Good day, and thank you for standing by. Welcome to Iluka Resources FY 2025 results. At this time, all participants are on listen- only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you'll need to press star one one on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Tom O'Leary, Managing Director of Iluka Resources. Please go ahead.
Good morning! I have Adele Stratton and Luke Woodgate with me in Sydney this morning. Thanks for joining us. I'll keep my opening short, and then we'll go straight to questions. The full result we've published this morning was really pre-reported and discussed at our quarterly review back on 29 January, a few weeks ago. While there's been some incremental progress since then, the key takeaways are the same. In mineral sands, we expect to have greater clarity around the market outlook post-Chinese New Year for zircon and ahead of the North American coating season for titanium dioxide feedstocks. Since we last spoke, we've maintained price and locked in some additional contracted zircon sales, which for the first quarter now stand at 41,000 tons of sand and 11,000 tons of zircon concentrate.
All of the industry developments I outlined at the quarterly, Rio Tinto's review of its titanium feedstocks business, the rationalization of global pigment capacity, the impact of anti-dumping duties on Chinese exports, and the operational settings adopted by other mineral sands producers, continue to play out and remain likely to influence outcomes in 2026. Iluka is well placed to respond to a range of scenarios in the context of our AUD 1.1 billion inventory position, diversified product suite, and Australian operating base. Slide 7 in today's pack expands on the uses of funds expected during 2026. As you can see, it's a significant step down from last year, being over AUD 600 million lower.
This is the result of cost reduction measures enacted late last year, including the decision to idle Cataby and SR2, and the conclusion of capital investment in the Balranald development. Turning to Balranald, you'll recall we commenced mining on one rig in January. The second rig will commence in February, after which we'll be mining on both. Ramp-up will occur over the first half, with investment case production targeted for mid-year. Heavy mineral concentrate will be transported to our Narngulu mineral separation plant for further processing, with the first finished mineral sands products from Balranald to enter the market in the second half. Balranald's rare earths will be transported to Eneabba to await refining. And that brings us to the rare earths business in the Eneabba refinery, where construction continues to progress well and will accelerate over the next year ahead of commissioning in 2027.
Engineering is now over 95% complete. Equipment continues to arrive at site for early placement, and SMPEI contracts will be awarded over the coming months. Not long after the quarterly, we saw some further announcements from the U.S. government and commentary from the Australian and other governments regarding international cooperation to diversify the supply chain, including in relation to potential price support. These developments are obviously of interest to Iluka. They're tailwinds for our rare earths business. Nevertheless, as I said a few weeks back, we're focused on building that business to be commercially sustainable for decades. Construction, commissioning, operational performance, off-take, and feedstock longevity are all vital to this endeavor, and we look forward to continuing to update you on our progress.
To reiterate, upon commissioning next year, Eneabba will be one of the few rare earths refineries operating outside of China, a multi-decade infrastructure asset capable of processing a diverse range of feedstocks from Australian and international projects and producing both light and heavy separated rare earth oxides. I appreciate there's a bit of repetition from the quarterly and what I've just covered. The materials we've put out this morning included some updated visuals of Balranald and Eneabba, which we hope are helpful and give some color to the exciting times ahead. With that, over to you for questions.
Thank you. To ask a question, please press star one one on your telephone keypad, and to withdraw your question, please press star one one on your telephone. Just a moment for our first question, please. First question comes from Paul Young, from Goldman Sachs. Please go ahead.
Morning, Tom, Adele, and Luke. Hope you're well. Thanks for doing this call, and thanks for putting the cashflow stack chart on Slide 7. That's pretty helpful. Adele, just a few additional questions on cashflow and other items for this year, just to sort of step through some different scenarios. Can you firstly just talk about the working cap position? I think you've got receivables of about AUD 300 million, and also payables of about AUD 270 million, which there's a bunch of accruals in there, I presume, for the Eneabba CapEx. But just on the receivables and the unwind, how do you see receivables unwinding over the course of the year?
