ILUKA RESOURCES LIMITED — Annual Report 2004

Feb 25, 2004

Iluka Resources Limited

ABN 34 008 675 018

ASX Preliminary final report - 31 December 2003

Lodged with the ASX under Listing Rule 4.3A

Contents

	Page
Results for announcement to the market
Commentary on Results

Iluka Resources Limited

For the year ended 31 December 2003

Results for announcement to the market

				\$Μ
Revenue from ordinary activities (Appendix 4E item 2.1)	down	12.7%	ŧο	812.0
Profit / (loss) from ordinary activities after tax attributable to members (Appendix 4E item 2.2)	down	21.8%	ŧο	85.2
Net profit $/$ (loss) for the period attributable to Imembers (Appendix 4E item 2.3)	down	21.8%	ŧο	85.2

Dividends / distributions $(Appendix 4E$ item 2.4)	Amount per security (cents)	Franked amount per security (cents)
Final dividend	12.0
Hnterim dividend	10.0

Key Ratios	2003 December	2002 December
Basic and diluted earnings per share (cents)	36.6	48.6
Operating cash flow per share (cents)	76.9	62.3
Interest cover (times)	9.8	9.0
Return on equity $(\%)^*$	9.6

Key Ratios	2003	2002
	December	December
$\vert$ Gearing $(\%)$	28.7	33.8
Net tangible assets per share $(\$)$	3.98	$3.70 -$

* Return on equity has been determined on the basis of excluding outside equity interests

Notice of Annual General Meeting

The 49th Annual General Meeting of Members of Iluka Resources Limited will be held in South Ballroom, Hyatt Regency Perth, 99 Adelaide Terrace, Perth on Wednesday 12th May 2004 at 9.30am.

Synopsis

2003 can be characterised as a year where improving business fundamentals in terms of higher selling prices, cost savings and efficiency gains, were negated by the inpact of the strong Australian dollar.

Net profit after tax and outside equity interests (OEI) for 2003 was \$85.2M versus \$109.0M in 2002. This result represents 36.6 cents earnings per share, down 12 cents on the prior year reflecting lower earnings and increased shares on issue following the Basin Minerals acquisition during 2002.

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).

Sales revenue from continuing businesses (ie, excluding Tin) was down 6% resulting from the impact on US denominated revenue of a stronger Australian to US dollar exchange rate.

Cash flow improved during 2003 as the focus on cash management drove net inflows from operating activities up 28% to \$179.0M. This, coupled with the exchange revaluation of US denominated borrowings resulted in an improved gearing ratio of 28.7% as at balance date 2003, versus 33.8% for 2002.

Significant Year-on-Year Movements

Significant year-on-year movements in Net Profit after Tax and Outside Equity Interests (OEI) are shown below in Chart 1.

Chart 1: 2003 versus 2002 Net Profit after Tax and OEI - ASM

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 2003) lluka 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.

$\overline{4}$ . Restructuring Costs (-ve AS6M)

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.

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

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 AS30M)

This gain consists of +ye 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\$.

$\mathbf{Q}$ . 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 year-on-year 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)
• 2003 profits on sales of surplus land (+ve A\$4.5M) and various exploration tenements (+ve A\$2.5M)
• 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 debottlenecking, maintenance efficiencies, employment cost, organisational redesign and contract renegotiation.

Progress Toward Key Objectives

During 2003 Iluka made significant progress towards its key objectives. In particular:

• The Murray Basin is on track for a final investment decision in the second quarter of 2004,
• The business improvement program is successfully driving economies through all aspects of Iluka's business and is meeting and/or exc eeding pre-program expectations,
• The USA operation significantly increased throughput during 2003 and is well on track to return to profitability in $\bullet$ 2004
• 2003 saw the successful implementation of a SAP IT platform which is a fundamental plank in Iluka's progress $\bullet$ toward best practice in terms of processes and business disciplines,
• Consolidated Rutile's project to upgrade the IBIS dredge to enable it to access the Enterprise deposit in 2005 is $\bullet$ underway.

Matters Subsequent to the End of the Financial Year

The Directors have not become aware of any other matter or circumstance that has or may significantly affect the operations of the economic entity, the results of those operations or the state of affairs of the economic entity in subsequent financial years.

