ILUKA RESOURCES LIMITED — Annual Report 2005

Feb 14, 2005

Iluka Resources Limited

ABN 34 008 675 018

ASX Preliminary final report - 31 December 2004

Lodged with the ASX under Listing Rule 4.3A

Contents

	Page
Results for announcement to the market
Commentary on Results

Huka Resources Limited

For the year ended 31 December 2004 (Previous corresponding period: For the year ended 31 December 2003)

Results for announcement to the market

				SM.
Revenue from ordinary activities $(Appendix 4E$ item 2.1)	up	$4.6 \%$	ŤО	849.6
Profit from ordinary activities after tax attributable to members (Appendix $4E$ item 2.2)	up	$4.8 \%$	tο	89.3
Net profit for the period attributable to members (Appendix $4E$ item 2.3)	up	4.8%	tο	89.3

Dividends / distributions (Appendix $4E$ item 2.4)	Amount per security (cents)	Franked amount per security (cents)
Final dividend (prior year)	12.0.
Interim dividend (current year)	10.0

Key Ratios	2004	2003
	December	December
Basic and diluted earnings per share (cents)	38.3	36.6
Operating cash flow per share (cents)	99.4	76.5
Interest cover (times) *	11.0	9.8
Return on equity $(\%)$	9.7	9.6

Key Ratios	2004	2003
	December	December
Gearing $(\%)$ **	29.0	28.7
Net tangible assets per share $(\$)$	4.18	3.98

*Interest cover = EBITDA/net interest **Gearing = net debt/(net debt + equity)

Notice of Annual General Meeting

The 50th Annual General Meeting of members of Iluka Resources Limited will be held at the Duxton Hotel, 382 Flinders Street, Melbourne on Thursday 12th May 2005 at 9.30am.

Synopsis

Net profit after tax and outside equity interests (OEI) in 2004 was \$89.3 million, an increase of \$4.1 million (4.8%) compared with \$85.2 million in 2003. This result represents earnings per share of 38.3 cents, an increase of 1.7 cents compared with the previous year, with return on equity substantially unchanged at 9.7%. Underlying this result was a pretax carnings result of \$118.0 million, an increase of \$27.2 million $(30%)$ compared with the previous year. Excluding the profit impact from the revaluation of the 2003 US Private Placement borrowings (A\$14.1 million gain in 2003, A\$9.1 million loss in 2004), pre-tax profit increased by \$50.4 million (66%).

Sales revenue for 2004 was \$819.6 million, an increase of \$33.6 million (4.3%) compared with 2003. The key drivers of revenue growth were the impact of increased selling prices, most notably in respect of zircon where conditions of global undersupply continue to prevail. Partially offsetting this pricing effect was the year-on-year weakening of the US dollar which, notwithstanding the mitigating effect of Iluka's hedging, served to reduce the Australian dollar translated value of US dollar denominated sales.

Key operational achievements in 2004 included the return to profitability of the USA operations, the completion of the first-stage of the Enterprise project at Consolidated Rutile Limited (CRL) and the continued delivery of operating efficiency improvements in the Company's existing operations. In Western Australia these efficiencies more than offset the negative first half impact of a planned period of transitional high cost remnant mining at the Capel operations prior to moving to the new Yoganup-West ore body in the second half. 2004 was also the first material contribution from Iluka's iron ore royalty interest in the Mining Area C operation. Pre-tax income booked in 2004 in respect to Mining Area C amounted to \$8.7 million.

Income tax expense for 2004 was \$17.0 million, an increase of \$13.5 million compared with 2003. The increase in tax expense in 2004 reflects the recognition of previously unbooked historical tax credits in 2003 and the lack of comparable historical tax credits in 2004. The 2004 tax expense would have been higher if a one-off \$14.5 million tax gain (relating to future tax benefits in respect of the uplift in asset values for taxation purposes upon transition to the tax consolidation regime) had not arisen in Iluka's 51% owned subsidiary, CRL.

Capital expenditure in 2004, (net of proceeds) was \$204.6 million, an increase of \$67.6 million compared with 2003. This increase relates primarily to the expenditure on the Murray Basin project. Operating cashflow performance improved significantly in 2004, increasing by \$53.3 million to \$231.5 million due primarily to higher sales receipts. Despite the increase in capital expenditure, the strong operating cashflow performance together with the exchange revaluation of US dollar denominated borrowings resulted in net debt only increasing by \$25.5 million to \$404.4 million at the end of the year. As a consequence the Company's gearing ratio marginally increased to 29.0% compared with 28.7% at December 2003 and 28.4% at June 2004.