Yeah, great question, Paul. Look, so we're already starting to see that. So our net debt position at the end of January is down to AUD 420 million for the mineral sands business.
So, you know, those receivables will start to unwind to more normalized levels over the next month or two. As you've noted in the payables, you know, there's, because of those two big capital projects, you know, there's elevated levels of capital accruals, but once again, Balranald coming to the end, so you'd see that pushing through. So it, you know, the purpose of the new slide that we've put in is to really show that step down from 2025. You know, we're not deploying such significant amounts of capital in 2026, and, you know, that's obviously clearly very material.
Yep, great. Just a few smaller items. I know you always do FX hedging, and I think you're at $200 million of hedging in place at AUD 0.68 or so for the year. Just wanted to hear your comments on that, if that's correct. And then, also, just with anything we should think about tax rebates or anything cash tax-related? I mean, you know, and the reason for the specifics, I'm just trying to really nail down the cash flow scenarios for the year.
Yeah, great question. So in terms of exchange, you know, our approach to FX hedging is normally looking at your contracted sales. So, you know, we don't do speculative hedges, so we look at what contracted sales we have and put hedging in place for that. And as you rightly have pointed out, we've got $200 million of hedges covering 2026 at the moment. And we've done those as collars and caps, so I think it's got a $0.63 floor and $0.685 ceiling. So as we progress through 2026, we'll continue to do that sort of hedging approach to ensure that, you know, you're quite conservative in terms of forecasting your cash income from your revenue.
I think just on sensitivity, you know, for any, a lot of people ask, well, how sensitive are you to exchange? As you'd be fully aware, Paul, most resource companies price their products in U.S. dollars, so they do have exposure for every U.S. $100 of revenue. You know, that's about a AUD 2 million Aussie FX impact for each AUD 0.01 change in the exchange rate, but, you know, we've got the hedging in place. Coming to.
Thanks for that.
Tax.
Tax rebate, yeah.
We've got a tax refund due in the first half, so as a result of some of those accounting adjustments that we put through in December, so specifically the inventory write-down, you actually get a tax credit for that. On the balance sheet, you'll see a current tax asset of about AUD 52 million. That cash will come through in H1. And, you know, depending on earnings in 2026, your installments will start in the second half.
Great. Okay, thank you. So it seems like plenty of headroom. I noticed some other facilities with about AUD 250 million of undrawn as well, so that's great. And then, maybe just turning to Balranald, just briefly. I know that, you know, really good picture there of the, you know, the ore slash, you know, pure HMC on the, on the ground. Tom, just to share exactly how the mining unit is performing, any, like, operating data you can share with us with respect to, you know, uptime, you know, utilization, you know, production rates versus, versus plan? Anything you can share with us?
It's probably a little bit early to be specific about that, Paul. We've had the one mining rig up from January, and, you know, and we're experiencing the usual commissioning hiccups along the way, but we're pretty pleased with the extraction rates, which have been, at times at investment case levels. And, we're now getting the next mining rig, operating really probably in the next week or so. So pretty pleased with how it's progressing generally, and, really on track to be at investment case rates, by the middle of the year.
Okay. All right. Excellent. Thanks very much.
Pleasure.
Thank you. Just a moment for our next question, please. Next, we have Rahul Anand from Morgan Stanley. Please go ahead.
Hi, good morning, Tom, Adele. Thanks for the call. Look, for my two questions, the first one I'd like to cover on markets, and then the second one on any other, perhaps an update on the offtake. So I guess the second one's for Adele. So for the first one, just wanted to touch upon zircon and TiO2 markets, Tom, and if there's others on the call. Firstly, on zircon, obviously your sales for zircon this year would be a significant bit lower. Do you think that void gets filled in, and perhaps does that create any sort of tightness or improvement in demand on the zircon side?
And then, for the TiO2 side, I mean, obviously, we're waiting for that U.S. housing recovery, but, is there perhaps a read on sort of where inventories fit on the feedstock or the downstream side for the pigment guys as well, for them to be able to kind of, deliver into that upswing into the housing cycle in the U.S.? I'll come back with my question on any other for Adele. Thanks.
