2020 Shares 2019 Shares 2020 $m 2019 $m 422,584,778 (470,456) 422,114,322 422,395,677 (675,521) 421,720,156 1,160.4 (2.8) 1,157.6 1,158.6 (4.6) 1,154.0 - - 184,903 - - 103,439 85,662 - - - - 270,527 - (992,972) 1,198,037 - - - 1.2 (10.0) - - 1.7 - 1.0 0.7 - - - (6.2) 8.0 - Balance on 31 December, comprising Ordinary shares - fully paid Treasury shares - net of tax 422,569,752 422,114,322 422,769,681 (199,929) 422,584,778 (470,456) 1,150.5 1,151.7 (1.1) 1,157.5 1,160.4 (2.8) (a) Ordinary share capital 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. 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 2019 final (b) Treasury shares Date issued 2 April 2020 Price per share Number of ordinary shares issued 6.97 184,903.0 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. 118 118 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 18 RESERVES AND RETAINED EARNINGS ILUKA RESOURCES LIMITED 31 DECEMBER 2020 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 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 Other reserves Balance at 1 January (Loss)/gain on part disposal of investment in subsidiary Loss on initial recognition of put option Balance at 31 December blank Total reserves blank Retained earnings Balance at 1 January Net profit/(loss) for the period Dividends paid Actuarial gains/(losses) on retirement benefit obligation, net of tax Transfer from asset revaluation reserve Balance at 31 December -0.1 CR Notes 18(a) 18(b) 18(c) 22(a) 18(d) 18(e) 2020 $m 11.3 (0.5) 10.8 (4.8) - 0.7 7.8 (2.8) 0.9 0.2 (1.7) 3.7 2.2 39.1 14.9 (0.2) (8.5) - - 45.3 (21.8) (0.3) - (22.1) 37.1 2019 $m 11.4 (0.1) 11.3 (10.1) 0.4 3.6 2.8 (1.5) (4.8) 2.3 (8.0) 5.9 0.2 39.0 (1.0) 4.0 (0.3) (3.6) 1.0 39.1 - 6.7 (28.5) (21.8) 24.0 (472.0) 2,411.9 (1,831.9) (4.2) 0.5 104.3 - (86.6) (279.9) (101.5) (3.9) 0.1 (472.0) (0.2) 119 Iluka Resources Limited, Annual Report 2020 119 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 (a) Asset revaluation reserve ILUKA RESOURCES LIMITED 31 DECEMBER 2020 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 dollar denominated sales, as described in note 22. 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 17) 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). Both US and Sierra Rutile operations had net liabilities at 31 December 2020 and were not designated as a net investment hedge against USD dollar denominated debt. The reserve is recognised in profit or loss when the net investment is disposed of. (e) Other reserves The impact on equity of transactions related to changes in the structure of the Group are accumulated in other reserves. As per note 24, the Group reduced its shareholding in Sierra Rutile from 96.43% to 90%, and recognised a loss on partial disposal of its investment in Sierra Rutile of $0.3 million. In 2019, the Group recognised a gain of $6.7 million on part disposal of its investment in Sierra Rutile, and a loss on initial recognition of the related put option held by the IFC of $28.5 million against other reserves in equity. Refer to note 24. 120 120 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 19 DIVIDENDS Final dividend for 2019 of 8 cents per share, fully franked for 2018 of 19 cents per share, fully franked - Interim dividend for 2019 of 5 cents per share, fully franked - Distributions Demerger dividend - Total dividends ILUKA RESOURCES LIMITED 31 DECEMBER 2020 2020 $m 33.8 - - - - 1,798.1 - 1,831.9 2019 $m - 80.3 - 21.1 - - - 101.5 Of the total $33.8 million final dividend declared for 2019, shareholders respectively took up $1.2 million as ordinary shares as part of the Dividend Reinvestment Plan. Refer to note 17(a). Since balance date the directors have determined a final dividend for 2020 of 2 cents per share, fully franked. The dividend is payable on 8 April 2021 for shareholders on the register as at 10 March 2021. The aggregate amount of the proposed dividend is $8.5 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 2020 is $281.0 million (2019: $129.2 million). This balance is based on a tax rate of 30% (2019: 30%). 121 Iluka Resources Limited, Annual Report 2020 121 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 20 EARNINGS/(LOSS) PER SHARE Basic earnings/(loss) per share From continuing operations From discontinued operations Total basic earnings/(loss) per share Diluted earnings/(loss) per share From continuing operations From discontinued operations Total diluted earnings/(loss) per share ILUKA RESOURCES LIMITED 31 DECEMBER 2020 2020 Cents 24.5 545.9 570.4 2019 Cents (85.0) 14.0 (71.0) 24.4 543.6 568.0 (85.0) 14.0 (71.0) Total earnings/(loss) per share (EPS) is the amount of post-tax earnings or loss attributable to each share. Total basic and diluted EPS comprises EPS from continuing operations and discontinued operations. Discontinued operations represent the earnings associated with the demerger of Deterra - refer to note 23. Total basic EPS is calculated on the profit for the period attributable to equity holders of the parent of $2,410.0 million (2019: loss of $299.7 million) divided by the weighted average number of shares on issue during the year, excluding treasury shares, being 422,478,404 shares (2019: 422,146,281 shares). Total 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 2019 as they would reduce the loss per share and therefore were not included in the calculation of diluted EPS in the comparative period. 122 122 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 RISK 21 FINANCIAL RISK MANAGEMENT ILUKA RESOURCES LIMITED 31 DECEMBER 2020 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. Foreign exchange risk is also managed through entering into forward foreign exchange contracts and collar contracts detailed in note 22. 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 The Group's balance sheet exposure to other foreign currency risk is not significant. 2020 $m 26.8 33.0 (25.4) (13.0) (4.7) 16.7 2019 $m 45.0 75.4 (21.0) (55.7) (33.7) 10.0 123 Iluka Resources Limited, Annual Report 2020 123 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 (ii) Group sensitivity ILUKA RESOURCES LIMITED 31 DECEMBER 2020 The average US dollar exchange rate during the year was 0.6907 (2019: 0.6950). The US dollar spot rate at 31 December 2020 was 0.7690 (31 December 2019: 0.7000). Based on the Group's net financial assets at 31 December 2020, 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: -10% Strengthen Profit (loss) $m 5.2 0.3 Equity $m 7.7 (29.7) +10% Weaken Profit (loss) $m 7.0 (0.2) Equity $m (6.5) 18.1 31 December 2020 31 December 2019 (iii) Interest rate risk Interest rate risk arises from the Group’s borrowings and cash deposits. During 2020 and 2019, the Group's borrowings at variable rates were denominated in Australian dollars and US dollars. At 31 December 2020, 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 2020 31 December 2019 +1% $m 0.4 0.6 -1% $m (0.4) (0.6) The sensitivity is calculated using the average month end debt position for the year ended 31 December 2020. The interest charges in note 16(d) of $1.9 million (2019: $7.3 million) reflect interest-bearing liabilities in 2020 that range between $1.3 million and $159.7 million (2019: $40.1 million and $191.4 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 and makes use of letters of credit to assist in managing the credit risk of its customers. Further details are set out in note 14. 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 credit ratings from external ratings agencies. (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 16(b)(i)) of $462.1 million at balance date as well as cash and cash equivalents of $87.1 million and prudent cash flow management. 124 124 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 (d) Maturities of financial liabilities ILUKA RESOURCES LIMITED 31 DECEMBER 2020 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 and contractual cash flows are until the next contractual re-pricing date in 2024. 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 Over 5 years $m Total contractual cash flows $m Carrying amount liabilities $m At 31 December 2020 Non-derivatives Payables Lease liabilities Interest-bearing variable rate Total non-derivatives Derivatives % 4.9 1.5 129.4 7.5 - 136.9 - 3.9 - 3.9 - 7.8 38.0 45.8 Foreign exchange collar contracts Put option Total derivatives (1.9) - (1.9) (0.6) 7.7 7.1 - - - - 9.3 - 9.3 - - - 129.4 28.5 38.0 195.9 129.4 23.3 38.0 190.7 (2.5) 7.7 5.2 (2.5) 7.2 4.7 Weighted average rate Less than 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years Total contractual cash flows Carrying amount liabilities $m $m $m $m $m At 31 December 2019 Non-derivatives Payables Lease liabilities Interest-bearing variable rate Total non-derivatives 4.3 3.1 140.8 9.2 - 150.0 Derivatives Forward foreign exchange contracts Foreign exchange collar contracts Put option Total derivatives 0.6 3.1 - 3.7 - 8.6 - 8.6 - 1.6 28.4 30.0 - 6.0 55.7 61.7 - - - - - 6.2 - 6.2 - - - - 140.8 30.0 55.7 226.5 140.8 30.0 55.7 226.5 0.6 4.7 28.4 33.7 0.6 4.7 28.4 33.7 Refer to note 22 for detail on derivative instruments. 