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Operator: Good day, and thank you for standing by. Welcome to Iluka Resources FY 2025 Results. [Operator Instructions] Please be advised that this call is being recorded. I would now like to hand the conference over to your first speaker today, Tom O'Leary, Managing Director of Iluka Resources. Please go ahead.
Tom O'Leary: Good morning. I have Adele Stratton and Luke Woodgate with me in Sydney this morning. Thanks for joining us. I'll keep my opening short, and then we'll go straight to questions. The full result that was published this morning was really pre-reported and discussed at our quarterly review back on 29 January a few weeks ago. While there's been some incremental progress since then the key takeaways are the same. In Mineral Sands, we expect to have greater clarity around the market outlook post Chinese New Year for zircon and the head of the North American coating season for titanium dioxide feedstocks. Since we last spoke, we've maintained prior and locked in some additional contracted zircon sales, which for the first quarter, now stand at 41,000 tonnes of sand and 11,000 tonnes of zircon in concentrate. All of the industry developments I outlined at the quarterly. Rio Tinto's review of its titanium feedstocks business, the rationalization of global pigment capacity, the impact of antidumping duties on Chinese exports and the operational settings adopted by other mineral sands producers continue to play out and remain likely to influence outcomes in 2026. Iluka is well placed to respond to a range of scenarios in the context of our $1.1 billion inventory position, diversified product suite and Australian operating base. Slide 7 in today's pack expands on the uses of funds expected during 2026. As you can see, it's a significant step down from last year being over $600 million lower. This is the result of cost reduction measures enacted late last year, including the decision to idle Cataby and SR2 the conclusion of capital investment in the Balranald development. Turning to Balranald. You'll recall, we commenced mining on 1 rig in January. The second rig will commence in February, after which we'll be mining on both. Ramp-up will occur over the first half with investment case production targeted for midyear. Heavy mineral concentrate will be transported to our Narngulu mineral separation plant for further processing. With the first finished mineral sands products from Balranald to enter the market in the second half. Balranald rare earths will be transported to Eneabba to await refinance. And that brings us to the rare earth business in the Eneabba refinery, where construction continues to progress well and will accelerate over the next year ahead of commissioning in 2027. Engineering is now over 95% complete. Equipment continues to arrive at site for early placement and SMPEI contracts will be awarded over the coming months. Not long after the quarterly, we saw some further announcements from the U.S. government and commentary from the Australian and other governments regarding international cooperation to diversify the supply chain, including in relation to potential price support. These developments are obviously of interest to Iluka, their tailwinds for our rare earth business. Nevertheless, as I said a few weeks back, we're focused on building that business to be commercially sustainable for decades. Construction, commissioning, operational performance, offtake and feedstock longevity are all vital to this endeavor, and we look forward to continue to update you on our progress. To reiterate, upon commissioning next year, Eneabba will be one of the few rare earth refineries operating outside of China, a multi-decade infrastructure asset capable of processing a diverse range of feedstocks from Australian and international projects and producing both light and heavy separated rare earth oxides. I appreciate there's been a repetition from the quarterly and what I've just covered. The materials we put out this morning included some updated visuals of Balranald and Eneabba, which we hope are helpful and give some color to the exciting times ahead. With that, over to you for questions.
Operator: [Operator Instructions] First question comes from Paul Young from Goldman Sachs.
Paul Young: Thanks for putting the cash flow I guess, stack chart on Slide 7, that's pretty helpful. So just a few additional questions on just cash flow and other items for this year, just to sort of step through some different scenarios. Can you firstly just talk about the working cap position. I think you've got receivables of about $300 million and also payables about $270 million, which there's a bunch of accruals and there I presume then over CapEx. But just on the receivables and the unwind, how do you see receivables unwinding over the course of the year?
Adele Stratton: Yes. Great question, Paul. Look, we're already starting to see that. So our net debt position at the end of January is down to $420 million for the Mineral Sands business. So those receivables will start to unwind to more normalized levels over the next month or 2. As you've noted in the payables because of those two big capital projects, elevated levels of capital accruals, but once again, Balranald come in to the end, so you'd see that pushing through. So the purpose of the new slide that we put in is to really show that step down from 2025. We're not deploying such significant amounts of capital in '26, and that's obviously clearly very material.