Status of Audit

This preliminary final report is based on Accounts which are in the process of being audited.

Iluka Resources Limited Preliminary statement of financial performance
for the year ended 31 December 2003

	Notes	2003 \$M\$	2002 SM.
Revenue from ordinary activities	3	812.0	930.2
Expenses from ordinary activities, excluding borrowing costs expense	4	(712.2)	(805.6)
Interest and finance costs Exchange gains on foreign currency borrowings	4 4	(24.3) 15.3	(27.5) 5.0
Total borrowing costs	4	(9.0)	(22.5)
Profit from ordinary activities before related income tax expense	4	90.8	102.1
Income tax (expense)benefit	5	(3.5)	8.1
Profit from ordinary activities after related income tax expense		87.3	110.2
Net profit attributable to outside equity interest		(2.1)	(1.2)
Net profit attributable to members of Iluka Resources Limited		85.2	109.0
Net decrease in foreign currency translation reserve		(0.7)
Total revenues, expenses and valuation adjustments attributable to members of Iluka Resources Limited recognised directly in equity		(0.7)
Total changes in equity attributable to members of Iluka Resources Limited other than those resulting from transactions with owners as owners	12	84.5	109.0
		Cents	Cents
Basic earnings per share	16	36.6	48.6
Diluted earnings per share	-16	36.6	48.6

The above preliminary statement of financial performance should be read in conjunction with the accompanying notes.

Iluka Resources Limited Preliminary statement of financial position $\overline{3}$

	Notes	2003 \$M	2002 SM
Current assets
Cash assets		5.2	21.3
Receivables		208.4	229.9
Inventories		114.6	130.0
Current tax assets		1.2	0.3
Other	6	81.0	26.9
Total current assets		410.4	408.4
Non-current assets
Receivables		1.6	2.6
Inventories		2.1	2.0
Property, plant and equipment		1,198.8	1,211.8
Deferred tax assets		22.2	32.6
Intangible assets		15.6	17.6
Other	7	90.3 1,330.6	46.5 .313.1
Total non-current assets
Total assets		1,741.0	1.721.5
Current liabilities
Payables		110.4	104.4
Interest bearing liabilities		105.3	76.2
Current tax liabilities		0.3	3.1
Provisions	8 9	28.3 54.8	67.2
Other Total current liabilities		299.1	12.4 263.3
Non-current liabilities
Interest bearing liabilities		278.8	393.3
Deferred tax liabilities		20.6	26.4
Provisions Other	10	136.8 64.6	147.4 12.1
Total non-current liabilities		500.8	579.2
Total liabilities		799.9	842.5
Net assets		941.1	879.0
Equity
Parent entity interest
Contributed equity	$\mathbf{H}$	610.4	610.4
Reserves		27.1	27.8
Retained profits		249.2	187.3
Total parent entity interest		886.7	825.5
Outside equity interest in controlled entities		54.4	53.5
Total equity	12	941.1	879.0

The above preliminary statement of financial position should be read in conjunction with the accompanying notes.

Iluka Resources Limited Prefiminary statement of cash flows
for the year ended 31 December 2003

	Notes	2003 \$M	2002 SM.
Cash flows from operating activities
Receipts from customers (inclusive of goods and services tax)		799.8	827.3
Payments to suppliers and employees (inclusive of goods and services tax)		(611.0)	(676.9)
		188.8	150.4
Interest received		0.7	1.2
Borrowing costs		(24.9)	(27.5)
Income taxes paid		(0.7)	(7.7)
Goods and services tax received		23.2	32.9
Payments for exploration expenditure		(13.5)	(16.6)
Receipts from other operating activities	15	5.4 179.0	7.2 139.9
Net cash inflow from operating activities
Cash flows from investing activities
Payment for purchase of controlled entities - Basin Minerals (net of cash acquired)			(56.6)
Payments for investments in controlled entities - Consolidated Rutile Limited			(2.7)
Payments for property, plant and equipment		(157.3)	(152.9)
Payments for purchase of patents and trademarks			(17.6)
Proceeds from sale of property, plant and equipment and land held for resale		19.5	6.3
Proceeds from disposal of group entities			20.3
Net cash outflow from investing activities		(137.8)	(203.2)
Cash flows from financing activities
Proceeds from borrowings		344.5	310.2
Repayment of borrowings		(348.8)	(199.9)
Dividends paid		(51.2)	(49.3)
Dividends paid to outside equity interests in controlled entities		(1.2)	(4,3)
Net cash (outflow) inflow from financing activities		(56.7)	56.7
Net decrease in cash held		(15.5)	(6.6)
Cash at the beginning of the financial year		21.3	28.2
Effects of exchange rate changes on eash		(0.6)	(0.3)
Cash at the end of the financial year		5.2	21.3

