Concise Annual Report 2005 Iluka Resources Limited
Contents Global Supplier Global Resources and Production 6 From the Chairman 10 From the Managing Director and Chief Executive Officer 12 Financial Overview 16 Iluka Overview 18 Marketing and Customer Relations 20 Exploration 22 Business Review 24 Reserves and Resources 28 Sustainable Development 31 Corporate Information 40 Concise Annual Financial Report 60 Capital Efficient Working with Communities Notice of Annual General Meeting The 51st Annual General Meeting of Iluka Resources Limited will be held in the Fort Macquarie Room at the InterContinental Hotel, 117 Macquarie Street, Sydney on Thursday 11 May 2006, commencing at 9.30am. A separate Notice of Meeting and Proxy Form are enclosed. Iluka Resources Limited, ABN 34 008 675 018 Level 23, 140 St Georges Terrace, Perth WA 6000 GPO Box U1988, Perth WA 6845 Telephone + 61 8 9360 4700 Facsimile + 61 8 9360 4777 www.iluka.com
Building Relationships Adding Value Market Opportunities Environmentally Responsible Iluka Resources Limited is an Australian based company, recognised as a global leader in the mineral sands business. Iluka supplies high quality titanium minerals and zircon products to customers internationally, and prides itself on its strong customer relationships. The company has secure, long life reserves from a portfolio of existing operations and major development projects in Australia. The company s focus is on the maximisation of value from existing operations and the efficient delivery of new growth opportunities in a capital disciplined manner. Iluka has a commitment to developing strong relationships with communities and other stakeholders to deliver the benefits of sustainable development.
Synthetic rutile kiln, used in the manufacture of titanium dioxide feedstock - South West operations, Western Australia Titanium minerals Titanium minerals - rutile, ilmenite and synthetic rutile - are the principal feedstock for pigment production. Titanium pigments are used in a wide and growing range of consumer lifestyle products. Pure white, highly refractive, ultra violet absorbing, non toxic and inert, titanium pigments are used in protective coatings, such as house and car paints, sunscreens, plastics, paper and textiles, as well as a growing number of foodstuffs and cosmetics. The combination of strength and lightness of titanium metal makes it an ideal material for advanced engineering applications, architectural coatings, the aerospace industry and in a range of other applications, including sports equipment and jewellery. Titanium minerals also act as a fluxing agent in welding electrodes that are used extensively in shipbuilding and construction. Iluka is a major global supplier of consistently high quality titanium mineral products preferred by many customers, with an industry market share of approximately 20%. Iluka s operations are located in Australia and the United States, both stable operating environments with low political risk. 2 Iluka Resources Limited Concise Annual Report 2005
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Zircon production facility - Mid West operations, Western Australia Zircon Zircon is a glassy mineral. Its opacity and hardness provide whiteness and durability in a growing range of applications. Most zircon (just over 50%) is used in the manufacture of ceramics, including tiles, sanitary ware and tableware. It is also used in refractories, television glass and foundry applications, such as the casting of jet turbine blades. Zircon is the source material for zirconia and a wide range of zirconium based chemicals. These products are used in a multitude of high-tech industrial applications, including autocatalysts, fuel cell technology, electronics and abrasives. Zirconium metal is used in nuclear fuel rods and in specialised metal alloys, due to its high melting point and chemical resistance. A small amount of zirconia is converted into the synthetic gem stone, cubic zirconia, which is used in jewellery. Iluka is the largest global supplier of zircon with a 37% market share. With strong global zircon demand and a forecast global under supply of product, Iluka is exceptionally well placed to meet future demand from its existing and planned operations. Iluka is active in developing markets, such as China, and is well positioned to benefit as these markets develop. 4 Iluka Resources Limited Concise Annual Report 2005
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Global Resources and Production GLOBAL OPERATIONS NEW OR POTENTIAL OPERATIONS Group Reserve Summary This table provides a summary reserve reconciliation for 2005. Refer to pages 28 to 30 for Iluka s detailed Reserves and Resources Statement. Group Total In Situ HM Tonnes Millions Opening Reserves 2005 40.39 Production/depletions (2.59) Adjustments New Reserves added 1.01 Exit of Florida/Georgia (4.09) Other (1.07) Closing Reserves 2005 33.65 Reserves Coverage 13 years Group Minerals Sands Production - 2005 Synthetic Rutile Rutile Ilmenite Zircon Other Australia Mid West 74,342 252,424 466,616 203,843 - South West - 277,225 659,724 62,242 24,490 CRL 71,500-160,469 53,389 - United States Virginia - - 269,661 69,189 - Florida/Georgia 28,215-35,760 29,568 33,947 Total 174,057 529,649 1,592,230 418,231 58,437 Other refers to Hyti 70 and 90, as well as leucoxene. Some ilmenite is used in manufacture of synthetic rutile. Iluka also produced 1.2 million tonnes of coal associated with the Narama Coal Joint Venture, New South Wales, Australia. 6 Iluka Resources Limited Concise Annual Report 2005
Iluka has a secure long life reserve base from existing operations and successful exploration. Geraldton Narngulu Eneabba Western Australia Cataby Gingin Perth Sales volume as a % of total group Other 30% Mid West 30% Ilmenite 53% Rutile 6% Zircon 11% % HM resource assemblage Reserves 39% Resources 29% Reserves & resources as a % of total group Mid West, Western Australia Iluka s Eneabba operations are located approximately 260 kilometres north of Perth. The Mid West is one of the world s richest zircon production regions, supplying approximately 20% of the global market. Eneabba is also the principal source of mineral sands feestock for Iluka s Narngulu mineral processing plant at Geraldton. A new mining area within the Eneabba operations is being developed at Adamson to produce additional zircon concentrate. New mining operations at Gingin commenced during 2005 and the Cataby mine is expected to commence production in 2007. Australia Map Key ACTIVE MINE SITE PROCESSING PLANT PROPOSED MINE SITE % Heavy Mineral (HM) Assemblage refers to the relative proportion of titanium mineral products and zircon in the in situ heavy mineral content for each region. Other refers to non valuable heavy minerals. Reserves and resources as % of total group refers to the level of reserves and resources for each region, as a percentage of the Iluka group total. Sales volumes as % of total group refers to the level of sales of titanium minerals and zircon as a % of the Iluka group total. Perth North Capel Bunbury Capel Busselton Yoganup West Western Australia Waroona Wagerup Capel Yoganup Extended Cloverdale South West 33% Sales volume as a % of total group Rutile/ Other Leucoxene 12% 1% Zircon 8% Ilmenite 79% % HM resource assemblage Reserves 25% Resources 29% Reserves & resources as a % of total group South West, Western Australia Located in the South West of Western Australia, 200 kilometres south of Perth, Capel was Iluka s first mining and minerals processing site when the company began operations in the 1950s. Production facilities in the South West include three mine sites, two dry mineral separation plants at Capel and North Capel, and a synthetic rutile processing plant at North Capel. The Wagerup mine commenced production in 2005 with Waroona expected to commence production during 2006 and Cloverdale in 2007. CRL 16% CRL, Queensland Townsville Rockhampton Queensland North Stradbroke Island Brisbane Pinkenba Sales volume as a % of total group Other 30% Ilmenite 45% Rutile 14% Zircon 11% % HM resource assemblage Reserves 10% Resources 5% Reserves & resources as a % of total group Iluka has a controlling interest (51.04%) in Consolidated Rutile Limited (CRL), Queensland s only titanium mineral producer. CRL has two dredging operations and supplementary dry mining on the Yarraman and Enterprise ore bodies at North Stradbroke Island. Processing facilities are located at Pinkenba, near Brisbane. 7
Australia The development of the Murray Basin is a major component of Iluka s plans to grow its mineral sands business. Other 30% Ilmenite 47% Murray Basin, Victoria/ New South Wales Euston Deposits Ouyen Deposits Broken Hill Murray Basin Mildura Ouyen Euston Douglas Project New South Wales Horsham Victoria Mineral Separation Plant Hamilton Melbourne Rutile 13% Zircon 10% % HM resource assemblage Reserves 18% Resources 29% Reserves & resources as a % of total group The development of the Murray Basin is a major component of Iluka s plans to grow its mineral sands business, with the Murray Basin predicted to become one of the world s major sources of rutile and zircon. The Douglas project (due to be completed in 2006) is the first stage of Iluka s development of the Murray Basin. Pre-feasibility work is in progress for the first (Kulwin) of a number of potential developments in the northern Murray Basin. Map Key ACTIVE MINE SITE PROCESSING PLANT (under construction) POTENTIAL MINE SITE South Australia Eucla Basin Ambrosia Jacinth Tripitaka Ceduna Adelaide Rutile 5% Zircon 50% Other 18% Resources 5% Ilmenite 27% % HM resource assemblage Reserves & resources as a % of total group Eucla Basin, South Australia The Eucla Basin is a potential major new zircon province discovered by Iluka in 2004. Two separate deposits of high assemblage zircon (Ambrosia and Jacinth) have been discovered within part of Iluka s 60,000 square kilometres of mining exploration leases. A third discovery, Tripitaka, has been made with the Adelaide Resources Limited joint venture. The potential development of the Eucla deposits will contribute to securing Australia s competitive advantage in zircon and provide a long life earnings stream for Iluka. 8 Iluka Resources Limited Concise Annual Report 2005
United States of America Virginia 15% Virginia, United States Richmond Virginia Old Hickory Stony Creek Raleigh Brink Deposit Zircon 17% Sales volume as a % of total group Other 15% Ilmenite 68% % HM resource assemblage Reserves 7% Resources 3% Iluka s Old Hickory operations in Stony Creek, Virginia began in 1997. The operations include a dry mine, concentrator and processing plant. An expansion program completed in mid 2002 increased production upwards of 50%. A feasibility study is being undertaken into a new mine development at the Brink deposit, located 30 kilometres south of the Old Hickory mines. Reserves & resources as a % of total group Map Key Florida/ Georgia 6% Florida/Georgia, United States ACTIVE MINE SITE PROCESSING PLANT POTENTIAL MINE SITE Atlanta Georgia Lulaton Columbia Rutile 17% Sales volume as a % of total group Other 27% Ilmenite 42% Zircon 14% % HM resource assemblage In December 2005, the company announced the staged closure of its Florida/Georgia operations. The Florida/Georgia operations have been producing titanium minerals and zircon since 1972. Based at Green Cove Springs, Florida and Lulaton, Georgia, the operations include satellite dry mines and a mineral separation plant. Green Cove Springs Jacksonville Florida 9
Ian Mackenzie, Chairman Mining at the Douglas project - Victoria From the Chairman Strategic Focus Iluka s focus is upon identifying and developing new high grade mineral sands deposits. This will allow the company s production and financial base to transition from its reliance on the large, but now mature Western Australian mineral sands operations, to new long life mining and processing operations in the Murray Basin in Victoria and New South Wales, and potentially in the Eucla Basin of South Australia. The execution of this strategy will lead to an enhancement of shareholder returns and value generation, while enabling Iluka to maintain its role as one of the major global suppliers of titanium dioxide and zircon products to its customer base. 2005 Financial Results The year ended 31 December 2005 was the first full year of reporting under the Australian equivalent of International Financial Reporting Standards (AIFRS). 2004 comparative data has also been restated to be AIFRS compliant. Further details on the transition to AIFRS are included in Note 1 of the Concise Annual Financial Report included on page 72 of this report. The 2005 reported earnings for your company were not acceptable. The group recorded a loss after tax and minority interests of $85.9 million, inclusive of largely non cash one-off charges associated with write-downs and provisioning costs of $295.2 million before tax ($217.8 million after tax). The total cash charge associated with these write-downs was $21.7 million. Excluding these one-off charges, 2005 Net Profit after Tax and minority interests (NPAT) increased by 39.1% to $131.9 million, compared with the 2004 NPAT of $94.8 million. A write-down and other costs totalling $111.1 million before tax, ($88.9 million after tax) was associated with the Board s decision, announced on 8 December 2005, to undertake the staged closure during 2006 of the loss-making Florida/Georgia operations in the United States. This decision was taken in the context of the unsatisfactory financial performance of the operations, mainly associated with the high costs of exploiting the small, thin and disparate low grade nature of the ore bodies, compounded by higher costs for power, fuel and other inputs. In addition, a detailed review of the operations determined that reduced exploration prospectivity and a significantly lessened likelihood of gaining access to higher value and higher grade deposits, had seriously affected the business case for retention of Florida/Georgia. The company also recorded write-downs of $96.1 million before tax ($67.3 million after tax) associated with its Mid West operations in Western Australia and $88.0 million before tax ($61.6 million after tax) associated with its Murray Basin operations. In the case of the Mid West operations, the main factors which generated the write-down included higher forecast operating costs, some reductions in long term selling price assumptions, as well as revised expectations for the development of a process to commercially treat residual iron oxide tailings associated with Iluka s Western Australian mineral processing activities. Higher forecast capital costs have meant that a definitive commercial proposition for the treatment of iron oxide tailings is now no longer immediately available. In this context, it was prudent to exclude any expectation of future cash flows from the project. In relation to the Murray Basin, the reduction in carrying value was associated with forecast higher costs for labour, energy and mining services, which resulted from more detailed and contemporary mine planning, the prevailing cost environment for major resource projects, as well as delays associated with the completion of the Douglas project. 10 Iluka Resources Limited Concise Annual Report 2005
Iluka s focus is upon identifying and developing new high grade mineral sands deposits. In the case of the Mid West operations and the Murray Basin, both had a substantial fair value allocation ascribed to their non-current asset base. For the Mid West this related to acquisition accounting for the Westralian Sands acquisition of RGC in 1998. The Murray Basin also had a fair value amount associated with the RGC acquisition, as well as for the Basin Minerals acquisition of 2002. Iluka continued to generate strong operating cash flows and is committed to the further development of high quality mineral sand projects. Operational Progress Operationally, 2005 was a year of pleasing progress, in most areas, although with a decline in the performance of the Florida/ Georgia operations. Synthetic rutile sales were at record levels. Zircon production and sales were marginally lower year-on-year, constrained by production rather than market demand. Higher prices for zircon, and to a lesser extent, high quality titanium dioxide products, reflected a situation of continued strong market demand for Iluka s products. Management continues to give a strong focus to environmental, health and safety performance. Project Generation The completion of the Douglas project in the Murray Basin is a major priority for the company. While the contractor, Roche Mining Pty Ltd., has advised a completion date at the end of June 2006, a substantial improvement in productivity will be required for this date to be achieved. On the basis of current information, a third quarter completion is more likely. The company has been very disappointed with the performance of Roche Mining in relation to the progress on the Douglas project. The first in a number of ore deposits in the northern Murray Basin is expected to be approved for development during 2006. The company also experienced further exploration success in the Eucla Basin in South Australia, with the Tripitaka discovery, in joint venture with Adelaide Resources Limited. The Eucla Basin is emerging as a major potential new zircon province which has the potential to underpin Iluka s role as the world s major supplier of zircon for many years into the future. Board and Management During the year, John Pizzey joined the Board as a non-executive Director. Mr Pizzey is a former senior executive of Alcoa Inc. (USA) and is currently Chairman of Range River Gold and a Director of Amcor Limited. John Barr and Richard Tastula retire at the conclusion of the forthcoming Annual General Meeting and are not seeking re-election in line with the policy of preferred terms of office. I would like to thank both Directors for their valuable contribution over many years. The Directors also agreed to an extension of Mike Folwell s term as Managing Director and Chief Executive Officer on an indefinite basis with no fixed term. Outlook In light of the 2005 result, the company has provided guidance in relation to the 2006 NPAT. The guidance is provided on a continuing business basis, excluding the expected Florida/Georgia 2006 operating results as well as any associated land sales. On this continuing basis, Iluka expects to generate a net profit after tax of between $115 million and $125 million, assuming an US$/A$ spot exchange rate of 76 cents and the third quarter commencement of the Douglas project in the Murray Basin. Overall, market conditions for the business remain robust. Demand remains strong for Iluka s main products, with moderate price increases expected for high quality titanium products, as well as a further strengthening in zircon prices. Operationally, the focus will be on bringing Douglas into production, as well as the staged development of northern Murray Basin ore deposits, with further drilling and project evaluation work to be undertaken in the Eucla Basin. On behalf of the Board, I would like to thank the senior management and employees for their contribution to the company s activities during 2005 and the company s shareholders and other key stakeholders for their continued support. Dividend Because the reported loss was largely of a non-cash nature and the fundamentals of the business remain sound, the Directors declared a final dividend of 12 cents per share franked to 9.6 cents or 80%. The dividend will be paid on 20 April 2006 to shareholders registered as at 6 April 2006. This, together with the interim dividend of 10 cents per share will bring the full year dividend to 22 cents (22 cents in 2004), franked to 14.6 cents or 66.4%. Ian Mackenzie Chairman 11
KM (Mike) Folwell, Managing Director and CEO Heavy mineral stockpile - Mid West operations, Western Australia From the Managing Director and Chief Executive Officer Production, Sales and Pricing Iluka achieved an increase in production for all major mineral sands products in 2005, with the exception of zircon and leucoxene. Rutile production was 16.7% higher at 174 thousand tonnes, mainly associated with higher production in the Mid West of Western Australia and from CRL in Queensland. Synthetic rutile production was at a record level of 530 thousand tonnes, a 6.8% increase from 2004. The higher production and record sales were achieved as a result of successful debottlenecking activities and consistent high grade feed from new mines commissioned during 2004 in Western Australia. Zircon production decreased marginally for the year (down 2.4% to 418 thousand tonnes). However, increased production from the South West and the commencement of zircon recovery from tailings in the Mid West, mitigated the decline resulting from lower grades and assemblage. CRL had an excellent year, with production and sales volumes up markedly in all products. Iluka achieved strong price increases in 2005 for zircon products, as well as moderate price increases for high quality titanium products, such as rutile and synthetic rutile. Towards the end of 2005, pricing arrangements and sales volumes for 2006 were finalised. Most of Iluka s 2006 production is sold forward. Given strong market demand and a shortage of supply, zircon prices in 2006 have again increased strongly, with further moderate pricing increases achieved for high quality titanium products. Coal production from Iluka s 50% interest in the Narama Coal Joint Venture in New South Wales, increased by 17.8% to 1.2 million tonnes, resulting from an agreement with the joint venture s main customer to bring forward purchases to meet demand. 12 Iluka Resources Limited Concise Annual Report 2005