Paul Young: Yes. Great. And just a few smaller items. I know you've -- you always do FX hedging, and I think you have USD 200 million of hedging in place of $0.68 or so for the year. So I just wanted to your comments on that, if that's correct. And then -- and also just with anything we should think about tax rebates or anything cash tax related? I mean, and the reason for the specifics, I'm just trying to really nut down the cash flow scenarios for the year.
Adele Stratton: Yes, great question. So in terms of exchange, our approach to FX hedging is normally looking at the contracted sales, so we don't do speculative hedges. So we look at what contracted sales we have and put hedging in place for that. And as you rightly have pointed out, we've got USD 200 million of hedges covering 2026 at the moment. And we've done those as collars and caps, so I think it's got a $0.63 floor $0.685 ceiling. So as we progress through '26, we'll continue to do that sort of hedging approach to ensure that you're quite conservative in terms of forecasting your cash income on your revenue. I think just on the sensitivity for any -- a lot of people ask, well, how sensitive are you to exchange. As you'd be fully aware, Paul, most resource companies price their products in U.S. dollars. So they do have exposure for every USD 100 of revenue. That's about a AUD 2 million FX impact for each $0.01 change in the exchange rate, but we've got the hedging in place. Coming -- we've got a tax refund due in the first half. So as a result of some of those accounting adjustments that we put through in December, so specifically the inventory write-down, you actually get a tax credit for that. So on the balance sheet, you'll see a current tax asset of about $52 million. So that cash will come through in H1, and depending on earnings in '26, your installments will start in the second half.
Paul Young: Great. Okay. So it seems like plenty of headroom. I know some offer facilities still about $250 million of undrawn as well. So that's great. And then maybe just turning to Balranald just briefly. I know that a really good picture there of the ore/pure HMC on the ground. Tom, just to share exactly how the mining unit is performing. Any like operating data you can share with us with respect to uptime, utilization, production rates versus plan? Anything you can share with us?
Tom O'Leary: It's probably a little bit early to be specific about that, Paul. We've had the one mining rig up from January. And we're experiencing the usual commissioning pickups along the way, but we're pretty pleased with the extraction rates, which have been at times at investment case levels. And we're now getting the next mining rig operating really probably in the next week or so. So pretty pleased with how it's progressing generally and really on track to be at investment case rates by the middle of the year.
Operator: Next, we have Rahul Anand from Morgan Stanley.
Rahul Anand: Look, for my two questions. The first one I'd like to cover on markets and then the second one on Eneabba perhaps an update on the offtake. So I guess the second one is for Adele. So for the first one, I just wanted to touch on zircon and TiO2 markets, Tom, and if there's others on the call. Firstly, on zircon, obviously, your sales for zircon this year would be a significant bit lower. Do you think that void gets filled in? And perhaps does that create any sort of tightness or improvement in demand on the zircon side? And then for the TiO2 side, I mean, obviously, we're waiting for that U.S. housing recovery. But is there perhaps a read on sort of where inventories sit on the feedstock or the downstream side for the pigment guys as well for them to be able to kind of deliver into that upswing into the housing cycle in the U.S. I'll come back with my question on Eneabba for Adele.
Adele Stratton: Sure. So on zircon, I don't think our decline in zinc sales is going to have a significant tightening impact on the market. We are pleased to see the sales we're achieving in the first quarter. There's still, I think, pretty solid demand for premium zircon. And we continue to see that persist over the last couple of years. I expect it to continue. On titanium, look, we, like you, are looking forward to the recovery in the Northern Hemisphere. There seemed to be a bit of optimism about recovery. But as I said on the call a few weeks ago, it's really a bit early to be weighing into that optimism at this stage. Let's just see how it plays out. And your other question was in our inventory. Yes. Look, I think in the -- sorry, go on, Rahul.
Rahul Anand: No, sorry, I was saying that's on inventory, but you already picked that up. So please go ahead.
Tom O'Leary: Yes. Look, not had a lot to add on inventories to what we've said in the past, there's not a lot of inventory in the paint end of the supply chain and the pigment producers, I don't think, are holding a lot of inventory of pigment. Some are holding inventories of feedstock, but it's different among different players. So I think there's a potential for a pretty rapid uptick in demand for our products when we see that pull through in -- from construction activity in the North.
