ILUKA RESOURCES LIMITED - Annual Report 2010

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2010

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ILUKA REVIEW

The creation and delivery of shareholder value

Iluka Review 2010

2010 Areas of Focus and Progress	3
Iluka’s Geographical and Market Position	4
Chairman’s Review	6
Managing Director’s Review	9
Production and Sales	14
Ore Reserves and Mineral Resources	16
Operations	18
Exploration	24
Product and Technical Development	28
Sales and Marketing	29
Mineral Sands Market Conditions	31
Sustainability	36
Group Summary Financials	40
Five Year Physical and Financial Information	42
Operating Mines – Physical Data	43
2011 Key Physical and Financial Trends	44
Iluka and Mineral Sands Information	46
Corporate Information	47

The Iluka Review 2010 provides shareholders and others with an overview of Iluka’s 2010 financial year. More detailed information in relation to financial statements, the Directors’ Report (including the remuneration report), ore reserves and minerals resources, and sustainable development activities can be obtained by reference to the 2010 Full Annual Report.

Australian currency is shown in this document unless otherwise specified

kt refers to thousand (‘000) metric tonnes

A glossary of terms used in this Review can be found on page 43

Disclaimer – Forward Looking Statements

The Iluka Review 2010 may contain information which is based on projected and/or estimated expectations, assumptions and outcomes.

These forward-looking statements are not guarantees or predictions of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the company’s control, and which may cause actual results to differ from those expressed in the statements contained in this release. Factors that could cause actual results or performance to differ materially from those expressed or implied in the forward-looking statements include, but are not limited to potential changes in:

■ exchange rate assumptions

product pricing assumptions
mine plans and/or resources
equipment life or capability
current or new technical challenges
market conditions

■ management decisions

While Iluka has prepared this information based on its current knowledge and understanding and in good faith, there are risks and uncertainties involved which could cause results to differ from projections. Iluka shall not be liable for the correctness and/or accuracy of the information nor any differences between the information provided and actual outcomes, and furthermore reserves the right to change its projections from time to time. Iluka does not undertake to update projections provided in this document on a regular basis.

Page 2

2010 Areas of Focus and Progress

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2010 Areas of Focus

n Improve environmental and safety performance
n Complete the transition to new high quality operations
n Take advantage of favourable industry supply/demand dynamics
n Deliver significantly improved financial performance

Principal Areas of Progress

n Reduced injury severity rates
n Integrated Australian production base established
n Name plate production at new operations
Jacinth-Ambrosia (Eucla Basin), Kulwin (Murray Basin Stage 2)
n Continued exploration in focus areas of Eucla and Murray Basins
mineral resource additions of 7.3 million tonnes of heavy mineral
n Substantial zircon price increases achieved ~ 30% uplift in 2010
~ 20% increase for 1st quarter 2011[1]
n New titanium dioxide pricing arrangements for 1st half of 2011
~30% to 40% increase for rutile and synthetic rutile[1]
n Group revenues of $964.6 million (up 60%)
n Group EBITDA of $304.7 million (up 206%)
n Net profit after tax of $36.1 million (2009 loss of $82.4 million)
n Operating cash flow of $163.6 million (up 95%)
n Reduction in debt to $312.6 million, down $69.5 million
n Gearing (net debt/debt+equity) reduced to 22% from 26%
n Final dividend of 8 cents (unfranked) per share
n 2010 share price appreciation of over 250%

1This represents the weighted average price across the Iluka portfolio, with significant variations based on quality of product, end applications and customer arrangements

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Iluka’s objective is to create and deliver value for shareholders and to achieve growth through exploration and innovation. Iluka seeks to provide solutions to customers through investment in new high quality sources of production, a commitment to product and technical development activities, as well as providing price leadership in mineral sands products in such a manner that facilitates an improvement in the profitability of its customers.

Iluka’s is the major global producer of zircon and the major supplier to the largest and fastest growing market – China. Zircon has numerous end uses but is principally used in the manufacture of ceramics, with demand linked to urbanisation and increasing personal consumption levels, particularly in developing economies.