The above preliminary statement of cash flows should be read in conjunction with the accompanying notes.

Note 1. Summary of significant accounting policies

These preliminary consolidated financial statements relate to Iluka Resources Limited and the entities it controlled at the end of, or during, the year ended 31 December 2003. The accounting policies adopted are consistent with those of the previous year, except as described below.

Dividends $\left( a\right)$

Provision is made for the amount of any dividend declared, determined, or publicly recommended by the directors on or before the end of the financial year, but not distributed at balance date.

Change in accounting policy for providing for dividends

The above policy was adopted with effect from 1 January 2003 to comply with AASB 1044 Provisions. Contingent Liabilities and Contingent Assets released in October 2001. In previous periods, in addition to providing for the amount of any dividends declared, determined or publicly recommended by the Directors on or before the end of the period but not distributed at balance date, provision was made for dividends to be paid out of retained profits at the end of the period where the dividend was proposed, recommended or declared between the end of the period and the completion of the financial report.

For comparison purposes, for the consolidated entity, had the new accounting policy been applied to 31 December 2002 accounts, current provisions would have reduced by \$27.9 million to \$39.3 million, retained profits would have increased by \$27.7 million to \$215.0 million and dividends paid would have reduced by \$27.7 million to \$23.4 million. Similarly, the parent entity's current provisions would have reduced by \$27.9 million to \$11.3 million, retained profits would have increased by \$27.7 million to \$113.9 million and dividends paid would have reduced by \$27.7 million to \$23.4 million.

$(b)$ Reclassification of assets and liabilities

During the year certain balances have been reclassified to better reflect the underlying nature of these assets or liabilities. Details of these reclassifications are as follows:

Amount previously described as deferred maintenance costs and reflected in current and non-current other assets have been reclassified to property, plant and equipment as they represent asset additions or are costs incurred which demonstrably extend the useful life or functionality of an existing asset. These assets are appropriatedly capitalised and depreciated over their useful lives.

Deferred gains on foreign exchange derivatives previously reflected in current and non-current provisions have been reclassified to current and non-current other liabilities in accordance with the adoption of the new accounting standard AASB 1044 Provisions, Contingent Liabilities and Contingent Assets as it is considered that these deferred gains on foreign exchange derivatives do not meet the definition of provisions under the standard.

Annual leave and sick leave and related on-costs expected to be settled within twelve months of the reporting date have been reclassified from current provisions to current payables as a result of the adoption of the new accounting standard AASB 1044 Provisions, Contingent Liabilities and Contingent Assets. The Directors do not believe there are any significant uncertainties relating to the timing of future payments of employee benefits and therefore they do not meet the definition of a provision under the new standard.

(continued)

Note 2. Segment information

Primary reporting - business segments

2003	Titanium Minerals and Zircon \$M.	Coal SM.	Inter-segment eliminations/ unallocated SM	Consolidated SM
Sales to external customers Other revenue Total segment revenue	752.9 24.8 777.7	33.1 33.1		786.0 26.0 812.0
Segment result Interest and finance costs Exchange gains on foreign currency borrowings Unallocated revenue less unallocated expenses Profit from ordinary activities before income tax expense Income tax expense Profit from ordinary activities after income tax expense	118.0	9.4		127.4 (24.3) 15.3 (27.6) 90.8 (3.5) 87.3
Segment assets Unallocated assets Total assets	1.677.0	30.7		1,707.7 33.3 1,741.0
Segment liabilities Unallocated liabilities Total liabilities	389.4	5.5		394.9 405.0 799.9
Acquisition of property, plant and equipment and other non-current segment assets Depreciation and amortisation expense Other non-cash expenses	160.3 112.8 15.6	2.7 0.7	0.1	163.7 115.6 16.3