Iluka is transitioning from a reliance on large, but now mature Western Australian ore bodies to the development of new high grade deposits in the Murray Basin and the Eucla Basin. Reserves At the end of 2005, Iluka had total reserves of 33.6 million tonnes of in situ heavy mineral reserves. Total resources (which includes reserves) were 150.5 million tonnes. Closing reserves and resources for 2005 were lower than at the commencement of the year. This was due mainly to higher sales, combined with the decision to close the Florida/Georgia operations (which necessitated a reserve and resource adjustment), as well as the sale of other deposits, mainly in Western Australia. Reserve cover stands at 13 years. Significant potential exists for additions to resources and reserves associated with the company s successful exploration efforts, principally in the Eucla Basin and Murray Basin, and from brownfields exploration close to existing operations. Operational Performance of Existing Assets The challenges associated with the cost of mining and mineral processing from Iluka s mature Western Australian ore bodies remain significant for the company. The benefits of a highly successful operational improvement and cost reduction program, higher sales and a strong pricing environment for many of our products, partially offset increased mining and concentrating costs associated with lower grades and mineral assemblages in the Western Australian operations, as well as the large operating loss in Florida/Georgia. Mineral Sands Earnings before Interest and Tax, and before one-off charges (EBIT), declined by 2.1% to $101.7 million. The company s diversified portfolio of other businesses, namely the Narama Coal Joint Venture and the royalty and capacity payments stream from BHP Billiton s Mining Area C iron ore operations, contributed strongly to earnings in 2005. The company continued its active program of portfolio management during 2005, rationalising assets and disposing of land holdings surplus to requirements. Project Execution During the year, new mining operations began at Gingin in the Mid West and Wagerup in the South West of Western Australia. The commissioning of a mobile centrifugal plant in the Mid West enabled the commencement of recovery of zircon from tailing stockpiles. The development of the Douglas project in the Murray Basin represented the company s major area of capital expenditure during 2005. At expected full production in 2007, the Douglas project will make a major contribution to Iluka s rutile and zircon production. Mining operations have enabled the stockpiling of both mineralised ore and heavy concentrate, which should facilitate a quick ramp up in production when the mineral separation plant at Hamilton is completed. The company experienced delays in project execution for the Douglas project, which is being constructed under a lump sum, predominantly fixed price engineering, procurement and construction (EPC) contract by Roche Mining Pty Ltd. The original, contracted completion date for the project was October 2005. While the contractor has recently advised a completion date of June 2006, Iluka expects production is more likely to commence in the third quarter of 2006. In December 2005, Iluka received notices of dispute by Roche Mining in relation to claims for extended time and additional payments, totalling $105.3 million. These claims have been duly assessed and rejected by Iluka as without factual or contractual basis or merit. In accordance with the EPC contract, the claims will now be subject to a prescribed dispute resolution process. Planning work continued on the second phase of the Murray Basin, the development of the major resource base in the northern part of the basin, located around Ouyen in Victoria and Euston in New South Wales. Five deposits have been identified to date near Ouyen, with the Kulwin deposit expected to be the first project approved. Pre-feasibility work is expected to be completed in 2006 with a development decision likely later in the year, enabling first production during 2007. The development of the Murray Basin deposits provides the potential for mining operations for a period of over 20 years, adding a further major new mining province for the company. Further new mining operations are also in the planning stage in Western Australia and in Virginia in the United States. 13
New Project Identification Further drilling and technical evaluation associated with the Jacinth and Ambrosia discoveries in the Eucla Basin in South Australia took place in 2005. The indicated resource for Jacinth and Ambrosia is estimated at 7.9 million tonnes of heavy mineral. During 2005, the Tripitaka discovery was made in joint venture with Adelaide Resources Limited. Located 90 kilometres south east of Jacinth and Ambrosia, Tripitaka, while lower grade, contains zircon assemblages as high as 68%. The high zircon assemblages attest to the quality of this potential new mineral province. Pre-feasibility work for Eucla will continue in 2006. A number of development options are being evaluated to maximise project returns, as well as to ensure a disciplined entry of product into the global market. The pre-feasibility work is being undertaken in the context of the remote location of the Eucla Basin discoveries and the major infrastructure requirements required for the potential development of the ore bodies. The engagement of local indigenous groups, other communities and key stakeholders is occurring as an essential part of the planning process. Financial Performance The Chairman has already referred to the reported earnings of the group. The reporting of a loss of $85.9 million in 2005 was a great disappointment to myself and the senior management team. Sales revenue increased by 12.4% to $921.0 million reflecting overall increases in sales volumes and prices. Group earnings before interest and tax (EBIT) and before oneoff charges, increased by 31.7% to $216.4 million, resulting from increased contributions from Narama Coal (EBIT of $15.4 million, up 36.3%), Mining Area C Iron Ore royalty payments (EBIT of $23.1 million, up 165.5%) and a contribution from asset sales of $38.1 million. Mineral Sands EBIT declined by 2.1% to $101.7 million. Higher prices for zircon and high quality titanium dioxide products, as well as increased sales volumes in most products, with the exception of zircon and leucoxene, aided Mineral Sands EBIT. CRL had a strong EBIT of $40.2 million. The costs of mining lower grade ore bodies in Western Australia, as well as longer haulage distances from new mines (Wagerup and Gingin) to processing facilities, added substantially to costs. The Western Australian operations recorded EBIT of $84.5 million (before hedging and asset sales), a decline of 10.4% from 2004. The Florida/Georgia operations recorded a loss of $37.7 million (2004 - $18.3 million loss) before the one-off charges associated with the decision to close these operations. Earnings per share, inclusive of the one-off charges, were negative 36.9 cents compared with positive 40.7 cents in 2004. Excluding the one-off charges, earnings per share were positive 56.6 cents. Strong operating cash flow of $227.0 million was achieved, a similar level to 2004. Capital expenditure in 2005 was $341.9 million, an increase from the 2004 level of $205.5 million. The major proportion of 2005 capital expenditure related to the Douglas project. Net debt at 31 December 2005 was $554.2 million, compared with $404.4 million in 2004. The higher net debt reflects increased expenditure on new projects as the company entered a major project development phase. Gearing (net debt/net debt + book equity) was 42.3% at the end of the reporting period compared with 32.2% at the end of 2004. The higher gearing reflects the higher debt and a reduction in shareholders equity associated with the write-downs. The ratio of operating cash flow (before interest) to interest paid was 8.5 in 2005, compared with 9.6 in 2004. The Concise Financial Report from page 68 sets out the 2005 financial results in detail. 14 Iluka Resources Limited Concise Annual Report 2005
Environment, Health and Safety The group s commitment to high standards in environmental, health and safety performance continued throughout 2005. During the year Iluka became a signatory to the Minerals Council of Australia s Enduring Value A Framework for Sustainable Development. Iluka has established a baseline assessment of its compliance with the ten principles of the Enduring Value framework and will commence reporting against these principles in future Annual Reports. Health and safety management remained a major focus during 2005 as the company s employees continued to strive for performance improvements. The group wide efforts were rewarded by a significant decrease in the number and severity of work place injuries. While, disappointingly, the lost time injury frequency rate (LTIFR) increased from 1.4 in 2004 to 1.9 in 2005, this level still marks a major improvement over the last five years and is below the mining industry average of 3.0. Furthermore, the medical treatment frequency rate (MTIFR) was 5.7 for 2005, the lowest level Iluka has recorded. Community Engagement Business Outlook In 2006, Iluka is fully sold for most of its main products, with higher prices achieved for high quality titanium products and for zircon. The company s focus will continue to be upon optimising production levels and efficiencies across the business, so as to maximise the financial opportunities associated with strong market demand for its products. The commencement of rutile and zircon production from the Murray Basin will be an important milestone for the company, as will the expected approval of the development of the first in a series of ore deposits in the northern Murray Basin. Iluka s exploration activities can be expected to be a continuing basis of value generation, with a major program of evaluation and new exploration activity planned for the Eucla Basin, as well as other provinces. Mike Folwell Managing Director and Chief Executive Officer The quality of the company s engagement with the communities in which it operates was illustrated during 2005 by Iluka being awarded the Victorian Government s Strzelecki Gold Award for excellence in community engagement, associated with the company s Douglas project in Victoria. I join with the Chairman in thanking our employees, customers, shareholders and other important stakeholders for their support of Iluka during 2005. 15
Financial Overview Group Sales by Product (tonnes) Category 2005 2004 2003 2002 2001 Mineral Sands Titanium Minerals Rutile 170,105 150,914 167,324 172,124 174,314 Synthetic Rutile 522,822 480,598 466,722 516,598 419,654 Ilmenite 793,722 745,039 740,423 672,807 673,992 Leucoxene/Hyti 67,396 58,721 50,711 47,467 30,875 Total Titanium Minerals 1,554,045 1,435,272 1,425,180 1,408,996 1,298,835 Zircon 421,808 423,550 409,266 363,622 352,823 Total Mineral Sands 1,975,853 1,858,822 1,834,446 1,772,618 1,651,658 Coal 1,233,541 1,055,066 1,030,000 1,032,433 1,195,809 Sales by Region (tonnes) Synthetic Rutile Rutile Ilmenite Zircon Other Total Australia Mid West 69,561 233,815 89,777 202,196-595,348 South West - 289,007 251,902 66,765 33,496 641,170 CRL 72,682-194,059 53,189-319,930 United States Virginia - - 225,569 70,050-295,619 Florida/ Georgia 27,862-32,415 29,609 33,900 123,786 Total 170,105 522,822 793,722 421,808 67,396 1,975,853 Sales Revenue ($M) Category 2005 2004 2003 2002 2001 Mineral Sands 880.6 785.3 752.9 805.1 737.8 Coal 40.4 34.3 33.1 31.7 34.9 Other - - - 57.7 128.1 Total 921.0 819.6 786.0 894.5 900.8 NPAT ($M) 160 120 80 40 0-40 -80-120 01 02 03 04 05 NPAT NPAT before one-off items NPAT ($M) 2005 2004 2003 2002 2001 NPAT (85.9) 94.8 85.2 109.0 63.7 NPAT before one-off items 131.9 94.8 85.2 109.5 107.8 Operating Cash Flow After Tax ($M) 250 225 200 175 150 125 100 75 50 25 0 01 02 03 04 05 Operating Cash Flow After Tax ($M) 2005 2004 2003 2002 2001 Operating Cash Flow 227.0 227.9 179.0 139.9 131.0 16 Iluka Resources Limited Concise Annual Report 2005
Five Year Financial Performance Summary Category 2005 2004 2003 2002 2001 Revenue from operations ($M) 921.0 819.6 786.0 836.8 772.7 Earnings before interest, tax, depreciation and amortisation, excluding one-off charges (EBITDA) ($M) 341.8 286.3 214.7 237.8 261.9 Earnings before interest and tax, including one-off charges (EBIT) ($M) (78.8) 164.3 99.0 128.4 88.4 Earnings before interest and tax, excluding one-off charges (EBIT) ($M) 216.4 164.3 99.0 129.8 148.7 Net profit after tax and minority interests, including one-off charges ($M) (85.9) 94.8 85.2 109.0 63.7 Net profit after tax and minority interests, excluding one-off charges ($M) 131.9 94.8 85.2 109.5 107.8 Earnings per share (cents), including one-off charges (36.9) 40.7 36.6 48.6 29.3 Earnings per share (cents), excluding one-off charges 56.6 40.7 36.6 48.8 49.7 Dividend per share (cents) 22.0 22.0 22.0 22.0 22.0 Return on shareholders equity, including one-off charges (%) (12.5) 12.0 9.6 13.2 9.2 Return on shareholders equity, excluding one-off charges (%) 14.5 12.0 9.6 13.3 16.4 Gearing ratio (%) 42.3 32.2 28.7 33.8 32.3 Equity ($M) 757.1 852.6 941.1 879.0 757.2 Net tangible assets per share ($) 3.17 3.56 3.98 3.70 3.33 No. of shares on issue (million) 232.9 232.9 232.8 232.8 217.3 Note: 2004 and 2005 Financials comply with the Australian Equivalent of the International Accounting Standards. 2001, 2002 and 2003 Financials are reported under previous Australian Generally Accepted Accounting Principles. The underlying improvement in Iluka s operating performance has been masked by three key factors: grade decline, the return to full effective taxation rates and, in particular, foreign exchange. The foreign exchange impact occurs because Iluka s revenues are largely US denominated against a predominantly Australian dollar denominated cost base. Hence a weak US dollar/high Australian dollar has a detrimental impact on Iluka s reported earnings. 17
Iluka Overview Iluka Operation Main Assets 2005 Production Current Operations Western Australia - Mid West Geraldton - Narngulu facility (mineral separation plant, zircon finishing plant, mobile Kelsey Jigs plant, synthetic rutile plant with 2 reducing kilns), port operations & storage facilities. Main mines - Eneabba (2 wet concentrators, 5 mining units) & Gingin (wet concentrator & mining unit). 997,000 tonnes of mineral sands products 74,000 tonnes of rutile 252,000 tonnes of synthetic rutile 467,000 tonnes of ilmenite 204,000 tonnes of zircon - South West Capel - dry mineral separation plant. North Capel - dry mineral separation plant, synthetic rutile plant with 2 reducing kilns. Port operations at Bunbury. Main mines - Yoganup Extended & Yoganup West (wet concentrator & mining unit at each site) & Wagerup (wet concentrator & mining unit). 1,023 million tonnes of mineral sands products 277,000 tonnes of synthetic rutile 660,000 tonnes of ilmenite 24,000 tonnes of Hyti 70/91 62,000 tonnes of zircon CRL, Queensland - Iluka interest 51.04% United States - Virginia - Florida/Georgia Other Businesses Narama Coal, New South Wales - Iluka interest 50% 2 dredge mining operations on North Stradbroke Island - Yarraman & Enterprise. Associated dry mining. Separation & processing plant at Pinkenba near Brisbane. 2 wet mineral concentrators & dry mineral separation plant. 2 wet mineral concentrators (Florida & Georgia). Dry separation plant (Florida). Open cut thermal coal mine located in the Hunter Valley, NSW. 285,000 tonnes of mineral sands products 62,000 tonnes of rutile 160,000 tonnes of ilmenite 53,000 tonnes of zircon 270,000 tonnes of ilmenite 69,000 tonnes of zircon 28,000 tonnes of rutile 36,000 tonnes of ilmenite 34,000 tonnes of leuxocene 29,000 tonnes of zircon 2.46 million tonnes of coal (100%) Mining Area C Iron Ore, Western Australia - Royalty New Operations - Under Development Revenue royalty & production capacity payment arrangements associated with the BHP Billiton operated Mining Area C iron ore operations in the Pilbara region, northern Western Australia. Greater of 1.25% royalty on FOB sales or $0.25 per tonne sold and one-off capacity payments of $1 million for each 1 million tonne increase in production over 5 million tonnes. Murray Basin, Victoria / New South Wales Potential Operations Northern Murray Basin, Victoria / New South Wales Eucla Basin, South Australia Douglas Mine - wet concentrator plant & mining unit. Mineral separation plant located at Hamilton, Victoria. Mining operations initially from Bondi Main and Bondi East deposits. Potential Ouyen development comprising 5 deposits (Kulwin, Woornack, Rownack, Rainlover, Pirro). Potential Euston development comprising 5 deposits (Castaway, Kerribee, Earl, Dispersion, Koolaman). Continuing delineation of a major, highly prospective zircon province, South Australia. 3 discoveries to date - Jacinth, Ambrosia & Tripitaka (in joint venture with Adelaide Resources Limited). Expected completion third quarter 2006 Douglas production in 1st full year of operations expected to be ~ 180 thousand tonnes of rutile & zircon. Pre-feasibility planning stage: northern Murray Basin developments expected to increase production of rutile & zircon in initial years (as production from Douglas mine area declines). Pre-feasibility planning stage. 18 Iluka Resources Limited Concise Annual Report 2005
Remaining Reserves & Resources (Million tonnes) 2005 Sales Revenue 2005 EBIT Assets Employed Reserves - 13.2 Resources - 44.0 Total WA Operations - $621.7M (up 8.2%) Total WA Operations - $84.5M before one-off charges, asset sales and hedging (down 10.4%) Total WA Operations - $942.2M (after impairment write-down) Reserves - 8.6 Resources - 43.4 Reserves - 3.4 Resources - 7.0 $118.6M (up 46.6%) $40.2M (up 243.6%) $195.5M Reserves - 2.4 Resources - 3.7 $88.9M (up 1.4%) $28.4M (up 1.8%) $119.5M Reserves - 0.14 Resources - 0.14 $51.4M (up 21.2%) $(37.7)M before one-off charges (down 106.0%) $66.9M (after write-down) Life of mine - 2012 $40.4M (up 18.1%) $15.4M (up 36.3%) $43.4M Not applicable Not applicable $23.1M (up 165.5%) $13.1M Reserves - 6.0 Resources - 44.4 Not applicable Not applicable $461.3M (after impairment write-down) for total Murray Basin Included in Murray Basin Reserves & Resources above Not applicable Not applicable See above Resources - 7.9 Not applicable Not applicable $9.6M 19
Marketing and Customer Relations Iluka is an established global leader in the supply of titanium minerals and zircon. Providing a suite of over 40 titanium minerals and zircon products which meet individual customers technical specifications, Iluka has established a track record as a reliable supplier of consistently high quality products. Iluka s focus is on maintaining high quality, long term customer relationships. It has over 50 direct customers and sales to 24 countries. The company has worked closely with most of its customers for over 10 years and with some customers for over 30 years. Iluka works with its customers to understand and satisfy their technical product requirements. This involves joint technical studies and product support. These factors, and Iluka s stable production base in Australia and the United States, as well as its close geographical proximity to major markets, have meant that it is considered a preferred supplier by a number of major customers. America 29% Iluka s 2005 Global Sales - % Value by Region Titanium Dioxide Asia 48% America 22% Zircon Asia 36% Marketing Approach Iluka s marketing approach is to differentiate itself by supplying customers with preferred, high quality products, backed by excellent service. The company is also actively pursuing new opportunities in emerging and developing markets such as China, India, the Middle East and South America, all regions where demand is expected to increase and where the company is building on its existing supply presence either through direct sales or in-country distributors. For titanium minerals, profitable growth is based on the supply of very high grade (90%+ titanium dioxide) chloride feedstock (synthetic rutile and rutile), supplemented by sales of chloride and sulphate ilmenite. For zircon, profitable growth is based on supplying premium grade products targeted at high value margin markets around the world. Titanium minerals volume contractual supply arrangements with major customers are generally long term in nature. For zircon sales, Iluka is in the process of establishing longer term contracts with its major customers. Europe 23% Europe 42% Titanium minerals constituted approximately 60% of Iluka s global sales revenue in 2005, zircon constituted approximately 40%. 20 Iluka Resources Limited Concise Annual Report 2005
Iluka s marketing approach is to positively differentiate itself by supplying customers with preferred, high quality products, backed by excellent service. Market Characteristics In 2005, the global mineral sands market was worth an estimated US$2.7 billion, with titanium minerals constituting approximately US$2 billion and zircon approximately US$0.7 billion. The industry structure is such that the top four industry participants in titanium mineral sands supply over 50% of the market and, in the case of zircon, over 75% of the market. Demand for high quality titanium feedstock products remained strong in 2005, with continued strong off-take from all three of the major sectors: titanium dioxide pigment, metal and welding. Despite a general global over supply of titanium feedstock, Iluka achieved price increases for its preferred high grade feedstocks in 2005, with further increases secured for 2006. The supply of zircon remains tight, with strong demand expected to continue in 2006. Iluka expects a supply shortage to exist until the latter part of the current decade, when the company s Eucla Basin project, subject to the outcome of feasibility studies, is expected to be able to meet the growing deficit in global demand for zircon. Iluka achieved strong price increases in 2005 and has secured further sizeable increases for 2006. Marketing Priorities During 2005, Iluka s marketing function successfully sold all production. Iluka is sold forward for the major part of its titanium minerals and zircon production in 2006. Close working relationships were maintained with customers to replace supply from the Florida/Georgia operations after their closure with product from other Iluka operations. Over the next decade, it is expected that China will transition to chloride pigment technology. It is also expected to increase its imports of zircon to meet growing domestic consumer demand and increased production of zircon based export products. These factors will further increase the importance of China as a market for Iluka s products. China, as with other emerging economies, presents a major growth opportunity for Iluka over the next decade. The planned establishment of an Iluka representative office in China will enhance Iluka s presence in this market. Global Demand for Titanium Dioxide Feedstocks by Region Pigment 97% Pigment Metal Welding Sulphate pigment Chloride pigment Global Titanium Dioxide Usage North America Metal 1% Welding 2% Chloride pigment 100% Global Sulphate/ Chloride Demand Pigment 93% Europe Metal 6% Welding 1% Chloride pigment 80% Pigment 91% Sulphate pigment 20% Asia Metal 4% Welding 5% Sulphate pigment 80% Chloride pigment 20% Pigment 93% Metal 4% Sulphate pigment 40% Welding 3% Chloride pigment 60% This map shows the global demand for titanium dioxide feedstocks in the key end market uses of pigment, metal and welding. The chart also shows the relative demand for titanium feedstock as used in the two main processes for pigment production - the chloride and sulphate pigment production process. 21
