Annual Concise Report to Shareholders 2001 Contents Notice of meeting ifc About Iluka 2 2001 in Summary 4 Financial Results 6 Report from the Chairman and Managing Director 8 Operational Review 12 Exploration Delivers New Resources 14 Towards a Safer, Healthier Workplace 16 Opening the Door to our Business 17 A Focus on Environment 18 Directors Profiles 20 Executive Managers 22 Corporate Governance 24 Shareholder Information 27 Statement of Shareholdings 28 Five Year Financial Summary 30 Directors Report 32 Statements of Financial Performance 38 Statements of Financial Position 39 Statements of Cash Flows 40 Discussion and Analysis of the Financial Statements 41 Segmental Analysis 43 Dividends 45 Earnings Per Share 45 Subsequent Events 46 Full Financial Report 46 Directors Declaration 47 Independent Audit Report 48 PAGE 1
About Iluka Iluka Resources Limited is one of the world's leading titanium minerals and zircon producers, employing 1,500 people at mining and mineral processing operations in Australia and the United States. Iluka's main business activities are Mining and processing titanium minerals. Mining and processing zircon. A coal-mining joint venture. Extensive mineral exploration in Australia, the United States and other countries. Iluka is ranked second in global titanium minerals production and first in global zircon production. Most of Iluka's titanium products are upgraded to titanium dioxide pigment. This pure white, highly refractive and ultra-violet absorbing material is used in protective coatings such as house and car paints and sunscreens, as well as plastics, paper, and textiles. The properties of zircon make it suitable for varied applications in refractory, foundry and other industrial applications. However, the largest use of zircon is the ceramics industry, where the opacity and hardness of zircon gives whiteness and durability to tiles, sanitary-ware and tableware. Iluka's mining and processing activities demand high standards of environmental management. The mining operations are based on a sequential process of excavation and rehabilitation. Iluka's former sites are now productive farms, wildlife sanctuaries, recreation areas and residential districts. All production and processing operations are managed and monitored to minimise impacts on the environment. Many of Iluka's operations are close to agricultural properties or urban residential areas. The Company has established a reputation for working closely with neighbours and local communities - supporting youth, sport, art and volunteer community groups. The major driver of Iluka's growth has been downstream processing to add value to the Company's mineral resources. Success in a highly competitive industry has been built on a combination of extensive high quality resources, skilled employees and the effective application of the best production technology. Company Milestones 1954 Westralian Oil Limited begins exploration of WA, searching for hydrocarbons. 1955 Geologists find high-grade deposits of ilmenite near Capel. 1959 Ilmenite mining and processing begins at Capel. 1968 Westralian Oil changes its name to Westralian Sands Ltd. 1986 First commercial synthetic rutile plant commissioned at North Capel. 1994 Controlling shareholdings sold, increasing the Company's independence and opportunities. 1997 New synthetic rutile plant, co-generation power plant and dry separation plant established at North Capel. 1998 Westralian Sands acquires diversified miner RGC, securing extensive mining and processing assets in Australia and the United States. 1999 Shareholders agree to change name to Iluka Resources Limited, to reflect the Company's increased diversity and global operations. PAGE 2
Annual Concise Report to Shareholders 2001 Iluka Resources Limited ownership structure and assets Business Iluka Resources Assets Holding WA Titanium Minerals 100% Six open pit mines at Capel (four) and Eneabba (two) Two dry separation plants (Capel and Narngulu) Two synthetic rutile plants (Capel and Narngulu) Iluka Resources Inc USA 100% Dredge mine and open pit mine (Florida) Open pit mine (Virginia) Two dry separation plants (Florida and Virginia) Consolidated Rutile Limited 50% 1 Two dredge mines (North Stradbroke Island) Dry separation plant (Pinkenba, Brisbane) Narama Coal 50% Hunter Valley open cut coal mine operated by joint venture partner Enex Resources Limited. Westlime 100% Operations closed July 2001. PT Koba Tin 75% Sale announced in November 2001, to be finalised in April 2002. 1 Increased from 49% in February 2002 Mining at Eneabba PAGE 3
2001 in Summary Iluka maintained the Company s productivity and profitability improvements in the titanium minerals and zircon business, despite difficult market conditions in 2001. Many operational and financial initiatives put in place during the year will lay the foundations for significant growth in the near future. Highlights of 2001 included Increased overall production of titanium minerals and zircon products. Development of Western Australian and USA zircon finishing plants, due for commissioning in the first half of 2002. Major safety initiatives at all sites in the Group. Adoption of a business growth plan based, in part, on the increasing demand for Iluka synthetic rutile. Strong sales of the Company s key products in difficult market conditions. Negotiation of favourable forward sales for 2002. Disposal of the Company s non-core interests in tin production and quicklime manufacture, leaving the Group with a profitable titanium minerals and zircon business and a 50% interest in the successful Narama Coal joint venture. Continued plant and efficiency improvements at the Company s Mid West operations. Group Production Summary Tonnes 2001 2000 Synthetic Rutile 460,100 405,000 Rutile 175,000 201,400 Ilmenite 1,438,500 1,414,900 Zircon 345,400 315,000 Leucoxene 12,500 12,200 Saleable Tin Metal 15,446 10,900 Coal 1,202,000 1,098,000 The first stages of Iluka s USA expansion. Financial results 2001 2000 Revenue from operations $900.8m $826.4m Profit after tax continuing business $107.8m $104.9m Loss after tax discontinuing business $ (44.1)m $ (14.4)m Net profit $ 63.7m $ 90.5m Earnings per share 29.4 cents 40.8 cents Dividend 22.0 cents* 22.0 cents Gearing ratio 32.2% 29.7% *The dividend is franked to two cents at the 30% tax rate. PAGE 4
