Annual Report 2017 Mineral sands part of everyday life Bathroom/Lifestyle Ceramics, sanitary and toilet basins, glass, faucets for taps, cosmetics, pharmaceutical products, toothpaste, anti-perspirants, sunscreens Roof/Building/ Construction Solar panels, electrical insulators, bricks/cement, fibre optics, exterior and interior paint, tiles, anti-pollution coatings Home/Office Mobile phones, plastic, Manufacturing printer inks, paper, packaging Zircon is heat resistant and non-reactive and is used in Kitchen/Utilities steel and glass manufacturing Light bulbs, dishes, glasses, and metal casting clock parts, food colouring, ceramic knives, pans Pigment Paint coatings, plastic and Automotive ceramics use titanium dioxide Brake linings/pads, car in the form of pigment parking sensors, automotive paint, catalytic converters, automotive electrics, rubber products Nanomaterials Titanium dioxide uses include Sporting Goods/ solar cells, water purification Recreation and noise absorption Golf clubs, tennis racquets, bicycle frames (titanium) Healthcare/Medicine Dental implants, hip and bone replacements, heart pacemakers, kidney dialysis, zirconia-nuclear medicine Ceramics Aircraft/Industry Floor and wall tiles shown Titanium metal, desalination on the cover contain zircon. plants, zirconium metal, Zircon contributes to whiteness corrosion resistant coatings and the abrasion and heat resistance that tiles provide 2 Iluka Resources Limited, Annual Report 2017 Products Iluka is the world’s largest Iluka is a major producer producer of zircon. Zircon of high-grade titanium is opaque; and heat, water, dioxide products (rutile and chemical and abrasion synthetic rutile), as well resistant. Uses include as ilmenite. Uses include ceramics, refractory and pigment (paints), titanium foundry; and zirconium metal and welding. chemicals. Zircon Titanium Dioxide Zr TiO2 From everyday applications in the home and workplace, to medical, lifestyle and industrial applications, the unique properties of titanium dioxide and zircon are utilised in a vast array of products. Iluka also recovers and markets activated carbon and iron concentrate; both of which are by-products of the synthetic rutile process. Iluka Resources Limited, Annual Report 2017 1 ILUKA IS INVOLVED IN THE EXPLORATION, PROJECT DEVELOPMENT, MINING OPERATIONS, PROCESSING AND MARKETING OF MINERAL SANDS About Iluka Resources Approach lluka Resources Limited (Iluka) is involved in the exploration, Iluka is involved in all of the main stages of the mineral project development, mining operations, processing and sands process, from resource development through to marketing of mineral sands. The company is a major delivery of customer benefits. producer of zircon globally and a large producer of the high-grade titanium dioxide products rutile and synthetic Iluka’s objective is to create and deliver value for rutile. Iluka’s products are used in an increasing array of shareholders and its approach is premised on applications including home, workplace, medical, lifestyle • Being disciplined in capital allocation and industrial uses. • Seeking a sustainable price environment for mineral With approximately 2,500 direct employees, the company sands products has operations in Australia and Sierra Leone; projects • Preserving and advancing growth opportunities in Australia, Sierra Leone and Sri Lanka; rehabilitation • Flexing assets in line with market conditions programmes in the US and Australia; and a globally integrated marketing network. • Acting-counter cyclically where appropriate. The company also has a royalty over iron ore sales Iluka conducts its operations to high standards in terms of revenues from tenements of BHP Billiton’s Mining Area C governance and the environment; and strives for the best (MAC) province in the north west of Western Australia. outcomes in health and safety management, and engaging with the communities in which it operates. Iluka is listed on the Australian Securities Exchange and its corporate support centre is located in Perth, Western Australia. Mineral sands process Geological setting Mining approach Mineral separation Synthetic rutile “Mineral sands” are heavy Mineral sands mining involves The heavy mineral concentrate Iluka also produces minerals found in sediments on, both dry mining and wet (dredge is transported from the mine synthetic rutile, ilmenite or near to the surface of ancient or hydraulic) operations. Mining to a mineral separation plant that is upgraded by high beach, dune or river systems. unit plants and wet concentrator for final product processing. temperature chemical Mineral sands include minerals plants concentrate and separate The plant separates the heavy processes. such as rutile, ilmenite, zircon the heavy mineral sands from minerals from each other in and monazite. waste material. multiple stages by magnetic, electrostatic and gravity separation. 