Member Info for Jager15

From TZMI's weekly update email today. "Based on preliminary results, income of United Mining and Chemical Co (UMCC) in 2017 will exceed US$110 million, up 14% from the previous year. The company's net profit for the reported year is expected to increase by 17% to US$35 million." So, if you scale up the Ukrainian result from their $110m revenue to KMR's $208m, then the net profit would be a hypothetical $66m, so not a million miles away from KMR's $60m.

Dress it up any way you like, but EBITDA of US$60m is underwhelming and disappointing given 2017 saw the best market conditions and prices in the last 3 - 4 years. No wonder the market doesn't like it.

Uncle Buck, thought you would have got over your anti-Iluka issues by now. For a shitty business, they did pretty well to make $360m EBITDA last year. Remind me again what we're expecting here....$75m ? Next year....+$500m from ILU vs $150m from KMR ??? Pretty good for a bunch of ******s from down under who are unravelling operationally and financially. As to the 'mind bendingly complicated operations', they now run two mines, two MSP's and one kiln.....its not that hard to understand to me and certainly no more complicated than Rio or Tronox. Continuing to rubbish ILU doesn't make KMR look any better.

Skid, just copy and paste the Chinese text into Google translate and select the Chinese to English option. https://translate.google.com.au/

On International Women's Day I think its only appropriate to celebrate Kenmare's contribution to a gender diversified Board and Executive Team. :)

Big jump for ILU on the ASX today (up 5%) to a 4 and a half year high. Meanwhile KMR down 1.5%.....go figure !

Greeno, remember ILU's Reference Price is the delivered price in China for Premium Grade, not the FOB Average of all grades. In Q4, ILU achieved an average of $1128/tn vs their Ref Price of US$ 1,230/tn. For KMR, the discount is even greater based on their lower grade material and different end uses. Likewise I wouldn't use $200/tn for all Ilmenite. It might be ok for sulphate ilmenite, but I think chloride ilmenite is lower. The margin should still be significant, but it might be <$100m rather than >$100m.

"Is Iluka one of KMR direct competitors ?" - No, not really. In TiO2, ILU is more focused on high grade TiO2 (rutile / synthetic rutile) while KMR is low grade TiO2 (ilmenite). KMR has actually supplied ILU with ilmenite to be upgraded in the past. In zircon, ILU and KMR produce different qualities and have very few customers in common. "And they set the trends in the industry ?" - ILU would like to thing so (LOL), but most producers do their own thing and in the current market where supply is tight, have no reason to follow ILU who are leaving money on the table with their 6 month pricing (almost everyone else is pricing on a 3 month basis). And they set the trends in the industry?

"Announced Reference Price increase to US$1,410/t from Q2 2018 for period of six months".....up from US$1,230/tn in Q1, so +US$180/tn. However, having held prices flat in Q1 when other producers increased prices, the market was expecting an increase of US$200 - 250/tn to bring prices up closer to US$1,500/tn. What will KMR do....follow ILU or forge their own (higher) path ?

BF, your right, "few" = "none". With regard to the chloride technology, there are two aspects to it. One is the obvious IP protection, which to date hasn't been cracked (although Pangang paid $28m to try and buy buy the technology illegally) : h__p://fortune.com/2014/07/10/walter-liew-sentenced-15-years-dupont/ The second limitiation of the chloride route is DuPont / Chemour's unique "Deep Well" waste disposal method. Supposedly this is one of the reasons DuPont's plant in China didn't proceed as the Chinese authorities wouldn't approve a similar waste disposal method. I also wouldn't assume that it costs more to process a lower grade ilmenite than a higher grade ilmenite. As an example, Chemours get no by-product credits from their process with high grade 60% chloride ilmenite. However, if you take KMR's 50% sulphate ilmenite (with 30 - 33% Fe) and process it into sl@g before converting it to pigment, you also generate a valuable pig iron by-product. A quick check on google suggest the current price of pig iron is $276/tn, which equates to approx $70/tn of ilmenite and would go a long way towards offsetting other costs.

Good info BF. I believe Billions do have sl@g capacity of their own, but at the moment that's all sulphate sl@g, not chloride sl@g. Doesn't mean they can't do it, but its not in their existing capacity.

Lomon's announcement is pretty significant, and could be the start of a major shift from the sulphate to chloride route in China as was predicted long ago. From a feedstook point of view, there are few Chloride plants apart from Chemours running on ilmenite. Have Lomon cracked the chloiride ilmentie technology of Chemours that no one before them has been able to crack, or will these plans run on high grade feedstock like most other Chloride plants ? If so, its likely to be more beneficial for RIO & ILU with their sl@g and SR than KMR, although both still need ilmenite as a feedstock. I'd just assumed that the ILU announcement about Cataby was related to a Chemours contract, but perhaps its Lomon Billions ?

