Optimism that the mineral sands market may be through the worst of its prolonged downturn helped to push Iluka's shares higher on Friday.
The June-half net profit sank to $11.7 million from $34.3 million a year earlier, hit by lower production, product prices and iron ore royalties.
But cash flow remained robust as the group continues to harbour its resources in preparation for an upswing in market conditions.
This enabled the group to raise its interim dividend, helping lift investor interest in its shares, which closed up 3.4 per cent to $8.88.
During the half, Iluka flagged an interest in Ireland-based producer Kenmare Resources as well as pursuing ventures in Brazil and Sri Lanka as it secures growth options as market prospects improve.
"Iluka's first-half earnings reflect, in the main, lower received prices for key products, as well as a lower contribution from the Mining Area C iron ore royalty" in Western Australia, Iluka managing director David Robb said.
Lower iron ore prices coupled with slightly lower production from this mine resulted in the royalty income dropping to $38 million from $45.4 million a year earlier.
Free cash flow of $63.9 million was generated in the half, up $108.4 million from the year earlier, thanks in part to lower tax payments.
This helped it cut net debt to $155.2 million, with gearing declining to 9.2 per cent from 11.8 per cent, paving the way for it to raise the interim dividend to 6¢ fully franked from 5¢ a share.
Zircon sales volumes declined in line with subdued market demand but, more promisingly, the run down in inventory levels at the major pigment producers helped to lift sentiment for a prospective lift in demand for titanium dioxide through the balance of the year.
Globally, the continued weakness in the European economy is a potential concern for Iluka, since it is a key supplier to this market, although it saw a pick-up in demand late in the half as an earlier price war eased If sustained, this may auger well for demand growth. In recent months, Iluka has begun to position itself for a rise in market demand by pursuing projects in Brazil, for example, although it has a series of projects in Australia and the US at an advanced evaluation stage.