2 Iluka Resources Limited, Annual Report 2017 * Sierra Leone Western Australia Eucla Basin Murray Basin Sri Lanka Sierra Rutile operations Processing operations Jacinth-Ambrosia mine Balranald project Puttalam project Gangama dry mine Cataby project Satellite deposits Lanti dry mine Synthetic rutile kilns Lanti dredge mine Sembehun project Sembehun project * Mining and processing activities were completed in Virginia, USA, in 2016 and the mineral sands areas are currently being rehabilitated. Rehabilitation Marketing As mining progresses, the mining pit is Iluka transports the final products backfilled and covered with stockpiled of zircon, rutile, synthetic rutile and soils that were removed at the start of the ilmenite to customers around the process. Rehabilitation is progressively world. undertaken to return land to a form similar to its pre-mining state and suitable for various uses including agricultural, pastoral and native vegetation. Iluka Resources Limited, Annual Report 2017 3 CREATING AND DELIVERING VALUE Narngulu mineral separation plant, Western Australia About this report This annual report is a summary of Iluka Resources and its subsidiary operations, activities and financial position as at 31 December 2017. Currency is expressed in Australian dollars (AUD) unless otherwise stated. Iluka plans to publish a separate Sustainability Report, in accordance with the Global Reporting Initiative Framework, which will contain information on Iluka’s sustainability approach and performance for the period 1 January 2017 – 31 December 2017. The Sustainability Report is expected to be published in April 2018 on the company’s website www.iluka.com. Iluka’s 2016 Sustainability Report is available on the company’s website. Iluka is committed to reducing the environmental footprint associated with the production of the annual report, and printed copies are only posted to shareholders who have elected to receive a printed copy. 4 Iluka Resources Limited, Annual Report 2017 Contents Business review 2017 Year in review 6 Chairman’s review 8 Managing Director’s review 10 Board and executive 12 Financial summary 14 Strategy, capital management and future prospects 18 Financial and operational review 20 Sustainability 38 Business risks and mitigations 40 Financial report 42 Results for announcement to the market 44 Directors’ report 45 Remuneration report 53 Auditor’s independence declaration 74 Financial statements 75 Directors’ declaration 123 Independent auditor’s report 124 Physical, financial and corporate information 130 Five year physical and financial summary 132 Operating mines physical data 134 Ore Reserves and Mineral Resources statement 135 Shareholder and investor information 142 Corporate information 144 Iluka Resources Limited, Annual Report 2017 5 2017 Year in review Recovery in mineral sands markets • Combined zircon/rutile/synthetic rutile sales of 889 thousand tonnes, up 27% from 2016. • Moderate underlying demand growth in zircon markets combined with supply constraints. • Pigment supply issues in China and Europe increasing average utilisation across other plants. High-grade feedstocks used to increase plant yield, leading to strong demand for rutile and synthetic rutile. • Price improvement across all products from the start of the year: zircon average price up 40% to US$1,128 per tonne in Q4; rutile average price up 13% to US$825 per tonne in H2. Strong underlying financial result • Mineral sands revenue increased 40% to $1,017.5 million with growth in sales volumes and prices. • Mining Area C royalty income contributed $59.6 million. • Underlying Group EBITDA increased 140% to $360.5 million, reflecting strong revenue and non-production cost reductions. • Impairment expense ($185.4 million) and rehabilitation provision increase for closed sites ($127.4 million) resulted in net loss after tax of $171.6 million. • Strong free cash flow of $321.9 million. • Significant debt reduction with closing net debt of $182.5 million (2016: $506.3 million). • A fully franked final dividend of 25 CPS was declared, which together with the interim dividend of 6 CPS brings the total 2017 dividend to 31 CPS representing 40% of free cash flow. Sustainable business focus continued • Achieved $61.5 milllion reduction in non-production costs. • Detailed review of existing production portfolio and projects. • Consolidated Australian mineral processing plant capacity by idling Hamilton plant with Narngulu plant considered sufficient to process future Australian production. Cataby project execute and Jacinth-Ambrosia restart • Cataby project approved in December. • $250-275 million capital spend