Iluka also has a strong position as the major producer of higher grade titanium raw materials – rutile and synthetic rutile. Both products are used mainly in pigment based applications, but also in titanium metal manufacture and in other speciality applications.

Iluka has invested over $600 million in recent years in delivering two new, high margin production sources – JacinthAmbrosia and Murray Basin. Jacinth-Ambrosia is the largest new source of zircon globally, while the Murray Basin is a major rutile production province, with an associated zircon production stream.

Iluka’s commitment to sustainability is reflected in a determination to achieve high levels of environmental, health and safety performance; undertake open community and stakeholder engagement; and create a diverse workforce which is aligned to the company’s objective.

Page 3

Iluka Review 2010

Iluka’s Geographical Production and Market Position

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North America
80
46
132
US operation
58 Antwerp
-
Belgium
North America -
Wilmington
Major part of global chloride 251 Delaware Castellon
Spain
pigment production based in Virginia
the US; a key titanium export
Jacksonville
market for Iluka
Warehouse and small lot
distribution facility
Mining and processing facility
Other asset
Corporate/marketing office
Regional 2010 sales volumes
Zircon kt
Rutile kt
Synthetic rutile kt
Regional 2010 production volumes
Zircon kt
Rutile kt
Synthetic rutile kt
Ilmenite kt
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Page 4

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Iluka Resources is a major global participant in the mineral sands sector, involved in the exploration, mining, processing and sale of titanium products (rutile, ilmenite, leucoxene and synthetic rutile) and zircon.

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Europe
Traditional ceramics market
(Spain and Italy)
China
Largest global zircon consumer,
Europe linked to urbanisation and
126 manufacture of zirconium
107 chemicals. 2010 consumption
45 estimated at ~600kt
Asia (ex.China)
China
68 194 Qingdao
60 China
11
104
0 Shanghai
China
Xiamen
China
Australia/Other
355 10
Mining
Australian 250 17
Area C
operations 348 81
Perth Eucla 2181
Basin Perth Basin Adelaide
Murray
Basin
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1Ilmenite refers to saleable ilmenite only (excludes ilmenite upgraded to synthetic rutile)

Page 5

Iluka Review 2010

Chairman’s Review

The 2010 year was a significant one for the company.

It saw the transformation of Iluka’s production base, with commencement of operations at Jacinth-Ambrosia in the Eucla Basin of South Australia and at Kulwin, the first of the northern deposits in the Murray Basin of Victoria.

For shareholders, this means two new high quality zircon and rutile production areas will now underpin Iluka’s operations and revenue base over coming years.

The major capital expenditure phase in bringing these projects into production is over, debt is reducing and with it greater balance sheet flexibility is available to support distributions to shareholders, while retaining flexibility to invest in growth.

The year also saw a recovery in demand, across the company’s entire product range, from the depressed conditions experienced in 2009. This occurred to such an extent that Iluka was not able to meet all customer requirements for supply and the company expects to face a similar challenge in 2011.

Iluka achieved substantial price increases for zircon products during 2010. The company also struck new contractual terms and pricing arrangements for its high titanium dioxide feedstock products of rutile and synthetic rutile with its major customers, late in the year. This marks a significant change in long standing arrangements which had placed constraints on price movements.

Iluka’s shareholders will see the contribution from higher product prices during 2011.

Health, Safety and Environmental Performance

Iluka’s safety performance in 2010 did not meet the high standards expected with more injuries reported during the year. The higher level of reported incidents in part was associated with Iluka’s encouragement of a more diligent reporting of all incidents by key contractors. Reflecting the generally minor nature of most of the reported injuries, Iluka’s severity rate declined. As the Managing Director indicates, there will be a renewed emphasis on achieving best practice levels of safety performance. Environmental management performance was commendable across the Group, with no major environmental incidents or licence breaches during the year.