125 Iluka Resources Limited, Annual Report 2020 125 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 22 HEDGING Current assets/(liabilities) Foreign exchange collar hedges Foreign exchange forward contracts Non-current assets/(liabilities) Foreign exchange collar hedges 2020 $m 1.9 - 1.9 0.6 2019 $m (3.1) (0.6) (3.7) (1.6) 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 2020 and 31 December 2019, comprising the above hedging instruments and the put option liability detailed in note 24. The fair value of hedging instruments is determined using valuation techniques with inputs that are observable market data (a level 2 measurement). 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 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. 126 126 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 Cash flow hedges 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 21(d). The recognition of the future gain or loss is expected to be consistent with this timing. Foreign exchange collar contracts in relation to expected USD revenue, predominantly from contracted sales to 31 December 2022, remain open at the reporting date. The foreign exchange collar hedges cover US$98.4 million of expected USD revenue to 31 December 2022 and comprise US$98.4 million worth of purchased AUD call options with a weighted average strike price of 78.5 cents and US$98.4 million of AUD put options at a strike price of 68.6 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. US$94.7 million in foreign exchange collar contracts consisting of US$94.7 million of bought AUD call options with weighted average strike prices of 78.4 cents and US$94.7 million of sold AUD put options with weighted average strike prices of 68.6 cents expired during the year. US$63.6 million in foreign exchange forward contracts expired during the year, at a weighted average rate of 70.7 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 To the extent possible, the Group designates US denominated debt as a hedge against the Group's net investment in Sierra Leone, which has a US dollar functional currency. Sierra Rutile operations had net liabilities at 31 December 2020 and were therefore not designated as a net investment hedge against USD dollar denominated debt. No amounts in respect of the Group's net investment hedge were recognised in the foreign currency translation reserve during the current reporting period (2019: $2.6 million reserve reduction). 127 Iluka Resources Limited, Annual Report 2020 127 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 GROUP STRUCTURE 23 DEMERGER OF DETERRA The Group held a royalty over specific mining tenements in the Mining Area C (MAC) province in Western Australia operated by BHP up until demerger of this business on 2 November 2020. The demerger resulted in the formation of an independent ASX-listed company, Deterra Royalties Limited (Deterra), which is the largest resource focused royalty company listed on the ASX. Subsequent to demerger, the Group retains a 20% equity ownership interest in Deterra, which is equity accounted. (a) Demerger - Deterra The Group implemented the demerger on 2 November 2020 in accordance with the Demerger Booklet and ASX Announcement released on 10 September 2020. To effect the demerger, the Group first transferred all assets and liabilities comprising the MAC Royalty segment to Deterra (at the time a wholly owned subsidiary of the Group) at their respective carrying amounts. The Group recognised two fair value gains on demerger, as follows: - Carrying value of net assets of Deterra Fair value of Deterra¹ Gross fair value gain - Less: transaction costs - Net fair value gain - ¹ Based on the 5-day VWAP for Deterra shares - refer to key estimate below $m $m Fair value gain on shares Distributed² 80% Retained³ 20% $m Total 100% - 1,808.1 1,808.1 (13.3) - 452.0 452.0 - 2,260.1 2,260.1 - (13.3) 1,794.8 452.0 2,246.8 ² The Group remeasured distributed Deterra shares to their fair value on the distribution date. ³ The Group remeasured retained Deterra shares to their fair value on the date control of Deterra was lost. The Group subsequently distributed 80% of its shares in Deterra to eligible shareholders, which is reflected in the statement of changes in equity. The distribution was effected by a capital redemption of $10 million, with the balance distributed as a dividend in the form of Deterra shares. Refer to note 18. Key estimate: determining the fair value of Deterra The fair value of Deterra on demerger, being $2,260.1 million, was calculated using the volume weighted average price (VWAP) of Deterra shares as traded on the ASX over the first five trading days after demerger ($4.277 per share) multiplied by the number of Deterra shares (528,462,101 shares). Determining the fair value of Deterra on this basis was deemed as the most appropriate and practical way of reliably estimating the fair value of Deterra since it maximises the use of observable, externally available information. The fair value of the 20% investment retained by the Group of $452.0 million was determined by applying the same methodology. 128 128 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 (b) Discontinued operation – MAC Royalty income and amortisation of royalty asset Until demerger, the Group recognised MAC Royalty income on an accrual basis. The intangible MAC Royalty entitlement asset previously held by the Group (of $3.2 million) was amortised on a straight-line basis over its estimated useful life. The assets and liabilities comprising the MAC Royalty segment were classified as non-current assets held for sale on the date the group announced the demerger, being 10 September 2020, and subsequently derecognised (refer (b) and (c) below). Related MAC Royalty income has similarly been reclassified as income from discontinued operations and is included in the statement of comprehensive income on a net basis, and comprises: - MAC Royalty Income MAC Royalty entitlement asset amortisation Income tax expense attributable to discontinued operation - Net fair value gain (refer to (a), above) - Profit after tax from discontinued operations (c) Equity accounted investment - Deterra 2020 $m 80.7 (0.3) (20.7) 59.7 2,246.8 2019 $m 85.1 (0.4) (25.4) 59.3 - 2,306.5 59.3 The Group accounts for its retained investment in Deterra as an equity accounted associate. It is able to exert significant influence, but not control, over Deterra through the ability to exercise voting rights attached to its ownership interest, together with its ability to appoint a board member to the Deterra board. Initial recognition of equity accounted investment The Group initially recognised its retained investment at its cost to the Group, which was equal to the carrying value of the net assets of Deterra immediately prior to demerger. It then remeasured this retained interest to its fair value (with reference to the fair value of Deterra as shown above). This fair value was allocated to the assets acquired on a notional basis, with the value uplift attributed to the MAC Royalty rights. It is necessary to notionally depreciate this equity accounted investment in accordance with the underlying assets of Deterra, being the MAC Royalty rights. Subsequent equity accounting The Group recognises its share of the profits of Deterra, being 20% of its net profit after tax, as income in each reporting period. The Group adjusts its share of the profit of Deterra by notionally depreciating the value attributed to the MAC Royalty right (materially all of its initial value) over a period of 50 years on a straight-line basis, which is aligned with the estimated life of mine of the mining operations in the MAC Royalty area. The Group recognised $0.1 million in equity accounted profits (net of $1.3 million of notional depreciation) for the year ended 31 December 2020. No dividends were declared or paid by Deterra from demerger to 31 December 2020. The following is a summary of the financial amended to include adjustments made by the Group in applying the equity method. information presented in the financial statements of Deterra, 129 Iluka Resources Limited, Annual Report 2020 129 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 2020 $'000 188 25,092 363 1,114 26,757 10,029 29 332 10,390 382 11 65 458 279 16,386 6,961 23,626 13,063 - 33,341 - 115 (20,393) 13,063 20% 2,613 450,806 (1,319) 452,100 - Summarised balance sheet of Deterra Resources Limited at 31 December 2020 - Current assets Cash and cash equivalents Trade and other receivables