Iluka Resources Limited Commentary on Results (continued)

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: 2004 Net Profit after Tax and OEI versus 2003 - ASM

Explanatory notes

Selling Price Increases (+ve \$35.5 million) $1.$

Iluka achieved US dollar selling price rises across the majority its products compared with the previous year. In particular zircon pricing improved significantly as a result of the prevailing conditions of global undersupply.

$2.$ Hedging Gains $(+ve$ \$16.1 million)

Iluka's hedging program delivered gains (pre tax and OEI) of \$50.7 million in 2004 compared with \$24.5 million in the previous year. This difference (\$26.2 million at the EBIT line), represented a \$16.1 million bottom line year-on-year impact after allowing for tax and outside equity interests. The main driver of this year on year increase is progressive weakening of the US dollar, with the average \$A:SUS rate prevailing in 2004 being 73.6c versus 65.2c in 2003.

Tax Consolidation (+ve \$7.4 million) 3.

The legislation governing the introduction of the tax consolidation regime provides for certain circumstances which facilitate an increase in asset values for taxation purposes. The future taxation benefit of this "uplift" generates a one off credit to the income tax expense line. The "uplift" available to CRL (51% owned by Iluka) in 2004 represented \$14.5 million and a corresponding credit for this amount was recognised in the lncome Tax Expense line. Allowing for the outside equity interest portion of this gain resulted in a NPAT impact of \$7.4 million at the Iluka Group level.

Mining Area C (+ $ve$ \$5.8 million) $\mathbf{4}$ .

Iluka holds a royalty interest in the "Mining Area C" iron ore mine in the Pilbara region of Western Australia which is operated by BHP Billiton. Iluka's interests include a royalty based on FOB iron ore sales revenue as well as a one-off capacity payment as production thresholds are exceeded. The combination of these entitlements generated income of \$8.7 million in 2004 versus \$0.4 million in 2003. This year on year variance of \$8.3 million at the EBIT line represents \$5.8 million on an after tax basis.

5. US Notes Revaluation (-ve \$26.1 million)

In June 2003, Iluka borrowed US\$100 million by issuing notes into the US private placement market. The spot revaluation of these notes into Australian dollars at balance date generated a \$14.1 million profit in the 2003 year. This year, revaluation of these notes generated a \$9.1 million loss until August 2004 when the loan principal was "swapped" back to Australian dollars. The swap-out also crystallised the recognition of a full tax charge on the net revaluation profit between issuance and the ultimate swap-out. The total year on year difference amounts to \$26.1 million NPAT, being the grossed up impact of the 2003 profit, the 2004 loss and the 2004 tax catch-up.

6. FX on Australian Revenue (-ve \$23.9 million)

The sales weighted average US\$/A\$ exchange rate applying to Iluka's Australian based US\$ revenues in 2004 was 0.735 versus 0.677 in 2003. Before hedging, this weakening of the US dollar reduced the translated value of Australian based, US\$ denominated net revenues by A\$37 million, which equates to A\$23.9 after tax and OEIs.

7. Prior Period Tax (-ve \$14.2 million)

Tax benefits not previously brought to account together with over provisions in respect of prior years were \$9.4 million in 2004 versus \$22.4 million in 2003. Whilst the 2003 amount is dominated by the recognition of previously unbooked timing differences and tax losses, the 2004 amount consists primarily of upward revision to prior year research and development concessional tax entitlements. After allowance for outside equity interests, prior period tax adjustments represent a negative year-on-year difference of \$14.2 million to the Iluka Group NPAT.

South West Transition (-ve \$12.6 million) 8.

In the first half of 2004, Iluka's Capel operations were affected by a period of high cost remnant mining at the Yoganup Extended ore body prior to transitioning to the Yoganup West ore body. Second half results recovered significantly as the improved grade of the Yoganup West ore body favourably impacted costs and output.

9. Sale of Assets (-ve \$6.5 million)

The contribution that asset sales made to net profit in 2004 was significantly less than in 2003. 2003 included the sale of Stradbroke Island properties (CRL) as well as the sale of various exploration tenements which generated a gross profit (pre-tax and OEI) of \$14.9 million. The corresponding profit amount for 2004 asset sales was \$1.2 million which primarily relates to the sale of Western Australian residential properties. The pre-tax, pre-OEI, year-on-year difference of \$13.7 million reduces substantially to a NPAT impact of \$6.5 million due to the large outside equity interest component in the 2003 CRL asset disposals.

10. Other $(+ve$ \$22.6 million)

This \$22.6 million of year-on-year NPAT improvement equates to \$32.0 million before tax and OEI. This largely reflects the contribution of Iluka's business improvement program which has resulted in value-adding initiatives across all facets of Iluka's operations. Areas of significant achievement have included separation technology improvements, kiln utilisation and through-put improvements, reduced frequency and cost of major maintenance outages and improved dry mining methods.

