Iluka Resources said it will cease production in zircon operation at Jacinth-Ambrosia project in South Australia following fall in zircon prices. The activities at Jacinth-Ambrosia project will be halted for 18 - 24 months, depending on zircon market conditions.
The suspension of concentrating and mining operations will commence on April 16, 2016. Iluka noted that the halt will increase its net cash flow as the company reduces its production costs, which is partly offset by restructure costs and advanced rehabilitation. The net cash cost profit for 2016 is anticipated to be about $30 million while the restructure, rehabilitation and idle costs are predicted to be around $16 million.
Iluka expects 2017 total cash cost profit to be around $45 million and restructure, rehabilitation and idle costs to be near $25 million. The company believes that the stoppage of activities at the South Australian project will enhance its return on capital by increasing the inventory drawdown. Iluka also hopes that this move will have a positive impact on global market dynamics.
Unfortunately, the halt will result in the reduction of nearly 33 workforces out of 79 direct employees. The company added that nearly 46 workers will be retained while few will be moved to other operation sites. Iluka will retain workers at the site in order to accomplish activities like asset supervising, focusing on transport as well as environmental restoration duty. According to the company, there will be additional workforce losses linked with the backup services and contractors to the zircon operation.
David Robb, managing director at Iluka, said that the company is working with official agencies in the state to promote a transition in the life of workers who lost their job due to the halt. The Jacinth-Ambrosia venture has a high fame among the domestic communities for the environmental benefits it brought and the company hopes to maintain the reputation even in the slowdown period, Robb added.
The fragility in the industrial and construction sectors of China contributed to zircon demand, Bloomberg said quoting Rio Tinto, a producer of zircon. Producers like South32 and Glencore plc are also ceasing output due to the wavering demand resulting from poor development in China.
The demand in zircon stems from the last three-month period of 2015 as Europe sales remained lower than the historical rates. Iluka also suspended mining activities at Virginia operations in 2015, halting the production work of chloride-ilmenite and zircon in the US.
The shares of Iluka are currently trading over 1% higher at $6.77 at AEST, according to The Advertiser. The company will still supply its consumers by handling the 800,000 tonnes of concentrate inventory at the Western Australia and Virginia units. In addition, this move will not affect the company's royalty payment commitments in South Australia.
The company's decision will positively impact the global market and enable it to concentrate on other operations in Australia. Iluka expects to resume operations as soon as the zircon market reaches normal condition.
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