Iluka surge eases fear of $2 billion cheap takeover

Mar. 26, 2010
FEARS at Iluka Resources that it could fall to a cheap $2 billion takeover from Chinese interests have eased thanks to the march in the group's share price to a 12-month high.
Iluka shares closed yesterday 13 , or 3 per cent, higher at $4.36, taking the gain since the start of the year to 29 per cent.
Without the gain, Iluka was fearful that it could fall victim to an opportunistic bid from any number of state-owned Chinese groups attracted by its status as the world's biggest producer of zircon and the second-biggest producer of titanium dioxide, plus its iron ore royalty.
In recent overseas investor briefings, Iluka forecast lower total cash costs in 2010 from its mineral sands business ($510 million compared with $585 million). It also pointed to a recovery in demand becoming evident in China and the return of normal or pre-global financial crisis order levels in Europe.
And according to Iluka's assessment, both zircon and high-grade titanium dioxide prices would have to increase appreciably before any new supply threats emerge.
Iluka owns a royalty on iron ore production at BHP Billiton's Mining Area C operation in the Pilbara. This week, Morgan Stanley increased its valuation of the royalty from $443 million to $781 million, or 80 a share.
The valuation increase was a response to expectations that Morgan Stanley has for a 90 per cent increase in iron ore prices in the year ahead. It set a ''price target'' for Iluka of $5.49 a share. The implied premium to the current share price is despite Morgan Stanley's expectation that Iluka will post a modest first-half loss.