In addition to operational improvements during 2004, focus at the corporate level on securing collections in respect of long standing contingent receivables resulted in the following income items booked:

• a. compensation of \$4.0 million received from the NSW Government in respect of Coal tenements compulsorily acquired under the Coal Acquisition Act of 1981; and
• b. realisation of deferred settlement amounts and other entitlements in respect of the 2002 Koba Tin sale of \$1.9 million.

Progress Toward Key Objectives

During 2004 the Company made good progress with its plans to grow the core mineral sands business. Key achievements include:

• successfully repositioning high-titanium content products and zircon in the market place and securing US dollar price $\bullet$ increases in 2005, particularly with respect to zircon;
• moving to longer-term contracts rather than the traditional spot or very short-term contracts for zircon; $\bullet$
• completion of the expansion of mining and mineral concentrating operations into southern Georgia, USA;

• commencement of the \$270 million Douglas project in the Murray Basin. The project was approximately one-third complete at 31 December 2004. Initial mining operations commenced in late 2004 as scheduled;

• evaluation of follow-on projects in the Murray Basin such as Kulwin, Woornack and Rownack (KWR) and Euston in $\bullet$ the New South Wales sector of the Murray Basin; and

• enhancing future production prospects with the discovery of a new zircon-rich Jacinth and Ambrosia prospects in the South Australian sector of the Eucla Basin. Jacinth alone is estimated to contain an Inferred Resource of approximately 6.5 million tonnes of in-situ heavy mineral at a 1% cut-off level, of which more than 3.5 million tonnes is zircon and the balance includes significant quantities of rutile and secondary ilmenite.

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 Financial Statements which are in the process of being audited.

Huka Resources Limited Preliminary statement of financial performance
for the year ended 31 December 2004

	Notes	2004 SM.	2003 SM.
Revenue from ordinary activities	3	849.6	812.0
Expenses from ordinary activities, excluding borrowing costs expense	4	(698.9)	(712.2)
Interest and finance costs Exchange (losses) gains on foreign currency borrowings Total borrowing costs	4 4	(23.6) (9.1) (32.7)	(24.3) 15.3 (9.0)
Profit from ordinary activities before related income tax expense		118.0	90.8
Income tax expense	5	(17.0)	(3.5)
Profit from ordinary activities after related income tax expense		101.0	87.3
Net profit attributable to outside equity interest		(11.7)	(2.1)
Net profit attributable to members of Iluka Resources Limited		89.3	85.2
Net decrease in foreign currency translation reserve		(2.3)	(0.7)
Total revenues, expenses and valuation adjustments attributable to members of Iluka Resources Limited recognised directly in equity		(2.3)	(0.7)
Total changes in equity attributable to members of Iluka Resources Limited other than those resulting from transactions with owners as owners	13	87.0	84.5
		Cents	Cents
Basic earnings per share	17	38.3	36.6
Diluted earnings per share	17	38.3	36.6

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

Huka Resources Limited Preliminary statement of financial position
As at 31 December 2004

	Notes	2004 SM	2003 \$M
Current assets
Cash assets		13.6	5.2
Receivables		158.2	207.7
Inventories		156.7	115.3
Current tax assets		2.2	1.2
Other	6	77.7	81.0
Total current assets		408.4	410.4
Non-current assets
Receivables		2.3	1.6
Inventories		6.0	2.1
Property, plant and equipment		1,317.2	1,198.8
Deferred tax assets		9.0	22.2
Intangible assets Other	$\tau$	13.9 73.5	15.6 90.3
Total non-current assets		1,421.9	1,330.6
Total assets		1,830.3	1,741.0
Current liabilities
Payables		107.5	110.4
Interest bearing liabilities		55.0	105.3
Current tax liabilities		2.0	0.3
Provisions	8	16.7	28.3
Other	9	49.8	54.8 299.1
Total current liabilities		231.0
Non-current liabilities
Interest bearing liabilities		363.0	278.8
Deferred tax liabilities		22.3	20.6
Provisions Other	$10\,$ $\mathbf{1}$	171.7 54.2	136.8 64.6
Total non-current liabilities		611.2	500.8
Total liabilities		842.2	799.9
Net assets		988.1	941.1
Equity
Contributed equity	12	610.8	610.4
Reserves		24.8	27.1
Retained profits		287.3	249.2
Total parent entity interest		922.9	886.7
Outside equity interest in controlled entities		65.2	54.4
Total equity	13	988.1	941.1

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

Huka Resources Limited Preliminary statement of cash flows
for the year ended 31 December 2004