Rahul Anand: Got it. Perfect. Second one is perhaps for Adele, just perhaps an update on those conversations in terms of offtakes how they're progressing? And any sort of color you can add in terms of, I guess, what you guys are looking for and what the companies you're talking to want and perhaps what are some of the topics being discussed in terms of arriving at an offtake? And then just as a second part of that question, are there any specific requirements in terms of I guess, minimum volumes or price, et cetera, in the offtakes that you require for the funding?
Adele Stratton: Yes, let me deal with the second part of that question first, Rahul. So in terms of the funding that we have with the Commonwealth, the clause within the second tranche of the export finance Australia facility just says offtake sort of satisfactory to the government. So there's no more specificity than that. So no volume, no price, no duration. It really is what is satisfactory and as you can imagine, we work very closely with our strategic partnerships and the world is forever changing in this space is what I'm saying. Just coming back to the offtake question more broadly. I think we've probably touched on this before in terms of this has been -- I'd call it a marathon and not a sprint in terms of when we entered this market back in 2022, we were very clear that we'd be entering the market in a very different manner to all the other players in the market at that time and that being that everybody else price the products based on the Asian Metals Index. So a price linked to China. And from the very outset, we didn't want to tie our P&L to Chinese government policy. And hence, we've been introducing the concept of a different pricing mechanism. I think we've touched on this, that can be quite a variety of different types of contracts. So it could be fixed pricing, it could have floor prices that could have floor and in ceiling. There's a number of different ways to skin the cat. And that's really what we've probably spent the first 18 months discussing as a different approach to market. Those discussions have most definitely been helped by the deal, the MP Materials struck with the U.S. administration. Around putting in place floor prices. And that's specific to the light rare earth, so just the NdPr. I don't think that really crystallized for a lot of potential customers that there are different ways to play in this market. And we've had good traction to date, but that was probably a bit of a catalyst. So coming back to where we are now, we have a range of different conversations with a range of different customers. Rahul, they all have different strategies and methodologies that works better for them. But we are really focused around delivering sustainable returns that are commercial, so really looking at what is the cost of new feedstock into the refineries. They're not really reflecting any other stockpile because as a result of history, that sits on our balance sheet at 0 cost, but we want to create a sustainable business. So we focus on the cost of new supply into the refinery and ensuring we have achieved appropriate returns. So as I've said a couple of weeks ago, really confident that we'll have some contracts in place in 2026 and unfortunately, I can't really give a blow by blow as to with whom and for how much, et cetera, and the contract is never really done until it's signed. But yes, I have confidence that we'll get there.
Operator: Next question comes from Glyn Lawcock from Barrenjoey.
Glyn Lawcock: Just a couple of quick questions. Firstly, just on Balranald. I know you -- I think you made a comment in your opening remarks that you hope to have first finished products to enter the market in the first half. But -- it may be a moot question, but have you actually produced any finished product yet over in the West? Or is it still in transit?
Tom O'Leary: So Glyn, I said second half that it would be in the market. Yes. So, no, we haven't got finished product in the West yet. It's still in Balranald. So those stockpiles you see in the deck still in Balranald.
Glyn Lawcock: Okay. So we'll have to wait what another month before we know how it processes? Or is that the least that your worries?
Tom O'Leary: Just looking at it, you can see that the material really just passing through the concentrator is kind of looking like high-quality product already. It's the grades we've seen haven't disappointed. So yes, I don't think we've got concerns about how it's going to process at all. In fact, we have process some in the past, so it's not really a risk on the register, if you like.
Glyn Lawcock: Yes. No, that's great. And just Second question, just on your comments in the release about Eneabba, it would appear contingencies gone down a little bit from $270 million to $235 million. Just Two-part question. Just what's changed, like what's eaten into that extra $235 million, if I'm correct? And then secondly, you're obviously tendering for your remaining work packages will award them this half. It feels like a little bit like what's happening with South32 last week. But just any early indications should we be concerned on anything you're seeing in those tenders?
Tom O'Leary: No, I don't think so, Glyn. The -- we've always said that the SMPEI arrangements were the larger but they're obviously the largest of the construction contracts and we're looking forward to getting those done this half. No, I wouldn't say I was concerned about them, but it's a -- concern is an interesting one. When we're building a refinery, it's kind of a heightened state of attention for the entire duration. And that's the way it needs to be to ensure that we remain on track. The utilization of $35 million of that amount dedicated to contingency growth and so on is really not material in the context of the overall project. So again, not alarmed by that.