BF, I wonder if the brokers calling out the rout of the last few days was simply a self fulfilling prophecy. With every broker telling all their clients there was going to be a margin hike and reduce liquidity at the end of January, is it any wonder the market fell at the beginning of February ? Needless to say KMR skated through relatively unscathed.

ILU down 3.7%, BSE down 5.4% and MRC down 7.1% today, so how much is KMR going to be hit ? Do you buy today, or wait for further dips tomorrow as is being predicted ?

For those wanting to know more about developments in the titanium metal market. Titanium : From Strength to Strength https://go.matmatch.com/titanium-strength-to-strength

I'm no great fan of the KMR board Skid, but I don't think its incompetence. Look at the maths.....the combination of rising zircon prices and increased volume added $8m in revenue for KMR in 2017 over 2016. But for ILU, the increase in zircon volume and price brought them an extra $95m. Its like KMR is mining silver and ILU is mining gold. For those funds that want to invest in mineral sands right now, they probably have more interest in ILU than KMR (or BSE or other lower value mines). In another year or two, things may swing back the other way, but for the moment zircon is king, and ILU is the king of the zircon producers.

"Essentially to the MM's and PI's they are in the same business". Problem is, they are actually in completely different businesses. Its interesting to note that both businesses sold similar volumes last year (1.08m for ILU vs 1.04Mt for KMR). However, ILU derived 96% of its revenue from high grade ores, while KMR only derived 24% of revenue from high grade ores. As a result, ILU's average revenue per ton was ~$700/tn, whereas KMR's was ~$200/tn. It's not that hard to work out which one will make more money at the moment, which is why one share price has grown and the other hasn't.

USB Global Research 29 January 2018 Iluka Resources Limited 1H 18 rutile price lifts 8% or US$70/t in line with UBSe Pricing for 60% of rutile production has been reset going into 1H 18 with the price lifting to US$895/t, in line with our forecasts of up to US$900/t. The remaining 40% of product will be sold on a spot basis. Currently spot pricing is above the contracted price, supported by RIO announcing an idling of their furnaces at Richards Bay Minerals given issues with one of their roasters. RIO is currently stockpiling production with investigations underway and no timeline to restart. Cataby site works proceed on schedule & a supportive market outlook remains Cataby was approved in December 2017 with ILU having secured offtake for 85% (175kt) of SR production for a minimum of 4 years. First production is anticipated in Q2 19 with an 8.5 year mine life and annual production of 200kt SR, 50kt Z and 30kt R based on the current mine plan. ILU anticipates an IRR of 36% with an estimated construction cost in the range of $250-275m. Favourable market conditions are expected to continue into 2018. ILU see the supply/demand imbalance in zircon transitioning to a structural deficit with requests for product exceeding what ILU is prepared to supply. The lift in the Zircon Reference Price to US$1,230/t in Q4 17 has been well accepted by the market. ILU understands some competitors have lifted prices by ~US$125/t in Q1 18, a positive indicator for ILU with their pricing to reset in Q2 18. Valuation: A$10.51ps (unch.) DCF @ 10% d.r We retain our Buy rating based on expectations that the mineral sands cycle still has further to run in terms of price & volume. Our price target of $11.50ps (prev. $10.50ps) is set at ~1.1x NPV to reflect market tightness.

Contango, while long term contract (LTC's) are the norm for high grade TiO2, it is rare to have such contracts for zircon. Typically, new projects might sign such contracts prior to starting production in order to obtain project finance, just as Kenmare did in 2002 - 2003 : http://www.kenmareresources.com/media/press-releases/archive/2002-12-16.aspx http://www.kenmareresources.com/media/press-releases/archive/2003-07-31.aspx Even then, these LTC's usually do not specify a price, and in the case of the Kenmare contracts above, contract pricing was rumoured to based on "Market Prices less 10%". Generally these contracts are not renewed when they lapse after the initial term once they've served their purpose and my understanding is these KMR contracts have long since expired. While KMR may still sell to these customers, they do so on spot (quarterly) prices as per the rest of the industry. Any difference between ILU pricing and KMR pricing has more to do with product quality, logistics and of course negotiations. It's worth noting ILU have separate, specialist marketing teams for Zircon and TiO2, while KMR have one person trying to do everything. Maybe KMR should be following ILU's lead and create specialised marketing teams to capture more value ?

I think we all know prices are rising, but the question is how high and how fast. At the peak in 2011, at one point Iluka increased zircon prices by $600/tn quarter-on-quarter. That would be nice, but I don't see that happening again.