Notes	2004 SM.	2003 SM
Cash flows from operating activities	880.4	801.9
Receipts from customers (inclusive of goods and services tax)
Payments to suppliers and employees (inclusive of goods and services tax)	(660.5)	(621.4)
	219.9	180.5
Interest received	0.1	0.7
Borrowing costs	(26.5)	(24.0)
Income tax paid (net) Goods and services tax received	(1.9) 35.6	(0.7) 29.8
Payments for exploration expenditure Receipts from other operating activities	(14.0)	(13.5) 5.4
-16	18.3 231.5	178.2
Net cash inflow from operating activities
Cash flows from investing activities
Payments for property, plant and equipment	(209.1)	(156.5)
Proceeds from sale of property, plant and equipment and land held for resale	4.5	19.5
Net cash outflow from investing activities	(204.6)	(137.0)
Cash flows from financing activities
Proceeds from issues of ordinary shares	0.4
Proceeds from borrowings	103.1	344.5
Repayment of borrowings	(69.9)	(348.8)
Dividends paid	(51.2)	(51.2)
Dividends paid to outside equity interests in controlled entities	(0.9)	(1.2)
Net cash outflow from financing activities	(18.5)	(56.7)
Net increase (decrease) in cash held	8.4	(15.5)
Cash at the beginning of the financial year	5.2	21.3
Effects of exchange rate changes on cash		(0.6)
Cash at the end of the financial year	13.6	5.2

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 2004. The accounting policies adopted are consistent with those of the previous financial year.

International Financial Reporting Standards (IFRS)

The Australian Accounting Standards Board (AASB) is adopting IFRS for application to reporting periods beginning on or after 1 January 2005. The AASB has issued Australian equivalents to IFRS, and the Urgent Issues Group has issued interpretations corresponding to International Accounting Standards Board interpretations originated by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee. The adoption of Australian equivalents to IFRS will be first reflected in the consolidated entity's financial statements for the half-year ending 30 June 2005 and the year ending 31 December 2005.

Entities complying with Australian equivalents to IFRS for the first time will be required to restate their comparative financial statements to amounts reflecting the application of IFRS to that comparative period. Most adjustments required on transition to IFRS will be made, retrospectively, against opening retained earnings as at 1 January 2004.

The consolidated entity has established a project team to manage the transition of Australian equivalents to IFRS, including training of staff, systems and process modification and internal control changes necessary to gather all the required financial information. The project team is chaired by the Chief Financial Officer and progress reports are communicated to the Audit and Risk Committee on a regular basis as to the status of the project and on issues relating to the consolidated entity.

The project team has prepared a detailed timetable for managing the transition and is currently on schedule. The project team has analysed most of the Australian equivalents to IFRS and has identified a number of accounting policy changes that will be required. In some cases choices of accounting policies are available, including elective exemptions under Accounting Standard AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards. Some of these choices are still being analysed to determine the most appropriate accounting policy for the consolidated entity.

Major changes identified to date that will be required to the consolidated entity's existing accounting policies include the following:

$(i)$ Income tax

Under AASB 112 Income Taxes, deferred tax balances are determined using the balance sheet method, which calculates temporary differences based on the carrying amounts of an entity's assets and liabilities in the statement of financial position and their associated tax bases. In addition, current and deferred taxes attributable to amounts recognised directly in equity are also recognised directly in equity.

This will result in a change to the current accounting policy, under which deferred tax balances are determined using the income statement method. Under the current policy, items are only tax-effected if they are included in the determination of pre-tax accounting profit or loss and/or taxable income or loss and current and deferred taxes cannot be recognised directly in equity.

Note 1. Summary of significant accounting policies (continued)

$(ii)$ Financial Instruments

Under AASB 139, Financial Instruments: Recognition and Measurement there may be significant impacts as a result of:

• (a) Financial assets held by the consolidated entity being subject to classification as either held-for trading, held-to-maturity, available for sale or loans and receivable and, depending upon classification, measured at fair value or amortised cost. This matter is still being reviewed, however, it is considered that this will not have a significant impact on the consolidated entity.
• (b) Foreign exchange contracts held for hedging purposes being accounted for as cash flow hedges. Changes in the fair value of those contracts will be recognised directly in equity until the hedged transaction occurs, at which time the amounts recognised in equity will be released to the statement of financial performance against the underlying hedge transaction. Currently, the unrealised gains/losses arising from the remeasurement of foreign exchange hedge contracts are included in assets or liabilities as deferred gains or losses on foreign exchange derivatives. Changes in fair values of such instruments in future will therefore lead to increased volatility in reported net assets.