Exploration Iluka maintains a major focus on exploration as a key means of delivering high value growth opportunities. Iluka s exploration activities seek an appropriate blend of various forms of resource identification and delineation. These include conceptual project generation activities as well as resource delineation and extensions associated with existing sites and greenfields exploration. In 2005, Iluka s exploration expenditure totalled $21.6 million and involved a commitment to secure exploration tenements and mining leases, drilling and geological evaluation work in Australia, including South Australia, Victoria and Western Australia. International exploration work was focused in the Atlantic Coastal Plain of the United States. The company has over 357 mining leases, exploration tenements and applications totalling over 90,000 square kilometres, an area larger than the land mass of the state of Tasmania. Exploration activities included support to operations, that is, the extension to mine reserves, such as the further delineation of the Adamson deposit within the Eneabba precinct in the Mid West of Western Australia. In the Murray Basin, work continues to assess some of the 30 to 40 heavy mineral deposits identified on Iluka s tenements as the basis for establishing future reserves capable of development. This activity was also designed to provide greater reserve certainty to support the existing mining operations in and around the Douglas mine facilities. It also served to further determine the resource potential of the northern Murray Basin to support second phase development and beyond in the Murray Basin. In the Eucla Basin of South Australia, further successful exploration work occurred in extending the resource and reserve potential of this major new mineral sands province. Iluka s exploration function consists of geoscientists and supporting staff with teams based at all of Iluka s Australian and United States operations. A new team, based in Adelaide, was established during 2005, with responsibility for the emerging new province in the Eucla Basin. Drilling remains the primary exploration tool for mineral sands deposits and Iluka maintains a fleet of specialist drilling rigs, both in Australia and in the United States. This in-house capability has, to a large extent, shielded Iluka from the general industry issue of limited drill rig availability in a period of increased exploration activity. It has also enabled Iluka to deliver a technically proficient and cost competitive internal service (as measured by cost per metre drilled). 22 Iluka Resources Limited Concise Annual Report 2005
Iluka continues to demonstrate its ability to both identify emerging new mineral sands provinces and to establish dominant tenement positions within them. Eucla Basin Iluka continues to demonstrate its ability to both identify emerging new mineral sands provinces and to establish dominant tenement positions within them. Iluka established a series of tenements for exploration from September 2001 in the Eucla region of South Australia and into Western Australia. The company now has a portfolio of tenements and tenement applications across more than 60,000 square kilometres in the Eucla Basin. Exploration during 2004 resulted in two significant mineral sands discoveries, the Jacinth and Ambrosia deposits. The deposits are located in a remote area approximately 200 kilometres north west of Ceduna. The Jacinth discovery contains an indicated resource of 6.1 million tonnes of heavy mineral (HM) at a 1% cut-off. Average grade of the deposit is 5.3% with an average assemblage of 48% zircon, 5% rutile and 31% ilmenite. The Ambrosia discovery contains an inferred resource of 1.7 million tonnes of HM. Average grade is 3.0% with an average assemblage of 55% zircon, 7% rutile and 14% ilmenite. In 2005, a further significant discovery, Tripitaka, was made on the Colona Joint Venture tenements with Adelaide Resources Limited, located 90 kilometres to the south east of the Jacinth and Ambrosia deposits. At this early stage of investigation, no resource estimate has been prepared, but on the basis of two bulk samples, zircon levels within the heavy mineral assemblage range between 65% to 68%, which is very encouraging. The three discoveries contain a zircon to titanium ratio of approximately ten times the global average, making them amongst the highest assemblage zircon deposits in the world. The Eucla Basin has the features of being a potential world class and long life future zircon source. Iluka is currently undertaking a pre-feasibility study for the potential development of the Eucla Basin. This study is determining the optimal arrangements for the development of this major, but remotely located, resource. The project scoping work includes the assessment of potential locations for the mineral separation plant, production commencement and production profile, as well as the major infrastructure requirements (water, power, transport and other support services) required for a future mining operation. Significant remaining exploration potential exists in the Eucla Basin. Major work programs have been planned to both drill out the Tripitaka prospect and to increase the rate of regional exploration across the company s tenements in both South Australia and Western Australia. 23
Yarraman dredge operations - CRL, Queensland Business Review CRL Operations Main Factors Influencing the Business CRL reported strong earnings growth, with 2005 EBIT of $40.2 million, up 243.6%. The key factors influencing CRL s 2005 financial performance included: Outlook and Priorities The focus remains on maximising the value of the Enterprise ore body and, through resource evaluation, exploration, infill drilling and mine planning, optimising the value of the extensive North Stradbroke Island resource base. In addition, a major focus remains on the highest standards of environmental management and stakeholder engagement. higher sales revenue due to a significant increase in the production and sales of all mineral sands products, as well as favourable market conditions, especially for zircon; a gain on foreign currency hedging of $11.3 million, compared with $11.7 million in 2004; expanded production levels achieved despite reduced production from the Enterprise dredge during its planned transition through sub-economic mining areas to the Enterprise ore body. Commercial production from Enterprise commenced in October; higher than expected grade and consistent mine productivity through difficult ground at the Yarraman mine, contributed to the strong production performance as did the supplementary dry mining introduced in 2003 to access small high grade deposits located near the mine path; and effective cost management, with operating costs contained despite the strong increase in production and significant re-alignment of mining operations on North Stradbroke Island. Sales Volumes (thousand tonnes) 360 320 280 240 200 160 120 80 40 0 03 04 05 180.4 204.6 319.9 135 120 105 90 75 60 45 30 15 0 Revenue ($M) 62.2 80.9 118.6 03 04 05 45 40 35 30 25 20 15 10 5 0 EBIT ($M) 4.4 11.7 40.2 03 04 05 24 Iluka Resources Limited Concise Annual Report 2005
Western Australian Operations Main Factors Influencing the Business Iluka s Western Australian operations delivered a lower earnings performance relative to 2004, with 2005 EBIT of $84.5 million (before one-off charges, assets sales and hedging), down 10.4%. The main factors influencing the Western Australian result included: higher sales revenue associated with higher prices for zircon and high quality titanium dioxide products, and higher synthetic rutile volumes. Partially offsetting these factors were lower zircon sales volumes, particularly in the Mid West; an increase in sales volumes for synthetic rutile associated with improvements in kiln utilisation and throughputs, particularly in the Mid West; a decline in zircon production of 6.1%, mainly associated with lower grades and assemblages in the Mid West, partially offset by stronger production from the South West and the commissioning of a mobile centrifugal plant (Kelsey Jigs) in the Mid West to recover zircon from tailings stockpiles; a currency hedging gain of $39.2 million in 2005 compared with $39.0 million in 2004; a higher A$/US$ exchange rate which reduced the translated value of Australian sourced, US denominated sales; higher unit costs for mining and concentrating, due to lower grades and assemblages and the associated need to process higher amounts of ore to maintain production levels; higher costs associated with mining services, fuel and other input costs; and the transition to mining ore bodies (Wagerup and Gingin) located further from processing facilities which added to haulage costs. Outlook and Priorities The focus in 2006 remains on achieving further operational efficiencies through such means as increases in plant capacity, optimisation of tailings treatment, effective mine planning integrated to customer specification and product requirements, as well as a continued focus on production and input costs. Further mine developments are planned for 2006, including the commencement of mining from March 2006 at Adamson (part of the Eneabba mine), as well as the Waroona mine development in the South West. Planning and development work will also continue for new mine moves from 2007, including Cataby in the Mid West and Cloverdale in the South West. Higher zircon production, combined with higher zircon prices, are expected to positively influence revenue in 2006. Rutile production is expected to be maintained at or near 2005 levels, with synthetic rutile lower due to scheduled major maintenance outages in both the South West and Mid West. Higher operational costs are expected due to grade issues (the need to process larger volumes of lower grade ore to maintain production), increased haulage distances and the planned major maintenance outages. In addition, there is an expected lower level of currency hedging benefit in 2006 than 2005. These factors will offset the increased sales revenue to a major extent. 1350 Sales Volumes (thousand tonnes) Revenue ($M) 675 135 EBIT before one-off charges, asset sales and hedging ($M) 1 1200 1050 900 750 1,279.3 1,203.6 1,236.5 600 525 450 375 584.3 574.4 621.7 120 105 90 75 97.0 94.3 84.5 600 300 60 450 225 45 300 150 0 03 04 05 150 75 0 03 04 05 30 15 0 03 04 05 1. A write-down in carrying value for the Mid West operations of $96.1 million before tax ($67.3 million after tax) was taken in 2005. Assets sales generated $20.9 million in 2005, compared with $1.7 million in 2004. 25
United States Operations Iluka s United States operations include mining and processing operations at Virginia and Florida/Georgia. The associated graphs show the financial performance for both sets of operations, with Virginia delivering a strong earnings contribution of $28.4 million, while Florida/Georgia delivered an operating loss of $37.7 million. Virginia Main Factors Influencing the Business Virginia revenue increased by 1.4% relative to 2004, associated with higher zircon prices, largely offset by lower zircon and ilmenite sales. Lower zircon production and sales were due mainly to temporary operational issues; ilmenite sales to DuPont were suspended in the third quarter due to the closure of the Delisle pigment plant as a result of damage caused by Hurricane Katrina; and the recovery of valuable minerals improved (particularly zircon) through the implementation of continuous improvement initiatives. Outlook and Priorities The major priority for 2006 is the completion of the feasibility study to initiate mining at the Brink deposit, located approximately 30 kilometres to the south of the Old Hickory mines. Florida/Georgia Main Factors Influencing the Business Following a comprehensive review, the decision was made to conduct a staged closure of the Florida/Georgia business during 2006. The following factors influenced 2005 financial performance: higher sales revenue was the result of higher production, as well as higher prices, particularly for zircon; and significantly higher input costs (fuel, power and reagents), as well as higher expenditure associated with frequent mine moves to access the thin, disparate and low grade ore bodies adversely impacted EBIT performance. Outlook and Priorities The key focus for 2006 will be the successful execution of the managed exit from Florida/Georgia, including maximising proceeds from the sale of land and assets. Virginia Sales Volumes (thousand tonnes) 360 320 280 240 200 160 120 80 40 0 03 04 05 Revenue ($M) 90 80 70 60 50 40 30 20 10 0 03 04 05 45 40 35 30 25 20 15 10 5 0 260.2 61.8 EBIT ($M) 2.9 336.8 87.7 27.9 295.6 88.9 28.4 03 04 05 Florida/Georgia Sales Volumes (thousand tonnes) 360 320 280 240 200 160 120 80 40 0 03 04 05 90 80 70 60 50 40 30 20 10 0 5 0-5 -10-15 -20-25 -30-35 -40 Revenue ($M) 03 04 05 EBIT before one-off charges ($M) 1 03 04 05 1. Write-down and provisioning costs of $111.1 million before tax ($88.9 million after tax) were taken associated with the decision to close the Florida/Georgia operations. 116.6 44.6 (5.7) 113.7 42.4 (18.3) 123.8 51.4 (37.7) 26 Iluka Resources Limited Concise Annual Report 2005
Murray Basin Development Iluka is involved in the development of a major zircon and rutile province located along the southern margin of the Murray Basin, a saucer shaped area of 300,000 square kilometres in South Australia, south western New South Wales and northern Victoria. The area contains a succession of freshwater, marine, coastal and continental sediments deposited by repeated marine incursions. Iluka has a holding of, or applications pending for, 37 mining leases covering an area of 20,000 square kilometres. The company has undertaken a significant amount of exploration and resource evaluation work and has identified over 32 heavy mineral resources (as defined as meeting JORC standards for inclusion as a resource estimate). Three main deposits underpin the initial stage of the company s development of the Murray Basin. These are the deposits of Bondi Main, Bondi West and Bondi East located in Victoria. The Douglas project is designed to exploit the heavy mineral ore from these deposits, with a single mining unit plant, a wet concentrator plant for treatment of the ore to concentrate, and a mineral separation plant (located at Hamilton) to produce final specification rutile and zircon. Ilmenite produced will be initially returned to the mine. The progressive development of further ore deposits, mainly located to the north, is planned to extend the mining operations over a period of at least 20 years. In the northern Murray Basin the main deposits delineated to date include those at Ouyen in north west Victoria and those at Euston in south west New South Wales. To date, resources of 27.2 million tonnes of heavy mineral ore have been delineated, with approximately 2.9 million tonnes classified as reserves in the northern Murray Basin. The mineral separation plant at Hamilton will also process concentrate from the northern part of the basin in the future. Iluka s approach to the Murray Basin development is to grow its high grade titanium feedstock market share and maintain or expand its zircon market share. During 2005, 12 months of successful mining operations being undertaken by Abigroup Pty Ltd, were completed at the Bondi Main deposit. A substantial quantity of mineralised ore has been stored awaiting completion of the mining unit and wet concentrator plant. The latter two pieces of equipment entered commissioning phase in late 2005 and early 2006 respectively. The Douglas project is expected to be completed and producing first quantities of commercial product in the third quarter of 2006, dependent on the performance of the contractor. This is substantially behind the original completion schedule for the mineral separation plant of October 2005. During 2006, further evaluation and detailed planning on the development of the northern Murray Basin will occur. Pre-feasibility work commenced on the Kulwin deposit, located in the north west of Victoria, near Ouyen. The development of this deposit is expected to be presented for approval during 2006. The development of Kulwin will involve the construction of an additional mining unit plant and wet concentrator plant, with concentrate hauled by truck to Hamilton for treatment at the mineral separation plant. Kulwin is expected to have a mine life of just under three years. Other northern Murray Basin ore bodies are being evaluated and can be expected to be progressively committed to over the remainder of this decade and into the next. Access to water and water management remain key project planning considerations for the Douglas project. Iluka s work in this area is designed to mitigate the impact of drought conditions and includes identifying opportunities within the Douglas operations to minimise water usage, as well as arrangements with local water authorities to secure additional water entitlements. During 2005, agreement was reached with Grampians Wimmera Mallee Water for the development of an additional bore as a source of water to the district, and for Iluka to draw upon an equivalent amount from the Rocklands reservoir. The entire Murray Basin remains highly prospective. A significant component of Iluka s exploration budget is being committed to further expand the resource base of the Murray Basin. In June 2004, development of the Bondi deposits at the Douglas project commenced. Initial capital investment of $283 million (including the mining unit plant) has been committed to develop the reserves in this part of the Murray Basin. The major part of work is being undertaken through a largely lump sum fixed price engineering, procurement and construction (EPC) contract awarded to Roche Mining Pty. Ltd. Before entering into the EPC contract, Roche Mining undertook a detailed feasibility study and detailed engineering for the project. 27
Reserves and Resources Summary of Iluka Ore Reserves 1 at 31 December 2005 HM Assemblage 3 Ore Reserve Ore Tonnes In Situ HM HM Ilmenite Zircon Rutile 4 Change Category 2 Millions Tonnes Grade Grade Grade Grade HM Tonnes Country Province Millions % % % % Millions Australia WA - Mid West Proved 31.2 2.21 7.1 55 13 6 WA - Mid West Probable 187.9 11.02 5.9 49 14 7 Total WA - Mid West 219.0 13.23 6.0 50 14 7 (0.29) WA - South West 5 Proved 19.8 2.76 13.9 81 5 1 WA - South West 5 Probable 72.1 5.78 8.0 79 8 1 Total WA - South West 5 91.9 8.55 9.3 80 7 1 (1.58) Murray Basin Proved 17.5 2.46 14.1 42 12 9 Murray Basin Probable 19.0 3.50 18.4 48 12 16 Total Murray Basin 36.5 5.96 16.3 45 12 13 (0.22) CRL North Stradbroke Island 6 Proved 273.7 2.48 0.9 45 11 14 CRL North Stradbroke Island 6 Probable 111.2 0.93 0.8 45 1 14 Total CRL North Stradbroke Island 6 384.9 3.41 0.9 45 11 14 0.01 USA Florida/Georgia Proved 5.9 0.14 2.4 42 14 17 Total Florida/Georgia 7 5.9 0.14 2.4 42 14 17 (4.30) Virginia 4 Proved 17.3 1.34 7.7 67 18 - Virginia 4 Probable 10.4 1.02 9.8 72 15 - Total Virginia 4 27.7 2.36 8.5 69 17 - (0.37) Total Proved 365.5 11.40 3.1 58 11 6 Total Probable 400.6 22.25 5.6 58 12 7 Total Grand Total 766.1 33.65 4.4 58 12 7 (6.74) Notes: 1. Ore Reserves are a sub-set of Mineral Resources. 2. Rounding may generate differences in last decimal places. 3. All mineralogy is reported as a percentage of in situ HM content. 4. Rutile is included in ilmenite for the Virginia province. 5. Rutile component in South West operations is sold as a leucoxene product. 6. Ore Reserve estimates are adjusted to reflect Iluka ownership of 51.04% as at 31 December 2005. 7. There are ore reserves of marginal economics that are being mined as part of the strategic business closure plan for Florida/Georgia. 28 Iluka Resources Limited Concise Annual Report 2005
Summary of Iluka Ore Reserves Depleted 1 by Province at 31 December 2005 In Situ HM In Situ HM In Situ HM In Situ HM In Situ HM Tonnes Tonnes Tonnes 2 Tonnes Tonnes 3 Millions Millions Millions Millions Millions Country Province Ore Reserves 2004 Mined 2005 Adjusted 2005 2005 Net Change Australia WA - Mid West Active Mines 4.29 (0.95) 0.42 3.76 (0.53) WA - Mid West Non-Active Mines 9.23-0.24 9.47 0.24 Total WA - Mid West 13.52 (0.95) 0.66 13.23 (0.29) WA - South West Active Mines 2.15 (0.72) (0.18) 1.24 (0.91) WA - South West Non-Active Mines 7.97 - (0.67) 7.31 (0.67) Total WA - South West 10.12 (0.72) (0.85) 8.55 (1.58) Murray Basin Active Mines 3.25 - (0.22) 3.03 (0.22) Murray Basin Non-Active Mines 2.93 - (0.00) 2.93 (0.00) Total Murray Basin 6.18 - (0.22) 5.96 (0.22) CRL North Stradbroke Island 4 Active Mines 3.40 (0.21) 0.22 3.41 0.01 Total CRL North Stradbroke Island 4 3.40 (0.21) 0.22 3.41 0.01 USA Florida/Georgia 5 Active Mines 1.22 (0.22) (0.86) 0.14 (1.07) Florida/Georgia 5 Non-Active Mines 3.23 - (3.23) - (3.23) Total Florida/Georgia 5 4.45 (0.22) (4.09) 0.14 (4.30) Virginia Active Mines 1.71 (0.49) 0.25 1.47 (0.24) Virginia Non-Active Mines 1.02 - (0.13) 0.89 (0.13) Total Virginia 2.73 (0.49) 0.13 2.36 (0.37) Total Active Mines 16.01 (2.59) (0.35) 13.06 (2.95) Total Non-Active Mines 24.38 - (3.79) 20.59 (3.79) Total Ore Reserves 40.39 (2.59) (4.14) 33.65 (6.74) Notes: 1. Rounding may generate differences in last decimal places. 2. Adjusted figure includes write-downs and modifications in mine design. 3. Net difference includes depletion by mining and adjustments. 4. Ore Reserve estimates are adjusted to reflect Iluka ownership of 51.04% as at 31 December 2005. 5. There are ore reserves of marginal economics that are being mined as part of the business closure plan for Florida/Georgia. Definitions A Mineral Resource is a concentration or occurrence of material of intrinsic economic interest or on the Earth s crust in such form and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge. Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories. An Inferred Mineral Resource is that part of a Mineral Resource for which tonnage, grade and mineral content can be estimated with a low level of confidence. An Indicated Mineral Resource is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a reasonable level of confidence. A Measured Mineral Resource is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a high level of confidence. An Ore Reserve is the economically mineable part of a Measured or Indicated Mineral Resource. It includes diluting materials and allowances for losses which may occur when the material is mined. Appropriate assessments, which may include feasibility studies, have been carried out, and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justified. Ore Reserves are sub-divided in order of increasing confidence into Probable Ore Reserves and Proved Ore Reserves. A Probable Ore Reserve is the economically mineable part of an Indicated Mineral Resource, and in some circumstances Measured Mineral Resource. A Proved Ore Reserve is the economically mineable part of a Measured Mineral Resource. The resources and reserves have been compiled by Iluka staff and reviewed by Mr Peter McGoldrick, a Corporate Member of the AusIMM and full time employee of Iluka Resources Limited with sufficient experience in this style of mineralisation as a Competent Person as defined in the 2004 edition of the Australian Code for Reporting of Mineral Resources and Ore Reserves. Mr McGoldrick has agreed to the inclusion in the report of these matters based on their information in the form and context in which it appears here. 29