2010 Financials

The company’s 2010 financial results were stronger than expected at the beginning of the year. Results benefited from a recovery in demand, higher zircon prices, effective cost management and production efficiencies, offset in part by the movement in the Australia/ United States dollar exchange rate year-on-year.

In the first half, the company’s results were influenced by a continued reliance on lower margin sales from the Western Australian operations. It was not until the second half of the year that the benefits of the higher margin new production became apparent, particularly in zircon, as the company remained contractually constrained – in a pricing sense – in relation to its titanium product sales throughout 2010.

With 2011 representing the first full year of the two new operations and with favourable industry supply/demand dynamics supporting higher product prices, markedly improved financial performance is expected, notwithstanding risks associated with global economic conditions and Australian minerals industry taxation arrangements, carbon taxes and revised labour relations frameworks.

Page 6

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Chairman’s Review

2010 Financials

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MINERAL SANDS SALES REVENUE $m REPORTED EARNINGS $m
1,000 874.4 976.8 1.00 80
800
60
576.0 49.9
600
$m 0.50 $m 40 36.1
400
20
200
2009
0 AUD/USD 0
2010 2009 2006-2008 2010 2006-2008
Average Average
Average AUD:USD
(82.4)
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MINERAL SANDS EBITDA $m OPERATING CASH FLOW $m
300 200
250 250.2 224.7 163.6 156.9
150
200
$m 150 $m 100 83.9 ???
100 75.6
50
50
0 0
2010 2009 2006-2008 2010 2009 2006-2008
Average Average
GROUP EBITDA $m NET DEBT $m
(including Mining Area C)
350 500 470.1
304.7
300 400 382.1
253.8
250 312.6
200 60 $m 300 60
$m
150 40 200 40
99.6
100 35 26 20 100 25.9 35.7 20
500 17 % 0 201021.8 2009 2006-2008 %
2010 2009 2006-2008 Average
Average
GEARING %
EBITDA MARGIN % (NET DEBT/NET DEBT+EQUITY)
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2009 restated for change in hedge accounting in accordance with amendments to AASB 2008-8

Page 7

Iluka Review 2010

Chairman’s Review

Returns to Shareholders

The Directors determined the payment of a 2010 final dividend of eight cents per share, unfranked. Iluka currently does not having franking credits available for distribution.

Your Board is also pleased to note that shareholders in 2010 were able to participate in the strong absolute and relative share price performance which Iluka shares recorded, increasing over 250 per cent during the year.

Board Structure

I was very pleased to assume the chairmanship of Iluka following the retirement of Dr Robert Every at the 2009 Annual General Meeting. Two new Directors with global resources experience joined the Board in March 2010. Mr Wayne Osborn, a former Managing Director of Alcoa Australia and Mr Stephen Turner, founder and former Chief Executive Officer of London Stock Exchange listed and South African based International Ferro Metals Limited. Both Directors complement and strengthen the skill base of the Board. After nearly nine years on the Board, Mr Don Morley intends to retire as a Director at the conclusion of the Annual General Meeting to be held in Melbourne on 25 May 2011.

Management and Employee Contribution

The Board would like to acknowledge the outstanding contribution that the Managing Director, David Robb, his leadership team and the entire workforce have made in the transformation of Iluka over the last three to four years. David and his team have managed a complex and difficult task - transformation of the asset base and market disciplines of a business - with the objective of ensuring its ability to create and deliver shareholder value.

This has involved significant work in many areas, most notably in the following:

n restructuring of the operational base of the company – including the progressive idling of the company’s Eneabba mining operations, and other Western Australian operations – with a corresponding reduction in the company’s workforce;
n delivering two large, complex resource developments, within budget overall; and
n managing project execution, funding and balance sheet challenges, as well as exercising production and marketing discipline and innovation, during a period of uncertainty imposed on the business during the global economic crisis.

Assuming the continuation of favourable market conditions, shareholders can look forward with confidence to the company delivering improved financial performance and, with it, opportunities which can follow in terms of improved returns and investment in new opportunities.