The consolidated entity has examined the onerous reporting and compliance issues relating to the testing of hedge effectiveness and documentation requirements. The project team has established a process to ensure compliance with these requirements from 1 January 2005 and expect all financial instruments held at balance date to be effective for hedge accounting purposes.

Rehabilitation, restoration and mine closure provisions $(iii)$

The consolidated entity has obligations to dismantle, remove, restore and rehabilitate certain items of property, plant and equipment. Under AASB 116 Property, Plant and Equipment, the cost of an item of property, plant and equipment includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired, or as a consequence of having used the item during a particular period.

In conjunction with this standard, AASB 137 Provisions, Contingent Liabilities, and Contingent Assets contains requirements on how to measure decommissioning, restoration and similar liabilities. Under AASB 137 an entity is required to recognise as a provision the best estimate of the present value of the expenditure required to settle the obligation at the statement of financial position date. The present value of the costs should be measured using a current market-discount rate.

As the value of the provision represents the discounted value of the present obligation to restore, dismantle and rehabilitate, the increase in the carrying amount of the provision due to the passage of time is recognised as a borrowing cost. This will result in a change to the current accounting policy whereby such costs are generally accrued, on an undiscounted basis, over the life of the related mine.

The impact of the aforementioned to the statement of financial position will be to restate the written down value of property, plant and equipment to take into account the increase in the cost base of the asset to include the cost to dismantle, restore and rehabilitate the underlying asset. In addition, a corresponding adjustment will be made to the provision for rehabilitation, restoration and mine closure to ensure the provision represents the present value of the expenditure required to settle the obligation.

The impact of this adjustment has not yet been fully quantified.

Note 1. Summary of significant accounting policies (continued)

$(iv)$ Exploration and evaluation

AASB 6 Exploration and Evaluation of Mineral Resources permits 'area of interest' accounting to continue for exploration and evaluation costs. Whilst impairment testing is required, the factors to be considered align closely with the current treatment adopted in capitalising exploration and evaluation costs. It is not considered that this will have a significant impact on the consolidated entity.

$(v)$ Recoverable amount of non current assets

AASB 136, Impairment of Assets supersedes AASB 1010, Recoverable amount of Non Current Assets. AASB 136 is more detailed and restrictive than AASB 1010 in a number of respects. Key differences identified to date that may impact the consolidated entity are the explicit requirements to:

• discount future foreign currency cash flows using a discount rate appropriate for that currency. The resulting present value is then translated into Australian dollars using the spot exchange rate at the date of the value in use calculation.
• exclude from the value in use calculation future cash flows that will improve or enhance an asset's performance or the related cash inflows that are expected to arise from this expenditure.

There are no such requirements in AASB 1010. The impact, if any, of these differences is still being assessed.

$(vi)$ Other

The above should not be regarded as a complete list of changes in accounting policies that will result from the transition to Australian equivalents of IFRS, as not all standards have been analysed yet, and some decisions have not yet been made where choices of accounting policies are available. For these reasons, it is not yet possible to quantify the impact of the transition to Australian equivalents of IFRS on the consolidated entity's financial position and reported results. These matters will be resolved by 30 June 2005 when the consolidated entity reports is half year IFRS compliant results.

(continued)

Note 2. Segment information

Primary reporting - business segments

2004	Titanium Minerals and Zircon SM.	Coal SM.	Iron Ore Royalty SM.	Inter-segment eliminations/ unallocated \$M	Consolidated \$M
Sales to external customers	785.4	34.2			819.6
Other revenue	12.6	6.1	9.1	$^{2.2}$	30.0
Total segment revenue	798.0	40.3	9.1	2.2	849.6
Segment result Interest and finance costs Exchange losses on foreign currency Unallocated revenue less unallocated expenses Profit from ordinary activities before income tax expense Income tax expense Profit from ordinary activities after income tax expense	141.3	17.0	8.7	1.7	168.7 (23.6) (9.1) (18.0) 118.0 (17.0) 101.0
Segment assets Unallocated assets	1,769.9	38.1	13.3		1,821.3 9.0
Total assets Segment liabilities Unallocated liabilities Total liabilities	395.3	4.7			.830.3 400.0 442.2 842.2
Acquisition of property, plant and equipment, and other non-current segment assets	238.6	4.2			242.8
Depreciation and amortisation expense	109.2	3.2	0.4		112.8
Other non-cash expenses	37.7	0.5			38.2

Note 2. Segment information (continued)