Note 2. Segment information (continued)

Secondary reporting - geographical segments

2003	Segment revenues from sales to external customers \$M	Segment result SМ	Segment assets SM.	Acquisistions of property, plant and equipment and other non-current segment assets SМ
Australia - Western Australian
operations	584.3	116.4	1,040.9	72.5
Australia - Queensland operations
(CRL)	62.2	4.4	176.6	20.7
Australia - New South Wales coal
operations	33.1	9.4	30.7	3.4
Australia - Murray Basin
operations			226.4	17.2
Australia - unallocated		(36.6)	33.3
USA operations	106.4	(2.8)	233.1	49.9
	786.0	90.8	1,741.0	163.7

Segment revenue is derived from sales to external customers domiciled in various geographical regions. Details of segment revenue by location of customers is as follows:

	SM
- North America	307.3
- South America	0.3
- Europe	192.4
- Asia	119.2
- Middle East	24.6
- Australia	142.2
	786.0

(continued)

Note 2. Segment information (continued)

Primary reporting - business segments

2002	Titanium Minerals and Zircon SM	Coal SM.	Discontinuing operations (Tin) SM	Inter-segment eliminations/ unallocated SM.	Consolidated SM.
Sales to external customers	805.1	31.7	57.7		894.5
Other revenue	34.1	0.2	0.2		35.7
Total segment revenue	839.2	31.9	57.9		930.2
Segment result	134.4	9.5	(1,4)		142.5
Interest and finance costs					(27.5)
Exchange gains on foreign currency borrowings					5.0
Unallocated revenue less unallocated expenses					(17.9)
Profit from ordinary activities before income tax expense					102.1
Income tax benefit.					8.1
Profit from ordinary activities after income tax expense					110.2
Segment assets	.657.9	31 O			1,688.9
Linallocated assets					32.6
Total assets					.721.5
Segment liabilities	339.7				343.8
Unallocated liabilities					498.7
Total liabilities					842.5
Acquisition of property, plant and equipment, intangibles
and other non-current segment assets	308.3	0.2			309.9
Depreciation and amortisation expense	102.6				108.0
Other non-cash expenses	19.0	0.6			19.6

Note 2. Segment information (continued)

Secondary reporting - geographical segments

2002	Segment revenues from sales to external customers \$M	Segment result \$M	Segment assets \$M	Acquisistions of property, plant and equipment, intangibles and other non-current segment assets SM.
Australia - Western Australian
operations	611.5	133.4	906.3	96.7
Australia - Queensland operations
(CRL)	88.1	8.5	272.3	4.5
Australia - New South Wales coal
operations	31.7	9.5	31.0	0.2
Australia - Murray Basin
operations	-		207.0	144.9
Australia - unallocated		(40.4)	32.6
USA operations	105.5	(7.5)	272.3	62.2
Indonesia *	57.7	(1.4)		1.4
	894.5	102.1	1,721.5	309.9

* Discontinued operations

Segment revenue is derived from sales to external customers domiciled in various geographical regions. Details of segment revenue by location of customers is as follows:

	SМ
- North America	246.5
- South America	19
- Europe	247.8
- Asia	271.1
- Middle East	28.4
- Australia	98.8
	804 S

Notes to and forming part of the segment information

$(a)$ Accounting policies

Segment information is prepared in conformity with the accounting policies of the entity as disclosed in Note 1 and accounting standard AASB 1005 Segment Reporting.

Segment revenues, expenses, assets and liabilities are those that are directly attributable to a segment and the relevant portion that can be allocated to the segment on a reasonable basis. Segment assets include all assets used by a segment and consists primarily of operating cash, receivables, inventories, property, plant and equipment and other intangible assets, net of related provisions. Segment liabilities consist primarily of trade and other creditors, employee benefits and provision for rehabilitation and restoration. Segment assets and liabilities do not include income taxes and interest bearing liabilities.