Summary of Iluka Mineral Resources 1 at 31 December 2005 HM Assemblage 3 Mineral Material In Situ HM HM Ilmenite Zircon Rutile 4 Change Resource Tonnes Tonnes Grade Grade Grade Grade HM Tonnes Country Province Category 2 Millions Millions % % % % Millions Australia Eucla Basin Indicated 114.7 6.13 5.3 31 48 5 Eucla Basin Inferred 57.0 1.73 3.0 14 55 7 Total Eucla Basin 171.7 7.86 4.6 27 49 5 1.36 WA - Mid West Measured 377.7 19.46 5.2 52 12 7 WA - Mid West Indicated 318.4 18.63 5.9 51 11 6 WA - Mid West Inferred 154.4 5.88 3.8 58 9 6 Total WA - Mid West 850.6 43.97 5.2 52 11 6 0.66 WA - South West 5 Measured 209.3 18.88 9.0 82 8 1 WA - South West 5 Indicated 153.5 11.65 7.6 78 9 1 WA - South West 5 Inferred 166.5 12.88 7.7 77 7 2 Total WA - South West 5 529.3 43.40 8.2 79 8 1 (7.50) Murray Basin Measured 46.2 4.39 9.5 41 10 8 Murray Basin Indicated 158.0 20.85 13.2 46 9 13 Murray Basin Inferred 183.0 19.14 10.5 51 10 13 Total Murray Basin 387.3 44.38 11.5 48 10 13 (7.04) CRL North Stradbroke Island 6 Measured 676.9 5.90 0.9 45 11 14 CRL North Stradbroke Island 6 Indicated 125.3 1.07 0.9 45 11 13 CRL North Stradbroke Island 5 Inferred 5.7 0.07 1.3 45 11 13 Total CRL North Stradbroke Island 6 807.9 7.04 0.9 45 11 14 (0.08) USA Florida/Georgia Measured 5.9 0.14 2.4 42 14 17 Total Florida/Georgia 5.9 0.14 2.4 42 14 17 (14.32) Virginia 4 Measured 52.6 3.69 7.0 68 17 - Virginia 4 Indicated 0.4 0.02 4.3 63 16 - Total Virginia 4 53.0 3.70 7.0 68 17 - (2.42) Total Measured 1,368.6 52.46 3.8 62 11 5 Total Indicated 870.3 58.34 6.7 52 14 8 Total Inferred 566.7 39.70 7.0 59 11 8 Total Grand Total 2,805.7 150.51 5.4 57 12 7 (29.35) Notes: 1. Mineral Resources are inclusive of Ore Reserves. 2. Rounding may generate differences in last decimal places. 3. All mineralogy is reported as a percentage of in situ HM content. 4. Rutile is included in ilmenite for the Virginia Province. 5. Rutile component in South West operations is sold as a leucoxene product. 6. Mineral Resource estimates are adjusted to reflect Iluka ownership of 51.04% as at 31 December 2005. 30 Iluka Resources Limited Concise Annual Report 2005
Sustainable Development As part of Iluka s commitment to sustainable development, the company become a signatory in 2005 to the Minerals Council of Australia (MCA) Enduring Value A Framework for Sustainable Development. Enduring Value is a set of ten guiding principles developed by the International Council of Mining and Minerals, designed to assist mining companies and their employees to operate in accordance with sustainability principles and practices. During 2005, Iluka conducted a baseline assessment of its own performance relative to the 45 elements of Enduring Value and established that there was a 64% level of compliance within Iluka s existing systems and processes. During 2006, Iluka s focus will be on conducting a gap analysis in relation to the MCA s Enduring Value compliance protocol, once released, followed by the implementation and reporting against the principles. Health and Safety Iluka places priority on the safety and health of its employees, contractors, customers and the communities in which it operates. Health and safety remained a major focus for Iluka during 2005, as the company continued to strive for performance improvements. The company recorded a significant decrease in the number and severity of work place injuries in 2005, demonstrated in key safety performance indicators. Iluka s loss time injury frequency rate (LTIFR) in 2005 was 1.9. While this was an increase from 1.4 in 2004, it is well below the mining industry average of 3.0. The medical treatment injury frequency rate (MTIFR) was 5.7 at the end of 2005, an improvement compared with 8.5 in 2004. The all injury frequency rate (AIFR) also improved, at 39.7 compared with 52.3 in 2004. 18 Safety Performance Lost Time Injury 50.0 16 Medical Treatment Injury 45.0 Number of Injuries 14 12 10 8 6 4 Lost Time Injury Frequency Rate Medical Treatment Injury Frequency Rate 35.0 30.0 25.0 15.0 10.0 Injuries Frequency Rates 2 5.0 0 Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov 01 01 01 01 01 01 02 02 02 02 02 02 03 03 03 03 03 03 04 04 04 04 04 04 05 05 05 05 05 05 0 31
Improved safety performance was mainly the result of an increased level of safety awareness, achieved through the greater use, and awareness of, risk assessment tools. Initiatives contributing to the improvement included the implementation of a Safety Visit program for all levels of management, research into personal protective equipment and the introduction of high visibility clothing at operational sites. A new investigation process, Incident Cause Analysis Method was implemented throughout Iluka and applied to all level 3 and above incidents. The Iluka Action Tracking System was further improved with the introduction of new web forms to allow entry of data by employees. Increased reporting of serious potential incidents and near misses, and improvements to the Environment Health and Safety (EH&S) section of the employee intranet, led to increased knowledge across all operational and corporate sites of safety incidents, their causes and measures to prevent their re-occurrence. An external audit of the Iluka EH&S management system was conducted at six operational sites during 2005. A stretch target of 75% compliance was exceeded by all audited sites and a weighted average score on a range of performance criteria of 80.28% was achieved. The main findings of the audit are being used to develop specific EH&S plans for each site, improve training processes and determine resource allocation to areas of greatest risk. During 2005 the company continued to pursue a range of health initiatives throughout its operations. These included: monitoring for exposure to heat, dust, noise, radiation, emissions, vibration and chemicals, while also providing feedback to employees on the findings and implementing preventative measures where required, including replacing or enclosing pumps to reduce noise levels; conducting site discussions on lifestyle issues relating to health; providing voluntary health and skin checks to assist in the early detection of skin cancers; and providing voluntary influenza vaccinations as a preventative measure against a non work related illness that may contribute to employees taking sick leave. A significant reduction in workers compensation premiums was achieved during the year with fewer claims across all sites. This was a result of: the updating of duties or functional capacity manuals which provide advice to medical practitioners and employees; sites continuing to improve the working relationship with medical providers; employees reporting minor injuries, ensuring early intervention to prevent escalation; and proactive measures related to non work related injuries. Detailed statistical information on Iluka s health and safety performance is available on page 37. People Iluka recognises that a strong partnership with its employees based on engagement and communication, is vital to the fulfilment of its business objectives. The company s focus remains on building an organisational culture based on clear values, standards and responsibilities, as well as ensuring the internal capabilities amongst the workforce to enable Iluka to meet its operational requirements. At the end of 2005, Iluka employed 1,612 permanent or fixed term employees. Contract mining and other activities accounted for an additional 600 contractors retained by Iluka. Iluka s commitment to Equal Employment Opportunity principles and practices was recognised by the Commonwealth Government s Equal Opportunity for Women in the Workplace Agency, which commended the company for its programs including paid maternity leave and flexible work arrangements. In response to a company wide employee survey conducted in 2004, specific priorities in 2005 included increasing employee engagement levels, improving communication and consultation processes, as well as upgrading leadership and management development programs. Iluka initiated its Good to Great program in 2005, integrating previous performance management, talent identification and development initiatives, as well as upgrading its succession planning, leadership development, graduate recruitment and strategic alignment programs. Iluka s Our Work Our Reward employee consultation program was launched in late 2005 to involve employees in determining the nature and configuration of key elements of their work environment, the way in which Iluka rewards its employees and wider remuneration practices. Recognising the diversity of its employees and the importance of the company s interaction with indigenous communities, an indigenous cultural awareness program was launched in 2005, to be implemented throughout the business in 2006. 32 Iluka Resources Limited Concise Annual Report 2005
Community Relations The importance of community relations is recognised within all areas of Iluka, from exploration, to project planning and operations, extending through to mine rehabilitation activities. Iluka s community stakeholders include its closest neighbours, indigenous groups, local governments, community groups and regulatory agencies. Iluka maintains an active program of community and stakeholder engagement across its operations, in Australia and in the United States. The principles underpinning its community engagement activities include collaboration, integrity, open communication and trust. With the company entering a major project development and expansion phase, early engagement with key stakeholders has become increasingly important to facilitate access to land and contribute to the expeditious approval of new projects. Iluka s 2005 community relations efforts focused on strengthening and broadening its consultation with stakeholders and developing new relationships for planned new mining operations. The focus for community consultation in Australia was associated with the establishment and development of new mines in Wagerup, Gingin and Waroona in Western Australia, the Douglas and northern Murray Basin projects in Victoria and New South Wales and exploration and project activities in the Eucla Basin in South Australia. In the United States, consultation commenced for the preparation of the staged closure in 2006 of the company s Florida/Georgia operations as well as the development of new mining operations in Virginia. Iluka remains an active supporter and contributor to the social and economic wellbeing of the communities in which it operates, both directly through its mining operations and in the form of sponsorships, donations and a range of in-kind support activities. The company contributed $485,000 to community programs and events in 2005. Community partnership activities during the year included those with Victoria s Country Fire Authority, the Royal Flying Doctor Service (Western Operations), the Mid West Clontarf Football Academy in Western Australia, West Australian Ballet, Virginia Tech s reclamation research program, the Clay County Association for the Retarded, as well as support of numerous local arts, education, sports, environmental, health and community groups in a range of regional and country areas of Australia. Iluka employees are active participants within their local communities, representing the company at public speaking engagements and participating in a range of volunteer activities. In response to Hurricanes Katrina and Rita in the United States, Iluka employees donated personal goods and assisted with the transportation of emergency supplies by air to the devastated regions of southern Louisiana and Mississippi. Iluka wins the prestigious 2005 Victorian Government s Strzelecki Gold Award From the time of Iluka s initial planning for the major Douglas mineral sands project in Victoria, community engagement for the project has been a key priority. The company s efforts have involved meeting the challenge of introducing a new industry to a region in which people s livelihood has been based predominantly on agricultural activities. Not surprisingly, Iluka s initial plans for major mine developments and a large mineral separation plant were met with a mixture of concern and excitement. Iluka worked to engage with the community to explain the nature of the mining operations, the full scope of the project and its likely impacts on the region and affected groups. Throughout, the focus has been on building and maintaining relations with a wide range of key interested parties, from the local shire councils to affected land holders. In recognition of the quality of Iluka s ongoing community consultation program for the Douglas Project, the company was awarded the prestigious 2005 Victorian Government s Strzelecki Gold Award for excellence in community engagement. 33
Environment Iluka is committed to operating in a responsible manner which minimises the impact of its mining and processing operations on the environment, ensures a respect for environmental biodiversity, and facilitates thorough rehabilitation of areas affected by mining operations. Iluka s 2005 performance on key environmental management measures such as air emissions, water management, energy use and greenhouse gas emissions, is in the context of significantly increased production across all of Iluka s operations, as well as the company entering a major development phase in relation to the Murray Basin in Victoria and New South Wales. Rutile production in 2005 increased by 16.7% compared with 2004, ilmenite production increased by 13.6% and synthetic rutile production increased by 6.8%. Production of other mineral sands products (leucoxene and HyTi), as well as zircon, decreased marginally. Iluka classifies environmental incidents according to the severity of impact: level 1 - limited damage; level 2 - minor effect; level 3 - moderate short term effect; level 4 - serious medium term effect and level 5 - very serious long term effect. In 2005, Iluka s operations recorded 1,146 environmental incidents. Of these, 61 were level 2 and above incidents, representing a 61% reduction from 159 incidents in 2004. Better systems, training and increased employee awareness of the importance of environmental management principles, contributed to a 20% increase in level 1 incidents being reported. Three level 3 environmental incidents occurred in 2005, relating to two breaches of tailing retention systems at Eneabba in Western Australia and at CRL s mining operations in Queensland, as well as a pump failure at Eneabba in Western Australia, which caused a discharge outside a bunded area. In 2006, work will commence in developing a major risk procedure for tailings management, so that all sites operate their tailings facilities in a consistent manner which can be formally audited for compliance. Number of Incidents 200 180 160 140 120 100 80 60 40 20 0 Level 2 and above Environmental Incidents 173 175 107 159 61 01 02 03 04 05 Air Emissions Reviews of all air emissions (oxides of sulphur, carbon dioxide, oxides of nitrogen, particulates and water) are regularly conducted by internal and external independent experts. The results of audits conducted in 2005 confirmed that the sites audited operate within both licence and standard operating limits. Iluka s sites are operating well within relevant approved levels and national standards and do not pose a threat to the community or the environment. Dust control at mine sites continues to be a focus for the company. Earth moving activities have the potential to generate dust, as do stockpiles of topsoil, overburden and waste. To minimise the potential for excessive airborne dust, Iluka continued its practices of wetting areas with watering trucks, spraying clay fines from the mineral concentration process over exposed areas preventing dust lift off, hydro mulching with a mixture of annual grasses to aid the establishment of vegetative cover and stripping areas during wetter and less windy months. Noise Emissions Iluka seeks to minimise the impact of noise on its neighbours from mining, processing and transport activities. Noise management programs are in place at all sites and include conducting baseline noise surveys before operations begin in an area, developing noise models and management plans for proposed operations to predict and minimise noise impacts and regularly monitoring noise at operating sites. Water Management Water management is a key priority at all of Iluka s operations where the focus is on minimising water use and ensuring there is no adverse impact on surface and groundwater. Overall water usage decreased by 30% in 2005, mainly due to CRL s Enterprise mine commencing steady-state operations after its move in 2004. CRL sources water from the groundwater table on North Stradbroke Island. Water that is used in this operation is returned to the groundwater table via the dewatering of tailings and pond seepage, with only a small percentage lost to evaporation. In this way, CRL transfers rather than uses water resources, without impacting on its quality. Further research into evaporation losses and the recycling of water resources will be developed in 2006. In preparation for the commencement of site production activities at the Douglas project, 1,553 megalitres of water were pumped from the Rocklands Dam into the mine fresh water dam in 2005. 34 Iluka Resources Limited Concise Annual Report 2005
Iluka also reached agreement with Grampians Wimmera Mallee Water (GWMW) for the development of an additional bore which is expected to supply approximately 2 mega litres per day into the GWMW system. This additional water source will be available to the district. In turn, Iluka is able to draw the equivalent amount from the Rocklands reservoir. Initiatives were also implemented during the year to reduce water usage, including altering the mining sequence to preferentially mine and process low clay ores to use water more efficiently, implementing a tailings disposal at the mine site that maximises the use of return water, and supporting an industry project examining options to reduce the use of water in dry mineral processing. Energy Use The amount of energy used at Iluka s operations increased by 9% in 2005 compared with 2004. Total mineral sands production increased by a similar level in 2005. Most of the increase in energy use was due to higher synthetic rutile and zircon production at the Mid West operations in Western Australia and mining and construction activities at the Douglas project in Victoria. Iluka s South West and Mid West operations accounted for 36% and 47% of the company s total energy consumption respectively, predominantly for the production of synthetic rutile where coal represents 60% of the total energy consumption. CRL consumed 4% of total energy consumption, Murray Basin 6%, Florida/Georgia 4% and Virginia 3%. Iluka continues to examine opportunities to reduce energy usage through its continuous improvement programs. Greenhouse Gas Emissions Iluka uses carbon dioxide contained equivalent emissions (CO 2 e) to report greenhouse gas emissions, in line with the Greenhouse Challenge Handbook. These figures represent both Iluka s direct greenhouse gas production through coal use and the use of other fuels in its operations as well as indirect greenhouse gas production through electricity consumption. Iluka is an active member of the MCA Climate Change Committee working through opportunities to further reduce greenhouse emissions. operations will be benchmarked against each other in relation to efficiencies in energy usage per tonne of product produced at each main stage of the production process, so as to provide a rigorous analytically based means to facilitate continual improvement in energy usage and greenhouse gas emissions relative to production levels. Land Use Planning Iluka s operations are located in a range of environmental settings including grazing, cropping, timber plantation and native vegetation areas. When planning new potential operations, pre-mine environmental studies are conducted as part of the environmental approvals process to assess surface and groundwater resources, soils and topography, biodiversity (see overleaf), climate and weather conditions and surrounding land uses. In turn, Iluka s project design of new operations focuses on minimising disturbance and the development of environmental management plans to address any significant environmental risks. During 2005, a range of environmental studies were undertaken. These included: ground and surface water monitoring and vegetation surveys for the Cataby project in Western Australia; pre-mining studies for the Waroona project in Western Australia, with a vegetation survey completed and groundwater and surface water monitoring undertaken; commencement of vegetation, fauna and soil studies for the Jacinth and Ambrosia deposits in the Eucla Basin of South Australia; environmental studies at the Ouyen and Euston deposits associated with the northern Murray Basin project in Victoria and New South Wales. At Euston, a comprehensive flora and fauna survey was conducted over 23,000 hectares; and a comprehensive monitoring program for the Kulwin Test Pit in the Murray Basin was also conducted with the monitoring of stockpile stabilisation, air quality, meteorological conditions, groundwater quality and water table levels. The amount of CO 2 e produced in 2005 increased by 14% mainly due to increased production levels and associated energy use. As indicated previously, production across Iluka s range of products increased in 2005, while new mining and construction activities commenced, associated with the Douglas project in Victoria. CO 2 e emissions are taken into consideration when developing and operating a site. In particular, an assessment is made in relation to electricity, diesel, natural gas, LPG, fuel oil, petrol and loss of vegetation in calculating the overall and ongoing impact of operations with relation to greenhouse gas emissions. In future, 35
