Mineral sands miner Iluka Resources has backed away from earlier pledges to increase dividends but still predicts a decent increase in earnings this year.

The global financial turmoil was a good reason to be cautious and keep a cash buffer, managing director David Robb said on Wednesday when explaining the decision on dividends.

Iluka was one of Australian stock market’s best performers in 2011, leaping up as much as 70 per cent in value.

Mr Robb backtracked from comments made in February that, with $589.6 million in free cashflow, the company would seek to increase dividends to shareholders.

“Iluka will maintain a prudent balance sheet. This may entail a cash buffer,” Mr Robb told Iluka’s annual general meeting in Perth on Wednesday.

“It would not be the intent to hold significant cash on the balance sheet for an extended period under normal conditions, instead returning cash to shareholders via dividends.”

The company still expected a material increase in earnings and free cash flow in 2012, he said.

The company paid a final dividend of 55 cents in 2011, for a total payout to shareholders of $230 million, compared to eight cents in 2010.

Mr Robb on Wednesday said the company’s expectations of softer demand for zircon was reflected in its revenues for the first quarter of 2012.

Zircon was used mostly in the decorative ceramics industry. Lesser activity in the Chinese property market was one of the factors reducing demand, Mr Robb said.

Mr Robb said demand for zircon in Europe remained subdued and could deteriorate if the region’s debt issues worsened.

“However, a positive sign is that European-customer zircon sand stocks are almost exhausted, which should now require replenishment,” he said.

Iluka has previously said it would reduce zircon production in 2012 as a result of lower demand.

The company’s shares closed down 46 cents, or 3.36 per cent, at close at $13.25.

They have fallen by about 14.5 per cent this year.