(continued)

Note 3. Revenue

	2003 SM.	2002 SM.
Revenue from operating activities Sale of goods	786.0	894.5
Revenue from outside operating activities
Interest	0.7	1.2
Royalty income	0.5
Other revenue	4.9	3.7
Proceeds on sale of property, plant and equipment and land held for resale	19.9	6.3
Proceeds on sale of PT Koba Tin		24.5
	26.0	35.7
Revenue from ordinary activities	812.0	930.2

(continued)

Profit from ordinary activities Note 4.
	2003 SM	2002 SM
Net gains
Net gain on disposal
Property, plant and equipment (including land held for resale)	14.9	26
Expenses
Cost of sales of goods
Cost of production	505.6	553.0
Rehabilitation and mine closure	16.3	19.6
Depreciation	72.1	68.8
Amortisation	43.5 637.5	39.2
Total cost of sales of goods		680.6
Research and development	7.2	4.2
Corporate administration and finance	21.4	36.0
Marketing and selling (including royalties)	34.0	41.0
Exploration and development Carrying amount of net assets of discontinuing operation sold, written down value of	7.1	8.2
property, plant and equipment sold and write-down of assets to recoverable amount	5.0	35.6
Expenses from ordinary activities, excluding borrowing costs expense	712.2	805.6
Borrowing costs
Interest and finance charges	24.9	27.5
Amortisation of deferred borrowing costs Exchange gains on foreign currency borrowings	0.2 (15.3)	(5.0)
	9.8	22.5
Amount capitalised	(0.8)
Total borrowing costs	9.0	22.5
Foreign exchange gains and losses Other net foreign exchange losses included in corporate administration and finance
costs	(1.5)	(17.7)
Exchange gains on foreign currency borrowings included in borrowing costs	15.3	5.0
Net foreign exchange gains (losses) recognised in profit from ordinary activities for the
year	13.8	(12.7)
Operating lease expense	4.7	1.8

Iluka Resources Limited Notes to the preliminary consolidated financial statements

for the year ended 31 December 2003

(continued)

	2003 SM	2002 \$M
Income tax expense
(a) The income tax expense for the financial year differs from the prima facie amount calculated by reference to operating profit before tax. The differences are reconciled as follows:
Profit from ordinary activities before income tax expense	90.8	102.1
Income tax calculated @ 30%	27.2	30.6
Tax effect of permanent differences
Non-deductible depreciation and amortisation	9.2	10.0 1
Net foreign exchange gains	(5.5)	(0.9)
Non-deductible expenses	0.6	1.0
Non-deductible foreign expenditure	0.1	0.6
Non-assessable recovery on hedging United States operations - depletion allowance	(0.9)	(9.8)
Effect of different tax rates on overseas income	(0.1) 0.6	(0.5) 0.5
Profit on sale of PT Koba Tin		(0.3)
Research and development	(2.4)
Other permanent differences	(2.9)	(0.8)
Income tax adjusted for permanent differences	25.9	30.4
Income tax over provided for in prior years	(1.4)	(0.1)
Tax benefits not previously brought to account *	(21.0)	(38.4)
Income tax expense/(benefit)	3.5	(8.1)
Aggregate income tax expense comprises:
Current taxation provision	(6.1)	6.3
Deferred income tax provision	(6.8)	5.4
Future income tax benefit	17.8	(19.7)
Over provision in prior years	(1.4)	(0.1)
	てく	(81)

Note 5.

Income tax

* Tax benefits not previously brought to account refers to tax benefits attributable to the recognition of previously unbooked timing differences in the current and prior year and previously unbooked tax losses in the prior year.

	2003 SM	2002 \$M
Timing differences

(b)	Potential future income tax benefits attributable to timing differences not
	brought to account $@30\%$	-16. .

As at 31 December 2003 \$16.7 million (2002: \$16.7 million) of unbooked timing differences related to fair value accounting adjustments made upon the merger in 1998 between Westralian Sands Limited and RGC Ltd. The tax benefit associated with this amount will only be brought to account when the costs anticipated under these fair value adjustments are actually incurred or on adoption of the 1999 version of AASB 1020 on 1 January 2005.

$2002$

$\overline{a}$

anoa

a kirin

Income tax (continued) Note 5.