Rehabilitation Iluka implements measures to minimise land disturbance during mining operations and to re-establish disturbed areas as sustainable ecosystems and community assets, upon the completion of mining. In 2005, the amount of land disturbed decreased by 5% compared with 2004 as fewer new mining areas were opened while the amount of rehabilitated land increased. Land disturbance in excess of land rehabilitation in 2005 was due primarily to the development of new mining provinces, in particular, the Murray Basin. Major rehabilitation activities in 2005 were focused on the current Eneabba and former Stratham West and Yoganup Extended mines in Western Australia, returning the mined land to a range of uses including farmland, conservation and recreation areas. In the United States, work commenced on planning for the staged closure in 2006 of the Florida/Georgia operations with the company to meet all of its environmental obligations. Biodiversity Critical to protecting biodiversity is an understanding of the flora and fauna present within and around any potential disturbance areas. When significant species or ecosystems are identified during pre-mining environmental assessments, specific research and management are implemented. Examples of Iluka s biodiversity management activities in 2005 included: a cockatoo management plan associated with the proposed Cataby operations in Western Australia. This plan includes improving nesting and feeding site availability by controlling competition from bees and using plant species in the rehabilitation process likely to enhance nesting opportunities for the birds; sponsoring research into the ecology of mine site rehabilitation at Eneabba, Western Australia; installing an irrigation system at the Yoganup West mine in Western Australia as a contingency to protect a threatened ecological community from the potential impacts of mine pit dewatering; implementing an education program in relation to the Eastern Indigo Snake, a threatened species found near the Georgia operations in the United States; implementing programs in the vicinity of the Douglas project in Victoria to encourage reporting of any Red Tailed Black Cockatoo sightings and the identification of potential nesting trees within the mining area; and koala monitoring at CRL in Queensland to collect information on the habitat, diet, use of mining rehabilitated lands and genetic profiles for the effective management of this species. By-Product Management The majority of mineral separation by-products are composed of materials separated from the commercial product which are extracted as part of the mined ore. Dry mill tailings of predominantly quartz are environmentally inert materials which are placed back into mine voids prior to the replacement of overburden and topsoil. In Western Australia, ilmenite is upgraded to synthetic rutile. The main by-product streams from synthetic rutile processing are iron oxides, neutralised acid effluent, non magnetic fines, char, sinter and oversize material. The quantity of iron oxide and non magnetic fines produced is dependent on the naturally occurring iron content of the ilmenite feedstock and the volumes of synthetic rutile manufactured. Total by-products production increased by 10% in 2005, primarily as a result of a change in the quality and quantity of ilmenite feed stocks used at North Capel and Narngulu in Western Australia. Iluka investigates the re-use of by-products. In 2005, major re-use initiatives included: a project at the Mid West operations in Western Australia examining the recovery of useable char and mineral from waste material; sales of recovered humate from the Florida operations in the United States to a company for the production of agricultural/horticultural soil additives, and the recycling of 178 tonnes of scrap steel and 44 tonnes of rubber hose from CRL s operations in Queensland. Options for the conversion of iron oxide residual by-product into pig iron are continuing to be investigated. Further statistical information about Iluka s environmental performance is available on pages 37 to 39. 36 Iluka Resources Limited Concise Annual Report 2005
Supplementary EHS Statistical Data Group Safety Performance 2005 2004 2003 2002 2001 LTIs 11 7 21 28 53 LTIFR 1.9 1.4 4.5 6.3 13.3 MTIs 34 42 32 70 97 MTIFR 5.7 8.5 6.9 16.0 24.3 First Aid 191 210 246 NA NM AIFR 39.7 52.3 64.5 NA NA Minor Injuries 435 315 309 NA NA Fatalities 0 0 0 0 0 Site Safety Performance in 2005 1 Fatality LTI LTIFR MTI MTIFR FA AIFR Mid West, WA 0 4 3 13 9.8 70 65.3 South West, WA 0 3 2.4 7 5.6 46 43.7 CRL, Qld 0 3 4.3 3 4.3 7 19.9 Murray Basin, Vic 0 0 0 4 4.3 43 50.5 Florida, USA 0 1 2.6 0 0 5 15.7 Georgia, USA 0 0 0 1 4.1 9 40.8 Virginia, USA 0 0 0 2 4.6 5 16.0 Exploration 0 0 0 3 15.4 6 46.2 Group functions 0 0 0 1 2.2 0 2.2 Note 1. Includes Iluka employees and contractors. Table Key NA Not applicable NM Not measured LTI Loss time injury - and work related injury requiring a person to be absent from work LTIFR Loss time injury frequency rate - number of loss time injuries X million, divided by employee/contractor hours worked MTI Medical treatment injury - any work related injury requiring treatment by a medical practitioner MTIFR Medical treatment injury frequency rate - number of medical treatment injuries X million, divided by employee/contractor hours worked FA First aid injury AIFR All injury frequency rate - number of loss time, medical treatment and first aid injuries X million, divided by employee/contractor hours worked Fit For Work Testing in 2005 Number of tests Number of people % of people conducted failed failed 1,357 49 3.61% EHSMS External Audit Compliance MW SW CRL MB FL VA Weighted Average Compliance Rating (%) 81 83 80 79 76 75 80.28 Group Environmental Incidents 2005 2004 2003 2002 2001 Level 1 1,085 927 2,317 2,459 3,722 Level 2 58 157 97 137 70 Level 3 3 2 10 37 103 Level 4 0 0 0 1 0 Level 5 0 0 0 0 0 Oxides of Sulphur Tonnes (t) 2005 2004 2003 2002 2001 Mid West, WA 535 454 287 327 454 South West, WA 7,446 5,982 3,407 4,571 4,253 CRL, Qld 5 3 8 4 NM Murray Basin, Vic 5 0 NA NA NA Florida, USA 30 32 34 28 42 Georgia, USA 19 NA NA NA NA Virginia, USA 15 5 3 NM NM Other NA NA NA NA 79 Total 8,031 4,098 3,266 4,828 4,828 Particulates Tonnes (t) 2005 2004 2003 2002 2001 Mid West, WA 274 348 249 276 232 South West, WA 138 163 184 154 195 CRL, Qld 486 292 330 4 NM Murray Basin, Vic 0 0 NA NA NA Florida, USA 63 63 58 93 49 Georgia, USA 0 NM NA NA NA Virginia, USA 3 4 0 0 NM Other NA NA NA NA 2 Total 964 870 821 527 478 Table Key NA Not applicable NM Not measured 37
Water Use Megalitres (ML) 2005 2004 2003 2002 2001 Mid West, WA 15,359 14,137 17,469 14,919 16,219 South West, WA 5,152 4,513 5274 5,289 5,787 CRL, Qld 26,196 54,000 25,329 25,687 20,186 Murray Basin, Vic 1,553 2 NA NA NA Florida, USA 1,524 1,707 1,500 1,502 1,746 Georgia, USA 433 324 NA NA NA Virginia, USA 3,275 1005 347 1,119 858 Other 3,275 NA NA NA 141 Total 53,491 75,688 49,919 48,516 44,987 Energy Use Terajoules (TJ) 2005 2004 2003 2002 2001 Mid West, WA 5,117 5,202 5,323 5,416 5,155 South West, WA 6,663 6,447 5,897 5,862 6,165 CRL, Qld 579 519 518 571 561 Murray Basin, Vic 831 NA NA NA NA Florida, USA 378 356 424 530 499 Georgia, USA 313 213 NA NA NA Virginia, USA 332 314 219 243 189 Other NA NA NA NA 1,255 Total 14,212 13,051 12,381 12,622 13,824 Water discharge Megalitres (ML) 2005 2004 2003 2002 2001 Mid West, WA 0 0 0 0 0 South West, WA 6,961 4,252 4,886 3,375 5,924 CRL, Qld 0 0 0 0 0 Murray Basin, Vic 0 NA NA NA NA Florida, USA 931 962 1,432 819 132 Georgia, USA 170 93 NA NA NA Virginia, USA 0 3 14 0 0 Total 8,062 5,310 6,332 4,194 6,056 Table Key NA Not applicable Greenhouse Gases (kt CO 2 e) 2005 2004 2003 2002 2001 Mid West, WA 870 854 891 615 580 South West, WA 665 646 596 578 627 CRL, Qld 192 158 179 121 119 Murray Basin, Vic 15 NA NA NA NA Florida, USA 217 85 147 59 62 Georgia, USA 188 50 NA NA NA Virginia, USA 33 106 63 24 18 Other NA NA NA NA 90 Total 2,180 1,909 1,876 1,397 1,496 Energy Resources Use Percentage (%) 2005 2004 2003 2002 2001 Coal 59.7 59.7 60.5 58.7 50.7 Electricity 19.2 16.1 15.5 15.6 31.2 Diesel 9.4 12.6 11.6 11.2 11.1 Natural Gas 9.8 10.2 10.6 10.3 5.0 Fuel, Oil and Greases combusted 1.7 1.2 1.6 3.0 1.1 LPG 0.1 1.1 0.1 1.1 0.8 Petrol 0.1 0.1 0.1 0.1 0.1 38 Iluka Resources Limited Concise Annual Report 2005
Waste Management Practices Chemical Hydrocarbon Paper & Waste Grease & Lab Waste Contaminated Waste Tyres Cardboard Scrap Metal & Oil Batteries Mid West, WA T/O T RU/L RE/L RE RE/RU RE South West, WA 0 T L RE RE RE RE CRL T/L L C RU/RE C RE/C RE/C Murray Basin RE RE L/RE L RE RE RE Florida C T RE L RE T RE Georgia C T RE L T C RE Virginia C C T/RE L/RE RE C RE Table Key L Disposal to land fill RU Reuse RE Recycling T Treatment off site O On site treatment C Collected by licenced contractor for a range of uses Land Use Hectares (ha) 2005 2004 2003 2002 2001 Disturbed Rehab Open Disturbed Rehab Open Disturbed Rehab Disturbed Rehab Disturbed Rehab Mid West, WA 101.47 268.21 1,266.86 129.00 127.00 1,440.00 210.41 118.86 193.00 73.00 179.00 149.00 South West, WA 134.80 133.00 1,955.00 285.00 200.00 1,785.00 130.00 104.00 120.00 183.00 278.00 274.00 CRL, Qld 127.40 76.30 546.80 167.10 66.10 498.10 97.90 67.70 140.00 124.00 70.00 187.00 Murray Basin, Vic 306.00 0.00 410.00 104.00 NA 104.00 NA NA NA NA NA NA Florida, USA 36.49 148.93 586.92 152.00 17.00 399.34 193.00 53.00 212.00 368.00 172.00 235.00 Georgia, USA 248.88 157.95 334.61 231.00 14.00 207.68 NA NA NA NA NA NA Virginia, USA 133.90 67.30 555.60 121.00 55.00 418.80 90.00 41.00 74.00 31.00 70.00 11.00 Other NA NA NA NA NA NA NA NA NA NA 86.00 397.00 Total 1,124.94 851.69 5,655.79 1,189.00 479.10 4,852.92 721.31 384.56 739.00 779.00 972.00 1,136.00 Table Key NA Not applicable NM Not measured 39
Corporate Information Board of Directors Ian Mackenzie, BSc, BCom, MBA, FAICD (Chairman) Mr Mackenzie (63) was appointed to the Board in July 1999. He is Chairman of the Bank of Western Australia Limited (BankWest) and HBOS Australia Pty Limited and a Director of MG Kailis Group. Mr Mackenzie was previously Managing Director of Romatex Limited, Managing Director and Chief Executive Officer of Bunnings Limited and Executive Chairman of Wesfi Limited. Mr Mackenzie is a member of the Remuneration and Nomination Committee and the Audit and Risk Committee. Mike Folwell, BBus, MAICD (Managing Director and Chief Executive Officer) Mr Folwell (51) was appointed as Managing Director and Chief Executive Officer in May 2002. He is also Chairman of Consolidated Rutile Limited and a Director of the Minerals Council of Australia. Previously he was Managing Director of Pivot Limited. Before joining Pivot, he held senior management positions with Shell, BOC and Pioneer International where he held the position of Executive General Manager Australia/Asia from 1996 to 2000. 40 Iluka Resources Limited Concise Annual Report 2005
W H John Barr, AM, MAICD Mr Barr (68) was appointed to the Board in July 1994. He has had a long involvement with the Australian minerals and metals industry having been Managing Director of Metallgesellschaft s Australian subsidiary since the company s inception in 1974 until his retirement in 1994. He is the Chairman of Kentor Gold Limited and was previously the Chairman of Utilities of Australia Pty Limited and a Director of Oxiana Limited. Mr Barr is a member of the Audit and Risk Committee. Grahame Campbell, BE, MEng Sc, HON FIE Aust, FAICD, CP Eng Mr Campbell (62) was appointed to the Board in December 1998. He has extensive experience in the mining and construction industries and is a past president of the Association of Consulting Engineers (Australia). He is a Director of the Macro Engineering Council and Worley Parsons Limited. Mr Campbell is a member of the Remuneration and Nomination Committee. Valerie Davies, FAICD Ms Davies (54) was appointed to the Board in July 1997. She is Principal of One.2.One Communications Pty Ltd and a Director of Integrated Group Limited, Tourism Australia and HBF Health Funds Inc. Previous directorships include TAB (WA), Relationships Australia, Screen West and Gold Corporation. Ms Davies has also been a member of the Boards of Management of the Asia Research Centre and Fremantle Hospital & Health Service. She is a past recipient of the Telstra WA Business Woman of the Year award. Ms Davies is Chairman of the Remuneration and Nomination Committee. Robert Lindsay Every, BSc, PhD, FTSE, FIE Aust, CP Eng, FAICD Dr Every (60) was appointed to the Board in March 2004. Dr Every is a Director of the Sims Group Limited and Wesfarmers Limited and was formerly the Managing Director and Chief Executive Officer of OneSteel Limited and Chairman of Steel and Tube Holdings Limited, New Zealand. Dr Every is a member of the Audit and Risk Committee. Donald Morley, BSc, MBA, FAusIMM Mr Morley (66) was appointed to the Board in December 2002. He was formerly the Chief Financial Officer and a Director of WMC Limited from which he retired in October 2002. He is Chairman of Alumina Limited and a Director of Spark Infrastructure Group. Mr Morley is Chairman of the Audit and Risk Committee. John Pizzey, BE(Chem), FellDip(Management), FAICD, FAIM Mr Pizzey (60) was appointed to the Board in November 2005. He has extensive experience in mining and mineral processing. Mr Pizzey was Chairman of Alcoa of Australia and held a number of senior executive positions with Alcoa Inc (USA). He is the Chairman of Range River Gold and a Director of Amcor Limited. He is also a Director of St Vincent s Medical Research Institute and Ivanhoe Grammar School. He was formerly the Chairman of ION Limited (in administration) and the London Metal Exchange UK and a Director of WMC Resources Ltd and Hawker Richardson Limited. Mr Pizzey is a member of the Remuneration and Nomination Committee. Richard Tastula, AWASM, FAusIMM, FAICD Mr Tastula (62) was appointed to the Board in February 1996 and has extensive experience in the mining industry. He was previously the Chairman of Titan Resources Limited, Managing Director of Homestake Gold of Australia Limited and a Vice President of Homestake Mining Company. He is currently the Chairman of the Miners Hall of Fame. Mr Tastula is a member of the Audit and Risk Committee. 41
Executive Committee Bill Bisset, Executive General Manager Global Operations, BEng (Chem) Mr Bisset (43) joined Iluka in December 2002 following 18 years with Pacifica, the Hong Leung Group and Pioneer based in Australia, Asia and Europe. Key Accountabilities Improvement in the operational and financial performance of the existing Australian and United States operations, the profitable development and operation of Iluka s interest in the Murray Basin and the creation and implementation of further profitable growth opportunities. Also accountable for Continuous Improvement for the group, the company s coal assets, operations planning, land access and management in Australia and the governance of the environment, health and safety performance throughout Iluka. Dale Calhoun, Executive General Manager People and Communities, BCom, GradDip IR, AHRI, MAICD Ms Calhoun (44) joined Iluka in February 2005 having gained extensive human resource management experience in senior management roles with Southcorp Limited, George Weston Foods, Boral Limited and Pacifica Limited. Key Accountabilities Management of the strategy for the company s human resources, indigenous, government and community relations functions. David Grant, Chief Financial Officer, BCom, ACA Mr Grant (41) joined Iluka in 2003 after 12 years with Goodman Fielder Limited spanning a range of corporate and divisional financial roles. Mr Grant was appointed Chief Financial Officer in July 2004. Key Accountabilities Management of financial integrity, risk management and adherence to corporate governance principles, including accounting, taxation and treasury functions. Mr Grant also has responsibility for investor relations, information technology and project evaluation. Victor Hugo, Executive General Manager Sales and Marketing, BSc, MSc, PhD Dr Hugo (41) originally joined Iluka in 1998. After leaving Iluka in 2001 and working with TZMI, he re-joined Iluka in 2003 as General Manager Sales and Marketing. Dr Hugo was appointed to his present position in February 2006. He has also held positions with Richards Bay Minerals and Cable Sands. Key Accountabilities Determination and management of the strategic direction of global sales and marketing activities and managing relationships with the company s global customer base. Cameron Wilson, General Counsel and Company Secretary, LLB Mr Wilson (39) joined Iluka in late 2004 after seven years in a range of legal and commercial roles with WMC Resources Limited. He has specialised in mining, corporate and general commercial law for most of his professional career. Key Accountabilities Management of the company s legal and company secretarial functions including the provision of legal advice to the company, managing the legal and regulatory compliance program, advising the Board on corporate governance matters, managing company disclosure to the ASX and providing secretarial support to the Board. 42 Iluka Resources Limited Concise Annual Report 2005
Corporate Governance Approach to Corporate Governance Iluka and its Board of Directors are committed to achieving the highest standards of corporate governance and understand that this is essential to creating and building sustainable value for shareholders. The main elements of Iluka s corporate governance practices in respect to 2005 are detailed in this statement. Overarching these detailed elements is the overall commitment of the Board of Directors to act honestly, ethically, diligently and in accordance with the law in serving the interests of Iluka s shareholders, employees, customers and the communities in which Iluka operates. ASX Corporate Governance Recommendations During the year Iluka reviewed and updated a number of its key governance policies to reflect changes in law and best practice. Iluka considers that it meets each of the requirements of the Australian Stock Exchange Corporate Governance Council Principles of Good Corporate Governance (ASX Principles). A checklist summarising compliance with the ASX Principles is set out on page 48. The governance section of the Iluka website (www.iluka.com) contains the company s key governance policy documents. These include the: Board Charter; Directors Code of Conduct; Audit and Risk Committee Charter; Remuneration and Nomination Committee Charter; Employee Code of Conduct; Securities Trading Policy; Continuous Disclosure and Market Communications Policy; and Business Conduct Reporting and Control Policy. Iluka will continue to update the corporate governance section of its website as it makes improvements to its corporate governance practices. Role and Responsibilities of the Iluka Resources Limited Board of Directors The Board operates in accordance with the broad principles set out in its Charter. The overall role of the Board involves four key areas of responsibility: appointing and removing the Chief Executive Officer, determining his or her remuneration, terms and conditions of employment and assessment of the performance of the Chief Executive Officer and through him or her, the executive management group; determining the strategic direction and financial objectives of the company and ensuring appropriate resources are available to management; monitoring the implementation and achievement of strategic and financial objectives; and reporting to shareholders and the investment community on the performance of the company. The implementation of corporate strategy and day to day management of Iluka s affairs are delegated to management, however, the Board retains specific responsibility for: reviewing and approving systems of risk management, internal control and compliance, codes of conduct, continuous disclosure and legal compliance; reviewing and approving major capital expenditure, capital management, acquisitions and divestitures; any matters which exceed the authority limits delegated to the Chief Executive Officer; reviewing and approving business plans and budgets, including the setting of performance objectives; monitoring the company s operational and financial position and performance; approving the company s financial and accounting policies and financial statements; monitoring compliance with control and accountability systems, regulatory requirements and ethical standards; approving the financial and other reporting mechanisms for adequate, accurate and timely information being provided to the Board; approving processes, procedures and systems to ensure that financial results are appropriately and accurately reported on a timely basis; reviewing executive succession planning and development; approving the acquisition, establishment, disposal or cessation of any significant business of the company; approving the issue of any securities in the company; approving any public statements which reflect significant issues of company policy or strategy; and approving any changes to the discretions delegated from the Board. 43
