Iluka Resources’ chief says he has learnt from the violent swings in the mineral sands market and does not want a repeat of them or the $31.1 million in restructuring costs incurred this year.
A year ago, the mineral sands miner had grown its first half profit to a record $274.4 million; on Wednesday that had shrunk 88 per cent to a relatively anaemic $34.3 million.
The company was among the best performers of the top 100 ASX companies in 2011. Last year it was one of the worst as China’s massive demand for its products abruptly dried up, sending prices plunging.
Iluka chief executive David Robb said while accurately predicting what future demand would be was almost impossible, the company was researching more about its customers to try and predict likely trends.
Iluka and Rio Tinto are the world’s largest mineral sands producers, controlling half the global market in zircon, used in ceramics, and rutile, in paint pigments and a range of other products such as nuclear reactors.
“We used to somewhat stick it on a ship and forget about it,” Mr Robb told analysts in a teleconference.
“We are now now much more deeply engrossed further down the value chain, talking to people and researching what’s going on.
“We don’t want to incur the kind of restructuring costs seen in the half.”
Those costs included up to 300 job losses and the shutting and idling of two mines in Western Australia.
Mr Robb said he hoped to avoid future “bullwhip, whipsaw” effects so Iluka could keep consistent production and revenue rather than the violent high and low cycle points of the last two years.
“I think we can build a business model optimised around mid-cycle if you like, flex to low and high more seamlessly,” he said.
Morningstar analyst Mathew Hodge said Iluka and Rio should wield more pricing power than they did with customers, but Rio was more at fault for growing too much when demand was strong and undercutting on prices.
“They’ve got an ability to flex production to both meet demand when strong and pull back when it is weak,” he told AAP.
He praised Iluka for progressing new mines in WA and the Murray Basin, which might seem counter-cyclical in a weak market but was smart because costs were currently dropping.
Mr Robb said Iluka had reduced production to only 40 per cent capacity.
Zircon demand had improved while rutile and synthetic rutile had not, but it was difficult to predict the course of demand recovery with any confidence.
Iluka received only $1,178 a tonne of zircon/rutile/synthetic rutile compared to $2,255 a year ago.
Iluka shares closed flat at $10.73.
