ILUKA RESOURCES LIMITED — Annual Report 2004

Feb 25, 2004

Notice to the Australian Stock Exchange

26 February 2004

ILUKA RESOURCES - 2003 FULL YEAR RESULTS

Iluka Resources Limited today announced a 2003 net profit after-tax and outside equity interests (OEI) of A\$85.2 million, a decrease of A\$23.8 million (21.8%) compared with a profit of A\$109 million in 2002. Earnings per share were 36.6 cents, a decrease of 12 cents per share compared with 2002 which reflects both lower earnings and the increased number of shares on issue following the acquisition of Basin Minerals during 2002. Return on equity decreased to 9.6% compared with 13.2% in 2002. (A chart summarising the significant yearon-year movements in net profit after tax and outside equity interests together with an explanatory note is attached)

The Company will pay a final dividend of 12 cents per share (unfranked) on 13 April 2004 to all shareholders registered at 26 March 2004. Together with the interim dividend of 10 cents per share this makes a 2003 total dividend of 22 cents per share (franked to 9.2 cents). The higher level of franking was due to the payment of a franked dividend by Consolidated Rutile Limited.

Iluka's Managing Director. Mike Folwell said "2003 could be best characterised as a year where improving business fundamentals in the form of higher US dollar selling prices, cost reductions and operational efficiency improvements were negated by the impact of a progressive appreciation in the average Australian-US dollar exchange rate compared with $2002."$

He said "the stronger Australian dollar in 2003 substantially reduced the value of the Company's US dollar denominated sales, resulting in a A\$49 million reduction in net revenue compared with 2002 net revenues. This impact was partially offset by a net gain of A\$30 million, consisting of A\$15.5 million from the Company's favourable 2003 hedging position and A\$14.5 million from a revaluation of US dollar denominated borrowings".

He said "the Group's 2003 production performance was significantly better compared with 2002. This was particularly evident in the Western Australian (higher synthetic rutile and zircon) and USA mineral sands operations (higher ilmenite, zircon and rutile). In contrast, CRL's rutile and zircon production was lower compared with 2002 due mainly to a three month repair shutdown of the Yarraman dredge at Consolidated Rutile Limited's (CRL) operations on North Stradbroke Island".

"The Company also achieved a strong overall mineral sands sales performance in 2003, including record zircon sales volumes. However 2003 sales were impacted by a stronger Australian dollar and lower synthetic rutile sales volumes compared with 2002. As a result sales revenue from continuing operations decreased by A\$50.8 million (6%) to A\$786.0 million. This was made up of A\$752.9 million from titanium minerals and zircon sales (a decrease of A\$52.2 million) and coal sales of A\$33.1 million (an increase of A\$1.4 million)".

"On a regional basis, minerals sands sales revenues from the Western Australian operations decreased by A\$27.2 million to A\$584.3 million and USA sales revenues increased by A\$0.9 million to A\$106.4 million. Consolidated Rutile Limited's sales revenues (100% level) decreased by A\$25.9 million to A\$62.2 million during the period".

Mr Folwell said that "other matters of note in relation to Iluka's performance in 2003 were an improved environmental, health and safety performance which was evidenced by a significant reduction in the number of environmental and safety incidents during the year".

"In addition, cash inflows from operating activities increased by A\$39.1 million (28%) to A\$179 million compared with 2002, mainly as a result of improvements to cash management activities. This together with the exchange revaluation of US dollar denominated borrowings resulted in debt decreasing by A\$85.4 million to A\$384.1 million at the end of the year and enabled the Company to reduce its gearing ratio to 28.7% compared with 33.8% at the end of 2002".