Income tax receivable Prepayments Total current assets - Non-current assets Royalties intangible assets Property, plant and equipment Right-of-use assets Total non-current assets - Current liabilities Trade and other payables Provisions Lease liability Total current liabilities - Non-current liabilities Lease liability Borrowings Deferred tax Total non-current liabilities - Net assets - Reconciliation to carrying amount - Opening net assets on 15 June 2020 Profit for the period Other comprehensive income Movements in other reserves Dividend paid prior to demerger Closing net assets - Group's share percentage Group's share of net assets - Gain on retained interest in Deterra Accumulated notional adjustments to share of equity accounted profits - Carrying amount at 31 December 2020 - 130 130 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 24 CHANGES IN OWNERSHIP INTERESTS HELD IN CONTROLLED ENTITIES (a) Increase in International Finance Corporation (IFC) interest in Sierra Rutile Limited (SRL) The Group entered into a strategic partnership with the IFC, a member of the World Bank Group, in 2019 in relation to the Sierra Rutile operation. The IFC acquired 3.57% of Iluka Investments (BVI) Limited for a consideration of US$20 million. The Group also entered into an arrangement whereby the IFC has the right to dispose of their interest back to the Group at its fair value on the date of exercise of the put option. Acquisition of a second tranche to increase the investment to 10% was to occur upon approval of construction of early works on the Sembehun project. As advised on 17 December 2019, the terms of the second tranche were subject to renegotiations in light of the delay in approval of the Sembehun project (refer to note 23 of the 2019 Annual Report). Subsequent to these renegotiations during the reporting period, the IFC subscribed for its second tranche investment in Sierra Rutile Limited (SRL) on 2 November 2020 for US$1, increasing its investment to 10%. The second tranche was effected through the issue of additional shares by Iluka Investments (BVI) Limited. The Group recognised a loss of $0.3 million in relation to this transaction, which is included in other reserves within equity - refer to note 18. (b) Put option held by the IFC The put option was revalued to the present value of its expected redemption amount of $7.2 million (US$5.5 million). A remeasurement gain of $19.4 million (US$14.5 million) is included in other income in profit or loss. In addition, unrealised foreign exchange gains of $1.8 million have been recognised in profit or loss in relation to the put option. 131 Iluka Resources Limited, Annual Report 2020 131 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 25 CONTROLLED ENTITIES AND DEED OF CROSS GUARANTEE The consolidated financial statements incorporate the following subsidiaries: 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 Australia Australia Australia Australia The Netherlands The Netherlands The Netherlands Sri Lanka Sri Lanka Sri Lanka China Brazil Equity holding 2019 2020 % % 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 40 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 95.8 100 100 100 100 100 100 100 100 100 100 100 100 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 # Deterra Royalties (MAC) 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 Royalties (Australia) Pty Ltd * Iluka International (ERO) Pty Ltd * Iluka International (West Africa) Pty Ltd Ashton Coal Interests Pty Limited A.C.N. 637 824 027 Limited A.C.N. 637 858 425 Pty Ltd A.C.N. 637 858 434 Pty Ltd A.C.N. 637 858 809 Pty Ltd 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 ^ Puttalam Ilmenite (Private) Limited Iluka Trading (Shanghai) Co., Ltd Iluka Brasil Mineracao Ltda 132 132 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 Iluka (UK) Ltd Iluka Technology (UK) Ltd 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 (Eurasia) 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 Iluka International (UK) Limited Iluka South Africa (Pty) Limited United Kingdom United Kingdom 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 90 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 96.4 100 100 100 100 100 100 * 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. # Deterra Royalties (MAC) Limited is a party to the Deed. A revocation deed was lodged with ASIC on 10 September 2020 to revoke the participation of Deterra Royalties (MAC) Limited in the Deed. The revocation deed will take effect on 11 March 2021 provided that no party to the Deed goes into liquidation during that six month period after lodgement with ASIC. ^ In August 2020, Iluka reduced its 100% interest in Puttalam Ilmenite (Private) Limited (formerly Iluka Lanka Exploration (Private) Limited) to a non-controlling interest of 40%. 133 Iluka Resources Limited, Annual Report 2020 133 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 (a) Condensed financial statements of the extended closed group Condensed statement of profit or loss and other comprehensive income 2020 $m 2019 $m CONTINUING OPERATIONS Revenue from ordinary activities Expenses from ordinary activities Finance costs Equity accounted share of profit - Deterra Income tax expense Profit for the period DISCONTINUED OPERATIONS Profit after tax from discontinued operations Net profit after tax for the period Other comprehensive income Changes in the fair value of cash flow hedges Total comprehensive income for the period Summary of movements in consolidated retained earnings Retained earnings at the beginning of the financial year Profit for the period Dividends paid Retained earnings at the end of the financial year Condensed balance sheet Current assets Cash and cash equivalents Receivables Inventories Derivative financial instruments Total current assets Non-current assets Property, plant and equipment Deferred tax assets Intangible assets Inventories Other financial assets - investments in non-closed group entities Right of use assets Investments accounted for using the equity method Derivative financial instruments Total non-current assets 756.8 (509.3) (13.7) 0.1 (68.7) 165.2 2,306.5 2,471.7 9.5 2,481.2 397.0 2,471.7 (1,832.0) 1,036.7 2020 $m 52.2 90.4 452.7 1.9 597.2 956.2 28.0 - 112.0 902.1 15.1 452.1 0.6 2,466.1 962.1 (560.4) (44.0) - (106.3) 251.4 59.3 310.7 (2.4) 308.3 187.8 310.7 (101.5) 397.0 2019 $m 69.3 161.9 300.4 - 531.6 933.2 17.5 3.5 84.1 721.8 20.0 - - 1,780.1 Total assets 3,063.3 2,311.7 134 134 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 Condensed balance sheet Current liabilities Payables Derivative financial instruments Current tax payable Provisions Lease liabilities Total current liabilities Non-current liabilities Interest-bearing liabilities Derivatives Provisions Lease liabilities Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Total equity OTHER NOTES 26 CONTINGENT LIABILITIES (a) Bank guarantees ILUKA RESOURCES LIMITED 31 DECEMBER 2020 2020 $m 2019 $m 222.8 - 27.7 53.9 7.5 311.9 36.9 - 504.2 15.7 556.8 81.8 3.7 94.4 62.9 9.2 252.0 54.0 1.6 433.7 20.4 509.7 868.7 761.7 2,194.6 1,550.0 1,150.5 7.5 1,036.6 2,194.6 1,157.5 (4.5) 397.0 1,550.0 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 2020, the total value of performance commitments and guarantees was $120.5 million (2019: $125.3 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) 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 in respect of alleged breaches of Iluka’s continuous disclosure obligations and misleading or deceptive conduct in 2012. 135 Iluka Resources Limited, Annual Report 2020 135 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 (c) Shareholder class action (continued) ILUKA RESOURCES LIMITED 31 DECEMBER 2020 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 the Applicant on behalf of Iluka shareholders for alleged breaches of Iluka’s continuous disclosure obligations, and misleading or deceptive conduct in relation to disclosures made by Iluka to the market between April and July 2012. The trial of the class action is scheduled to commence on 8 March 2021 in the New South Wales registry of the Federal Court of Australia. 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. The status of the proceedings has still not reached a stage where Iluka is able to reliably estimate the quantum of liability, if any, that Iluka may incur in respect of the class action. (d) Sierra Leone environmental class action On 22 January 2019, SRL 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 SRL 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 SRL’s mining operations. The claims primarily relate to environmental matters that arose prior to the Group acquiring its interest in SRL. The Representatives allege, in part, that SRL engaged in improper mining practices resulting in environmental degradation and contamination, did not meet certain rehabilitation obligations and violated local mining laws. SRL denies liability in respect of the allegations and intends to defend the claims. SRL filed its defence in March 2019 and also applied to the Court for an order requiring the Representatives to provide further detail on their claims. As at 31 December 2020, the status of the proceedings has still not reached a stage where SRL is able to reliably estimate the quantum of liability, if any, that SRL 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 or historic 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. 