Annual Concise Report to Shareholders 2001 Mid West mineral concentration PAGE 5
Financial Results Iluka has recorded an improved profit from continuing businesses for the fourth consecutive year in 2001. The result was based on the success of the Group s core titanium minerals and zircon business. Key results included A record after-tax profit from continuing business of $107.8 million - up 2.8% on equivalent net earnings for 2000. Loss of $44.1 million from discontinuing businesses. Net profit of $63.7 million - down $26.8 million from the corresponding result in 2000. A full year dividend of 22 cents (franked to two cents) - unchanged from the previous year. Cashflows from operating activities of $131.0 million, down from $161.2 million in 2000, reflecting a concentration of shipping activity in December and a build-up of synthetic rutile stocks to cater for scheduled maintenance and plant refurbishment in 2002. A slight increase in the gearing ratio to 32.2%, following capital expenditure on production facilities in the USA and Western Australia's Mid West. Interest expense is covered by profit 8.4 times. A strong performance by Iluka's titanium minerals and zircon business was the key contributor to increased Group revenue and earnings from continuing businesses. Product sales from the titanium minerals and zircon business generated revenue of $737.8 million for the year, an increase of $49.2 million on the equivalent amount for 2000. The key factors in revenue growth were increased synthetic rutile and zircon prices and improved synthetic rutile sales volumes. Iluka has adopted the new Accounting Standard AASB1042 reporting requirements for 2001 to provide additional insight into the Group's continuing and discontinuing business activities. The information has particular relevance to the sale of Iluka's interest in PT Koba Tin and the closure of the Company's wholly-owned subsidiary, Westlime (WA) Limited. Write-downs from the disposal of the two non core assets were the major factors in losses from discontinuing businesses in 2001, reducing the profit attributable to Iluka shareholders by $44.1 million to $63.7 million. These divestment decisions leave Iluka with a strong and profitable titanium minerals and zircon business - and a 50% interest in the successful Narama Coal joint venture. Both businesses are generating strong sustainable returns. The Narama Coal joint venture contributed $9.9 million to Iluka's Group profit in 2001. Narama, managed by Iluka's 50% joint venture partner Coal & Allied Limited during the past year, sold all of the operation's coal to Macquarie Power under long term contracts. PAGE 6
Annual Concise Report to Shareholders 2001 Continuing operations 1 Revenue From Operations EBITDA EBIT Profit After Tax Earnings Per Share $m 800 $m $m 250 150 $m 120 cents 50 600 200 120 90 40 150 90 30 400 60 100 60 20 200 50 30 30 10 0 97 98 99 00 01 0 0 0 0 97 98 99 00 01 97 98 99 00 01 97 98 99 00 01 97 98 99 00 01 1 Continuing operations refers to the ongoing titanium mineral, zircon and coal businesses. Group results 2 Profit After Tax Return On Equity Earnings Per Share Dividend Per Share Gearing Ratio $m 100 % 15 cents 50 cents % 25 50 80 12 40 20 40 60 9 30 15 30 40 6 20 10 20 20 3 10 5 10 0 0 0 0 0 97 98 99 00 01 97 98 99 00 01 97 98 99 00 01 97 98 99 00 01 97 98 99 00 01 2 The group financial information is based on net results including profit and loss from discontinuing businesses. Figures for 1998 and 1999 exclude the Company s interest in Goldfields Limited. PAGE 7
Report from the Chairman and Managing Director The year ended December 2001 was a period of mixed results for Iluka Resources. The Company s core business of titanium minerals and zircon production performed satisfactorily, contributing to a record continuing business profit of $107.8 million after tax. However, the Board decided to withdraw from its investments in Westlime and PT Koba Tin, after a review of the future of its non-core businesses. The resulting write downs in the value of the assets was the major factor in the $44.1 million loss from discontinuing businesses in 2001. The net result was a profit attributable to shareholders of $63.7 million, down from the previous year s $90.5 million. Towards the end of the year Directors decided it was necessary to undertake an extensive review of the Board and Management of the Company. Following this review the Managing Director, Mr Malcolm Macpherson, resigned in December 2001. A replacement for Mr Macpherson will be announced shortly. Core Business Performance Production of most of our products was above levels for the previous year, with significant improvements being recorded in the Mid West. Synthetic Rutile production hit a record of 460,100 tonnes for the year. Capital expenditure projects included improvements to mining, separation and Zircon upgrading at Eneabba and the expenditure of $24.2 million on the enhancement of our production capability at Old Hickory in Virginia, USA. Iluka met the Company s principal production and sales targets for the year. Most products were sold under long term contracts to customers with whom we have very close association. The slow-down in world economies during 2001, exacerbated by the terrible events in the United States on September 11 th, had a significant impact on the businesses of our principal customers, particularly those in the USA. The demand for titanium minerals used in pigments for paints, protective coatings and titanium metal was reduced by uncertainty in the construction and manufacturing sectors in the US after a strong first half, while Zircon markets remained steady, despite variable markets in the ceramics refractory and foundry sectors. Health Safety and Environment Interim Managing Director Richard Tastula and Chairman Ian Mackenzie. Safety performance within Iluka remains an area of concern. Despite considerable effort at all levels of management to improve safety performance in 2001, results were disappointing. The Group s performance indicators are poor by industry standards, and Board and Management continue to review and implement ways of improving the Company s performance as part of a sustained commitment to improvement in this area. PAGE 8