Sure. So on zircon, no, I don't think our decline in zircon sales is going to have a significant tightening impact on the market. You know, we're pleased to see the sales we're achieving in the first quarter. There's still, I think, pretty solid demand for premium zircon and you know, we continue to see that persist over the last couple of years, I expect it to continue. On titanium, look, we, like you, are looking forward to the recovery in the Northern Hemisphere. There seems to be a bit of optimism about recovery, but as I said on the call a few weeks ago, you know, it's really a bit early to be weighing into that optimism at this stage. Let's just see how it plays out.
Your other question was?
Inventory.
Oh, inventory. Yeah.
Um.
Look, I think in the, s orry, go on, Rahul.
No, sorry. I was saying that's on inventory, but you already picked that up, so please go ahead.
Yeah. Look, not a lot to add on inventories to what we've said in the past. You know, there's not a lot of inventory in the paint end of the supply chain. In the pigment producers, I don't think are holding a lot of inventory of pigment. You know, some are holding inventories of feedstock, but it's, you know, it's different among different players. So I think there's, you know, a potential for a pretty rapid uptick in demand for our products when we see that pull through in from construction activity in the north.
Got it. Perfect. Thanks, Tom. Second one's perhaps for Adele. Adele, just perhaps an update on those conversations in terms of offtakes, how they're progressing, and any sort of color you can add in terms of, I guess, what you guys are looking for, and what the companies you're talking to want, and perhaps, you know, what are some of the topics being discussed in terms of arriving at an offtake. And then just as a second part of that question, are there any specific requirements in terms of, I guess, minimum volumes or price, et cetera, in the offtakes that you require for the funding?
Yeah, let me, let me deal with the second part of that question first, Rahul. So in terms of the funding that we have with the Commonwealth, the clause within the second tranche of the Export Finance Australia facility just says, offtake sort of satisfactory to the government, so there's no more specificity than that. So no volume, no price, no duration, you know, it really is what is satisfactory. And, you know, as you can imagine, we work very closely with our strategic partnerships, and, you know, the world is forever changing in this space, is what I'd say.
Just coming back to the offtake question more broadly, I think, you know, we've probably touched on this before in terms of this has been, I'd call it a marathon and not a sprint in terms of, you know, when we entered this market back in 2022, we were very clear that we'd be entering the market in a very different manner to all the other players in the market at that time. And that being that everybody else priced their products based on the Asian Metal Index, so a price linked to China. And from the very outset, you know, we didn't want to tie our P&L to Chinese government policy. And hence, you know, we've been introducing the concept of a different pricing mechanism.
And, you know, I think we've touched on this, that that can be quite a variety of different types of contracts. So it could be fixed pricing, it could have floor prices, it could have floor and ceilings. You know, there's a number of different ways to skin the cat. And that's really what we've probably spent the first 18 months discussing, is a different approach to market. You know, those discussions have most definitely been helped by the deal that MP Materials struck with the U.S. administration around putting in place floor prices, and, you know, that's specific to the light rare earth, so just the NdPr. But I think, you know, that really crystallized for a lot of potential customers that there are different ways to play in this market. And we've had good traction to date, but that was probably a bit of a catalyst.
So, you know, coming back to where we are now, we have a range of different conversations with a range of different customers. Rahul, they all have different strategies and methodologies that work better for them. But, you know, we are really focused around delivering sustainable returns that are commercial. So, you know, really looking at what is the cost of new feedstock into the refinery. So not really reflecting than any other stockpile, because, you know, as a result of history, that sits on our balance sheet at zero cost. But, you know, we want to create a sustainable business, so we focus on the cost of new supply into the refinery and ensuring we achieve appropriate returns. So, you know, as I've said a couple of weeks ago, really confident that we'll have some contracts in place in 2026.
You know, unfortunately, I can't really give a, you know, blow-by-blow as to, with whom and for how much, et cetera. The contract's never really done until it's signed, but, yeah, I have confidence that we'll get there.