27 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 2020 $m 2019 $m 14.8 32.3 43.6 90.7 14.9 34.7 46.8 96.4 These costs are discretionary. If the expenditure commitments are not met then the associated exploration and mining leases may be relinquished. 136 136 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 (b) Lease commitments ILUKA RESOURCES LIMITED 31 DECEMBER 2020 From 1 January 2019, the group has recognised right-of-use assets for these leases, except for short-term and low-value leases, see notes 11 and 35 for further information. (c) Capital commitments Capital expenditure contracted for and payable, but not recognised as liabilities is $35.1 million (2019: $26.5 million). All of the commitments relate to the purchase of property, plant and equipment. Of the total amount, $34.4 million is payable within one year of the reporting date and $0.7 million is payable between one and five years of the reporting date. 28 REMUNERATION OF AUDITORS During the year the following fees were paid or payable for services provided by PricewaterhouseCoopers Australia (PwC) as the auditor of the parent entity, Iluka Resources Limited, by PwC’s related network firms and by non-related audit firms: (a) Auditors of the Group - PwC and related network firms Audit and review of financial reports Group Controlled entities Other assurance services Investigating Accountants report for Deterra Demerger Other assurance services Other services Tax compliance and advisory services Other advisory services 2020 $000 624 156 780 266 63 329 34 10 44 2019 $000 623 174 797 - 96 96 34 10 44 Total services provided by PwC 1,153 937 (b) Other auditors and their related network firms Audit and review of financial statements Other compliance and advisory services 101 4 105 96 15 111 Amounts for the remuneration of auditors in the comparative period have been restated to include fees which accrued subsequent to the end of the comparative period. 137 Iluka Resources Limited, Annual Report 2020 137 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 29 SHARE-BASED PAYMENTS ILUKA RESOURCES LIMITED 31 DECEMBER 2020 Share-based compensation benefits are provided to employees via the Equity Incentive Plan (specifically, the Executive Incentive Plan, Long Term Incentive Plan and Short Term Incentive Plan). Information relating to this scheme 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 Executive Incentive Plan also take into account the Company's predicted share prices against the comparator group performance at vesting date. A credit to the share-based payments expense arises where unvested entitlements lapse on resignation or the non-fulfilment of the vesting conditions that do not relate to market performance. Payroll tax payable on the grant of restricted shares or share rights is recognised as a component of the share-based payments expense when paid. The share-based payment expense recognised in profit or loss of $4.1 million (2019: $6.2 million) results from several schemes summarised below. Schemes STIP (i) 2020 2019 2018 2017 LTIP - TSR (ii) 2017 2016 MD Grant 2016 2016 LTIP - ROE (ii) 2017 2016 MD Grant 2016 2016 EIP (iii) MD LTDR (iv) COO LTDR (v) COO LTDR (v) COO LTDR (v) Restricted Share Plan (vi) Grant date Vesting date Mar-21 Mar-20 Mar-19 Mar-18 May-17 Oct-16 May-16 May-16 May-17 Oct-16 May-16 May-16 Mar-22/23 Mar-21/22/23 Mar-20/21 Mar-19/20 Mar-21 Mar-21 Mar-20 Mar-19 Mar-21 Mar-21 Mar-20 Mar-19 Mar-18/19/20/21 Mar-23/24/25 Oct-16 Mar-17 Mar-18 Mar-19 Mar-18/19/20 Mar-20 Mar-21 Mar-22 Fair value $ 6.62 9.30 7.62 10.55 5.66 3.71 4.27 4.27 7.44 5.42 5.86 6.01 7.62 4.68 6.82 10.55 9.35 6.82 Shares / rights at 31 Dec 20 Expense 2020 $m Shares / rights at 31 Dec 19 Expense 2019 $m - - - - 610,323 126,688 104,037 - 610,312 126,687 104,037 - 0.7 1.0 0.6 0.1 0.3 0.1 - - (2.0) (0.5) - - 1,528,301 3.4 - - - - - - - (0.1) - 0.5 4.1 - - - - 376,858 126,688 211,502 1,607 369,845 126,687 211,519 - 366,282 163,031 16,133 10,424 11,762 - - 1.2 1.3 0.5 0.5 0.2 - - 0.6 (0.4) (0.9) (1.0) 3.1 0.2 0.1 0.1 0.1 0.6 6.2 138 138 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 (i) Short Term Incentive Plan (STIP) ILUKA RESOURCES LIMITED 31 DECEMBER 2020 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 LTIP took into account the exercise price of $nil, the share price at grant date, the expected price volatility of the share price (based on historical volatility), the expected dividend yield and the risk free rate of return. The fair value of the total shareholder return tranche also took 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 share-based payments expense. (iii) Executive Incentive Plan (EIP) Equity awarded under the Executive Incentive Plan is granted on 1 March each year. The number of restricted shares and performance rights to be awarded is determined based on a volume weighted average market price of Iluka shares for the five days following the release of the full year results. The fair value at grant date for the Executive Incentive Plan (EIP) with market vesting conditions takes into account the exercise price of $nil (2019: nil), the share price at grant date of $9.34 (2019: $9.14), the expected share price volatility (based on historical volatility) of 33% (2019: 35%), the expected dividend yield of 0% (2019: 0%) the risk free rate of return of 1.7% (2019: 0.5%), and vesting dates for a period of three years commencing one year after the grant date. 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. The fair value at grant date for the Executive Incentive Plan (EIP) with non-market vesting conditions is calculated as volume weighted average market price of Iluka shares for the five days following the end of performance year. (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 nil (2019: 38,319) share rights. (vi) Restricted share plan No (2019: 51,548) restricted shares were issued to any (2019: five) eligible employees who participated in the plan. Shares issued in the comparative period were issued to participants based on a volume weighted average price of $9.35 calculated over the five trading days following the release of the Company’s 2018 annual results. 30 POST-EMPLOYMENT BENEFIT OBLIGATIONS (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. During the prior reporting period, the remaining net plan surplus was derecognised, as the Group has no further legal or constructive obligation in relation to this plan. 139 Iluka Resources Limited, Annual Report 2020 139 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 (ii) USA ILUKA RESOURCES LIMITED 31 DECEMBER 2020 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. United States Sierra Leone Total Net plan position Deficit Deficit 2020 $m (17.7) (9.1) (26.8) 2019 $m (15.7) (6.7) (22.4) A net deficit of $26.8 million (2019: deficit $22.4 million) is included in non-current provisions in note 9. 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 2020 $m (51.8) 25.0 (26.8) 2019 $m (46.7) 24.3 (22.4) 2018 $m (39.4) 21.5 (17.9) 2017 $m (36.0) 21.2 (14.8) 2016 $m (35.0) 20.3 (14.7) (c) Defined benefits superannuation expense In 2020, $2.3 million (2019: $2.4 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. 140 140 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 ILUKA RESOURCES LIMITED 31 DECEMBER 2020 31 RECONCILIATION OF PROFIT/(LOSS) AFTER INCOME TAX TO NET CASH INFLOW FROM OPERATING ACTIVITIES 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 Rehabilitation discount rate change Non-cash share-based payments expense Amortisation of deferred borrowing costs Impairment of Sierra Rutile Limited assets Changes in rehabilitation provisions for closed sites Inventory NRV write-down Demerger gain Impairment of Sri Lanka Put option revaluation gain Change in operating assets and liabilities Decrease in receivables (Increase) in inventories Increase/(decrease) in net current tax liability Decrease in net deferred tax (Decrease) in payables (Decrease) in provisions Net cash inflow from operating activities 2020 $m 2,410.0 184.8 (0.1) (2.0) 5.6 14.4 12.2 4.1 0.6 - (8.1) 13.0 (2,246.8) 12.4 (19.4) 93.4 (196.2) (63.3) (8.1) (118.9) 24.1 111.7 2019 $m (299.7) 163.2 1.6 4.1 0.3 19.7 18.3 6.2 1.2 375.2 3.2 41.8 - - - (39.8) (35.2) (43.1) 199.0 (111.7) 17.9 322.2 141 Iluka Resources Limited, Annual Report 2020 141 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 32 KEY MANAGEMENT PERSONNEL (a) Key Management Personnel ILUKA RESOURCES LIMITED 31 DECEMBER 2020 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 63 to 86. The below provides a summary: - Short-term benefits Post-employment benefits Termination benefits Share-based payments Total 2020 $000 4,962 199 49 590 5,800 2019 $000 6,213 205 276 3,362 10,056 (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. 