Annual Concise Report to Shareholders 2001 Iluka published the Company s first Public Environment Report during 2001. This reported in some detail on a range of programs implemented to manage the environmental impacts of the Company s operations. Iluka has a tradition of progressive environmental management, particularly mine site rehabilitation, being involved in one of the few extractive industries that is able to leave areas of mining in an enhanced state. We continue to pride ourselves on strong, corporate citizenship and, in this regard, an example of Iluka s mining and rehabilitation process is on show at Stratham West near Capel. Here, the mining operation is now open for public viewing on a daily basis. Great care is constantly taken from the mine planning phase through to rehabilitation to ensure minimum environmental impact. Consolidated Rutile Limited Consolidated Rutile Limited, in which Iluka holds a controlling interest, improved performance as expected, with a $9.1 million after tax profit increase to $18.6 million. CRL contributed $6.6 million to Iluka s net earnings. During the year an unconditional bid was made for the shares in CRL which Iluka did not already own. Iluka was unable to reach an agreement on appropriate share value with two institutions holding a combined total of 44% of the issued capital. As a result, the bid increased Iluka s shareholding from 43% to 49%, but fell short of the Company s 100% target. Subsequently, Iluka acquired additional shares to take the Company s stake in CRL above 50%. Westlime Westlime was unable to meet target production levels during its four years of operation. The business was plagued, on the one hand, by the failure of the plant to meet design standards and on the other by a severe over capacity in the market for quicklime in Western Australia. The Board previously had written down the asset value South Capel synthetic rutile kiln to be used in Iluka s expansion program PAGE 9
Report from the Chairman and Managing Director (cont) The withdrawal from PT Koba Tin required a write-down of $26.8 million to Iluka s 75% interest. Planning for Growth Changes initiated by the Company during the past year are intended to deliver improved shareholder value and growth potential for Iluka. As part of the plan to build the Company business, Iluka is finalising a feasibility study into plans for expansion of the Company s production and processing facilities at Capel. South West Operations Manager Bob Lloyd (left) with Jason Marney and John Iley at North Capel. and, after a review of Westlime s prospects, it was decided that it was appropriate to withdraw entirely. A further amount of $6.3 million was written off as a result. PT Koba Tin Iluka s 75% interest in the Indonesian-based PT Koba Tin was a former RGC asset acquired in 1998. The operations of Koba Tin have been affected by falling tin prices in the international market and an unstable political environment. The situation has deteriorated during the past two years because of the inability of local authorities to control illegal tin mining on the Company s leases. The glut of illegally-mined tin on the market has exacerbated the world price decline. In this context, Iluka has reached agreement to sell its interest in the business to the Malaysian Smelting Corporation Berhad (MSC) for up to US$20 million. Part of this consideration is a deferred payment subject to international tin market price movements and this has been accounted for as a contingent asset of the Company. The approach is based, in part, on the success of synthetic rutile as a preferred feedstock for titanium dioxide pigment producers. Iluka is considering plans to increase production by 20% in the short term and longer term options for a substantial synthetic rutile production increase, using new technology. At the same time, Iluka is constructing new processing plant in Virginia, USA, and Geraldton, Western Australia, to improve the returns from its zircon business. Board and Management Review In recent years, Iluka has been viewed as a Company of great promise, but the Board believed that its full value was not being fully reflected in the market price for the shares. Consequently, it was decided that it would be appropriate for the Company to undertake a comprehensive independent assessment of the Board and Management. This assessment was completed in December 2001 and, as a result, the Managing Director, Mr Malcolm Macpherson, resigned from the Company. Mr Macpherson was initially Chief Executive and latterly Managing Director of the Company for a total of 23 years. The Board acknowledges the contribution Mr Macpherson made in building up the Company during this period, and wishes him well in his future. PAGE 10
Annual Concise Report to Shareholders 2001 Mr Richard Tastula who has the position of Interim Managing Director is supported by a very professional and dedicated team of executive general managers, ensuring the business improvement program does not lose any momentum. The Board is currently seeking a new CEO candidate. The circumstances surrounding Iluka are very different from those in which Westralian Sands operated. The resources sector is undergoing change and consolidation. As a medium-sized company operating in a global environment, Iluka faces significant opportunities and potential threats. Responding to these issues will place high strategic and communication demands on the new CEO. One of the early changes has been an upgrade in the management of our investor relations to ensure the market has a clear understanding of the business and a full recognition of Iluka s value. The Board is implementing other changes recommended following the review and will progressively report on these as they are implemented. Outlook The recent softness in the Company s markets is expected to continue through to the second half of 