Operator: Next we have Austin Yun from Macquarie.
Austin Yun: Just to expand into the question from Glyn. For the remaining $235 million contingency, where is the residual kind of -- for the component where is most likely to be deployed as you continue with the project?
Adele Stratton: Yes, Austin. Just in terms of capital projects, you'd be very aware in terms of obviously, when you're selling your budgets, you have your input costs in terms of your materials, your labor, your schedules. And within that, you'll always allow for growth contingency and escalation, which is what the $235 million relates to in terms of where do I expect that to be consumed. I think really what people should be taking from what we've announced today is that we've now spent and committed well over, what, 60% in terms of where the projects are, and you've still got a really, really healthy contingency for the remaining spend to come. So there's no particular point whereby I think that might be consumed here or there. That's just really prudent project management. So this number will ebb and flow every day. It goes up and down depending on sort of where the contracts are at and sort of volumes of offtakes, et cetera. So I think the takeaway from what we've announced should be a real confidence around the capital range of the $1.7 billion to $1.8 billion is really what the takeaway should be.
Austin Yun: Yes, totally great. Just a second quick one on the cash flow management into 2026. I can see all those efforts to reduce the cash spend and the slide was really a good one on Page 7. Just given the current net debt level, keen to understand if there has been any changes in the thinking around your stake in Deterra Royalties, given the company offers different exposure. Does that really align to pivoting to critical mineral phase company? And also, like, I believe Deterra indicated yesterday that the shareholder return will stay around 75% to sort of 100%. Just wondering how to think about that stake given you try to unlock cash to support the business to pushing towards the critical minerals space?
Tom O'Leary: Yes. Thanks, Austin. Really, it's not a lot to add to our previously stated position that it's not regarded as core business, just for the avoidance of doubt, royalties and so on is for Iluka. But the key is that to divest that stake would attract pretty significant capital gains given the tax cost base there. So it's an expensive form of capital. So I think unlikely to be utilized, but it is there and provides comfort to counterparties, to lenders, to shareholders and so on.
Operator: Next, we have Chen Jiang from Bank of America.
Chen Jiang: Just on Eneabba project, 95% engineering down, 60% of CapEx has been spent and committed. I'm wondering when is the peak construction in 2026? And how long would it take from peak construction to code commissioning?
Tom O'Leary: Yes, I mean, peak construction is very much approaching us. I think we've disclosed, we've got some 600 people on site on rotation, obviously, but some 600 people working at Eneabba, and that will increase somewhat over the second half of this year. So you should expect peak construction in the second half of this year, beginning of next, moving into commissioning later in '27.
Chen Jiang: Right. So -- and then CapEx, I guess, given 60% already spent, you must be very comfortable with your CapEx outlook over the next 12 months with -- in parallel with how you construction or peak construction?
Tom O'Leary: Yes. Comfortable is probably too close to complacent in the dictionary. So I wouldn't say that, Chen. I'll just go back to my earlier comment that managing a project like this, you need to have a heightened state of attention throughout to ensure that we meet our targets in terms of capital expenditure, and that's precisely what we're doing.
Operator: We have a follow-up question from Paul Young from Goldman Sachs.
Paul Young: Just a question on inventories and this possible drawdown of that, just starting that finished inventories of zircon rutile SR and now it's sitting around 380,000 tonnes, I think up from 320,000 or so for midyear. So it sort of makes sense based on just looking at production and sales, obviously, over the last 6 months. Just curious around, first of all, specifically the zircon component in that because I think SR probably around 150,000, just wondering where zircon inventory sit within that? And actually an extension to just overall operating parameters for the year and just how you manage costs in general. We haven't really spoken about JA and just the operating sort of strategy down there. Is the operating strategy on JA just to run at full tilt at the 10 million tonnes sort of ore throughput rate? Or have you got some flex around sort of costs and optimizing cost of JA?