Secondary reporting - geographical segments

2004	Segment revenues from sales to external customers \$M	Segment result \$M	Segment assets SM	Acquisitions of property, plant and equipment and other non-current segment assets SM.
Australia - Western Australian
operations	574.4	120.4	1,003.0	87.7
Australia - Queensland operations
(CRL)	80.9	10.0	196.7	30.0
Australia - New South Wales coal
operations	34.2	17.0	38.1	4.2
Australia - Murray Basin
operations			322.5	95.7
Australia - Iron Ore Royalty
(Western Australia)		8.7	13.3
USA operations	130.1	10.9	247.7	25.2
Australia - unallocated		(49.0)	9.0
	819.6	118.0	1,830.3	242.8

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:

	\$M
- North America	270.1
- Europe	255.6
- Asia	171.7
- Australia	122.2
	819.6

(continued)

Note 2. Segment information (continued)

Primary reporting - business segments

2003	Titanium Minerals and Zircon SM.	Coal SM.	fron Ore Royalty SM.	Inter-segment eliminations/ unallocated \$M	Consolidated SM.
Sales to external customers Other revenue Total segment revenue	752.9 24.8 777.7	33.1 33.1	0.5 0.5	0.7 0.7	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	0.4		127.8 (24.3) 15.3 (28.0) 90.8 (3.5) 87.3
Segment assets Unallocated assets Total assets	1.677.0	30.7	10.2		1,717.9 23.1 1,741.0
Segment liabilities Unallocated liabilities Total liabilities	389.4				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	3.4 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 SM.	Segment assets ŜΜ	Acquisitions of property, plant and equipment and other non-current segment assets SM.
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 - Mining Area C
(Western Australia)		0.4	10.2
USA Operations	106.4	(2.8)	233.1	49.9
Australia - unallocated		(37.0)	23.1
	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:

	\$M
- North America	307.3
- South America	0.3
- Europe	217.0
- Asia	119.2
- Australia	142.2
	786.0

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 consist 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

	2004 \$M	2003 \$M
Revenue from operating activities Sale of goods	819.6	786.0
Revenue from outside operating activities
Interest	0.5	0.7
Net foreign currency gains	3.1
Royalty income	11.2	2.3
Coal compensation receipts	4.0
PT Koba Tin deferred settlement	1.5
Other revenue	3.9	3.1
Proceeds on sale of property, plant and equipment and land held for resale	5.8	19.9
	30.0	26.0
Revenue from ordinary activities	849.6	812.0

(continued)

Note 4.	Profit from ordinary activities	2004 SM	2003 \$M
	Net gains and expenses Profit from ordinary activities before income tax expense includes the following specific net gains and expenses:
Net gains	Net gain on disposal Property, plant and equipment (including land held for resale)	1.2	14.9
Expenses
Depreciation Amortisation	Cost of sales of goods Cost of production Rehabilitation and mine closure Total cost of sales of goods	475.9 38.2 73.4 39.4 626.9	503.7 16.3 72.1 43.5 635.6
	Research and development Corporate administration and finance Marketing and selling (including royalties) Exploration and development Written down value of property, plant and equipment sold and write-down of assets to recoverable amount Expenses from ordinary activities, excluding borrowing costs expense	6.1 18.5 36.5 6.3 46 698.9	$7.2^{\circ}$ 23.3 34.0 7.1 5.0 712.2
Borrowing costs	Interest and finance charges Cross currency swap interest received Amortisation of deferred borrowing costs Exchange losses (gains) on foreign currency borrowings Amount capitalised Borrowing costs expensed	30.7 (3.7) 0.3 9.1 36.4 (3.7) 32.7	24.9 0.2 (15.3) 9.8 (0.8) 9.0
	Operating lease expense	9.1	7.9
year	Foreign exchange gains and losses Other net foreign exchange gains (losses) included in corporate administration and finance costs or revenue from outside operating activities Exchange (losses) gains on foreign currency borrowings included in borrowing costs Net foreign exchange (losses) gains recognised in profit from ordinary activities for the	3.1 (9.1) (6.0)	(1.5) 15.3 13.8

(continued)

Note 5. Income tax

	2004 SM	2003 \$M
Income tax expense
The income tax expense for the financial year differs from the prima facie (a) amount calculated by reference to operating profit before tax. The differences are reconciled as follows:
Profit from ordinary activities before income tax expense	118.0	90.8
Income tax calculated $\omega$ 30%	35.4	27.2
Tax effect of permanent differences Non-deductible depreciation and amortisation Net foreign exchange losses (gains) Non-deductible expenses Non-deductible foreign expenditure Non-assessable recovery on hedging United States operations - depletion allowance Effect of different tax rates on overseas income Capital gains shielded by capital losses Research and development Recognition of the tax benefit upon formation of Consolidated Rutile Limited's tax consolidated group * Other permanent differences	5.0 4.9 0.5 0.2 (0.1) (0.8) (1.3) (4.2) (14.5) 13 26.4	9.2 (5.5) 0.6 0.1 (0.9) (0.1) 0.6 (2.4) (2.9) 25.9
Income tax over provided in prior years **	(8.4)	(1.4)
Tax benefits not previously brought to account *** Income tax expense	(1.0) 17.0	(21.0) 3.5
Aggregate income tax expense comprises: Current taxation provision Deferred income tax provision Future income tax benefit Over provision in prior years	14.4 14.3 (3.3) (8.4) 17.0	(6.1) (6.8) 17.8 (1.4) 3.5

* Consolidated Rutile Limited is 51.04% owned by the consolidated entity.