2002. Iluka announced recently that its anticipated titanium mineral production for 2002 was fully sold at firm prices throughout the year, and the outlook for zircon was healthy. We continue to place a very high priority on our marketing strategy of maintaining close and productive relations with both existing and potential customers. The hedgebook inherited from the RGC merger has been brought to account at US0.62 cents in 2001. The RGC hedged amount will drop more than 20% in the current year creating a greater exposure to spot exchange rates (at present approximately 10 cents below the RGC hedge rate) The Company is continuing its policy of hedging a portion of its future US dollar proceeds, but without the complicated instruments which have created excess positions in the past. As a result of our long term hedging policy, the average hedge rate will be well below US0.62 cents in the future. Conclusion Iluka is clearly a Company in transition. It has a commanding position in its markets and operates with an experienced and talented workforce in relatively low political risk countries. Our challenge in the coming year will be to complete the appointment of a new CEO and to bring a sharp strategic focus to the issue of building on the Company s considerable strengths and taking advantage of opportunities as they arise. The Company s interests in the Murray Basin are expected to receive increasing attention in the year ahead. Fundamentally the Board is determined to ensure that Iluka s strong market position, combined with its management and operating strengths built over many years, will be fully reflected in the Company s valuation. Ian Mackenzie Richard Tastula Narngulu synthetic rutile plant. PAGE 11
Operational Review OPERATION ILUKA INTEREST PRODUCTION South West Titanium Minerals 100% Synthetic rutile Ilmenite Leucoxene Zircon Mid West Titanium Minerals 100% Synthetic rutile Rutile Ilmenite Leucoxene Zircon Virginia Titanium Minerals 100% Ilmenite Zircon Florida Titanium Minerals 100% Rutile Ilmenite Zircon Consolidated Rutile Limited Queensland 50% 1 Rutile Ilmenite Zircon Narama Coal New South Wales 50% Coal Iluka Exploration Senior planning analyst Greg Jones Research and Development 1 Increased from 49% in February 2002 PAGE 12
Annual Concise Report to Shareholders 2001 2001 IN SUMMARY Operations in the South-West set new records for synthetic rutile production, based on improved feedstocks and better process control. Overall, mineral production was adjusted in line with changes to world markets. Two key projects initiated in 2001 designed to increase the productivity and capacity of synthetic rutile production plant will be developed in 2002. Increased production at Geraldton and Eneabba facilities reflected plant improvements and increased efficiency of mining and processing operations. Construction of a new Geraldton zircon finishing plant, which began in mid 2001, will improve the value of Iluka s substantial Mid West zircon business. The plant is due for commissioning in mid 2002. The Mid West has significantly improved safety with a reduction in the lost time injury frequency rate from 20 to 7.7. A major expansion of Iluka s Virginia operations will increase production from the region by 50%. Construction of the production and processing facilities began in August 2001 and should be completed by June 2002. The Virginia Operation has set a site record of 312 injury-free days. The emphasis in production is moving from dredge mining in the Green Cove Springs area to small-scale dry mining further north. Production was cut by 30% in the fourth quarter of 2001 after the market decline in response to US terror attacks on September 11 but has been restored in 2002. The first open pit operations in northern Florida and southern Georgia are expected to commence production late in 2003. Production of the principal revenue-earners, rutile and zircon, declined by 9% in 2001 during the transition between ore bodies at one of two dredge mining operations on North Stradbroke Island. However, sales and revenue increased with rising prices for zircon. During the year, the Company resolved its key environmental issues associated with water management. The Narama Coal Mine in the Hunter Valley region of New South Wales maintained coal production required to meet the generation requirements of Macquarie Power. The operation has been managed by Iluka s joint venture partner Coal & Allied. Iluka s major exploration programs in Western Australia and the Murray Basin identified significant increases in mineral resource and ore reserves during the year. The increased resource base is significantly greater than the annual depletion rate. In addition, the Company has begun exploring in prospective areas of the USA and southern Africa. The research and development program is working on projects to - Develop new synthetic rutile technology - Reuse waste products and by products. - Produce improved quality zircon products tailored for specific market sectors. - Improve recovery rates of synthetic rutile and separation plants. PAGE 13
Exploration Delivers New Resources Iluka s exploration effort is building a strong foundation for growth in the Company s key production areas. Successful exploration programs are underpinning existing operations and potential expansion of the Company s production capacity. The major programs for 2001 were based in the Perth Basin in Western Australia, the Murray Basin in New South Wales and Victoria, and the Atlantic Coastal Plain of the United States of America. Exploration in the Perth Basin met the Company s long term planning requirements to upgrade resource and reserve categories. This work added 7 million tonnes of heavy mineral to the Perth Basin resource base, defining more resources than the operations are depleting by mining. New resources identified in the Company s Murray Basin tenements in Victoria and New South Wales in 2001 increased the regional resource base from 9 to 14 million tonnes of heavy mineral. The new discoveries are high quality resources with assemblages containing up to 27% valuable rutile. Exploration in the USA has been reestablished with the compilation of previous data from the 1980 s and 90 s. This information will be the platform for future drilling programs. Iluka is planning to step up its Mozambique drilling program in the current year after encouraging results from preliminary work in 2001. The Company has prepared a detailed resource and reserves statement published in the 2001 Financial and Resource Report. The detailed resource information is available from the Company s web site. Cartographer Carmel Griffin PAGE 14