Iluka Resources Limited and its wholly-owned subsidiaries intend to form a tax consolidated group. At the date of $(c)$ signing the financial report. Iluka Resources Limited has not formally determined the date on which the consolidated group will be formed.

lluka Resources Limited, as the head entity of the tax consolidated group, intends to enter into a tax sharing agreement with its wholly-owned subsidiaries at the time of entering into tax consolidation. The purpose of this agreement will be to define the basis on which to allocate the income tax expense/credit to the wholly-owned subsidiaries.

Based on a preliminary analysis Iluka Resources Limited is satisfied there will be no material impact in relation to its deferred tax balances as at 31 December 2003.

Note 6. Current assets - Other

	2003 SM	2002 SM
Prepayments	9.6	8.6
Deferred overburden removal	10.0	2.2
Mark to market gains on foreign exchange derivatives	54.8	6.3
Land held for resale	2.2	2.7
Deferred losses on foreign exchange derivatives	4.4
	81.0	26.9

Note 7. Non-current assets - Other

	. SM	40 U S 40 SM
Royalty entitlement asset	10.0	10.0
Less: Accumulated amortisation	0.1
	9.9	10.0
Prepayments and other assets	12.5	12.7
Mark to market gains on foreign exchange derivatives	64.6	12.0
Deferred losses on foreign exchange derivatives	33	11. R
	90.3	46.5

Note 8. Current liabilities - Provisions

	ZUU3 SM	2UUZ SΜ
Dividends		27.9
Employee entitlements	4.6	9.5
Mark to market losses on foreign exchange derivatives		7.5
Rehabilitation and mine closure	20.8	20.3
Other provisions	າ ດ	2.0
	28.3	67.2

(continued)

Note 9. Current liabilities - Other

. $-$ - $-$ - $-$ - $-$ - $-$ - $-$ - $ -$	2003 SM.	2002 SM
Deferred gains on foreign exchange derivatives	54.8	124
Note 10. Non-current liabilities - Other
	2003 SM	2002 SM
Deferred gains on foreign exchange derivatives	64.6

Note 11. Contributed equity

	2003	2002	2003	2002
			Paid up value
	No. of shares	No. of shares	Śт	Paid up value \$m
Issued and paid up capital	232.814.349	232.814.349	610.4	610.4

Note 12. Equity

	Notes	2003 SМ	2002 SM.
Total equity at the beginning of the financial year Adjustment to retained earnings at the beginning of the financial year resulting		879.0	757.2
from change in accounting policy for providing for dividends	l(a)	27.7
Total change in equity recognised in the statement of financial performance Transactions with owners as owners:		84.5	109.0
Ordinary shares issued			76.4
Dividends provided for or paid	13	(51.0)	(51.I)
Total changes in outside equity interest		0.9	(12.5)
Total equity at the end of the financial year		941.1	879.0

Iluka Resources Limited Notes to the preliminary consolidated financial statements

for the year ended 31 December 2003

(continued)

Note 13. Dividends

	2003 SM	2002 \$M
Ordinary shares
2002 final dividend of 12 cents per fully paid share recognised as a liability at 31 December 2002 but adjusted against retained profits at the beginning of the financial year on the change in accounting policy for providing for dividends (Note $1(a)$ )
Unfranked - 12 cents per share	27.7
Interim dividend paid of 10 cents franked to 9.2 cents at 30% $(2002: 10 \text{ cents}$ franked to 2 cents at $30\%$ )	23.3	23.4
	51.0	23.4
Final dividend of 12 cents per fully paid share recognised as a liability at December 2002 Unfranked - 12 cents per share		27.7
Total dividends provided for or paid	51.0	51 1
	2003 SM	2002 SM
Dividends not recognised at year end
In addition to the above dividends, since year end the Directors have recommended the payment of a final unfranked dividend of 12 cents per fully paid ordinary share. The aggregate amount of the proposed dividend expected to be paid on 13 April 2004 out of retained profits at 31 December 2003, but not recognised as a liability at year end as a result of the change in accounting policy for providing for dividends (Note 1(a)), is	27.9
	2003	2002
	SM	\$M
Franking credits available for subsequent financial years based on a tax rate of 30%	20.6	37.2
The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:

franking credits that will arise from the payment of the current tax liability $(a)$

franking debits that will arise from the payment of dividends recognised as a liability at the reporting date $(b)$

franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date, and $(c)$

$(d)$ franking credits that may be prevented from being distributed in subsequent financial years.