** \$8.9 million of this net amount refers to additional research and development deductions identified subsequent to the 31 December 2003 year end.

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

(continued)

Note 5. Income tax (continued)

		2004 -SM	2003 \$M
(b)	Timing differences
account $\omega$ 30%	Potential future income tax benefits attributable to timing differences not brought to	15.8	16.7

As at 31 December 2004 \$15.8 million (2003: \$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 Limited. The tax benefit associated with this amount will only be brought to account on the adoption of AASB 112 Income Taxes on 1 January 2005.

Tax consolidation legislation $(c)$

Pursuant to the tax consolidation legislation Iluka Resources Limited and its wholly owned Australian entities have elected to form a tax consolidated group as of 1 January 2004. The Australian Taxation Office has not yet been notified of this decision.

The wholly-owned entities have fully compensated Iluka Resources Limited for deferred tax liabilities assumed by Iluka Resources Limited on the date of the implementation of the legislation and have been fully compensated for any deferred tax assets transferred to Iluka Resources Limited.

Iluka Resources Limited, as the head entity of the tax consolidated group, has entered into a tax sharing agreement with its wholly owned subsidiaries. The purpose of this agreement is to define the basis on which to allocate the income tax expense/credit to the wholly-owned subsidiaries. In the opinion of the Directors, the tax sharing agreement is also a valid agreement under the tax consolidation legislation and limits the joint and several liability of the wholly-owned entities in the case of a default by Iluka Resources Limited.

Note 6. Current assets - Other

	2004	2003
	SM	\$Μ
Prepayments	10.4	9.6
Deferred overburden removal	12.0	10.0
Mark to market gains on foreign exchange derivatives	49.8	54.8
Land held for resale	2.2	2.2
Deferred losses on foreign exchange derivatives	3.3	4.4
	77.7	81.0

2004

$2004$

$2002$

(continued)

2003

Note 7. Non-current assets - Other

	SM	ŜΜ
Royalty entitlement asset	10.0	10.0
Less: Accumulated amortisation	(0.5)	(0.1)
	9.5	9.9
Prepayments and other assets	9.8	12.5
Mark to market gains on foreign exchange derivatives	54.2	64.6
Deferred losses on foreign exchange derivatives
	73.5	903

Note 8. Current liabilities - Provisions

	2004 SM	2003 \$M
Employee entitlements	4.6	4.6
Rehabilitation and mine closure	11.4	20.8
Other provisions	0.7	2.9
	16.7	28.3

Note 9. Current liabilities - Other

	2004 SM	2003 ŜΜ
Deferred gains on foreign exchange derivatives	49.8

Note 10. Non-current liabilities - Provisions

	---- SM	∠∪∪∠ \$M
Employee entitlements	7.3	7.2
Rehabilitation and mine closure	163.2	127.6
Other provisions	$1.2\phantom{0}$	2.0
	171.7	136.8
Note 11. Non-current liabilities - Other
	2004	2003
	SM	\$Μ
Deferred gains on foreign exchange derivatives	54.2	64.6

(continued)

Note 12. Contributed equity

	2004	2003	2004 Paid up value	2003 Paid up value
	No. of shares	No. of shares	SM	\$M
Ordinary shares
Issued and paid up capital	232,914,349	232,814,349	610.8	610.4
Note 13. Equity
		Notes	2004 SM	2003 \$M
Total equity at the beginning of the financial year Adjustment to retained earnings at the beginning of the financial year resulting			941.1	879.0
from change in accounting policy for providing for dividends				27.7
Total change in equity recognised in the statement of financial performance Transactions with owners as owners:			87.0	84.5
Ordinary shares issued		12	0.4
Dividends provided for or paid		14	(51.2)	(51.0)
Total changes in outside equity interest			10.8 988.1	0.9 941.1
Total equity at the end of the financial year
Note 14. Dividends			2004	2003
			SM	\$M
Ordinary shares
Final dividend for the year ended 31 December 2003 of 12 cents unfranked (2002: 12 cents unfranked) per fully paid share Interim dividend for the year ended 31 December 2004 of 10 cents partly franked to			27.9	27.7
8.7 cents at 30% (2003: 10 cents partly franked to 9.2 cents at 30%) per fully paid share			23.3	23.3
Total dividends provided for or paid			51.2	51.0

(continued)

Dividends (continued) Note 14.