Annual Concise Report to Shareholders 2001 Pic or map to follow) Drilling in Australia s Murray Basin PAGE 15
Towards a Safer, Healthier Workplace In addition, Iluka has introduced fit-for-work programs at all sites. The programs will focus on fatigue, drug and alcohol abuse and stress. Fit-for-work initiatives are designed to prevent potential safety problems and provide support for employees. Other strategies include additional safety training for vehicle use and the use of loss control cards to improve information on safety. Safety planning and management has become an essential element of all aspects of Iluka s business. The Company has responded to a recent deterioration in Iluka s safety performance with a program of major initiatives in 2001. The issue is an integral part of business and production planning - recognising an acrossthe-board Company commitment to improve safety. This commitment was emphasised in February, 2002, when all of the Company s senior management individually endorsed a new safety policy. During the past year, employee teams were established at each site to develop new safety projects and increase employee participation in the programs. Safety training has been increased and all Group operations have developed consistent, uniform strategies and monitoring systems. In the same context, the Group is working to tap the best strategies for safety management from different sections of the organisation. In 2002, Iluka will introduce a new computer tracking system to improve the recording, reporting and management of safety issues throughout the Group. Many of Iluka s new programs will be developed with the assistance of other companies which have been successful in improving safety performance. Lost time injury frequency rate 20 15 10 5 Some of the specific targets include risk assessment, emergency response, isolation and tagging procedures and confined space management. 0 1999 Group Performance Results 2000 2001 Continuing Businesses (excluding PT Koba Tin and Westlime) PAGE 16
Annual Concise Report to Shareholders 2001 Opening the Door to Our Business Iluka's relationship with its employees, neighbours and the wider community is vital to its long-term business future. The Company maintains an open and accountable relationship in order to sustain community respect and support. In October 2001, Iluka participated in an Australia-wide Mine Open Day event organised by the resources industry. More than 3,000 people visited Iluka operations in Western Australia and Queensland. Visitors were given a tour of mining, generating consistently positive feedback. At the Stratham West mine, which sits alongside Western Australia's busiest tourist highway, a public viewing platform allows travellers to stop and see a "live" mining operation in action. Iluka's pro-active approach to community relations is supported by independent community research. A community survey commissioned in January 2001 reported on community attitudes toward Iluka's mining and processing activities in Western Australia. The overall response to the survey showed widespread support for the way Iluka manages its operations and contributes to the local communities. Iluka is a major contributor to the communities in which it operates. Its community sponsorship program is directed to five key areas - health, community, science and education, arts and sport. In 2001, Iluka committed $250,000 to the $11 million South West Sports centre development in Bunbury. Iluka employees have been very supportive of community projects. During the year Iluka Wetlands Officer Frank Doyle and Surveyor Russell Brewer with students from Newton Moore Senior High School. employees were involved in a number of novelty fund raising events, raising money for the SIDS Foundation, Heart Foundation and cancer research. A partnership between Iluka Resources and Newton Moore Senior High School in Bunbury to rejuvenate a degraded wetland area has won international acclaim. Over the past four years, the school students, backed by expertise and resources from Iluka, have turned a weed-infested, littered waste area into a healthy wetland. Two students, who researched frog habitat regeneration, won the Australian Water Prize for their work. The winners went to Stockholm where their work was presented to an international judging panel and audience. The two West Australians finished close runners up to the host nation for the major prize. Judges commended Iluka Resources for its support of the school project. PAGE 17
A Focus on Environment Some of Iluka's environmental achievements - and challenges - are attracting more public attention as part of a commitment to develop community partnerships in Australian and USA operations. The partnerships are a feature of mining industry public accountability for environmental management. Initiatives in the Iluka Group include - Community participation in the content and structure of the Company's Public Environment Report. - Local government and neighbourhood involvement in the planning for the future use of rehabilitated mine sites at Boyanup in Western Australia. - Continued recognition for the Green Cove Springs Clay County nursery project in Florida, USA. - Land council and community involvement in surveys and planning for new mining projects at North Stradbroke Island, Queensland. - Safe public access to current mining operations at Stratham West, Western Australia. Two photographs of Iluka s Boyanup minesite taken two years apart. The aerial picture on the left was taken in August 1999. The postrehabilitation photograph was taken in September 2001. In 1999, Iluka became a signatory