Board Composition Directors are considered and nominated by the Remuneration and Nomination Committee based on the skills and experience they are able to bring to Board deliberations on current and emerging issues. In addition, the Board seeks to ensure that the size of the Board as well the blend of skills within its membership, is conducive to effective discussion and efficient decision making. In recent years, the services of external search consultants have been used to assist with recruiting new Directors. Details of the members of the Board, their date of appointment, qualifications and experience are set out in the Directors Report under the heading Directors Profiles. Iluka s Constitution requires Directors to retire from office no later than the third Annual General Meeting following their election. The Directors have adopted an internal guideline that the preferred length of service is ten years, unless otherwise requested by the Board to continue. Director Independence The Board recognises the importance of independent judgement in the decision making process. The Board s Charter expressly requires that the majority of the Board be comprised of independent Directors and that the Chairman be an independent Director. To qualify as independent, a Director must be non-executive and: must not be a substantial shareholder of the company or an officer of, or otherwise associated directly with, a substantial shareholder of the company; within the last three years have not been employed in an executive capacity by the company or another group member, or been a Director of the company within three years after ceasing to hold any such employment; within the last three years have not been a principal of a material professional adviser or a material consultant to the company or another group member, or an employee materially associated with the service provided; not be a material supplier or customer of the company or other group member, or an officer of or otherwise associated directly or indirectly with a material supplier or customer; have no material contractual relationship with the company or another group member other than as a Director of the company; have not served on the Board for a period which could, or could reasonably be perceived to, materially interfere with the Director s ability to act in the best interests of the company; and be free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the Director s ability to act in the best interests of the company. Applying the above criteria, the Board considers that all nonexecutive Directors are independent. The Board assesses the independence of new Directors upon appointment and reviews their independence and the independence of other Directors as appropriate. Managing Director and Chief Executive Officer The Managing Director and Chief Executive Officer, Iluka s most senior employee, recommends policy, strategic direction and business plans for Board approval and is responsible for managing the company s day to day activities. The Managing Director and Chief Executive Officer is selected by the Board and is subject to an annual performance review by the nonexecutive Directors. Conflicts of Interest Each Director has an ongoing responsibility to: disclose to the Board actual or potential conflicts of interest that may or might reasonably be thought to exist between the interests of the Director and the interests of any other parties in carrying out the activities of the company; and if requested by the Board, within a reasonable period, take such necessary and reasonable steps to remove any conflict of interest. If a Director cannot or is unwilling to remove a conflict of interest then the Director must, in accordance with the Corporations Act, absent himself or herself from the room when discussion and/or voting occurs on matters about which the conflict relates. No conflicts of interest arose during 2005. Director Education Directors undergo an induction process upon appointment during which they are given a full briefing on the company. This includes meetings with key executives, tours of operational sites and presentations. Thereafter, in order to assist Directors to maintain an appropriate level of knowledge of the company and its operations, Directors undertake site visits and are provided with regular updates and briefings on current and emerging issues. Directors are encouraged to undertake continuing education relevant to the discharge of their duties. All reasonable costs of continuing Director education are met by the company. Directors Access to Independent Advice Each Director may, with prior written approval of the Chairman, obtain independent professional advice to assist the Director in fulfilling their responsibilities. Any reasonable expenses incurred in obtaining that advice will be met by the company. Board Meetings The Board convened for 11 meetings in 2005 including one meeting dedicated primarily to strategic planning. A tabular analysis of all meeting attendances appears on page 65 of the Directors Report. The agenda, frequency and length of meetings are determined by the Chairman in consultation with the Managing Director and Chief Executive Officer. The Chairman manages the conduct of meetings and strives to ensure open and constructive discussion between Board members and between the Board and management. Ad hoc Board and committee meetings may be convened to consider particular matters. 44 Iluka Resources Limited Concise Annual Report 2005
The Chairman sets aside time at the start of each scheduled Board meeting for non-executive Directors to meet with the Managing Director and Chief Executive Officer without other management present. In addition, the non-executive Directors meet at least four times each year independent of management to discuss the position of the company and the performance of management. General Counsel and Company Secretary Mr Cameron Wilson is Iluka s General Counsel and Company Secretary. A profile of Mr Wilson s qualifications and experience is set out on page 42. This position is responsible for: providing legal advice to the Board and management as required; advising the Board on corporate governance principles; management of the legal and secretarial functions; attending all Board and Board committee meetings and taking minutes; and communication with the Australian Stock Exchange (ASX). Committees of the Board To assist in the execution of its responsibilities and to allow detailed consideration of complex issues, the Board has established the following sub-committees: Remuneration and Nomination Committee; and Audit and Risk Committee. Each committee is comprised wholly of independent, non-executive Directors. The structure and membership of these committees are reviewed periodically. Each committee has its own written charter setting out its role and responsibilities, composition, structure, membership requirements and the manner in which the committee is to operate. Both of these charters are reviewed by the respective committees on an annual basis. Unless expressly delegated by the Board to one of its committees, all matters determined by committees are submitted to the full Board as recommendations for Board decision. Both the Remuneration and Nomination Committee and the Audit and Risk Committee are discussed separately below. Board and Committee Performance Evaluation The Board carries out a process of self assessment regarding its performance in meeting key responsibilities. This annual review process serves to identify any areas of weakness and mechanisms for improving the functioning and performance of the Board, its relationship with management and to focus on specific performance objectives for the year ahead. This assessment was last undertaken during the period of November to December 2005. Each of the Board committees also conducts an annual self assessment of their performance in meeting their key responsibilities. These reviews serve to identify strengths, weaknesses and areas for improvement. The assessments for both committees were last undertaken in November 2005. Remuneration and Nomination Committee The Remuneration and Nomination Committee consists of the following independent, non-executive Directors: Ms Valerie Davies (Chairman), Mr Grahame Campbell, Mr Ian Mackenzie and Mr John Pizzey. Dr Robert Every stepped down from the Committee on 6 December 2005 and was replaced by Mr Pizzey on the same date. Details of Directors attendances at Remuneration and Nomination Committee meetings and their qualifications and experience are set out in the Directors Report on page 64. The Committee s responsibility is to provide assistance and recommendations to the Board to assist it in fulfilling its corporate governance responsibilities relating to: the overall remuneration strategy of the company; the remuneration of the Managing Director and Chief Executive Officer, senior executives and non-executive Directors; the performance and succession of senior executives; and the assessment, composition and succession of the Board. Comprehensive details of the processes and principles underlying the work of the Remuneration and Nomination Committee are discussed in the Remuneration Report appearing on pages 50 to 57 of this Concise Annual Report. Audit and Risk Committee The Audit and Risk Committee consists of the following independent, non-executive Directors: Mr Don Morley (Chairman), Mr John Barr, Dr Robert Every, Mr Ian Mackenzie and Mr Richard Tastula. Dr Every was appointed to the Committee on 6 December 2005. Mr Morley was a senior financial executive of WMC Limited until his retirement in October 2002 and brings a high level of financial expertise and experience to Iluka s Audit and Risk Committee. Full details of Mr Morley s qualifications and experience and those of the other Committee members appear on page 64 of the Directors Report. Details of Audit and Risk Committee meetings and attendances are set out in the Directors Report on page 65. The Committee regularly reviews the appropriateness of its composition in light of the skills and experiences of its members, the responsibilities of the Committee and having regard to any changes in the regulatory environment in which the company operates. At all times the Audit and Risk Committee is required under its Charter to ensure that all members are financially literate and have an appropriate understanding of the industries in which the company operates. The overall purpose of the Audit and Risk Committee is to protect the interests of the company s shareholders and other stakeholders by, on behalf of the Board, overseeing processes in respect of: the integrity of financial reporting; the adequacy of the control environment; the process for the management of risk; and the internal and external audit functions. The broad responsibilities of the Audit and Risk Committee include assisting the Board to fulfil its responsibilities by: considering the effectiveness of the accounting and internal control systems and management reporting, which are designed to safeguard company assets; serving as an independent and objective party to review financial information prior to release to shareholders; reviewing the accounting policies adopted within the group; reviewing the performance of the internal and external audit functions; 45
evaluating the independence of the external auditor and ensuring that the provision of non-audit services by the external auditor does not adversely impact auditor independence; reviewing and approving internal audit plans, including identified risk areas; gaining assurance as to the adequacy of the company s policies and processes for identifying, documenting and addressing risks; ensuring key financial processes, including tax, insurance, treasury operations and superannuation arrangements reflect prudent management practices and compliance focus; and reviewing the adequacy of processes and internal controls with respect to legal and regulatory compliance. In fulfilling its responsibilities, the Audit and Risk Committee: receives regular reports from management and the internal and external auditors; meets regularly with the internal auditors, including meetings independent of management; meets regularly with the external auditors, including meetings independent of management; reviews any significant disagreements between the auditors and management, irrespective of whether they have been resolved; provides the internal and external auditors with a clear line of direct communication at any time to either the Chairman of the Audit and Risk Committee or the Chairman of the Board; and has access to management as required and is able to seek third party expert advice if required. Corporate Reporting The Managing Director and Chief Executive Officer and Chief Financial Officer have made the following certifications to the Board with respect to the 2005 accounts: that the company s financial reports are complete and present a true and fair view, in all material respects, of the financial condition and operational results of the company and group and are in accordance with relevant accounting standards; and that the above statement is founded on a sound system of risk management and internal compliance and control and which implements the policies adopted by the Board and that the company s risk management and internal control is operating efficiently and effectively in all material respects. Risk Assessment and Management The Board, with assistance from the Audit and Risk Committee, is responsible for ensuring there are adequate processes and policies in place to identify, assess and mitigate risk. Iluka has implemented a formal Enterprise Risk Management program which establishes structured risk management processes, as well as ensuring that risk management concepts and awareness are embedded into the culture of the organisation. This program involves committing significant resources at senior executive level, as well as the engagement of external risk management consultant services, for key aspects of the design and rollout. The key elements of Iluka s risk management program are: classification of risk into strategic, financial, operational, compliance, information and project risks; the quantification and ranking of risk event consequences as insignificant through to catastrophic; the introduction of processes to capture and document high level risks via interactive workshops involving the Board and senior management; the introduction of processes to capture and document lower level risks through formalised site based risk workshops and risk registers; a comprehensive management representation program conducted twice annually which involves a detailed hierarchy of signoffs on a wide range of risk issues; the assignment of clear accountabilities for identified risk issues to appropriate senior Iluka employees; comprehensive regular reporting to the Board and senior management on key areas of safety, environment, treasury legal matters and major projects; targeted utilisation of both internal and external auditors to address specific areas of risk exposure and controls; a comprehensive insurance program; a company wide statement of vision and values to provide the overarching context for behaviours and the way in which Iluka interacts with its stakeholders; the establishment of policies and procedures to address key internal control processes; the development of a company wide intranet based risk management database for communicating and updating progress on risk matters; and a fraud control policy for the confidential reporting of issues of unacceptable or undesirable conduct with protection against reprisal afforded to the whistleblower. Audit Functions The company s current external auditors are PriceWaterhouseCoopers (PwC). An analysis of fees paid and services provided by PwC (including non audit services) is provided in note 34 to the Financial Report. For the 2005 year the company has complied with its internal guidelines which require the fees paid to external auditors for non audit related work remain below 50% without pre-approval by the Audit and Risk Committee. This guideline is intended to preserve the independence of the external audit function. The Committee requires PwC to make formal declarations of compliance with all applicable independence requirements. Notwithstanding these declarations, both PwC internal rotation rules and the Corporate Law and Economic Reform Program Act (CLERP 9) required the audit engagement partner (Mr John O Connor) to step down from the Iluka engagement following conclusion of the audit of the financial statements for the year ended 31 December 2005. Mr O Connor will be succeeded as engagement partner by Mr David Smith following review by the Committee of his credentials. In summary, Mr Smith has been a partner of PwC for 13 years. He 46 Iluka Resources Limited Concise Annual Report 2005
has extensive experience in the provision of audit and other advisory services to large public companies, particularly in the resources sector. The external auditor will attend the Annual General Meeting and will be available to answer shareholder questions about the conduct of the audit and the preparation and content of the audit report. Iluka has elected to outsource its internal audit function to KPMG. The internal audit function assists the Board by undertaking an objective evaluation of the company s internal control framework. The Audit and Risk Committee is responsible for approving the program and scope of internal audit reviews to be conducted each financial year. An assessment of the quality and focus of the internal audit function is undertaken periodically as part of the review of Audit and Risk Committee effectiveness. Ethical Standards and Conduct The company has developed a Statement of its Vision, Values and Behaviours which underpins procedures and guidelines to promote high ethical standards, corporate behaviour, professionalism and accountability throughout the company. This statement represents the overall context for the detailed policies and procedures established at various operational and functional levels of Iluka s organisational structure. This statement is supported by an Employee Code of Conduct which identifies the standard of ethical conduct expected of Iluka employees. In addition, the Board has specifically adopted a Code of Conduct for Directors which establishes guidelines for their conduct in carrying out their duties as Directors. Iluka has also established a fraud control policy to provide for the confidential reporting of issues of unacceptable or undesirable conduct (Business Conduct Reporting and Control Policy). The policy provides protection against reprisal to the whistle blower and enables confidential disclosures to be made by the whistle blower to the fraud control officer or, where applicable, if the matter is highly sensitive and the employee believes it more appropriate, direct to the internal auditor, KPMG. Securities Trading Policy If Directors, officers and employees of the company intend to buy or sell the company s securities (shares, options, warrants etc), they must do so in accordance with the company s Securities Trading Policy. Under the Securities Trading Policy, Directors and employees are prohibited from trading in the company s securities if they are in possession of price sensitive information which is not generally available to the market. In addition to this general prohibition, senior management and those employees involved in preparing the company s statutory financial information (Restricted Employees) and Directors are prohibited from buying or selling securities in the company during the period from the end of the financial year or half financial year to the time of the release of the annual or half year results. Prior to trading in the company s securities, Directors must seek approval from the Chairman and Restricted Employees must seek approval from the Company Secretary. In addition, Directors and Restricted Employees must confirm to the Chairman or the Company Secretary (as the case may be) that they are not in possession of price sensitive information that is not generally available to the market. Shareholder Interface and Continuous Disclosure The shareholders of the company elect Directors at a general meeting in accordance with the company s Constitution. Recent Annual General Meetings have been rotated through Perth, Sydney and Melbourne as the majority of shareholders reside in those cities. The Annual General Meeting provides shareholders with the opportunity to express their views, ask questions about company business and vote on other items of business for resolution by shareholders. In 2006, the company intends to webcast the proceedings of the Annual General Meeting. The Company Secretary is responsible for communication with the Australian Stock Exchange (ASX). This role includes responsibility for ensuring compliance with the continuous disclosure requirements in the ASX Listing Rules and overseeing and co-ordinating information disclosure to the ASX. In accordance with the ASX Listing Rules, the company immediately notifies the ASX of information: concerning the company that a reasonable person would expect to have a material effect on the price of the company s securities; and that would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of the company s securities. Upon confirmation of receipt from the ASX, the company posts all information disclosed on the company s website (www.iluka.com). The company respects the rights of its shareholders and to facilitate the effective exercise of those rights, the company is committed to: communicating effectively with shareholders through releases to the market via the ASX, the company s website, information distributed to shareholders and the general meetings of the company; giving shareholders ready access to balanced and understandable information about the company and corporate proposals; making it easy for shareholders to participate in general meetings of the company; and requesting the external auditor to attend the Annual General Meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor s report. Iluka keeps shareholders and the market informed through the Concise Annual and Financial Reports, Half Yearly Report, quarterly releases and by disclosing material developments to the ASX and the media as they occur. The company also makes available a telephone number and email address for shareholders to make enquiries of the company. From time to time, briefings and site visits are arranged. In conducting such briefings, Iluka takes care to ensure that any price sensitive information released is made available to all shareholders (institutional and private) and the market at the same time. Briefing materials are lodged with the ASX and then posted on the company s website. Information is also released by email to all persons who have requested their name be added to the contact database. 47