The franking credits available to the consolidated entity includes \$18.4 million (2002: \$35.7 million) for the Consolidated Rutile Limited group. Distribution of franking credits by the Company is subject to receipt of fully franked dividends from Consolidated Rutile Limited which was 50.6% owned at 31 December 2003 (2002: 50.1%).

(continued)

Note 14. Contingent liabilities and contingent assets

Details and estimates of maximum amounts of contingent liabilities are as follows:
	2003	2002
	SM.	\$M
Guarantees
Performance and finance guarantees (a)	34.8	43.6

(a) Bank guarantees required by State Governments to meet the consolidated entity's obligations under exploration and mining tenements.

(b) There is some risk that native title, as established by the High Court of Australia's decision in the Mabo case, exists over some of the land over which the consolidated entity holds tenements or over land required for access purposes. It is impossible at this stage to quantify the impact (if any) which these developments may have on the operations of the consolidated entity.

(c) In the course of its normal business, the consolidated entity occasionally receives claims arising from its operating activities. In the opinion of the Directors, all such matters are covered by insurance, or, if not covered, are without merit or are of such a kind or involve such amounts that would not have a material adverse effect on the operating results or financial position of the consolidated entity if settled unfavourably.

(d) The Company entered into a lease agreement, for the occupancy of its current head-office premises, for an initial term of five years with a renewable option for an additional five years lease extension. In the event the company declines the renewal of the lease then a payback totalling \$0.9 million is required.

Contingent assets

(a) During 2002 the consolidated entity finalised the sale of PT Koba Tin. The consideration for the sale included a deferred component which was contingent on London Metal Exchange tin prices. This deferred component was capped at settlement at US\$6.0 million over three years and has since reduced to US\$2.0 million at 31 December 2003. The deferred sales component represents a contingent asset and has not been recognised in the accounts.

(b) On 1 May 2001 Consolidated Rutile Limited sold its 50% interest in Sierra Rutile Holdings Limited and associated entities. The consideration included two additional payments of US\$5.0 million each, if the purchaser re-establishes a successful mining operation at the site. This consideration will be recognised on receipt.

Note 15. Reconciliation of profit from ordinary activities after income tax to net cash inflow from operating activities

	2003	2002
	\$M	\$M
Profit from ordinary activities after income tax	87.3	110.2
Depreciation and amortisation	115.6	108.0
Previously capitalised exploration expenditure written off	2.1	3.2
Current year exploration expenditure capitalised	(6.5)	(12.0)
Write-down of project assets		8.2
Net gain on disposal of property, plant and equipment (including land held for resale)	(14.9)	(2.6)
Profit on sale of PT Koba Tin		(0.8)
Write-down of inventory to net realisable value	0.9	2.9
Net exchange differences	(18.6)	(8.4)
Decrease (increase) in receivables	11.6	(75.5)
Decrease (increase) in inventories	13.2	39.5
Decrease (increase) in future income tax benefit	9.3	(23.5)
Decrease (increase) in other operating assets	(96.0)	21.4
Increase (decrease) in payables	0.6	7.2
Increase (decrease) in other operating liabilities	7.7	8.8
Increase (decrease) in provision for income taxes payable	(3.1)	(6.8)
Increase (decrease) in provision for deferred income tax	(5.8)	13.4
Increase (decrease) in other provisions	75.6	(53.3)
Net cash inflow from operating activities	179.0	139.9

Note 16. Earnings per share

-	2003 Cents	2002 Cents
Basic earnings per share	36.6	48.6
Diluted earnings per share	36.6	48.6

Options granted to employees under the Executive Employment Agreement Plan are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share. The options have not been included in the determination of basic earnings per share. $\frac{1}{2}$ anoa

	2003 Number	2002 Number
Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share	232,814,349	224,445,102
Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share	232,814,349	224,457.923
	2003 SM	2002 SM.
Net profit. Net profit attributable to outside equity interest. Earnings used in calculating basic and diluted earnings per share	87.3 (2.1) 85.2	110.2 (1.2) 109.0