to the Minerals Council of Australia Code for Environmental Management, which aims to encourage companies to commit to environmental excellence and public accountability. A requirement of the Code is to undertake an annual evaluation of the Company's environmental performance. The Code is a useful benchmarking tool to assess both site and overall progress, and can be used to help direct environmental initiatives for the coming year. The Company s environmental management team has identified a number of key priorities for the future. These include - Improved environmental efficiency to reduce energy use, water use, greenhouse emissions, particulate emissions and waste production. In 2002 Iluka will conduct energy efficiency and baseline Greenhouse audits at Western Australian operations as a first step to improving environmental efficiency. Management of historical issues particularly, management of contamination at South Capel and North Capel. There are also rehabilitation issues to be resolved arising from poor practices in the past. PAGE 18
Annual Concise Report to Shareholders 2001 Environmental management systems to provide a corporate framework for programs throughout the Group. Expanded community involvement strategies to encourage greater public involvement in Iluka s planning processes. An improved legal compliance management system. The assessment of environmental legal compliance improved in 2001, with better definitions of environmental compliance in incident classification systems. However, compliance management has not been consistently applied across all Iluka operations. This remains a priority for 2002, with further audits and development of a documented compliance process, planned for 2002. The "new" Boyanup One of the next housing subdivisions to go on sale in Western Australia's South West will be one of Iluka's most valuable mine sites. Yoganup North was mined from 1979 to 1999 - along the base of the Darling Escarpment between Boyanup and Dardanup. During the late 1980s and early 1990s, the operations worked within half a kilometre of the Boyanup townsite. Now that mining is finished, the Company and the community have the opportunity to "create" an extension to Boyanup townsite. As part of its rehabilitation program, Iluka has established lakes, trees, pasture, roads, services and potential parklands on the recontoured land once the scene of some major mineral production. The design of the area is the combined effort of a working group of Company, community and shire council representatives to make the most of a purpose-built extension to the Boyanup neighbourhood. Operations on show Iluka's commitment to environmental accountability is on public show at its newest mining operation, at Stratham West in the South West of WA. Changes to the first mine plan, which followed extensive community consultation included the preservation of nature strips, changes in hours of operation of mining equipment, and engineering modifications to suppress plant and equipment noise. Iluka has also put the whole mining operation "on show". A rest bay and public viewing platform alongside the highway allows travellers to stop and watch a mine in operation. Information boards explain the mining and rehabilitation process. PAGE 19
Directors Profiles The Iluka Board (standing) John de Laeter, Ken Court, Grahame Campbell, John Barr. (Seated) Interim Managing Director Richard Tastula, Chairman Ian Mackenzie, Valerie Davies. Ian Mackenzie, BSc, BCom, MBA, FAICD (Chairman) Mr Mackenzie (59) was appointed to the board on 1 July 1999. He is Chairman of the Bank of Western Australia Limited (BankWest), a Director of MG Kailis Group Holdings Limited and Scitech. Mr Mackenzie was previously Managing Director and Chief Executive Officer of Bunnings Limited and Executive Chairman of WESFI Limited. Mr Mackenzie is member of the Remuneration and Nomination Committee and was appointed a member of the Audit Committee on 23 August 2001. John Barr, AM Mr Barr (64) 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. He is also a Director of Oxiana Resources NL, Swish Group Limited and is Chairman of Utilities of Australia Pty Ltd. Mr Barr is a member of the Audit Committee. Grahame Campbell, BE, MEng Sc, Hon FIE Aust, FAICD, CP Eng Mr Campbell (58) was appointed to the board in 1998. He has wide experience in business with particular reference to the mining industry and is a past president of the Association of Consulting Engineers (Australia). He is a Director of Utilities Services Corporation, the Macro Engineering Council Limited, the State Rail Authority of New South Wales and advisory board member of Worley Limited. Mr Campbell is a member of the Remuneration and Nomination Committee. PAGE 20
Annual Concise Report to Shareholders 2001 Kenneth Court, BEcon Mr Court (58) was appointed to the board in 1976 and has had extensive experience in share broking and finance. Mr Court is a past President of the Perth Chamber of Commerce, a past President of the Australian Chamber of Commerce and a past President of the Confederation of Asia-Pacific Chambers of Commerce and Industry (CACCI). He is currently a member of the Advisory Board of CACCI. Mr Court is a member of the Audit Committee. Valerie Davies, AAMI, MAICD Ms Davies (50) was appointed to the board in July 1997 and has extensive experience in the communications industry, actively consulting to business and industry on strategic initiatives. A Director of Integrated Workforce Limited, Gold Corporation and Margaret River Wine Production Limited, Ms Davies is a past recipient of the WA Telstra Business Woman of the Year Award. Ms Davies is Chairman of the Remuneration and Nomination Committee. John de Laeter, AO, BSc (Hons), PhD, DSc (West Aust), Hon D Tech (Curtin), FTSE, Hon FAIP Professor de Laeter (68) was appointed to the board in March 1994. He is Emeritus Professor of Physics at Curtin University of Technology. Until recently, he was a member of the Prime Minister s Science and Engineering Council and of the Australian Science, Technology and Engineering Council (ASTEC). He is Patron of the Western Australian Foundation for the Museum of Contemporary Science and Technology (Scitech), Chairman of the Perth Hockey Stadium Council and the Gravity Discovery Centre Foundation. Professor de Laeter is Chairman of the Audit Committee. Richard Tastula, AWASM, FAusIMM, FAICD Mr Tastula (58) was appointed to the board in February 1996 and has extensive experience in the mining industry. He was previously Managing Director of Homestake Gold of Australia Limited and a Vice President of Homestake Mining Company. He is Interim Managing Director of Iluka Resources Limited, Chairman of Titan Resources NL and Pro-Chancellor of Curtin University of Technology. Mr Tastula is a member of the Audit Committee and the Remuneration and Nomination Committee. PAGE 21
