Apri. 1, 2011 - Shares in Iluka Resources, the world's biggest zircon producer, rose to a record yesterday, driven by price gains fuelled by demand from China as well as takeover speculation.
Iluka, which has a market valuation of $5.6 billion, gained 8.75 per cent to $13.30, the highest since July 1968. The Perth-based company has risen 17 per cent in the past two days.
"It's all about the zircon price and the realisation that the zircon prices have moved much more strongly than anybody in the market had anticipated," Goldman Sachs analyst Ian Preston said.
A takeover approach could not be ruled out as "Iluka is going to make a very significant profit over the next few years," he said, citing Xstrata and Anglo American as possible acquirers.
Mineral sands prices were gaining as demand rises in China, which accounts for 45 per cent of global demand for zircon, used in ceramic tiles and refractories, Goldman Sachs said yesterday in a report. Iluka raised some prices three times last year as demand exceeded supply and expected a "significantly improved" financial performance from this year.
"Our feedback from meetings in China confirmed that demand for these commodities will continue to run briskly," Goldman Sachs said in the report, citing presentations from consultant TZMI. Goldman Sachs boosted its Iluka earnings per share forecast for this year by 60 per cent to 81c, based on the market outlook, and raised its target share price to $16.
Iluka is aware of recent consultants' forecasts for zircon and titanium ore prices, the company said yesterday in response to a price query from the Australian stock exchange. "Iluka has not been party to these discussions or forecasts," it said.
Prices were set quarterly and half-yearly and the market would be kept informed of the outcomes, the company said, adding that apart from the pricing reports it was not aware of any other reason for the share gains.
Zircon contract prices were at $US1350-$US1400 a tonne during the first quarter, and settled at about $US200 a tonne higher for the second quarter, Goldman Sachs said, citing TZMI.
Zircon traded at an average of $US920 a tonne last year and may reach about $US2000 by the end of the year.
There have been $US41bn ($39.7bn) of completed mining takeovers so far this quarter, making it the best start for the year since 2007, according to data compiled by Bloomberg.
"It's really the corporate appeal given there's been a lot of talk of mergers and acquisitions" that had driven Iluka shares, said Lucinda Chan, division director and head of Asian business at Macquarie Private Wealth.
