Morningstar | Short-Term Iron Ore Boost Adding to Positive from Long-Term Challenges to Mineral Sands Supply
As a large player in the relatively small zircon and titanium minerals markets, Iluka's long-term growth in sales volumes is dictated by overall industry growth. The high-grade Jacinth-Ambrosia mine boasts a cost advantage over zircon-producing competitors is due to high grades but reserve life is less than 10 years and does not support a moat. The long life Sierra Rutile operation is the key source of rutile but lacks a cost advantage. It may come in time as the company expands and builds scale economies. Development of the Cataby mine will bolster zircon output and maintain feedstock for the production of synthetic rutile. The high-returning iron ore royalty over BHP's Mining Area C is the sole moat-worthy asset and comprises about 20% of our fair value estimate. Cash flows are relatively stable and require no capital investment to grow.Iluka Resources is engaged in mineral sands exploration, project development, operations and marketing. Co. is a producer of zircon and titanium dioxide products, as well as rutile and synthetic rutile products. These products are used in a range of applications. Co.'s segments include Australia, which comprises the integrated mineral sands mining and processing operations in Victoria, Western Australia and South Australia; United States, which includes its mineral sands mining and processing operations in Virginia; and Mining Area C, which comprises a deferred consideration iron ore royalty interest over certain mining tenements in Australia operated by BHP Billiton Iron Ore.
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