Adele Stratton: Yes. Paul, happy to take both of those. So in terms of inventory position, as you say, we've highlighted that on Slide 8 in terms of where we're at on finished goods. So rightly so, 379,000 tonnes. We generally try not to give breakdowns in terms of the mix of that pool just from a competition perspective. But I should say, we have guided that we've got 110,000 tonnes of sales in 2026, and we've also noted that we're not running the kiln. So one can deduce that all of that sales volumes are coming out of inventory. So we are certainly looking to draw down inventory in '26 and that obviously supports cash generation. You've already spent the money on producing this material. So it's really the next step in liberating cash. And I think we're very well positioned coming to your question around zircon and JA. Generally, when we're running our operations, we do run them at full capacity in order to optimize unit costs. Jacinth-Ambrosia coming towards the end of its life. And as you're fully aware, the team are very focused on the Typhoon project, which provides a couple of years extension to Jacinth-Ambrosia that's a big focus for the team. But yes, in 2026, our cost outlook assumes that JA is running a full tilt and a real driver of that is also to generate that zircon premium as Tom talked to earlier. We still see good strong demand in the premium market. There's not huge amounts of premium all over the place, so JA premium is very designed in the market.
Paul Young: Okay. Great. Just one final question. Just on third party. You obviously got Linden agreement in place and the investment in Northern Minerals. Is there any update on Northern Minerals. There's a lot going on at the corporate level with that company, but I've got some additional funding -- government funding for their project in Northern Territory, any update on just how that project is tracking and potentially when that could be coming into production?
Adele Stratton: So look, yes, Paul, as you say, Northern Minerals released the definitive feasibility study sort of, I think it was third quarter, early fourth quarter last year. And on the back of that, being very successful in achieving sort of funding through the U.S. And so really, the job of the management team there is to continue to get that project fully funded to enable us to take the FID. I think there will always be noise around the share register. This is a unique deposit globally. I know that we've talked about this in terms of just the high assemblage of heavy rare earth. And that's really quite interesting because what we're seeing in more recent times have in China as a bifurcation of heavy rare earth pricing in China, so it's much cheaper. If it works and stays in country than when it's exported. So this focus on ability to secure heavy rare earths, I can imagine that will continue to be a focus globally. Tom, anything you would like to add?
Tom O'Leary: Yes. No, I think that's pretty comprehensive Adele. I think we're really pleased to see they've had the expression of support from the U.S. and Australian government, and we'll obviously do what we can to support their achievement of FID in a timely way to very attractive deposit for the West's independence in terms of supply chain for heavy rare earths and an important development.
Operator: [Operator Instructions] Next question comes from Dim Ariyasinghe from UBS.
Dim Ariyasinghe: Yes. Can you just refresh us really quickly on what you've said on commissioning in terms of the time line for that? And then just in terms of the offtake, has the idea of prepayments come up? Is that something that we should increasingly think about? What can we think about that?
Tom O'Leary: Look, I'll hand over to Adele around prepayments and so on for offtake. We think about a lot of things, Dim, but we're pretty focused on selling the product and getting cash for the sale. But in terms of commissioning. We've talked about the mid next year, we'll be in commissioning at Eneabba. So no real change or update on that. Anything to add on offtakes, Adele?
Adele Stratton: Yes. No, not really in terms of prepayments, is that a big focus? Not really, Dim. There's always trade-offs in terms of different payment terms or prepayments and all of those types of things. We're very focused, as I said at the outset in terms of putting in place commercial contracts that underpin longevity of the refinery. So yes, it's not been a particular focus at all for us.
Dim Ariyasinghe: Understood. Sorry, not commissioning, a ramp-up like when -- I presume -- like what's that ramp-up period look like? And I presume that will just be the stockpile at first?
Adele Stratton: Yes. In terms of the refinery and the commissioning, obviously, there's a number of stages to that commissioning of any plant, Dim, including initially wet commissioning and then introducing the product. I think when we've talked in terms of when you would start to introduce your reagents into the plant, then that can take 3 to 6 months to work its way all the way through into the separation and finishing. And then there's a ramp-up curve. We use McNulty, different curves to be perfectly frank. So I think historically, we've said to get from commissioning all the way to full ramp-up is about a 2-year period to full ramp up. But yes, very much as Tom's articulated, commissioning in mid-'27.
Tom O'Leary: Yes. And Jim, just you asked on Balranald -- sorry, on Eneabba, we'll be using Eneabba monazite to be commissioning the part exclusively for that period. Well, look, I think that's all the questions we have. So thank you all for joining us. Really look forward to catching up in person over the coming days and weeks. Bye for now.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.