Executive Managers Richard Tastula Mr Tastula, Iluka s Interim Managing Director, is a graduate of the WA School of Mines and has spent most of his working life in the WA gold and nickel mining industry. He was Underground Manager at Mt Charlotte and Otter Juan and Resident Manager at Windarra and Kalgoorlie. He spent seven years as General Manager of the Western Mining Corporation gold operations in WA and a similar period with Homestake Mining Company in Australia. He is a former Managing Director of Homestake Gold Australia and Vice President of Homestake Mining Company of America. Mr Tastula was appointed to the Board of Iluka in 1996. He is also Chairman of Titan Resources NL and Pro-Chancellor of Curtin University of Technology. Hamish Bohannan Mr Bohannan is Executive General Manager - Operations, of Iluka. A mining engineer, he joined Iluka in July, 2000. In a career of more than 25 years in the mining industry, he has worked for some of Australia s major corporations in gold, nickel, base metals and mineral processing. His operational and management experience covers a wide range of sites in Australia and South Africa. At Iluka he is responsible for the Group s mining and processing operations in Western Australia, Queensland and USA. In addition, he manages Iluka s extensive global exploration interests. PAGE 22
Annual Concise Report to Shareholders 2001 Mark Hughes Mr Hughes was appointed Chief Financial Officer for Iluka in March 2001. A chartered accountant, he has extensive resources industry experience in Australia, the United Kingdom, USA, South East Asia and South Africa. Mr Hughes, a commerce graduate of Capetown University, has worked on the business management, cultural change, mergers and acquisitions of global diversified mining interests. At Iluka he is responsible for strategy development, financial management, information technology and external relations of the company. Stephen Ward Dr Ward is Executive General Manager - Marketing. He joined Iluka in 1999 as Zircon Business Manager before taking up the senior marketing position in 2001. In addition to his marketing role, he heads the operations planning and human resources functions. A science graduate of Nottingham University, Dr Ward has spent most of his career in senior management positions in the titanium dioxide manufacturing sector. Before he joined Iluka, he worked in operations and business management positions in Tasmania, Malaysia and the UK. PAGE 23
Corporate Governance The Iluka Board is committed to protecting shareholders interests and keeping investors fully informed about the performance of the Company s businesses. Priorities for the Board include Assessment of Iluka s management performance, measured against clearly identified objectives. Preservation of the integrity and credibility of Iluka s businesses. Prudent management of shareholders funds. Evaluation of opportunities for valuecreating growth. Involvement in the planning and review of the Company s strategic direction. Approval of short and long term business plans. The Managing Director is responsible to the Board for the day-to-day management of the Company. This statement outlines the main corporate governance practices followed throughout the financial year. In developing these practices, the Board has recognised that the minimum standard of behaviour laid down in the Corporations Act 2001 is not by itself sufficient to ensure that the best interests of the Company are properly served. Shareholders The shareholders of the Company elect directors at the Annual General Meeting in accordance with the Constitution. All directors, apart from the Managing Director, are subject to re-election by rotation within three years. Shareholders have the opportunity to express their views, ask questions about Company business and vote on other items of business for resolution by shareholders at the AGM. The Company arranges additional shareholder briefings at other locations after the AGM each year. Communication With Shareholders Iluka keeps the market informed through the annual report, half yearly report, quarterly releases covering production figures and exploration activity, and by disclosing material developments to the Australian Stock Exchange and the media as they occur. Analysts and brokers are provided with publicly-available information. These announcements are posted on the Company s website, www.iluka.com. Composition of the Board The Board normally comprises an independent non-executive Chairman, an executive Managing Director and six additional independent non-executive directors. Board Committees To assist in the execution of its responsibilities, the Board has established two committees of non-executive directors. Both of these committees have formal Charters, approved by the Board. Audit Committee The responsibilities of the Audit Committee include Assisting the Board fulfil its fiduciary responsibilities. Considering the effectiveness of the accounting and internal control systems and management reporting. Serving as an independent and objective party to review financial information. Reviewing the accounting policies adopted within the Group. PAGE 24