142 142 Iluka Resources Limited, Annual Report 2020 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 33 PARENT ENTITY FINANCIAL INFORMATION (a) Summary financial information for Iluka Resources Limited Balance sheet Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets Shareholders' equity Contributed equity 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 income ¹Profits have been appropriated to a profits reserve for future dividend payments. ILUKA RESOURCES LIMITED 31 DECEMBER 2020 2020 $m 2019 $m 197.5 2,078.0 2,275.5 69.6 620.7 690.3 106.5 1,481.1 1,587.6 40.6 439.2 479.8 1,585.2 1,107.8 1,151.5 15.3 626.9 (208.5) 1,585.2 1,160.3 2.6 153.4 (208.5) 1,107.8 2,244.9 (234.3) (7.8) 2,237.1 (2.4) 231.9 (b) Contingent liabilities of the parent entity The parent had contingent liabilities for performance commitments and guarantees of $12.4 million as at 31 December 2020 (2019: $10.6 million). In addition, the parent has a contingent liability related to the shareholder class action, as detailed in note 26. (c) Contractual commitments for the acquisition of property, plant or equipment As at 31 December 2020, the parent entity had contractual commitments for the acquisition of property, plant or equipment totalling $2.3 million (2019: $6.3 million). (d) Parent entity financial information The financial information for the parent entity has been prepared on the same basis as the consolidated financial statements, except as set out below. Investments in subsidiaries (i) Investments in subsidiaries are accounted for at cost. 143 Iluka Resources Limited, Annual Report 2020 143 NOTES TO FINANCIAL STATEMENTS For the year ended 31 December 2020 (d) Parent entity financial information (continued) ILUKA RESOURCES LIMITED 31 DECEMBER 2020 (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. 34 RELATED PARTY TRANSACTIONS The only related party transactions are with Directors and Key Management Personnel (refer note 32). Details of material controlled entities are set out in note 23. The ultimate Australian controlling entity and the ultimate parent entity is Iluka Resources Limited. 35 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 2020. The affected policies and standards are: • • • • Conceptual Framework for Financial Reporting and AASB 2019-1 References to the Conceptual Framework AASB 2018-6 Definition of a Business AASB 2018-7 Definition of Material AASB 2019-5 Disclosure of the Effect of New IFRS Standards Not Yet Issued in Australia The adoption of the above standards and amendments did not have a material impact on the current or prior period. Forthcoming standards and amendments not yet adopted There are no 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. 144 144 Iluka Resources Limited, Annual Report 2020 DIRECTORS’ DECLARATION For the year ended 31 December 2020 DIRECTORS' DECLARATION In the directors' opinion: ILUKA RESOURCES LIMITED 31 DECEMBER 2020 (a) the financial statements and notes set out on pages 88 to 144 are in accordance with the Corporations Act 2001, including: (i) (ii) complying with Accounting Standards and other mandatory professional reporting requirements as detailed above, and the Corporations Regulations 2001; and giving a true and fair view of the Group's financial position as at 31 December 2020 and of its performance for the financial year ended on that date, and (b) (c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable, and at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed group identified in note 23 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 23. Note 2 confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. G Martin Chairman T O'Leary Managing Director 25 February 2021 145 Iluka Resources Limited, Annual Report 2020 145 INDEPENDENT AUDITOR'S REPORT To the members of Iluka Resources Limited For the year ended 31 December 2020 146 Iluka Resources Limited, Annual Report 2020 INDEPENDENT AUDITOR'S REPORT To the members of Iluka Resources Limited For the year ended 31 December 2020 Iluka Resources Limited, Annual Report 2020 147 INDEPENDENT AUDITOR'S REPORT To the members of Iluka Resources Limited For the year ended 31 December 2020 148 Iluka Resources Limited, Annual Report 2020 INDEPENDENT AUDITOR'S REPORT To the members of Iluka Resources Limited For the year ended 31 December 2020 Iluka Resources Limited, Annual Report 2020 149 INDEPENDENT AUDITOR'S REPORT To the members of Iluka Resources Limited For the year ended 31 December 2020 150 Iluka Resources Limited, Annual Report 2020 INDEPENDENT AUDITOR'S REPORT To the members of Iluka Resources Limited For the year ended 31 December 2020 Iluka Resources Limited, Annual Report 2020 151 INDEPENDENT AUDITOR'S REPORT To the members of Iluka Resources Limited For the year ended 31 December 2020 152 Iluka Resources Limited, Annual Report 2020 PHYSICAL, FINANCIAL AND CORPORATE INFORMATION In this section FIVE YEAR PHYSICAL AND FINANCIAL SUMMARY OPERATING MINES PHYSICAL DATA ORE RESERVES/ MINERAL RESOURCES STATEMENT SHAREHOLDER INFORMATION CORPORATE INFORMATION Eneabba, Western Australia Iluka Resources Limited, Annual Report 2020 Iluka Resources Limited, Annual Report 2020 153 153 PHYSICAL, FINANCIAL AND CORPORATE INFORMATION FIVE YEAR PHYSICAL AND FINANCIAL SUMMARY 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 and TIC) - Synthetic rutile 2020 2019 2018 2017 2016 185.2 172.6 227.4 585.2 455.9 239.6 162.1 115.8 517.5 256.1 1,319 1,217 1,220 322.1 184.1 196.2 702.4 318.6 274.0 200.1 206.7 680.8 170.8 1,487 1,380 1,142 348.6 163.2 219.9 731.7 395.1 379.3 233.2 214.6 827.1 224.5 1,351 1,321 952 312.3 302.1 210.8 825.2 448.1 380.4 264.3 244.4 889.1 202.7 958 940 790 347.1 117.6 210.9 675.6 329.4 338.8 172.1 186.8 697.7 17.7 810 773 716 Not disclosed Not disclosed Not disclosed Not disclosed Not disclosed Average AUD:USD spot exchange rate (cents) 69.1 69.5 74.8 76.7 74.4 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 excluding by-products Unit cost of goods sold per tonne of Z/R/SR Summary financials ($m) Z/R/SR revenue Ilmenite and other revenue Revenue from operations Cash costs of production Inventory movement – cash costs of production Restructure and idle capacity charges Government royalties Marketing and selling costs Asset sales and other income Corporate and other costs Major projects, exploration and innovation Mineral sands EBITDA Mining Area C EBITDA Underlying Group EBITDA1 Rehabilitation and holding costs for closed sites Demerger / SRL transaction costs Depreciation and amortisation Inventory movement – non-cash production costs Gain on demerger of Deterra Royalties Significant non-cash items Net interest and finance charges Income tax (expense) benefit Net profit (loss) after tax for the period (NPAT) Operating cash flow Capital expenditure (capex) Free cash (outflow) inflow2 ($m) Net (debt) cash 154 Iluka Resources Limited, Annual Report 2020 1,625 1,654 1,415 1,079 918 1,032 753 889 606 750 841.0 1,128.7 1,179.0 106.0 64.4 65.1 439 743 959.1 58.4 947.0 1,193.1 1,244.1 1,017.5 (558.7) (539.6) (455.1) 142.3 (20.9) (22.3) (27.7) (1.5) (54.6) (62.3) 342.0 81.1 423.1 7.2 (13.3) (184.8) 39.9 2260.1 - (7.1) (95.5) 2410.0 183.8 (71.2) 36.3 50.2 63.4 (19.7) (39.4) (35.0) (3.5) (64.5) (25.7) 530.9 85.1 616.0 (3.2) - (163.2) 15.5 - (414.3) (51.8) (298.7) (275.8) 408.1 (197.5) 139.7 43.3 (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 (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) - (185.4) (32.2) (6.0) (171.6) 391.7 (93.1) 321.9 999 373 700 696.8 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) - (201.0) (30.0) 53.7 (224.0) 137.3 (82.5) 47.3 1.8 (182.5) (506.3) Capital and dividends Ordinary shares on issue (millions) Dividends per share in respect of the year (cents) Franking level % Opening year share price ($)3 Closing year share price ($)3 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’ equity4 % Return on capital5 % Gearing (net debt/net debt + equity) % Financial position as at 31 December ($m) Total assets Total liabilities Net assets 2020 422.8 2 100 4.70 6.49 41.2 36.1 570.4 8.5 283.7 311.3 n/a 2019 422.6 13 100 3.80 4.73 51.6 44.5 (71.0) 33.1 (24.5) 6.8 n/a 2018 422.4 29 100 5.09 3.87 48.2 43.8 72.2 72.1 