THE mineral sands miner Iluka Resources, a chronic under-performer during the mining boom, is experiencing a dramatic reversal of fortune as other miners struggle to stay afloat.
Iluka is the world's largest producer of zircon, an ingredient in ceramics, and the price of its main product has risen from about $US750 a tonne to $US900 a tonne at a time when the Australian dollar has weakened to the company's benefit.
The miner conducted a $353 million capital raising in April, giving it enough funding to complete its key growth projects in the Murray Basin in Victoria and the Eucla Basin in South Australia.
Iluka issued the new shares at $2.55, and its shares closed 19c higher at $4.30 on Friday, meaning it has significantly outperformed the rest of the mining sector in recent months. It has nearly universal "buy" recommendations on the stock.
Iluka's managing director, David Robb, said the timing of the capital raising was particularly fortuitous in light of the later deterioration in debt and equity markets.
"I think it was the right decision, but perhaps it looks more right," he told the Herald in Sydney last week. "We saw in the worst-case scenario that our projects might be jeopardised by a balance sheet that wasn't conservatively geared enough."
Zircon is one of the few commodities to remain in a supply deficit despite the global financial crisis, due to lower production from rivals in South Africa and Indonesia. Iluka this year drew on its inventory to ease the shortage, but now no longer has significant stockpiles of the product.
Mr Robb said the expectation of price rises next year and in 2010 meant customers were acting to secure their supply now.
"I think the market is very short next year of product on both zircon and high-grade titanium dioxide feedstocks."
Zircon is generally priced on an annual basis under long-term supply agreements with big customers. But Iluka has started selling to smaller customers in emerging markets such as China in containers. Mr Robb said the credit crunch meant smaller customers were finding it harder and more expensive to obtain letters of credit, but Iluka was working around this with direct payments.
Goldman Sachs JBWere estimates that Iluka's annual production of zircon - its highest-value product - will rise from 380,000 tonnes last year to 631,000 tonnes in 2011 after its growth projects are completed.
Iluka's earnings, supported this year by its royalty over BHP Billiton's Mining Area C iron ore project, are expected to rise significantly based on the strength of its core business.
Mr Robb said Iluka would consider acquisitions and expanding beyond mineral sands if it would improve shareholder returns, but was unlikely to move to full control of its listed subsidiary Consolidated Rutile.
It is also maintaining an exploration program.