Excellent. No, that's very clear and, helpful. Thank you, Adele.
Thank you. Next question comes from Glyn Lawcock from Barrenjoey. Please go ahead.
Morning, Tom, and thanks again for making the time. Just a couple of quick questions. Firstly, just on Balranald. I know you, I think you made a comment in your opening remarks that you hope to have first finished product to enter the market in the first half. But it, it may be a moot question, but have you actually produced any finished product yet, over in the West, or is it still in transit?
No, Glyn, I said second half, that it would be.
Oh, sorry.
In the market. Yes. So no, we haven't got finished product in the West yet. It's still in Balranald. So those stockpiles you see on the in the deck are still in Balranald.
Okay, so then we'll have to wait, what, another month or two before we know how it processes, or is that the least of your worries?
Just looking at it, you can see that the material really just passing through the concentrator is kind of looking like a high-quality product already. It's, you know, the grades we've seen haven't disappointed, so yeah, I don't think we've got concerns about how it's gonna process at all. In fact, we have processed some in the past, so it's not really a risk on the register, if you like.
Yep. No, that's great. And just second question, just on your comments in the release about Eneabba, and it would appear contingency's gone down a little bit from AUD 270 million to AUD 235 million. Just two-part question: Just what's changed? Like, what, what's eaten into the extra AUD 35 million, if I'm correct? And then secondly, you obviously tendering for your remaining work packages, will award them this half. Feels like a little bit like what, what's happening with South32 last week, but just any early indications, should we, should we be concerned on anything you're seeing in those tenders? Thanks.
No, I don't think so, Glyn. You know, we've always said that the SMPEI arrangements were the larger. They're obviously the largest of the construction contracts, and we're looking forward to getting those done this half. No, I wouldn't say I was concerned about them, but you know, it's a you know, concern is an interesting one. You know, when we're building a refinery, it's kind of a heightened state of attention for the entire duration, and that's the way it needs to be to ensure that we remain on track.
You know, the utilization of, you know, AUD 35 million of that amount dedicated to, you know, contingency growth and so on, is really not material in the context of the overall project. So again, not alarmed by that.
Yep. No, that makes sense. Thanks, Tom.
Thank you.
Thank you. Just a moment for our next question, please. Next, we have Austin Yun from Macquarie. Please go ahead.
Morning, Tom and Adele. Just an extension to the question from Glyn. For the remaining AUD 235 million contingency, where is the residual kind of, you know, for the component, where is most likely to be deployed, as you continue with the project? Thank you.
Yeah, Austin, just in terms of capital projects, you know, you'd be very aware in terms of obviously, when you're setting your budgets, you have your input costs in terms of your materials, your labor, your schedules, and within that, you always allow for growth, contingency, and escalation, which is what the AUD 235 million relates to. In terms of where do I expect that to be consumed, I think really what people should be taking from what we've announced today is that, you know, we've now spent and committed well over 60% in terms of where the project's at, and you've still got a really, really healthy contingency for the remaining spend to come. So, you know, there's no particular point whereby I think all that might be consumed here or there. That's just really prudent project management.
So, you know, this number will ebb and flow every day. You know, it goes up and down, depending on sort of where the contracts are at and sort of volumes of offtakes, et cetera. So, you know, I think the takeaway from what we've announced should be a real confidence around the capital range of AUD 1.7 billion-AUD 1.8 billion is really what the takeaway should be.
Yeah, totally agree. Thank you, Adele. Just a second one, quick one on the cash flow management into 2026. I can see all those efforts to reveal the cash spend, and yeah, the slide was really a good one on Page 7. Just given the current net debt level, keen to understand if there has been any changes in the thinking around new banking facilities, given, you know, the company offers deep exposure. Does that really align to, you know, pivoting to a critical minerals-focused company? And also, like, I believe, Deterra indicated yesterday that, you know, the shareholder return will be, you know, stay around 75%-100%.
