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- Strong production numbers
- Revenue stalls
- Support at $10.33, $9.93; resistance at $11.25, $12.06
Zircon hit 98.1 kilotons (kt), which is 35% ahead of estimates and rutile came in at 44.2kt, 14% ahead of expectations; Ilmenite was up 10.5% on estimates at 134.2kt.
ILU needed to show that production had picked up to offset expected losses from titanium oxide. The fact the numbers are so far ahead of expectations would suggest management sees the market turning after two years of subpar growth. With year-to-date production still 30% below this time last year, the change in third quarter output could be a trigger for future growth.
However, revenue is well down on expectations; the mineral sands number for the quarter was A$147 million, that’s 45% under expectations and 64% lower than last quarter. Year-to-date the sands revenue stands at $528.7 million, which is 40% down on last year.
The big miss in the quarter seems more to do with poor sales than lower prices. Management did comment on the fact that the zircon market was subdued in the third quarter as client ordering relaxed during the soft period. ILU does expect Q4 to be healthier as the global turnaround story ramps up, which is probably illustrated in the production numbers, but this is a poor number none the less.
The company tends to keep sales volumes and cash costs very close to its chest and tends not to release anything at the quarter updates. That trend has continued this quarter and limits the ability to clearly judge the position of the company. However, the production numbers tend to be forward-thinking, whereas the sales numbers are retrospective. The stock is likely to drop on the tangible sales number, but that may be a chance for a dip pick-up.
The stock looks like paring to the 50% retracement level of the year-to-date high to low, I would expect support around $10.33; if this is broken then support could be seen at the 62% retracement level of $9.93. The stock is quiet volatile and moves sharply so be aware this may not be a clean break.
I also see fundament support once the sale numbers back the production numbers, and could see a double-back from the fall of the last few weeks.