Biggest Zircon Producer Says Output Halt Will Support Prices

  • Iluka CEO says right decision to match production to demand
  • Company will continue to pursue possible M&A: CEO Robb

Iluka Resources Ltd., the biggest zircon producer, sees its decision to halt output at the largest mine for as long as two years as likely to support prices amid weak global growth and a broader rout in commodities.

The Perth-based producer will halt the Jacinth-Ambrosia mine in South Australia for between 18 and 24 months from April 16, depending on market conditions. The action should have a positive impact on prices of the material used in products from wall tiles to nuclear reactor cores, Chief Executive Officer David Robb said Tuesday in an interview.

“The right thing for our industry is for supply to be flexed to match demand,” Robb said by phone. “That’s the quickest way to get the trajectory towards positive pricing and demand established again,” he said. Iluka’s average price for zircon products declined 6 percent in 2015 to $961 a metric ton, it said last month.

Jacinth-Ambrosia is capable of supplying as much as 30 percent of global demand for zircon, Iluka said earlier in a statement. Sales into China in 2016, the biggest consumer, are likely to be in line with the past two years, while some other markets are struggling to achieve growth, according to Robb.

Deals Potential

“If global GDP is anemic, then it’s hard for there to be very strong growth,” he said.

Iluka rose 0.6 percent to A$6.73 at 3:46 p.m. in Sydney trading, extending its gains for the year to almost 10 percent.

Iluka ceased mining at operations in Virginia last year, ending production of premium zircon and chloride ilmenite. Jacinth-Ambrosia, located 800 kilometers (500 miles) northwest of Adelaide, in South Australia, produced last year about 250,000 tons of zircon finished product, the company said last month in a filing.

“The fact we are choosing to suspend production of concentrate at the biggest zircon mine in the world, that will help any adjustments that need to be made to be made more quickly,” Robb said.

A wider rout in commodity prices that’s eroding profits and has prompted producers to cut debt, trim production and slash spending is likely to spur deals and threatens to put pressure companies to sell operations, Rio Tinto Group’s CEO Sam Walsh told Bloomberg Television last week.

Under Stress

While the outlook for producers of mineral sands products including zircon is better than for much of the commodities sector, some debt-laden companies are under stress, presenting prospects for deal-making, Robb said in the interview. Iluka ended talks in December to acquire Kenmare Resources Plc to add its Moma mine in Mozambique.

Iluka will continue to pursue potential deals alongside plans to invest in existing growth projects, Robb said. “We see this as a time of great opportunity for us,” he said. “There are opportunities, and we still like our projects as well. I think history suggests that a little bit of both is best for shareholders.”

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