31.8 54.0 n/a 2017 418.7 31 100 3.71 5.17 35.4 29.6 (41.0) 76.9 (20.1) (11.6) 17.1 2016 418.7 3 100 3.12 3.69 20.7 14.2 (53.6) 11.3 (17.1) (18.3) 31.5 2,361.7 1,894.5 2,211.9 1,947.0 2,442.3 (1,069.4) (1,182.8) (1101.9) (1061.5) (1339.3) 1,292.3 711.6 1,110.0 885.5 1,103.0 Shareholders’ equity 1,292.3 711.6 1,110.0 885.5 1,103.0 Net tangible asset backing per share ($) 3.0 1.6 2.1 1.7 2.2 Employees, as at 31 December Full-time equivalent employees6 Iluka Ore Reserves and Mineral Resources Mineral Resources In Situ HM million tonnes Ore Reserves In Situ HM million tonnes HM Grade (%) Ore Reserves Assemblage7 (%) Zircon Rutile Ilmenite Sierra Rutile Ore Reserves and Mineral Resources Mineral Resources In Situ Rutile million tonnes Ore Reserves In Situ Rutile million tonnes 3,354 3,427 3,421 2,543 687 118.9 11.2 5.7 17 3 55 7.9 3.6 165.4 13 5.6 18 3 56 8.2 3.7 167.8 15.7 5.8 17 4 54 8 3.8 169.4 16.4 5.8 19 4 52 7.3 3.8 170.5 16.7 5.9 19 4 52 7.5 3.9 Notes: (1) Underlying Group EBITDA excludes non-recurring adjustments including write-downs, Sierra Rutile Limited transaction costs, the gain on the demerger of Deterra Royalties, 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. (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) Share prices prior to November 2020 have been adjusted by a factor of 0.51 for the capital reduction from the Deterra Royalties demerger. (4) Calculated as NPAT for the year as a percentage of the average monthly shareholders’ equity over the year. (5) Calculated as EBIT for the year as a percentage of average monthly capital employed for the year. (6) 2016 data excludes Sierra Rutile Limited. (7) Mineral assemblage is reported as a percentage of the In situ heavy mineral content. 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. Refer pages 159 to 161 or Iluka’s website www.iluka.com for Ore Reserves and Mineral Resources Statement. Iluka Resources Limited, Annual Report 2020 155 PHYSICAL, FINANCIAL AND CORPORATE INFORMATION OPERATING MINES PHYSICAL DATA 12 Months to 31 December 2020 Mining Overburden moved kbcm Ore mined kt Ore treated grade HM % VHM treated grade % Concentrating HMC produced kt VHM produced kt VHM in HMC assemblage % Zircon Rutile Ilmenite HMC processed kt Finished product¹ kt Zircon Rutile Ilmenite (saleable/upgradeable) Synthetic rutile produced kt Jacinth- Ambrosia/ Mid west Cataby / South west Australia Total Sierra Leone Idle Operations Group Total 2020 Group Total 2019 3,146 10,349 4.0% 3.7% 357 318 89.0% 49.7% 8.0% 31.3% 232 114.9 24.5 67.7 - 12,164 13,343 5.7% 4.8% 520 454 87.4% 11.4% 6.8% 69.3% 483 58.8 27.9 342.4 227.4 15,310 23,692 4.9% 4.2% 876 772 88.1% 27.0% 7.3% 53.8% 715 173.7 52.4 410.1 227.4 254 8,928 3.4% 2.5% 306 200 65.4% 4.2% 43.4% 17.7% 293 6.6 120.2 45.8 - - - - - - - - - - - - 4.9 - - - 15,564 32,620 4.4% 3.7% 1,182 971 82.2% 21.1% 16.6% 44.5% 1,008 185.2 172.6 455.9 227.4 12,602 29,124 3.9% 4.3% 1,087 911 83.8% 30.9% 18.7% 34.2% 961 322.1 184.1 318.6 196.2 Notes: (1) Finished product includes material from heavy mineral concentrate (HMC) initially processed in prior periods EXPLANATORY COMMENTS ON TERMINOLOGY 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 treated grade HM % refers to percentage of heavy mineral (HM) in the ore processed through the mining unit. VHM treated grade % refers to percentage of valuable heavy mineral (VHM) - titanium dioxide (rutile and ilmenite), and zircon in the ore processed through the mining unit. Concentrating refers to the production of heavy mineral concentrate (HMC) through a wet 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%. Ilmenite is produced for sale or as a feedstock for synthetic rutile production. Typically, 1 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. 156 Iluka Resources Limited, Annual Report 2020 ORE RESERVES/ MINERAL RESOURCES STATEMENT HM ORE RESERVES Iluka HM Ore Reserve Breakdown by Country, Region and JORC Category at 31 December 2020 Summary of Ore Reserves for Iluka(1,2,3,6) HM Assemblage(4) Country Australia Region Eucla Basin Total Total Total Total Eucla Basin Perth Basin Perth Basin(5) Proved Probable Grand Total Ore Reserve Category Proved Probable Proved Probable Ore Tonnes Millions 62 In Situ HM Tonnes Millions 1.9 HM Grade (%) 3.1 Ilmenite Grade (%) 27 Zircon Grade (%) 48 Rutile Grade (%) 4 Change HM Tonnes Millions 3 65 87 46 132 149 48 197 0.1 2.0 5.7 3.4 9.2 7.7 3.5 11.2 2.1 3.1 6.6 7.5 6.9 5.2 7.2 5.7 21 27 57 69 61 49 68 55 54 48 11 10 10 20 11 17 3 4 4 2 3 4 2 3 (0.6) (1.3) (1.8) Notes: (1) Competent Persons - Ore Reserves: A Walkenhorst (MAusIMM). The Ore Reserves were estimated in accordance with the JORC Code (2012 Edition), other than the Ore Reserves for the South West deposits, which have not materially changed and were 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 31 December 2020 and have been depleted for all production conducted to this date. Iluka Resources Limited, Annual Report 2020 157 PHYSICAL, FINANCIAL AND CORPORATE INFORMATION ORE RESERVES/ MINERAL RESOURCES STATEMENT RUTILE ORE RESERVES (SIERRA LEONE) Iluka Rutile Ore Reserve for Sierra Rutile by JORC Category at 31 December 2020 Summary of Ore Reserves for Iluka(1,2,3,6,7) In Situ Mineral Content(4) Country Sierra Leone Region Sierra Leone Total Sierra Leone Ore Reserve Category Proved Probable Ore Tonnes Millions 29 239 268 In Situ Rutile Tonnes Millions 0.4 3.2 3.6 Rutile Grade (%) 1.5 1.3 1.4 Ilmenite(5) Grade (%) - - - Zircon(5) Grade (%) - - - Change Rutile Tonnes Millions (0.1) Notes: (1) Competent Persons - Ore Reserves: A Walkenhorst (MAusIMM). (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 31 December 2020 and have been depleted for all production conducted to this date. (7) The total Ore Reserves for Sierra Leone are stated. As of 31 December 2020, International Finance Corporation (IFC) held a 10% equity stake in Iluka Investments (BVI) Limited, the holding company of Sierra Rutile Limited. Ore Reserves are estimated using all available geological and relevant drill hole and assay data, including mineralogical sampling and test work on mineral recoveries and final product qualities. Reserve estimates are determined by the consideration of all of the “Modifying Factors”, 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 HM content which is traditionally done in reporting HM deposits. Historical data focussed 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 HM can be calculated using the formula: [Rutile tonnes = HM tonnes * Rutile %] that is [11.2*(3/100)] = 0.336 Mt of rutile. The total reported Mineral Resources and Ore Reserves have been stated for Sierra Leone. As at 31 December 2020, International Finance Corporation (IFC) held a 10% equity stake in Iluka Investments (BVI) Limited, the holding company of Sierra Rutile Limited. The Mineral Resources and Ore Reserves for the Sierra Leone rutile deposits attributable to Iluka will be 90% of the stated estimates. For the year ending 2020, HM Ore Reserves decreased by 1.8Mt HM associated with mining depletion and adjustments, down from 13.0Mt HM to 11.2Mt HM. The main factors contributing to the movement in Iluka’s HM Ore Reserves during 2020 include the following: • • The Eucla Basin Ore Reserves decreased by 0.6Mt HM associated with mining depletion, pit optimisation and re-design at Jacinth and Ambrosia. The Perth Basin Ore Reserves decreased by 1.3Mt HM as a result of mine depletion and adjustment at Cataby (-0.3Mt HM) and MSP By-Product Stockpile (-0.1Mt HM) and write down of the Capel South (-0.5Mt HM), Elgin (-0.2Mt HM) and Scotts (-0.2Mt HM) Deposits. 