Australia | Jun 22 2007
By Greg Peel
“Phew!”, says Credit Suisse. The commissioning of the Iluka’s (ILU) Murray Basin mineral separation plant, which was meant to be complete by the second quarter of 2005, has been achieved. Better late than never it would seem.
Says CS: “Certainly a (very) positive outcome for a company that has (previously) been unable to meet its promises”.
Iluka has confirmed its previous guidance for production of 110kt of zircon and 70kt of rutile in 2007. This is doubly good news. Not quite so good news is some brokers were expecting more from 2008 guidance, however this issue is compensated by the announcement that the company has gone a long way to solving its water problems. It will instigate more water efficient mining practises, including more recycling, and will next month commission a new bore field near the Douglas mine which should underpin water resources out to 2012.
Attention now turns to the August interim result, when the company is expected to unveil its restructuring plan. More good news, in that Iluka appears to be addressing its operational issues.
Well, that’s it for the good news.
Iluka is one of those stocks that has polarised analysts. Consider that the B/H/S ratio in the FNArena database is 3/4/3. But more strikingly, an average target price of $6.50 (last close $6.40) is achieved on a 57% spread from $4.80 (Macquarie; Underperform) to $8.50 (Merrill Lynch; Buy). Neither broker reported on Iluka this morning.
Merrills was looking forward to strong 2008 production when it last reported in May. Macquarie all but gave up on the stock in April citing currency concerns, rising costs and a topping out zircon price.
GSJB Were maintained its Underperform (L/T Sell) rating this morning. Murray Basin might be good news, but why haven’t we heard an update on costs at Douglas? asks Weres. Moreover, Weres believes the zircon price has peaked and the pigment market is oversupplied. Then there are the currency concerns.
Those analysts with positive views claim to have accounted for the Aussie, but UBS (Neutral) has put things in perspective this morning. At last count, the Aussie was trading above US$0.8450 with, one might say, a bullet. The 2007 year-to-date average is US$0.81. At present, Iluka has guided for 2007 earnings of $90-100m. This is based on an assumed 2007 average Aussie of US$0.75. According to the company’s own sensitivity analysis, an average of US$0.83 would reduce earnings to $26-36m.
Iluka was trading down 1.5% at $6.30 at midday.