Comparison to ASX Corporate Governance Best Practice Recommendations Principle & Recommendation Page Compliance 1 Lay solid foundations for management and oversight 1.1 Formalise and disclose the functions reserved to the Board and those delegated to management. (w) 43 2 Structure the board to add value 2.1 A majority of the Board should be independent directors. 44 2.2 The chairperson should be an independent director. 44 2.3 The roles of chairperson and chief executive officer should not be exercised by the same individual. 44 2.4 The Board should establish a nomination committee. 45 2.5 Provide related disclosures. 3 Promote ethical and responsible decision making 3.1 Establish a code of conduct to guide directors, the chief executive officer (or equivalent), the chief financial officer (or equivalent) and any other key executives as to: 3.1.1 the practices necessary to maintain confidence in the company s integrity. 47 3.1.2 the responsibility and accountability of reports of unethical practices. 47 3.2 Disclose the policy concerning trading in company securities by directors, officers and employees. (w) 47 3.3 Provide related disclosures. 4 Safeguard integrity in financial reporting 4.1 Require the chief executive officer (or equivalent) and the chief financial officer (or equivalent) to state in writing to the Board that the company s financial reports present a true and fair view, in all material respects, of the company s financial condition and operational results and are in accordance with relevant accounting standards. 46 4.2 The Board should establish an audit committee. 45 4.3 Structure the audit committee so that it consists of: 45 only non-executive directors a majority of independent directors an independent chairperson, who is not chairperson of the Board at least three members 4.4 The audit committee should have a formal charter. (w) 45 4.5 Provide relevant disclosures. 5 Make timely and balanced disclosure 5.1 Establish written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior management level for that compliance. (w) 47 5.2 Provide relevant disclosures. 6 Respect the rights of shareholders 6.1 Design and disclose a communications strategy to promote effective communications with shareholders and encourage effective participation at general meetings. (w) 47 6.2 Request the external auditor to attend the AGM and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor s report. 47 48 Iluka Resources Limited Concise Annual Report 2005
Principle & Recommendation Page Compliance 7 Recognise and manage risk 7.1 The Board or appropriate Board committee should establish policies on risk oversight and management. 46 7.2 The chief executive officer (or equivalent) and the chief financial officer (or equivalent) should state to the Board in writing that: 46 7.2.1 the statement given in accordance with best practice recommendations 4.1 (the integrity of financial statements) is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board. 46 7.2.2 The company s risk management and internal compliance and control system is operating efficiently and effectively in all material respects. 46 7.3 Provide relevant disclosures. 8 Encourage enhanced performance 8.1 Disclose the process for performance evaluation of the Board, its committees and individual directors and key executives. 45 9 Remunerate fairly and responsibly 9.1 Provide disclosure in relation to the company s remuneration policies to enable investors to understand (i) the costs and benefits of those policies and (ii) the link between remuneration paid to directors and key executives and corporate performance. 50 9.2 The Board should establish a remuneration committee. 45 9.3 Clearly distinguish the structure of non-executive directors remuneration from that of executives. 51 9.4 Ensure that payment of equity based executive remuneration is made in accordance with thresholds set in plans approved by shareholders. 51-52 9.5 Provide relevant disclosures. 10 Recognise the legitimate interests of stakeholders 10.1 Establish and disclose a code of conduct to guide compliance with legal and other obligations to legitimate stakeholders. (w) 47 Note: (w) = relevant policy posted onto the company s website. 49
Remuneration Report This report forms part of the Director s Report for the year ended 31 December 2005. Remuneration and Nomination Committee The Remuneration and Nomination Committee (the Committee) operates in accordance with its charter as approved by the Board. The Committee is comprised solely of independent non-executive Directors and is chaired by Ms Davies. The Committee met five times during the year with all members of the Committee present at every meeting. The Committee s responsibility is to provide assistance and recommendations to the Board in fulfilling its Corporate Governance responsibilities relating to: the overall remuneration strategy of the company; the remuneration of the Managing Director and Chief Executive Officer, executives and non-executive Directors; the performance and succession of executives; and the assessment, composition and succession of the Board. The Committee has the resources and authority appropriate to discharge its duties and responsibilities, including the authority to engage external professionals on terms it determines appropriate, without seeking the approval of the Board or management. During the year, the Committee engaged external advisers on matters relating to remuneration. These advisers were: Mercer Human Resources Consulting Pty Ltd which provided overall advice on reward strategy and executive remuneration; and Egan Associates who which provided advice on Managing Director and Chief Executive Officer remuneration, nonexecutive Director remuneration and executive remuneration arrangements. The Remuneration and Nomination Committee conducted a review of its charter and initiated a performance evaluation on the conduct of the Committee, which was reviewed and circulated for the information of Directors in December 2005. Remuneration Principles The Board recognises that Iluka s performance is dependent on the quality of its employees. Accordingly, Iluka s remuneration policy is designed to attract, retain and motivate highly experienced executives who are dedicated to achieving the company s strategic objectives and delivering shareholder value. This policy is built on the principles that: executive rewards are competitive within the sector in which Iluka operates; executive remuneration will have a balance of fixed and variable components; variable remuneration for executives will have both cash and equity components; a significant proportion of executives reward will be in the form of at risk variable remuneration and will be linked directly to performance as measured by the financial performance of the company and achievement of challenging individual performance targets; all aspects of executive remuneration will be transparent in terms of disclosure and will be compliant with relevant legislative requirements and best practice; and the remuneration policies and practices of CRL, a subsidiary of Iluka, are developed by the CRL Board. Information on these arrangements are available in the CRL Annual Report. The remuneration of an executive or manager for performance is heavily linked to annual business performance outcomes and the company s performance on a longer term basis. A summary of Iluka s five year financial performance appears on page 17 of this Concise Annual Report. Following the appointment of Mr Mike Folwell as Managing Director and Chief Executive Officer in May 2002, a program was implemented to generate sustainable earnings growth and improved shareholder returns for the company. The key elements of this program have included: maximising the value of existing assets, particularly in the context of grade decline in the Western Australian operations; development of new projects, particularly the new mineral sands province in the Murray Basin; generation of new growth opportunities, particularly through targeted exploration activity; and active portfolio management, particularly involving disposal of surplus land holdings and other non core assets. Significant ongoing progress in these areas has improved the underlying operating performance and prospects of the business. However, a number of factors have adversely affected reported financial results over the five year period from 2001 to 2005. These have included: the impact of the relative strength of the Australian dollar against the US dollar; the progressive reduction of tax benefits arising out of historical tax losses and other legacy credits; the impact of restructuring charges; and 50 Iluka Resources Limited Concise Annual Report 2005
the impact of write-downs in the carrying value of assets in the Mid West and Murray Basin at December 2005, as well as a staged exit from the Florida/Georgia mineral sands business in the United States. Notwithstanding the adverse effect of these factors on the reported financial results, the underlying improvement in the business has been reflected in significant shareholder wealth generation. In quantitative terms, a share purchased at the prevailing market price of $4.01 on 1 January 2001 has since generated $4.99 in shareholder return over the subsequent five year period (a 97% return). This return has comprised aggregate dividend returns of $1.10 plus share price growth of $3.89 per share, by reference to the closing price as at 31 December 2005 of $7.90. Over the corresponding five year period, average executive remuneration (for roles existing continuously throughout that period) increased by 49.1% or an average of 10.5% per annum. Remuneration Structure This Report discloses remuneration details for the Managing Director and Chief Executive Officer, non-executive Directors and members of the Executive Committee (executives). The Managing Director and Chief Executive Officer and executives comprise the seven highest remunerated employees in 2005. Remuneration for executives is comprised of two components: fixed remuneration which is made up of base salary and superannuation, together with other salary sacrifice items such as novated leases and car parking. Employees are required to meet any fringe benefits tax obligations applicable to benefits; and variable remuneration which is tied directly to performance of both the company and the individual executive and as such is deemed to be at risk. The remuneration structure is designed to reflect an appropriate balance between fixed and variable remuneration to ensure that an executive reward is predominantly aligned with the performance outcomes of the business. Fixed Remuneration The company seeks to align fixed annual remuneration with median levels of the market as defined by the appropriate comparator group of Australian companies with similar operating revenues and market capitalisation, as well as referencing job evaluation data and the individual competence levels of executives. In some cases, allowance is made for the highly competitive nature of the market for skilled and experienced personnel in the resources sector. Superannuation Benefits All Australian based executives are entitled to contribute to the Iluka Superannuation Plan. The plan is primarily an accumulation style plan (over 98% of employees are members) with a small number of employees retaining membership in a defined benefit sub plan, the latter a legacy from the 1998 merger of Westralian Sands Limited and RGC Limited. All executives (the executives detailed in Table 7) participate in the plan on an accumulation basis. From 1 July 2005, the opportunity to direct superannuation contributions to a fund of choice (including self managed superannuation funds) became available to Iluka employees. The company s default superannuation fund remains the Iluka Superannuation Plan. In November 2005, it was moved from internal management to a master trust arrangement administered by ING. The company contributes superannuation at the minimum required rate to each executive s nominated eligible fund. Individuals may elect to make further voluntary contributions from pre-tax salary. Variable Remuneration For the 2005 year, the Iluka Performance Incentive Program (PIP) was introduced. The plan aims to produce executive performance that enhances company financial performance and, in turn, share price performance. The PIP provides opportunities for executives and eligible managers to participate in at risk elements of reward based on rigorous financial and individually based targets on an annual basis. For disclosed executives, 50% of any award made is in the form of cash and the balance is required to be deferred in the form of share rights. The deferral of a large proportion of incentives in the form of share rights aligns executives directly with the interests of shareholders through the share price performance. Performance Incentive Program In March 2005, the Board finalised a new incentive plan the Performance Incentive Program (PIP). The existing rules of the Directors, Executives and Employees Share Acquisition Plan (Plan), as approved by shareholders at the company s Annual General Meeting in May 1999, allow for Directors to make subsequent amendments to the Plan in accordance with the rules. Amendments to the rules required to implement the new Plan were approved by Directors in March 2005. The introduction of the PIP followed an extensive review by the Board, including consideration of independent advice from Egan & Associates, on the design and management of variable remuneration within the company. 51
Only nominated managers and executives participate in the PIP. The level of award opportunity is determined by an individual s role within the business and capacity to impact the results of the company. In 2005, 36 employees (including all executives) participated in the cash and equity form of PIP, with a further 94 staff nominated for the cash only form of the Plan. PIP provides for an at risk element of remuneration requiring the attainment of annually set, pre-determined objectives and targets. Objectives are both financial and non financial and are developed individually for participating staff. Performance objectives relate to financial, environmental, health and safety performance, business improvement projects and specific targets within the executive s functional responsibilities. Individual objectives are required to align directly with the company s strategic plan and annual budgeted plans. Objectives, measures and targets are set on an annual basis and are subject to the approval of the Board, and are applicable to both the cash and equity components of the Plan. Invitations to participate in the Plan were made by the Board to executives at the commencement of the 2005 year. Invitations detailed the rules of the Plan and performance criteria required for the award of either cash or deferred equity in the form of share rights being granted. For the 2005 performance year the maximum incentive award available under the PIP to the Managing Director and Chief Executive Officer was 125% of fixed remuneration, with a maximum incentive of 80% for other members of the executive team. The size of the incentive award is determined at the year end on assessment of the extent to which individual objectives have been achieved. Of the incentive determined, half is awarded as a cash payment and half on a deferred basis in the form of share rights. In 2005, Iluka s financial performance (net profit after tax and return on shareholders equity) represented 35% weighting in determining satisfaction of the criteria for an incentive payment. Health and safety performance (injury frequency rates; number of level 2 environmental incidents) was apportioned at 10% to 15% and key objectives from the executive s operational or functional responsibilities accounted for the balance. The PIP is designed to link the financial outcomes of executives to achievement of company results. Each measure and objective has robust targets defined at threshold (minimum level of performance required), target (performance as budgeted) and stretch (superior performance maximum level of award). Outcomes of PIP objectives are subject to rigorous assessment by management and, for the executive general management group, by the Board. In 2005, threshold achievement required a 90% achievement of the target or budgeted performance of the company and paid 45% of the apportioned award. Target achievement required meeting 100% of this criterion and paid 65% of the apportioned award. Stretch achievement required a 120% performance against this criterion, and paid 100% of the apportioned award. There is no additional payment applicable to the executive above stretch, nor is any award payable below threshold level of financial achievement. Targets and Payment of Awards 2005 1 Threshold Target Stretch Budget/Target Maximum Achievable (-) 10% Target = Budget Stretch = Budget + 20% Pays 45% of Pays 65% Pays up to 100% Incentive of Incentive of Incentive Note: 1 All awards are subject to assessment and approval. Awards above target are expected to represent a superior level of achievement. At the end of the performance period in December 2005, performance criteria were assessed for each executive and an incentive award determined based on the level of achievement. Half of the incentive award was paid in cash in March 2006. The remaining half will be transferred to the executive as rights to fully paid shares in annual instalments of 25% over the next four years, commencing in January 2007. Further, a four year holding period applies to each grant of shares. All shares awarded are purchased on the open market. The value of award to an executive is directly linked to the long term share price. The higher the level of share price growth and hence shareholder value creation, the higher the level of executive award through the share entitlement. The financial and non financial objectives and measures are the only criteria required for determining the share entitlements of executives. Performance Incentive Program 2006 In February 2006, the Board approved a number of refinements to the PIP incentive plan following its first year of operation. Incentive arrangements were reviewed in light of Iluka s sharemarket performance and prevailing market conditions. From the 2006 performance year, the Board has decided to increase the emphasis on financial objectives. Greater weighting (50% of the incentive opportunity) is to be given to financial measures of performance to reflect the most significant priority of the business. Environment, health and safety measures remain weighted at 10% to 15% with achievement of individual performance objectives adjusted to 35%. In many instances individual objectives also target key financial and performance based outcomes. Maximum incentive opportunity for Executive Committee members will increase from 80% to 90%. The threshold, target and stretch performance hurdle rates are maintained in the 2006 PIP. The four year holding period on vested Share Rights applicable in the 2005 year will be replaced by a 50% minimum holding requirement once all shares have vested in the 2006 plan. Long Term Incentive Plans Prior to 2005 Prior to the introduction of the PIP in 2005, the company operated long term incentive plans pursuant to the terms of the Directors, Executives and Employees Share Acquisition Plan (Plan). The Plan was approved by shareholders at the Annual General Meeting of the company in May 1999. Each year the Board may invite the Managing Director and Chief Executive Officer, Mr Folwell, and other employees determined by the Board to hold an executive position, to participate in the Plan as a means of providing those executives with an incentive to enhance the performance of the company. 52 Iluka Resources Limited Concise Annual Report 2005