158 Iluka Resources Limited, Annual Report 2020 HM ORE RESERVES MINED AND ADJUSTED Iluka HM Ore Reserves mined and adjusted by country and region at 31 December 2020 Summary of Ore Reserve Depletion(1) Category Active Mines Non-Active Sites Active Mines Non-Active Sites Country Region Australia Eucla Basin Total Eucla Basin Perth Basin Total Total Total Total Perth Basin Active Mines Non-Active Sites Ore Reserves In Situ HM Tonnes Millions 2019 2.6 In Situ HM Grade (%) 2019 3.0 In Situ HM Tonnes Millions Mined 2020 (0.4) In Situ HM Tonnes(2) Millions Adjusted 2020 (0.2) - 2.6 6.8 3.6 10.4 9.4 3.6 - - - 3.0 5.8 13.5 7.2 4.6 13.5 (0.4) (0.6) - (0.6) (1.0) - (0.2) 1.1 (1.7) (0.7) 0.9 (1.7) In Situ HM Tonnes Millions 2020 2.0 In Situ HM Grade (%) 2020 3.1 In Situ HM Tonnes(3) Millions Net Change (0.6) - 2.0 7.3 1.9 9.2 9.2 1.9 - 3.1 6.3 11.4 6.9 5.1 11.4 - (0.6) 0.5 (1.7) (1.3) (0.1) (1.7) 13.0 5.6 (1.0) (0.8) 11.2 5.7 (1.8) Notes: (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 The rutile Ore Reserves for Sierra Leone decreased by 0.1Mt rutile associated with mining depletion and adjustments at Gangama and Gbeni down from 3.7Mt rutile to 3.6Mt rutile. Iluka Rutile Ore Reserves mined and adjusted for Sierra Rutile at 31 December 2020 Summary of Ore Reserve Depletion(1) Country Region Sierra Leone Sierra Leone Total Sierra Leone(4) Category Active Mines Non-Active Sites In Situ Rutile Tonnes Millions 2019 0.6 3.1 3.7 In Situ Rutile Grade (%) 2019 1.3 1.3 In Situ Rutile Tonnes Millions Mined 2020 (0.1) - In Situ Rutile Tonnes(2) Millions Adjusted 2020 0.1 (0.0) 1.3 (0.1) 0.1 In Situ Rutile Tonnes Millions 2020 In Situ Rutile Grade (%) 2020 In Situ Rutile Tonnes(3) Millions Net Change 0.6 3.1 3.6 1.4 1.3 1.3 (0.1) (0.0) (0.1) Notes: (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. (4) The total Ore Reserves for Sierra Leone are stated. As at 31 December 2020, International Finance Corporation (IFC) held a 10% equity stake in Iluka Investments (BVI) Limited, the holding company of Sierra Rutile Limited. Iluka Resources Limited, Annual Report 2020 159 PHYSICAL, FINANCIAL AND CORPORATE INFORMATION ORE RESERVES/ MINERAL RESOURCES STATEMENT HM MINERAL RESOURCES Iluka Mineral Resource breakdown by country, region and JORC category at 31 December 2020 Summary of Mineral Resources for Iluka(1,2,3,7) HM Assemblage(4) Country Region Australia Eucla Basin Total Eucla Basin Murray Basin Total Murray Basin Perth Basin Mineral Resource Category Measured Indicated Inferred Measured Indicated Inferred Measured Indicated Inferred Total USA Total Sri Lanka Total Total Total Total Perth Basin(5) Atlantic Seaboard Measured Indicated Inferred Inferred Atlantic Seaboard(6) Sri Lanka Sri Lanka(7,8) Measured Indicated Inferred Grand Total Material Tonnes Millions In Situ HM Tonnes Millions In Situ HM Grade (%) Ilmenite Grade (%) Zircon Grade (%) Rutile Grade (%) Change HM Tonnes Millions 191 89 65 345 16 88 91 195 471 312 203 986 27 47 16 91 136 136 5.1 8.3 3.2 16.6 4.4 18.5 10.5 33.4 28.2 16.7 10.0 54.9 1.3 2.5 0.5 4.4 9.5 9.5 705 536 511 1752 39.0 46.0 33.9 118.9 2.7 9.3 5.0 4.8 27.6 21.0 11.6 17.2 6.0 5.3 5.0 5.6 4.9 5.3 3.1 4.8 7.0 7.0 5.5 8.6 6.6 6.8 35 67 59 56 62 56 49 54 58 54 56 56 67 64 60 64 65 65 55 58 57 57 40 18 21 25 11 11 10 11 11 10 9 10 9 11 11 10 4 4 14 12 9 12 4 2 2 3 11 14 14 13 5 5 5 5 - - - - 5 5 5 8 7 7 (0.8) - (0.7) - (45.1) (46.5) Notes: (1) Competent Persons - 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) As of 31 December 2020, the total Mineral Resource for Coco stands at 340 million tonnes at 7.0% HM for 24 million tonnes of HM and the Iluka Attributable Mineral Resource stands at 136 million tonnes at 7.0% HM for 9.5 million tonnes of HM reflecting Iluka’s 40% ownership. (8) PQ Deposit removed due to inability to secure continuity of tenure. 160 Iluka Resources Limited, Annual Report 2020 RUTILE MINERAL RESOURCES (SIERRA LEONE) Iluka Rutile Mineral Resources for Sierra Rutile by JORC category at 31 December 2020 Summary of Mineral Resources for Iluka(1,2,3,6) In Situ Mineral Content Country Sierra Leone Region Sierra Leone Total Sierra Leone(6) Mineral Resource Category Measured Indicated Inferred Material Tonnes Millions 90 463 162 715 In Situ Rutile Tonnes Millions 1.2 4.9 1.8 7.9 Rutile Grade (%) 1.4 1.1 1.1 1.1 Ilmenite(5) Grade (%) 0.9 1.0 0.7 0.9 Zircon(5) Grade (%) 0.1 0.1 0.1 0.1 Change Rutile Tonnes Millions (0.3) Notes: (1) Competent Persons - Mineral Resources: B Gibson (MAIG) (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. (6) The total Mineral Resources for Sierra Leone are stated. As of 31 December 2020, International Finance Corporation (IFC) held a 10% equity stake in Iluka Investments (BVI) Limited, the holding company of Sierra Rutile Limited. Mineral Resources are estimated using all available and relevant geological, drill hole and assay data, including mineralogical sampling and test work on mineral and final product qualities. Resource estimates are determined by consideration of geology, HM cut-off grades, mineralisation thickness vs. overburden ratios and consideration of the potential mining and extraction methodology and are prepared in accordance with the 2012 JORC Code. These factors may vary significantly between deposits. For the year ending 31 December 2020, Mineral Resources (excluding the Mineral Resources attributable to the Sierra Rutile) decreased by 46.5Mt HM net of mining depletion and adjustments (exploration discovery, development and write-downs) down from 165.4Mt HM to 118.9Mt HM. The change in Mineral Resources for 2020 was driven by the following: • • • Eucla Basin Mineral Resources decreased by 0.80Mt HM as a result of mining depletion and write-down at Ambrosia (-0.27Mt HM) and Jacinth (-0.24Mt HM) and updated resource estimation at Atacama (-0.29Mt HM). The Perth Basin Mineral Resources decreased by 0.66Mt HM as a result of re-estimation, mining depletion and write-down at Cataby (-0.62Mt HM) and of mining depletion of the MSP By-Product Stockpile (-0.05Mt HM). Sri Lanka Mineral Resources decreased by 45.1Mt HM resulting from write-off of the PQ Deposit (-30.7Mt HM) due to the inability to secure tenement continuity and recognition of Iluka retaining a 40% ownership of the Coco Deposit (-14.3Mt HM). The rutile Mineral Resources for Sierra Leone decreased by 0.26Mt rutile, associated with mining depletion for Gbeni (-0.06Mt of rutile), mining depletion and write down for Gangama (-0.13Mt of rutile ), write-off of the Mogbwemo Tails (-0.09Mt of rutile) and adjustments for Kamatipa (-0.01Mt of rutile) and Komende (0.02Mt rutile). Iluka Resources Limited, Annual Report 2020 161 PHYSICAL, FINANCIAL AND CORPORATE INFORMATION ORE RESERVES/ MINERAL RESOURCES STATEMENT HM MINERAL RESOURCES MINED AND ADJUSTED Iluka Mineral Resources mined and adjusted by country and region at 31 December 2020 Summary of Mineral Resource Depletion(1) In Situ HM Tonnes Millions 2019 4.2 13.3 17.4 - 33.4 33.4 13.7 41.9 55.6 - 4.4 4.4 - 54.6 54.6 17.9 147.5 In Situ HM Grade (%) 2019 2.3 7.5 4.8 - 17.2 17.2 4.5 6.1 5.6 - 4.8 4.8 - 8.1 8.1 3.6 8.1 In Situ HM Tonnes Millions Mined 2020 In Situ HM Tonnes(2) Millions Adjusted 2020 In Situ HM Tonnes(4) Millions 2020 In Situ HM Grade (%) 2020 In Situ HM Tonnes(3) Millions Net Change (0.4) - (0.4) - - - (0.6) - (0.6) - - - - - (1.0) - (0.1) (0.3) (0.4) - - - 0.8 (0.8) (0.1) - - - - (45.1) (45.1) 0.7 (46.2) 3.7 13.0 16.6 - 33.4 33.4 13.9 41.0 54.9 - 4.4 4.4 - 9.5 9.5 17.6 101.3 2.2 7.3 4.8 - 17.2 17.2 4.6 6.0 5.6 - 4.8 4.8 - 7.0 7.0 3.7 7.9 6.8 (0.5) (0.3) (0.8) - - - 0.2 (0.8) (0.7) - - - - (45.1) (45.1) (0.3) (46.2) (46.5) 165.4 7.1 (1.0) (45.5) 118.9 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 Country Region Australia Eucla Basin Total Eucla Basin Murray Basin Total Murray Basin Perth Basin Total USA Total Sri Lanka Perth Basin Atlantic Seaboard Atlantic Seaboard Sri Lanka Total Sri Lanka(4,5) Total Total Total Active Mines Non-Active Sites Mineral Resources Notes: (1) Rounding may generate differences in last decimal place. (2) Adjusted figure includes write-downs and modifications in mine design. (3) (4) As of 31 December 2020, the total Mineral Resource for Coco stands at 340 million tonnes at 7.0% HM for 24 million tonnes of HM and the Iluka Net difference includes depletion by mining and adjustments. Attributable Mineral Resource stands at 136 million tonnes at 7.0% HM for 9.5 million tonnes of HM reflecting Iluka’s 40% ownership. (5) PQ Deposit removed due to inability to secure continuity of tenure. 162 Iluka Resources Limited, Annual Report 2020 RUTILE MINERAL RESOURCES MINED AND ADJUSTED (SIERRA LEONE) Iluka Rutile Mineral Resources mined and adjusted for Sierra Rutile at 31 December 2020 Summary of Mineral Resource Depletion(1) In Situ Rutile Tonnes Millions 2019 1.7 6.5 8.2 In Situ Rutile Grade (%) 2019 1.2 1.1 In Situ Rutile Tonnes Millions Mined 2020 (0.1) - In Situ Rutile Tonnes(2) Millions Adjusted 2020 (0.6) 0.5 1.1 (0.1) (0.1) In Situ Rutile Tonnes Millions 2020 In Situ Rutile Grade (%) 2020 In Situ Rutile Tonnes(3) Millions Net Change 1.0 7.0 7.9 1.3 1.1 1.1 (0.7) 0.4 (0.3) Country Region Sierra Leone Sierra Leone Total Sierra Leone(4) Category Active Mines Non-Active Sites Notes: (1) Rounding may generate differences in the last decimal place. (2) Adjusted figure includes write-downs and modifications in mine design. (3) Net difference includes depletion by mining and adjustments. (4) The total Mineral Resources for Sierra Leone are stated. As of 31 December 2020, International Finance Corporation (IFC) held a 10% equity stake in Iluka Investments (BVI) Limited, the holding company of Sierra Rutile Limited. Iluka Resources Limited, Annual Report 2020 Sierra Rutile, Sierra Leone 163 PHYSICAL, FINANCIAL AND CORPORATE INFORMATION ANNUAL STATEMENT OF MINERAL RESOURCES AND ORE RESERVES The Annual Statement of Mineral Resources and Ore Reserves as at 31 December 2020 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 as disclosed in the announcement dated the 