Investment Community and Media contact: Geoff Wedawood Mobile: 0409 997 256

Attachment - Significant Year-on-Year Movements in Net Profit after Tax and Outside Equity Interests (OEI)

2003 versus 2002 Net Profit after Tax and OEI- A\$M

Explanatory notes

1. FX on Australian Revenue (-ve A\$49M)

The weighted average US\$/A\$ exchange rate applying to Iluka's sales in 2003 was 0.67 versus 0.55 in the prior year. This strengthening of the Australian dollar reduced the translated value of Australian sourced, US\$ denominated net revenues by A\$74M, which equates to A\$49M after tax and OEI.

2. Prior Year Tax Benefits and Other Permanent Differences (-ve A\$21M)

In 2002 (and to a lesser extent in 2003) Iluka recognised tax benefits in respect of prior year items not previously brought to account. These items include prior year tax losses and previously unbooked timing differences. The year-on-year change also includes movements in research and development concessions and movements in non-deductible items included in accounting profit.

3. Depreciation and Amortisation (-ve A\$8M)

The increased 2003 depreciation and amortisation charge (in respect of continuing business) results from the commencement of mining of tenements against which, following acquisition of RGC, fair value adjustments were made. Depreciation also increased reflecting the impact of capital expenditure which has added to the base level of depreciable plant and equipment.

4. Restructuring Costs (-ve A\$6M)

Restructuring costs of A\$10.2M in 2003 were A\$8.4M in excess of prior year which, after tax and OEI represents a A\$6M movement. These charges relate to the cost, including redundancies, of running the Group-wide business improvement program.

5. WA - Major Year-on-Year Cost Items (-ve A\$13M)

Major items include costs associated with lower grades and greater haulage distances as well as the costs in relation to outages and maintenance on synthetic rutile processing equipment. The gross impact of these items is estimated to be in the order of A\$18M before tax.

6. CRL - Major Year-on-Year Cost Items (-ve A\$5M)

Major items include costs of repairing the Yarraman dredge and the higher cost of dry mining activities during the second half of 2003. The gross impact of these items is estimated to be in the order of \$14M before tax and outside equity interests.

7. USA - Major Year-on-Year Cost Items (-ve A\$1M)

Major items include costs associated with power outages and other production impediments resulting from Hurricane Isabel which struck the East coast of the USA in the last quarter of 2003.

8. 2003 Hedging Gains (+ve A\$30M)

This gain consists of +ve A\$15.5M from delivery of US revenue against "in-the-money" hedge contracts, with the balance (+ve A\$14.5M) reflecting exchange revaluation of net foreign denominated borrowings. As at balance date, the Group's remaining hedge contracts were "in-the-money" by A\$119.4M calculated by reference to the rate prevailing on 31 December 2003 of 0.75 US\$/A\$.

9. 2002 Hedging Losses (+ve A\$15M)

The 2002 losses represent the close out of "out-of-the-money" positions originating from the RGC acquisition. As these losses did not recur in 2003 they represent a positive yearon-vear variance.

10. Disposals and Write-downs (+ve A\$9M)

Comparing the impact of disposals and write-downs between 2002 and 2003 results in a year-on-year benefit of A\$9M. The transactions underlying this movement include:

• 2002 write-down of Iron plant and SR5 kiln (+ve A\$5.7M); $\bullet$
• 2003 profits on sales of surplus land (+ve A\$4.5M) and various exploration tenements (+ve A\$2.5M): and
• 2003 first half loss on write-down of US stock (-ve A\$3.2M)

11. Selling Price Increases (+ve A\$9M)

On average. Iluka's suite of products attracted significant real US\$ price increases during 2003. In particular, zircon prices benefited from the global tightening of zircon supply relative to demand.

12. Net Business Improvements (+ve A\$16M)

2003 saw the commencement of Iluka's business improvement program which targeted cost savings and efficiency gains across all facets of Iluka's business. The resultant improvements are estimated to have contributed A\$24M (before tax and OEI) to the 2003 result. Areas of focus under this program have included separation technologies, mine planning, tailings management and processing, storage, transport and handling efficiencies, process de-bottlenecking, maintenance efficiencies, employment cost, organisational redesign and contract renegotiation.