In what could only be described as a tough period for resources companies, Iluka Resources Limited (ASX: ILU) has reported a 75% increase in net profit to $20.4 million and a 20% reduction in production costs for its half-year compared to the previous corresponding period.
Earnings came in at 4.9 cents per share and with the stock currently changing hands around $7.40 investors must be upbeat about the future prospects of the business.
Revenue for its zircon, rutile and synthetic rutile (Z/R/SR) mineral sand products was relatively stable at $392 million, whilst unit cash costs of production declined from $796/tonne to $634/tonne reflecting higher production rates and also the completion of mining at the Woornack mine in the Murray Basin.
Iluka collects a royalty from iron ore produced from specific tenements of BHP Billiton Limited's (ASX: BHP) Mining Area C province in Western Australia. This has been a consistent cash cow for them in the past, but reflecting the lower iron ore price, royalty payments for the half dropped 35% from $40.9 million to $26.7 million despite a 6.4% increase in sales volume.
Lower prices for its mineral sands products were offset by the depreciation of the Aussie dollar. The net result being that Iluka realised $1,130 per tonne of product – an increase of 11% compared to the previous corresponding period.
As announced to the market in December 2014, Iluka is in the process of winding up its US operations by the end of 2015 and revenue from its US operations dropped 70% from $50.1 million to $14.3 million.
Stepping outside its normal business, Iluka made an additional $4 million investment in a company called "Metalysis" which is trying to commercialise an improved method of producing metals including titanium. Although small, this investment could be highly beneficial to the business if Metalysis is a success.
To keep yield-hungry ASX investors happy, the directors have announced a fully franked interim dividend of 6 cents per share payable on 29 September 2015.
Iluka has delivered a solid performance during a tough period for resources companies. Reducing operating costs whilst focusing on improving the efficiency of the global business should provide the foundation for improving results in the future. Declining commodity prices are a risk which could dampen future returns and for that reason investors may be better off adding this company to the watch list for the moment and looking for better opportunities.