20 February 2017. Information prepared and disclosed under the JORC Code 2004 Edition and which has not materially changed since last reported has not been updated. Iluka is not aware of any new information or data that materially affects the information included in this Annual Statement and confirms that 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 MINERAL RESOURCES AND ORE RESERVES CORPORATE GOVERNANCE 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 Andrew Walkenhorst who is a Member of the Australasian Institute of Mining and Metallurgy (MAusIMM). Mr Gibson and Mr Walkenhorst are full time employees of Iluka Resources. Mr Gibson and Mr Walkenhorst 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 Walkenhorst consent to the inclusion in this report of the matters based on his information in the form and context in which it appears. The information in this report that relates to specific Mineral Resources and Ore Reserves is based on and accurately reflects reports compiled by Competent Persons as defined in the JORC Code 2012 for each of the company regional business units. Each of these persons is a full-time employee of Iluka Resources Limited or its relevant subsidiaries, holds equity securities in Iluka Resources Limited and is entitled to participate in Iluka’s executive equity long term incentive plan, details of which are included in Iluka’s 2020 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 2020. 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). 164 Iluka Resources Limited, Annual Report 2020 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 (PricewaterhouseCoopers). Iluka has continued the development of internal systems and controls in order to meet JORC (2012) guidelines in all external reporting, including the preparation of all reported data by Competent Persons as members of The Australasian Institute of Mining and Metallurgy (The AusIMM), The Australian Institute of Geoscientists (AIG) or Recognised Overseas Professional Organisations (ROPOs). The establishment of an enhanced governance process has also been supported by a number of process improvements and training initiatives over recent years, including a Web based group reporting and sign-off database, annual internal Competent Person reports and Competent Person development and training. SHAREHOLDER AND CORPORATE INFORMATION As at 31 January 2021 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 422,769,681 shares on issue as at 31 January 2021. A total of 199,955 ordinary shares are restricted pursuant to the Directors, Executives and employees share acquisition plan, equity incentive plan and employee share plan. SHAREHOLDINGS There were 21,247 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 Range 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 Parcels TOP 20 SHAREHOLDERS (NOMINEE COMPANY HOLDINGS) Name HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED CITICORP NOMINEES PTY LIMITED NATIONAL NOMINEES LIMITED BNP PARIBAS NOMS PTY LTD (DRP) UBS NOMINEES PTY LTD BNP PARIBAS NOMINEES PTY LTD (AGENCY LENDING DRP A/C) HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED (NT-COMNWLTH SUPER CORP A/C) NETWEALTH INVESTMENTS LIMITED (WRAP SERVICES A/C) HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA CITICORP NOMINEES PTY LIMITED (COLONIAL FIRST STATE INV A/C) R O HENDERSON (BEEHIVE) PTY LIMITED UBS NOMINEES PTY LTD BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD (DRP A/C) ONE MANAGED INVT FUNDS LTD (SANDON CAPITAL INV LTD A/C) CS THIRD NOMINEES PTY LIMITED (HSBC CUST NOM AU LTD 13 A/C) NEWECONOMY COM AU NOMINEES PTY LIMITED <900 ACCOUNT) HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED BNP PARIBAS NOMINEES PTY LTD (IB AU NOMS RETAILCLIENT DRP) MR ANGUS MACKAY Number of shares 168,425,483 99,059,272 42,794,729 20,180,003 11,911,286 10,435,936 7,225,969 2,762,644 2,055,698 1,250,195 1,164,725 1,080,000 608,260 581,030 558,155 553,635 542,679 505,804 501,906 481,250 SUBSTANTIAL SHAREHOLDERS (AS PROVIDED IN DISCLOSED SUBSTANTIAL SHAREHOLDER NOTICES TO THE COMPANY) Total holders 12,243 7,146 1,140 668 38 12 (less than $500) - 1,822 % units 39.84 23.43 10.12 4.77 2.82 2.47 1.71 0.65 0.49 0.30 0.28 0.26 0.14 0.14 0.13 0.13 0.13 0.12 0.12 0.11 Shareholder Perpetual Investment Management Limited Sumitomo Mitsui Trust Holdings, Inc. BlackRock Group Vanguard Group Aware Super Pty Ltd Schroder Investment Management Australia Limited Shareholding % of issued capital 52,080,085 40,106,390 33,198,095 25,373,149 21,589,552 21,142,530 12.32% 9.49% 7.85% 6.00% 5.11% 5.00% Iluka Resources Limited, Annual Report 2020 165 CALENDAR OF KEY EVENTS 25 February 9 March 5:30pm (WST) 23 April 27 April 9:30am (WST) 29 April 9:30am (WST) 22 July 25 August 21 October 31 December Announcement of financial results Close of nominations March quarterly review Closure of acceptances of proxies for AGM Annual General Meeting June quarterly review Announcement of half year financial results September quarterly review 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: www.iluka.com 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 17, 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 Ltd Level 11, 172 St Georges Terrace Perth WA 6000 Telephone: 1300 733 043 (within Australia) or +61 3 9415 4801 (outside Australia) Facsimile: +61 3 9473 2500 Postal address GPO Box 2975 Melbourne VIC 3001 Website: www.investorcentre.com/au 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 holding statements and dividend statements. 166 Iluka Resources Limited, Annual Report 2020 CORPORATE INFORMATION COMPANY DETAILS REGISTERED OFFICE WEBSITE Iluka Resources Limited ABN: 34 008 675 018 Level 17, 240 St Georges Terrace Perth Western Australia, 6000 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 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 66th Annual General Meeting of Shareholders will be held on Thursday, 29 April 2021 commencing at 9:30am (WST). In line with the Federal Government’s proposed legislation to extend relief facilitating virtual meetings, and having regard to the uncertainty and potential health risks associated with large gatherings during the COVID-19 pandemic, there will not be a physical venue for shareholders to attend but shareholders will be able to participate in the meeting online. Shareholders are nevertheless encouraged to lodge proxy votes in advance of the meeting to ensure that their voting instructions will be received and votes cast, and to monitor the Company’s website and ASX platform in case any alternative arrangements become necessary. CLOSE OF NOMINATIONS All nominations for election as a director at the 66th Annual General Meeting of Shareholders must be received in writing no later than 5:30pm (WST) on Tuesday, 9 March 2021 in order to be valid under Iuka’s constitution. 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. While these forward-looking statements reflect Iluka’s expectations at the date of this report, they are not guarantees or predictions of future performance or statements of fact. 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. Forward-looking statements are only predictions and are subject to known and unknown risks, uncertainties, assumptions 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. Except as required by applicable laws or regulations, Iluka does not undertake to publicly update or review any forward-looking statements, whether as a result of new information or future events. Iluka cautions against reliance on any forward-looking statements or guidance, particularly in light of the current economic climate and the significant volatility, uncertainty and disruption arising in connection with COVID-19. Information on likely developments in the Group’s business strategies, prospects and operations for future financial years and the expected results that could result in unreasonable prejudice to the Group (for example, information that is commercially sensitive, confidential or could give a third party a commercial advantage) has not been included below in this report. The categories of information omitted include forward-looking estimates and projections prepared for internal management purposes, information regarding Iluka’s operations and projects, which are developing and susceptible to change, and information relating to commercial contracts. 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. Iluka Resources Limited, Annual Report 2020 167 Tutunup South, Western Australia Jacinth-Ambrosia, South Australia 168 Iluka Resources Limited, Annual Report 2020 Cataby, Western Australia Narngulu, Western Australia 169 Iluka Resources Limited, Annual Report 2020 www.iluka.com A B N 3 4 0 0 8 6 7 5 0 1 8 Narngulu, Western Australia 

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