Yeah, just wondering how to think about that take, given you try to, you know, unlock cash to support the business to, you know, pushing towards the critical minerals space. Thank you.
Yeah, thanks, Austin. There's not a lot to add to our, you know, previously stated position that, you know, it's, it's not regarded as core business, just for the avoidance of doubt, you know, royalties and so on, as for Iluka. But the key is that, to divest that stake would attract pretty, significant capital gains, given the, tax cost base there. So, it's a, it's an expensive form of capital, so I, I think unlikely, to be utilized. But it, it is there and provides comfort to, to counterparties, to lenders, to shareholders, and so on.
Thank you, Tom. Adele.
Thanks, Austin.
Thank you. Next, we have Chen Jiang from Bank of America. Please go ahead.
Good morning, Tom and Adele. Thank you for taking my question. Just on any other project, 95% engineering is down, 60% of CapEx has been spent and committed. I'm wondering, when is the peak construction in 2026? And how long would it take from peak construction to code commissioning? Thank you.
Yeah, I mean, peak construction is very much approaching us. I think we've disclosed we've got some 600 people on site, on rotation, obviously, but some 600 people working at Eneabba. And that will increase somewhat over the second half of this year. So you should expect peak construction second half of this year, beginning of next, moving into commissioning later in 2027.
Right. Thank you. So, and then, CapEx, I guess, given 60% already spent, you must be very comfortable with your CapEx outlook over the next 12 months with, you know, in parallel with how you construct construction or peak construction.
Yeah. Comfortable is probably too close to complacent in the dictionary, so I wouldn't say that, Chen. I'd just go back to my earlier comment that, you know, managing a project like this, you know, you need to have a heightened state of attention throughout to ensure that we meet our targets in terms of capital expenditure, and that's precisely what we're doing.
Right. Okay. Thank you. Thanks, Tom. I'll pass down.
Thanks, Chen.
We have a follow-up question from Paul Young from Goldman Sachs. Please go ahead.
Yeah. Hi, Tom, Adele again. Just a question on inventories and just possible drawdown of that, just noting that finished inventories of zircon, rutile, SR are now sitting around 380,000 tons, and they go up from 320,000 or so from mid-year. So sort of makes sense based on just looking at production and sales, obviously, over the last six months. Just curious around first of all, specifically the zircon component in that, because I think SR is probably around 150,000. Just wondering where zircon inventories sit within that. And actually, an extension to just overall operating parameters for the year and just how you manage costs in general. We haven't really spoken about JA, and just the operating sort of strategy down there.
Is your operating strategy on JA just to run it full tilt, you know, at the 10 million ton sort of ore throughput rate? Or have you got some flex around sort of costs and optimizing cost to JA?
Yeah, Paul, happy to take both of those. So in terms of inventory position, as you say, you know, we've highlighted that on Slide 8 in terms of where we're at on finished goods. So, you know, rightly so, 379,000 tons. We generally try not to give breakdowns in terms of, you know, the mix of that pool just from a competition perspective. But as you say, you know, we have guided that we've got 110,000 tons of SR sales in 2026, and we've also noted that, you know, we're not running the kiln. So, you know, one can deduce that all of that sales volumes are coming out of inventory. So, you know, we are certainly looking to draw down inventory in 2026, and that obviously supports cash generation.
You know, you've already spent the money on producing this material, so it's really the next step in liberating cash. And, you know, I think we're very well-positioned coming to your question around the common JA. Generally, when we're running our operations, we do run them at full capacity in order to optimize unit costs. You know, Jacinth-Ambrosia is coming towards the end of its life, and you know, as you're fully aware, the team are very focused on the Typhoon project, which, you know, provides a couple of years extension to Jacinth-Ambrosia. So that's a big focus for the team. But yeah, in 2026, our cost outlook assumes that JA is running at full tilt, and, you know, a real driver of that is also to generate that zircon premium, as Tom talked to earlier.
You know, we still see good, strong demand in the premium market. There's not huge amounts of premium all over the place. So yeah, JA premium is very desired in the market.