	2004 SM.	2003 ŜΜ
Dividends not recognised at year end
In addition to the above dividends, since year end the Directors have recommended the payment of a final dividend of 12 cents franked to 6 cents per fully paid ordinary share. The aggregate amount of the proposed dividend expected to be paid on 12 April 2005 out of retained profits at 31 December 2004, but not recognised as a liability at year end, is	27.9	27.9
Franked dividends The franked portions of the final dividends recommended after 31 December 2004 will be based on existing franking credits (this includes receiving franked dividends from Consolidated Rutile Limited) and franking credits arising from the payment of income tax for the year ending 31 December 2005.
	2004	2003
	SM.	ŜΜ.
Franking credits available for subsequent financial years based on a tax rate of 30%	6.0	20.6

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 $(c)$

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

The franking credits available to the consolidated entity include \$0.8 million (2003: \$18.4 million) for the Consolidated Rutile Limited group and \$4.2 million (2003: \$1.7 million) attributable to Ashton Coal Interests Pty Limited, of which the consolidated entity owns 93.3%. Distribution of franking credits by the Company is subject to receipt of franked dividends from Consolidated Rutile Limited which was 51.0% owned by the consolidated entity at 31 December 2004 (2003: 50.6%).

Note 15. Contingent liabilities and contingent assets

Contingent liabilities

Details and estimates of maximum amounts of contingent liabilities are as follows:

	2004 SM	2003 ŜΜ
Performance and finance guarantees (a)	70.7	59.9

(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.

Contingent assets

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. As at the date of this report, the purchaser has not successfully re-established mining operations at the site. Any consideration will be recognised on receipt.

In the 1980's the Company held certain coal rights in New South Wales ("NSW") that were compulsorily acquired by the NSW Government. Consequently the Company is now entitled to claim "just and equitable" compensation from the NSW Coal Compensation Board ("CCB").

The determination of each coal compensation claim is made by the CCB, subject to the Company's right of appeal. The Company is unable to estimate with any accuracy the quantum and/or timing of any future compensation payments until the determination process is complete.

Note 16. Reconciliation of profit from ordinary activities after income tax to net cash inflow from operating activities $2004$

	2004	2003
	SM	\$M
Profit from ordinary activities after income tax	101.0	87.3
Depreciation and amortisation	112.8	115.6
Previously capitalised exploration expenditure written off	1.3	2.1
Current year exploration expenditure capitalised	(8.4)	(6.5)
Interest capitalised	(3.7)	(0.8)
Net gain on disposal of property, plant and equipment (including land held for resale)	(1.2)	(14.9)
Write-down of inventory to net realisable value		0.9 z
Net exchange differences	6.1	(18.6)
CRL Enterprise mine transition costs	(7.7)
Change in operating assets and liabilities
Decrease (increase) in receivables	48.8	11.6
Decrease (increase) in inventories	(45.9)	$13.2^{\circ}$
Decrease (increase) in future income tax benefit	12.2	9.3
Decrease (increase) in other operating assets	19.5	(96.0)
Increase (decrease) in payables	(17.1)	0.6
Increase (decrease) in other operating liabilities	2.2	7.7
Increase (decrease) in provision for income taxes payable	1.7	(3.1)
Increase (decrease) in provision for deferred income tax	1.7	(5.8)
Increase (decrease) in other provisions	8.2	75.6
Net cash inflow from operating activities	231.5	178.2

Note 17. Earnings per share

	2004 Cents	2003 Cents
Basic earnings per share	38.3	36.6
Diluted earnings per share	38.3	36.6

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.

	2004 Number	2003 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	232,824,185	232,814,349
Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share	232,824,185	232,814,349
	2004 SM	2003 ŜΜ.
Net profit	101.0	87.3
Net profit attributable to outside equity interest	(11.7)	(2.1)
Earnings used in calculating basic and diluted earnings per share	89.3	85.2

Compliance Statement

• This report has been prepared in accordance with AASB Standards, other AASB authoritative pronouncements and $\mathbf{L}$ Urgent Issue Group Consensus Views.
• $\overline{2}$ . This report gives a true and fair view of the matters disclosed.
• This report is based on accounts which are in the process of being audited. 3.
• $\ddot{4}$ . Iluka Resources Limited has a formally constituted Audit Committee.

David Grant Chief Financial Officer

15 February 2005