Why Did Iluka’s Profit Fall 31% Despite Rising Zircon Sales?
Iluka Resources reported a 31% drop in net profit for the first half of 2025, challenged by lower mineral sands prices but buoyed by strong cost controls and early project milestones.
- Net profit after tax down 31% to $92 million
- Revenue declined 8% to $577.8 million despite higher zircon sales volumes
- Unit cash costs reduced by 19%, maintaining a 39% EBITDA margin
- Capital expenditure of $402 million focused on Eneabba refinery and Balranald project
- Interim dividend declared at 2 cents per share, fully franked
Financial Performance Overview
Iluka Resources Limited has released its interim results for the half-year ended 30 June 2025, revealing a challenging market environment that saw net profit after tax fall by 31% to $92 million. Revenue from ordinary activities declined by 8% to $577.8 million, despite an increase in zircon sales volumes. The company attributed the revenue drop primarily to lower realised prices for key mineral sands products, including a 10% decrease in the weighted average zircon sand price and moderate declines in synthetic rutile prices.
Despite these headwinds, Iluka demonstrated robust operational discipline, achieving a 19% reduction in unit cash costs per tonne of zircon, rutile, and synthetic rutile produced. This cost control helped sustain an underlying mineral sands EBITDA margin of 39%, only slightly down from 42% in the prior corresponding period.
Operational Highlights and Market Conditions
Production volumes increased notably, with zircon sales volumes rising 19% to 158 thousand tonnes, driven by accelerated zircon-in-concentrate (ZIC) production. Iluka met its full-year ZIC production guidance by the end of June 2025, a significant operational milestone. Synthetic rutile sales were lower, reflecting a second-half sales weighting and softer pricing.
The market remains complex, influenced by heightened trade policy uncertainty. The US government extended tariff deadlines and imposed new reciprocal tariffs on several countries, though Australian zircon faces a relatively lower 10% tariff. Iluka noted cautious customer behaviour and anticipates potential volume boosts once trade policies stabilize and macroeconomic conditions improve. Meanwhile, competitors have reportedly cut zircon prices in China, and Indonesian production disruptions add further market complexity.
Capital Investment and Project Development
Iluka invested $402 million in capital expenditure during the half, with $179 million directed to the Eneabba Rare Earths Refinery and $223 million to mineral sands projects including Balranald. The Eneabba refinery, Australia’s first fully integrated rare earths separation facility, is progressing well with major construction milestones achieved and equipment arriving onsite. Balranald, a rutile-rich underground mining development in New South Wales, remains on track for commissioning in the second half of 2025, with mining rigs operational and concentrator modules erected.
Additionally, the Wimmera project in Victoria continues through its definitive feasibility study phase, targeting long-term supply of rare earths and zircon. These projects underscore Iluka’s strategic pivot towards critical minerals amid evolving global supply dynamics.
Balance Sheet and Dividend
Net debt increased to $502 million from $115 million at the end of 2024, reflecting the significant capital investments and drawdowns on debt facilities, including a $481 million draw on the Export Finance Australia loan supporting Eneabba. Operating cash flow was $115 million, down from the prior year, impacted by lower revenue. The board declared a fully franked interim dividend of 2 cents per share, aligning with the company’s dividend framework and reflecting prudent cash flow management amid ongoing investment.
Iluka’s foreign exchange risk management remains active, with hedging contracts covering expected US dollar revenues through 2026, providing some revenue certainty in a volatile currency environment.
Strategic Outlook
Iluka’s rare earths strategy is bolstered by recent US Department of Defense agreements supporting higher pricing floors for key rare earth oxides, validating the company’s pricing approach and underpinning the Eneabba refinery’s attractive projected returns. While mineral sands markets face near-term pricing pressures and trade uncertainties, Iluka’s operational efficiencies, project pipeline, and strategic partnerships position it well for the evolving critical minerals landscape.
Bottom Line?
Iluka’s disciplined cost management and project progress provide resilience, but market uncertainties and rising debt warrant close investor attention.
Questions in the middle?
- How will ongoing trade policy developments impact zircon demand and pricing in the second half of 2025?
- What are the expected timelines and cost controls for completing the Eneabba Rare Earths Refinery?
- How will Iluka balance capital expenditure with dividend payments amid rising net debt?