The terms of the annual offer included an allocated maximum number of shares (maximum allocation) to be acquired or retained under the Plan on behalf of the executive if certain performance criteria, as determined by the Board, are satisfied. The performance criteria for each offer were based on total shareholder return (TSR) against a defined comparator group of companies, over a three year performance period. At the end of the period, the performance of the company against the comparator group is assessed and a determination is made as to how much of the maximum allocation the executive will be entitled to have acquired on his or her behalf by the trustee. Once the maximum allocation is determined, the trustee purchases the shares and holds them on trust for the executive for a maximum period of ten years. At the end of the ten years, or earlier, if approved by the Board, the shares are transferred from the trustee to the executive. Since the Plan was approved by shareholders, there have been individual offers in respect to 2001, 2002, 2003 and 2004. Under the rules of the Plan, the entitlement assessment for the 2001 offer was extended for a further year and was assessed on 30 June 2005. The performance period for the 2002 offer has also concluded and was also assessed on 30 June 2005. As the 2003 and 2004 offers are still subject to the three year performance periods, there has been no determination of the entitlement to shares. All offers (including plans vested in the 2005 year) and details of the maximum allocation for the Managing Director and Chief Executive Officer and executives are shown in Table 1 below. It should be noted that the maximum allocations listed are subject to the respective performance criteria. If at the end of the performance period, the performance criteria have not been met, there will be no entitlement to shares. For the 2003 and 2004 Plans, relative total shareholder return performance is measured against the Australian Materials Index. For the 2003 plan, no reward is payable for performance below the 40th percentile. For each 1% above the 40th percentile, 2% of the total number of shares in the award is payable with 100% being payable at the 65th percentile. For the 2004 Plan, no reward is payable for performance below the 50th percentile. For each 1% above the 50th percentile, 2% of the total number of shares in the award is payable with 100% being payable at the 75th percentile. Mercer Consulting provides an assessment of the Plan performance relative to the Australian Materials Index on a regular basis for the review of the Remuneration and Nomination Committee. Remuneration Review The company conducts a review of the remuneration of executives and staff on an annual basis. For direct reports to the Managing Director and Chief Executive Officer, remuneration reviews are effective 1 January each year and other employee reviews are effective 1 March of each year. Guidelines for reviews are considered by the Board following recommendation by the Remuneration and Nomination Committee in February of each year. Review guidelines are based upon the outcomes of direct and related market review data and external advice from the company s remuneration advisers. All employees and executives participate in a performance review process which is used in conjunction with market data to determine appropriate remuneration recommendations. Individual progress against objectives of the PIP is reviewed during the performance year with formal reviews occurring at half year and at the conclusion of the performance year. Recommendations by the Managing Director and Chief Executive Officer for PIP award outcomes and remuneration for his direct reports are submitted to the Remuneration Committee in February of each year. In respect of all other eligible PIP participants, a one up manager approval process applies with final Managing Director and Chief Executive Officer authority prior to any award or remuneration review being implemented. Table 1 - Maximum Share Allocation Under Performance Plan Performance Periods LTI LTI Transition LTI LTI Maximum Maximum Plan PIP Plan 1/7/01 1,3 1/7/02 3 Total 1/7/03 1/1/04 Actual 2005 4 Total Award 30/6/04 30/6/05 Awarded 30/6/06 31/12/06 2005 2 Actual Potential Directors of Iluka Resources Limited M Folwell 13,419 13,419 35,336 100,000 34,975 18,654 255,482 Executives of Iluka Resources Limited S Ward 5 2,192 4,641 6,833 - - - - - M Bourke 6 1,563 2,757 4,320 - - - - - B Bisset - - - 21,153 41,376 12,479 10,316 85,324 D Grant - - - - 15,651 9,648 10,806 36,105 C Wilson - - - - - 6,972 9,576 16,548 D Calhoun - - - - - 9,648 10,806 20,454 Notes: 1. Plan extended by one year from 2004. 2. Transition year for introduction of Performance Incentive Plan. The rules of the 2005 PIP are applicable to the plan. No further performance criteria apply. The Plan vests in two equal tranches on 1/1/2008 and 1/1/2009 respectively. 3. Under the 2001 and 2002 Plans, relative TSR performance was measured against the ASX All Resources Index. Nil reward was payable under the Plans for performance below the 50%. For each 1% above 50, 4% of the total number of shares in the award was payable. For the 2001 and 2002 Plans, 14.28% and 25.36% was allocated accordingly. 4. 2005 PIP vests in 4 equal trances between 2007 and 2010. 5. S Ward terminated in accordance with his contract on 10 February 2006. 6. M Bourke resigned on 3 March 2006. 53
Employee Share Plan The company operates an employee share plan under the rules of the Iluka Resources Limited Employee Share Plan. The Board may, from time to time, at its discretion, make written offers to employees to acquire up to $1,000 of fully paid ordinary shares in the company from the pre-tax remuneration of employees. An offer was made during the financial year which was taken up by four executives. Overall, 34% of eligible employees participated in the 2005 plan. Consistent with usual industry practice, shares acquired under the Employee Share Plan are not subject to performance conditions as the primary objective of the plan is to encourage share ownership by employees and thereby provide employees with an incentive to participate in the growth and development of Iluka. Non-Executive Directors Remuneration The remuneration of the non-executive Directors is determined by the Board on recommendation from the Remuneration and Nomination Committee within a maximum aggregate amount approved by shareholders at an Annual General Meeting. The current maximum as approved by shareholders at the Annual General Meeting held on 12 May 2004 is $1.1 million. The total amount paid in 2005 was $796,562, including superannuation. A review of Iluka s non-executive Director fees was conducted during the year by Egan Associates. The review took into account the nature of Directors work, their responsibilities and the survey data on comparative companies. As a result of this review, the following fees were applied from 1 July 2005: Non-executive Director Fees Board Chairman (inclusive of Committee fees) Board Member Board Member Committee Fees Audit and Risk Committee Chairman Remuneration and Nomination Committee Chairman Audit and Risk Committee Member Remuneration and Nomination Committee Member $186,945 per annum $82,500 per annum $20,000 per annum $15,000 per annum $10,000 per annum $7,500 per annum With these increases, the current total non-executive Director remuneration is $841,945 per annum, excluding superannuation. The minimum required employer superannuation contribution is paid into each Director s nominated eligible fund and is in addition to the above fees. Prior to 1 July 2003, all non-executive Directors participated in a defined benefit section of the Iluka Superannuation Plan. As at 30 June 2003, the benefits in the defined benefits section were calculated and transferred to an accumulation section as at 1 July 2003. Non-executive Directors are able to purchase company shares under the Directors, Executives and Employees Share Acquisition Plan utilising the funds that would otherwise be payable to Directors in cash for Directors fees. These shares are acquired on market and all transaction costs are borne by Directors. Details of Directors share purchases are listed on page 59 of the Financial Report. No performance conditions attach to these shares as they are purchased using the funds that would otherwise be payable by the company to Directors in cash for their fees. Managing Director and Chief Executive Officer s Remuneration The Managing Director and Chief Executive Officer is Mr Keith Michael (Mike) Folwell, aged 51. Remuneration and other terms of employment for Mr Folwell are formalised in a service agreement. The service agreement for the Managing Director and Chief Executive Officer was reviewed by the Board during the course of the year. Mr Folwell was initially employed on a five year term, commencing on 1 May 2002 and terminating on 30 April 2007. The Board announced during the year that it had agreed with Mr Folwell on an ongoing contract of no fixed term, principally on the same remuneration as previously, namely: fixed remuneration, inclusive of superannuation, of $870,000 per annum and non cash benefits such as car parking, personal phone, spouse travel, salary continuance, death and disability insurance; and participation in the Performance Incentive Plan as outlined elsewhere in this Report. Payment of termination benefit by the company (other than for gross misconduct) is equal to one year of total fixed remuneration. An amount equivalent to 18 months of total fixed remuneration is payable in the event of redundancy. In the event of both termination and redundancy, Mr Folwell would be paid a pro rata portion of the cash component of the PIP based on his performance up and until the date of termination. In respect of shares under the Plan, in the event of termination, Mr Folwell will retain only shares that have vested to him. In the event of redundancy, in addition to an entitlement to vested shares, the Board may give further consideration in accordance with the Rules of the Plan. Mr Folwell is required to give six months notice to the company in the event of resignation. Mr Folwell s remuneration is established by reference to the market and with particular reference to companies of a similar size in terms of market capitalisation and operating revenues. His remuneration is reviewed on an annual basis in December by the Board with assistance from external advisers. The total remuneration paid to Mr Folwell in 2005 is shown in Table 2. Executive Service Agreements Remuneration and other terms of employment for the executives are formalised in service agreements. Invitations to executives to participate in the PIP are issued each year. Invitations include details of Plan rules, and terms and conditions of the offer. Major provisions of the agreements relating to remuneration are set out opposite: 54 Iluka Resources Limited Concise Annual Report 2005
W R Bisset, Executive General Manager Global Operations Commencement date: 3 December 2002 Term of agreement: no fixed term Fixed remuneration inclusive of superannuation for the year ended 31 December 2005: $485,000 Payment of termination benefit on termination by the employer (other than for gross misconduct) equal to one year s total fixed remuneration Three months notice required upon resignation Pro rata cash based PIP based on performance up and until the date of termination. M J Bourke, Executive General Manager Technical Services Commencement date: 30 April 2001 Resigned: 3 March 2006. A termination payment has been made. Details of the payment will be disclosed in the Remuneration Report for the financial year ending 31 December 2006 in accordance with statutory requirements Term of agreement: no fixed term Fixed remuneration inclusive of superannuation for the year ended 31 December 2005: $340,000 Payment of termination benefit on termination by the employer (other than for gross misconduct) equal to one year s total fixed remuneration Three months notice required upon resignation Pro rata cash based PIP based on performance up and until the date of termination. D H M Calhoun, Executive General Manager People & Communities Commencement date: 21 February 2005 Term of agreement: no fixed term Fixed remuneration inclusive of superannuation for year ending 31 December 2005: $375,000 Payment of termination benefit on termination by the employer (other than for gross misconduct) equal to one year s total fixed remuneration Three months notice required upon resignation Pro rata cash based PIP based on performance up and until the date of termination. D C Grant, Chief Financial Officer Commencement date: 15 September 2003 (appointed Chief Financial Officer on 13 July 2004) Term of agreement: no fixed term Fixed remuneration inclusive of superannuation for the year ended 31 December 2005: $375,000 Payment of termination benefit on termination by the employer (other than for gross misconduct) equal to one year s total fixed remuneration Three months notice required upon resignation Pro rata cash based PIP based on performance up and until the date of termination. S Ward, Executive General Manager Sales & Marketing, Business Development and USA Operations Commencement date: 1 October 1999 Terminated: 10 February 2006 Term of agreement: no fixed term. Payment of 12 month fixed remuneration ($485,000) in accordance with the employment contract Fixed remuneration inclusive of superannuation for the year ended 31 December 2005: $485,000 Payment of termination benefit on termination by the employer (other than for gross misconduct) equal to one year s total fixed remuneration Three months notice required upon resignation Pro rata cash based PIP based on performance up and until the date of termination. C Wilson, General Counsel & Company Secretary Commencement date: 29 November 2004 Term of agreement: no fixed term Fixed remuneration inclusive of superannuation to 28 February 2005: $264,772; increased to $271,000 from 1 March 2005 Payment of termination benefit on termination by the employer (other than for gross misconduct) equal to one year s total fixed remuneration Three months notice required upon resignation Pro rata cash based PIP based on performance up and until the date of termination. V Hugo, Executive General Manager Sales & Marketing Commencement date: 5 May 2003. Appointed to Executive General Manager Sales & Marketing on 21 February 2006 Term of agreement: no fixed term Fixed remuneration inclusive of superannuation from 21 February 2006: $340,000 Payment of termination benefit on termination by the employer (other than for gross misconduct) equal to one year s total fixed remuneration Three months notice required upon resignation Pro rata cash based PIP based on performance up and until the date of termination. 55
Table 2 - Remuneration of Directors in 2005 Cash Salary Incentive PIP Non- Super- Employee PIP Long Term & Fees % of Fixed Cash 1 Monetary annuation Share Plan 2 Equity Incentive 3 Other Total Name $ Remuneration $ Benefits $ $ $ $ $ $ $ W H Barr 88,750 - - - 7,988 - - - - 96,738 G D Campbell 50,745 - - - 7,763 43,125 - - - 101,633 V A Davies 73,245 - - - 8,438 28,125 - - - 109,808 R L Every 50,745 - - - 7,763 43,125 - - - 101,633 I C Mackenzie 178,473 - - - 16,063 - - - - 194,536 D M Morley 98,750 - - - 8,888 - - - - 107,638 G J Pizzey 4 13,637 - - - 1,227 - - - - 14,864 R A Tastula 88,750 - - - 7,988 - - - - 96,738 Subtotal 643,095 - - - 66,118 114,375 - - - 823,588 Managing Director and Chief Executive Officer K M Folwell 855,583 12.5 108,750 61,780 5 11,585 832 64,267 162,869-1,265,666 Total 1,498,678 12.5 108,750 61,780 77,703 115,207 64,267 162,869-2,089,254 Notes: 3. Represents the estimated monetary value of potential shares under the Long Term 1. Represents incentives payable in relation to cash component of Performance Incentive Plan for the year ended 31 December 2005. The indicative valuation Incentive Plan for the year ended 31 December 2005, paid in March 2006 (not was determined in accordance with the measurement criteria of accounting available to non-executive Directors). standard AASB2 Share Based Payment. The valuation was performed using an options pricing model. 2. Relates to participation in the Directors, Executives and Employees Share Acquisition Plan. 4. Mr G J Pizzey was appointed as a Director on 7 November 2005. 5. Includes car parking, death, disability and salary continuance insurance, spouse travel and personal phone. Table 3 Short Term Incentive (Cash) for 2004 (Paid in March 2005) Incentive % of Fixed Name Incentive Payment $ Remuneration 4 G R Allan 1 130,190 47.0 W R Bisset 208,840 45.4 M J Bourke 6 143,208 44.2 D C Grant 147,598 45.8 S Ward 5 199,350 45.0 C Wilson 2 NA NA D H M Calhoun 3 NA NA Total 829,186 Notes: 1. G R Allan s contract of employment ceased on 1 April 2005. 2. C Wilson was appointed to the position of General Counsel and Company Secretary on 29 November 2004. 3. D H M Calhoun was appointed to the position of Executive General Manager - People and Communities on 21 February 2005. 4. Short term incentive plans prior to 2005 included a provision for payment above target financial performance: 1% of fixed remuneration for each 1% above budget. For the 2004 year, a payment of 9% of fixed remuneration was made in addition to base incentive entitlements. 5. S Ward terminated in accordance with his contract on 10 February 2006. 6. M J Bourke resigned on 3 March 2006. Table 4 Short Term Incentive Bonus (Cash) Incentive % of Fixed for 2004 (Paid in March 2005) Remuneration 1 Name Incentive Payment $ K M Folwell 461,700 57% Note: 1. Short term incentive plans prior to 2005 included a provision for payment above target financial performance: 1% of fixed remuneration for each 1% above budget. For the 2004 year, a payment of 9% of fixed remuneration was made in addition to base incentive entitlements. Table 5 - Incentive Opportunity for Future Years 2006 Cash Deferred as Shares At Target At Stretch At Target At Stretch Budget Budget + 20% Budget Budget + 20% 32.5% 62.5% 32.5% 62.5% Name $ $ $ $ K M Folwell 282,750 543,750 282,750 543,750 Table 6 - Incentive Opportunity for Future Years 2006 Cash Deferred as Shares At Target At Stretch At Target At Stretch Budget Budget + 20% Budget Budget + 20% 29.2% 45.0% 29.2% 45.0% Name $ $ $ $ W R Bisset 141,620 218,250 141,620 218,250 D H M Calhoun 109,500 168,750 109,500 168,750 D C Grant 109,500 168,750 109,500 168,750 C Wilson 79,131 121,948 79,131 121,948 56 Iluka Resources Limited Concise Annual Report 2005
Table 7 - Remuneration of Executives in 2005 Cash Salary Incentive PIP Non Monetary Super- Employee PIP Long Term & Fees % of Fixed Cash 1 Benefits 11 annuation Share Plan 2 Equity 3 Incentive 4 Other Total Name $ Remuneration $ $ $ $ $ $ $ $ G R Allan 5 (Former EGM People & Communities) 75,905 9 - - - 2,896 - - - 27,700 7 106,501 W R Bisset EGM Global Operations 471,415 12.4 60,140 12,345 11,585-22,930 53,245-631,660 M J Bourke 13 EGM Technical Services 294,338 17.6 59,840 16,172 37,809 832 16,074 41,294-466,359 D H M Calhoun 6 EGM People & Communities 311,099 15.2 57,000-10,619 832 17,728 - - 397,278 D C Grant Chief Financial Officer 330,063 16.8 63,000 11,151 42,937-17,728 12,886-477,765 S Ward 12 EGM Sales & Marketing, Business Development & USA Operations 433,444 - - 11,151 48,724 832 22,930 57,663 63,293 8 638,037 C Wilson 10 General Counsel & Company Secretary 237,922 20.6 55,826 11,151 30,037 12,811 - - 347,747 Total 2,154,186 295,806 61,970 184,607 2,496 110,201 165,088 90,993 3,065,347 Notes: 1. Represents incentives payable in relation to cash component of Performance Incentive Plan for the year ended December 31 2005, paid in March 2006. 2. Relates to participation in the Employee Share Plan. 3. Represents the estimated monetary value of shares granted under the PIP for the year ended 31 December 2005. The indicative valuation was determined in accordance with the measurement criteria of accounting standard AASB 2, Share-based payment, with the fair value of shares at grant date being recognised as remuneration on a straight line basis between grant date and vesting date. 4. Represents the estimated monetary value of potential shares under the PIP for the year ended 31 December 2005. The indicative valuation was determined in accordance with the measurement criteria of accounting standard AASB2 Share Based Payment. The valuation was performed using an options pricing model. 5. G R Allan s contract of employment ceased on 1 April 2005. 6. D H M Calhoun was appointed to the position of Executive General Manager People and Communities on 21 February 2005. 7. Pro rata PIP cash component paid to GR Allan on 1 April 2005 termination. 8. Gross relocation allowance paid to S Ward associated with repatriation from US in 2004. 9. Includes statutory benefits paid on termination. 10. C Wilson was appointed to the position of General Counsel and Company Secretary in November 2004. 11. Benefit may include car parking and personal phone. 12. S Ward terminated in accordance with his contract on 10 February 2006. 13. M Bourke resigned on 3 March 2006. Table 8 - Aggregate Compensation for Key Management Personnel (includes Executive Director, Non-executive Directors and Executives) 2005 2004 Short Post Share Short Post Share Term Employment Based Term Employment Based Benefits 1 Benefits 2 Payments 3 Total Benefits 1 Benefits 2 Payments 3 Total Non-executive 643,095 66,118 114,375 823,588 583,503 82,438 56,288 722,229 Directors Managing Director and Chief Executive Officer 1,026,113 11,585 227,968 1,265,666 1,265,432 35,052 152,516 1,453,000 Executives 2,602,955 184,607 277,785 3,065,347 3,075,693 144,377 179,978 3,400,048 Total 4,272,163 262,310 620,128 5,154,601 4,924,628 261,867 388,782 5,575,277 Notes: 1. Comprises Cash Salary and Fees, PIP Cash, non monetary benefits (other than share based payments), and Other remuneration. 2. Comprises superannuation. 3. Comprises Employee Share Plan, PIP Equity and Long Term Incentive (which is settled via the issue of equity). 57
Shareholder Information Company Contact Details Iluka Resources Limited ABN 34 008 675 018 Registered Office: Level 23, 140 St Georges Terrace PERTH WA 6000 Postal Address: GPO Box U1988, PERTH WA 6845 Australia Telephone: +61 8 9360 4700 Facsimile: +61 8 9360 4777 Internet address: www.iluka.com This site contains information on Iluka s products, marketing, operations, public releases, financial and quarterly reports. It also contains links to other sites, including the share registry. Share Registry Enquiries Shareholders who require information about their shareholdings, dividend payments or related administrative matters should contact the company s share registry at: Computershare Investor Services Pty Limited Level 2, Reserve Bank Building 45 St Georges Terrace PERTH WA 6000 Postal Address: GPO Box D182 PERTH WA 6840 Telephone: +61 8 9323 2000 Facsimile: +61 8 9323 2033 Website: www.computershare.com Each enquiry should refer to the shareholder number which is shown on issuer sponsored holding statements and dividend statements. Stock Exchange Listing Iluka shares are listed on the Australian Stock Exchange Limited. The company is listed as Iluka with an ASX code of ILU. Change of Address Shareholders who have changed their address should give written advice of the change, quoting the relevant shareholder number, to the company s share registry. Uncertificated Share Register The share register was converted on 27 April, 1998. Information regarding the company s issuer sponsored holdings is available from the company s share registry. Concise Annual Report Mailing List All shareholders are entitled to receive a Concise Annual Report. In addition, shareholders can elect to receive a Financial Report. Alternatively shareholders can elect not to receive a Concise Annual Report or Financial Report by writing to the share registry and quoting their shareholder number. Copies of the reports will be available at Iluka s website at www.iluka.com. Payment of Dividends Australian shareholders may have their dividends paid directly into any bank, building society or credit union in Australia. For this purpose, a form is available from the company s share registry. Tax File Numbers (TFN) The company is obliged to deduct tax from dividend payments, other than those which are fully franked, to shareholders registered in Australia who have not quoted their TFN to the company. Forms for notifying TFNs have been sent to all shareholders. If you have not already quoted your TFN, you may do so by contacting the share registry. 2006 Financial Calendar 6 April Closing of books for final dividend entitlements 20 April Payment of final dividend 9 May Closure time for acceptance of proxies for AGM 11 May Annual General Meeting Intercontinental Hotel, Sydney 24 August Announcement of half year results 6 October Anticipated payment of interim dividend 31 December Financial year end 58 Iluka Resources Limited Concise Annual Report 2005