Annual Concise Report to Shareholders 2001 Reviewing the quality of the internal and external audit functions. The present members of the Audit Committee are Professor J.R. de Laeter (Chairman), Mr W.H.J. Barr, Mr K.W. Court, Mr I.C.R. Mackenzie and Mr R.A. Tastula. Remuneration and Nomination Committee The Remuneration and Nomination Committee recommends appropriate remuneration packages for senior executives and directors - and advises the Board on the appointment and retirement of directors. The responsibilities include Reviewing the appropriateness of the size and composition of the Board and the criteria for Board membership. Ensuring that a proper succession plan is in place and nominating a panel of candidates with appropriate expertise and experience for consideration by the Board. Reviewing remuneration arrangements for the Managing Director and his direct reports. Reviewing the remuneration of the nonexecutive members of the Board. The present members of the Remuneration and Nomination Committee are Ms V.A. Davies (Chairman), Mr G.D. Campbell, Mr I.C.R Mackenzie and Mr R.A. Tastula. The Committee seeks external advice on the structure of remuneration packages, in order to retain and attract executives of sufficient calibre to facilitate the efficient and effective management of the Company s operations. Independent Professional Advice All directors have the right of access to relevant Company information and the Company s executives, and, subject to prior consultation with the Chairman, may seek independent professional advice regarding their responsibilities at the Company s expense. Board Process and Performance Review Each year the Board carries out a formal review of its performance in meeting its key responsibilities. The purpose of the review is to identify any areas of weakness and mechanisms for improving the functioning and performance of the Board and to focus on specific performance objectives for the year ahead. Internal Controls and Management of Risks The management of risk is important in the creation of shareholder value and is a high priority for the Board and management. The Company has a framework in place to safeguard the Company s assets and interests and ensure that business risks are identified and properly managed. This includes procedures and limits to manage financial risk associated with exposures to foreign currencies and financial instruments. To assist in discharging this responsibility the Board has in place a control framework which includes the following - A comprehensive annual business plan, approved by the directors, incorporating financial and non-financial key performance indicators. Regular reporting to the Board on a number of key areas including safety, health, environment, insurance and legal matters. Adoption of clearly defined guidelines for capital expenditure including annual budgets, detailed appraisal and review procedures, levels of authority and due diligence requirements where businesses are being acquired or divested. PAGE 25
Corporate Governance (cont) Ethical Standards The Company has developed its own Code of Conduct which establishes procedures and guidelines to ensure that the highest ethical standards, corporate behaviour and accountability are maintained. The Code operates in conjunction with a formal Corporate Policies and Procedures Manual. Dealings (whether purchases or sales) in the Company s shares or other securities by related persons may not be carried out other than the period commencing 2 days and ending 30 days following the date of announcement of the Company s annual or half yearly results or a major announcement leading, in the opinion of the Board, to a fully informed market. Directors Share Dealings The Directors Code of Conduct includes the following Directors must consult with the Chairman of the Board, or in his absence, the Managing Director, before dealing in shares or other securities of the Company. However, directors are prohibited from buying or selling Iluka shares at any time if they are aware of price sensitive information that has not been made public. In accordance with the Corporations Act 2001 and the Listing Rules of the Australian Stock Exchange, directors advise the Company of any transactions conducted by them in shares in the Company, which then informs the Australian Stock Exchange of the details of the transactions. 2002 Financial Calendar 28 February - Announcement of 2001 full year results 12 April - Record date for final dividend entitlements 26 April - Payment of final dividend 6 May at 9:30 am - Closure time for acceptance of proxies for AGM 8 May at 9:30 am - AGM Sheraton Towers Southgate, Melbourne 9 May - Shareholders briefing - Menzies Hotel, Sydney 10 May - Shareholders briefing - Mercure Hotel, Perth 29 August (approx.) - Announcement of half-year results 11 October - Anticipated payment of interim dividend 31 December - Financial Year End PAGE 26
Annual Concise Report to Shareholders 2001 Shareholder Information Iluka Resources Limited ABN: 34 008 675 018 Registered Office: Level 5 553 Hay Street PERTH WA 6000 Australia Postal Address: GPO Box U1988 PERTH WA 6845 Australia Telephone: +61 8 9221 7611 Facsimile: +61 8 9221 7744 Iluka has an internet address at: 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. Company Secretary Ian Gregory Share Register 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 Ltd Level 2 Reserve Bank Building 45 St George s Terrace Perth WA 6000 Postal Address: GPO Box D182 Perth WA 6840 Telephone: (08) 9323 2000 Facsimile: (08) 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 The Company s 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 to a wholly uncertificated register 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 and Resource Report. Alternatively shareholders can elect not to receive a Concise Annual Report or Financial and Resource Report by writing to the Share Registrar and quoting their shareholder number. Publications Financial and Resource Report - April Annual Concise Report - April Financial Data Book - April Public Environment Report - April Annual General Meeting Report - May Half Year Report - August The reports are included on Iluka s website 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 TFN s have been sent to all shareholders. If you have not already quoted your TFN, you may do so by contacting the Share Registry. PAGE 27