Okay, great. Thank you. Just, one final question. Just on third party, you obviously have the Lindian agreement in place and the investment in, in Northern Minerals. Is there any update on Northern Minerals? There's a lot going on at the corporate level with that, with that company, but, you know, I've got some, some additional funding, a government funding for, for, you know, their, their project in, in Northern Territory. Any, any update on just how that project's tracking and, and potentially when it could be coming into production?
So, so look, yeah, Paul, you know, as you say, Northern Minerals released the definitive feasibility study, sort of, I think it was third quarter, early fourth quarter last year. And on the back of that, you know, have been very successful in achieving sort of funding through the U.S. And so really, you know, the job of the management team there is to continue to get that project fully funded, to enable them to take the FID. I think there will always be noise around the share register, you know, this is a unique deposit globally. I know that we've talked about this in terms of just the high assemblage of heavy rare earths. And, you know, that's really quite interesting because what we're seeing in more recent times of in China, is a bifurcation of heavy rare earths pricing in China.
So it's much cheaper if it's ex works and stays in country than, you know, when it's exported. So, you know, this focus on ability to secure heavy rare earths, I can imagine that will continue to be a focus globally. Tom, anything to add there?
You know, I think that's pretty comprehensive, Adele. I think we're really pleased to see they've had the expression of support from the U.S. and Australian government, and we'll obviously do what we can to support their achievement of FID in a timely way. It's a very attractive deposit for the West's independence in terms of supply chain for heavy rare earths and an important development.
Okay. Thank you.
Thanks, Paul.
As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Next question comes from Dim Ariyasinghe from UBS. Please go ahead.
Thanks for the call, guys. Just a quick one. Can you explain what you said?
Dim, Dim, we can't hear you. Sorry.
Oh, really? Sorry about that.
Very faint.
Is that better? Sorry.
Thank you.
Yep, hopefully. Thanks. Can you just refresh us just really quickly on what you've said on commissioning in terms of the timeline for that? And then just in terms of the offtake, you know, has the idea of prepayments come up? Is that something that we should increasingly think about, or can we think about that?
Look, I'll hand over to Adele around prepayments and so on for offtakes. You know, we think about a lot of things, Dim, but we're pretty focused on selling the product and getting cash for the sale. But in terms of commissioning, we've talked about the mid-next year, we'll be in commissioning at Eneabba. So no real change or update on that. Anything to add on offtakes, Adele?
Yeah. No, not really in terms of prepayments. No. Is that a big focus? Not really, Dim. You know, as there's always trade-offs in terms of, you know, different payment terms or prepayments and all of those types of things. We're very focused, as I said at the outset, in terms of putting in place commercial contracts that underpin longevity of the refinery. So, so yeah, you know, it, it's not been a particular focus at all for us.
Understood. Sorry, not commissioning, ramp up, like when, I presume, you know, like what's that ramp-up period look like? And I presume that'll just be the stockpile at first.
Yeah. In terms of the refinery and the commissioning, you know, obviously there's a number of stages to that commissioning of any plant, Dim, you know, including, you know, initially do your wet commissioning and then introduce your product. I think we've talked before in terms of, when you start to introduce, your organics into the plant, then, you know, that can take three to six months to work its way all the way through into the separation and finishing. And then there's a ramp-up curve. We use McNulty curves, different curves, to be perfectly frank. So I think historically it was said to get from commissioning all the way to full ramp-up is about a two-year period, you know, to full ramp-up. But yeah, very much, you know, as Tom's articulated, commissioning in mid-2027.
Yeah, and Dim, just, you asked on Balranald, sorry, on Eneabba. We'll be using Eneabba monazite to be commissioning the plant, exclusively for that period.
Cool. Thank you. Cheers.
Thank you. Well, look, I think that's all the call, that's all the questions we have. So, thank you all for joining us. Really look forward to catching up in person over the coming days and weeks. Bye for now.
This concludes today's conference call. Thank you for participating. You may now disconnect.