John Pizzey Chairman

Page 8

Managing Director’s Review

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Iluka’s objective is to create and deliver shareholder value.

Pursuit of this objective has, over the last few years, required substantial changes to Iluka’s organisation, operations and business practices.

These transformational changes have been implemented successfully and in a manner consistent with our corporate values of commitment, integrity and responsibility.

Iluka shareholders should now benefit from a combination of positive factors:

n the difficult transition to new operations is complete;
n demand for Iluka’s products is strong and supply is tight;
n mineral sands product pricing is improving; and
n the contribution from the Mining Area C iron ore royalty is growing.

Transition to New Operations

Iluka has invested over $600 million in new mineral sands operations in the last three years, expanding operations in Victoria and pioneering new investment in a regional reserve in South Australia.

Murray Basin Stage 2 and Jacinth-Ambrosia were both commissioned and ramped up during the first half of 2010 and reached name plate capacity mid year.

Iluka’s asset base has, as a result, been transformed from an old, fragmented set of operations to a new, tightly integrated, more productive group of operations.

Concurrently, the company’s historical reliance on mining operations in Western Australia diminished as mining operations in Eneabba were idled.

Together, these changes have shifted our geographic centre and increased the proportion of higher value products in our sales mix.

The two new operations will contribute over 80 per cent of the company’s combined zircon and rutile production. Both incorporate infrastructure capable of being accessed and utilised to tie-in additional mineral sands resources and, as such, carefully targeted exploration activity remains a focus, especially in the Eucla Basin.

Strong Demand and Limited Supply

Successful delivery of Iluka’s new operations has coincided with a favourable supply and demand environment for the suppliers of high quality mineral sands products.

Demand for zircon has recovered on a global basis, led by China and other emerging economies. Zircon’s main ceramic application in floor and wall tiles underpins demand. Tile demand is in turn directly influenced by urbanisation trends, as well as the increasing product quality expectations of consumers in developing nations as disposable incomes increase.

Supply of zircon in 2010 was insufficient to meet demand and Iluka was forced to ration available material, a situation which has continued into 2011.

Titanium dioxide markets are also strong. Demand from pigment manufacturers - the major users of titanium dioxide feedstock - has recovered, while other market segments, such as titanium sponge manufacture for use in titanium metal manufacture, are more robust than was evident over the preceding two years.

Yet supply is constrained, in part because previous contractual arrangements constrained prices and, in turn, impeded investment within the industry.

Iluka’s decision to idle two of its four ilmenite upgrading kilns, with a stated intention to idle a third kiln during 2011, reflected inadequate returns from ilmenite upgrading (synthetic rutile manufacturing) activities in recent years.

However, a major change is occurring within the industry as historical “cap and floor” contracts come to an end progressively over the next few years. Product prices should, in future, more readily reflect prevailing product supply and demand characteristics in the market.

Page 9

Iluka Review 2010

Managing Director’s Review

Improved Pricing

As noted earlier, as contracts have allowed, Iluka has moved to shorter contract periods to ensure a more dynamic marketplace exists which reflects current supply and demand factors. While clearly beneficial in rising markets, shorter contract periods can increase price and volume volatility and are therefore not without risk.

Iluka has achieved significant upwards price momentum in zircon. Three price increases were implemented in 2010 and prices rose from approximately US$800/tonne at the commencement of 2010 to end the year above US$1,000/tonne. A further increase of approximately 20 per cent above the end 2010 level has been secured for the first quarter of 2011.

In relation to its high grade titanium products of rutile and synthetic rutile, the company has achieved a first half 2011 pricing outcome for both products which is between 30 and 40 per cent higher than 2010 average pricing levels.

Iluka believes that improved profitability can be achieved throughout the mineral sands value chain.

Consequently, Iluka’s approach to zircon pricing has been to communicate intended price increases to its customers at least a month in advance, so as to allow customers the opportunity to reset their pricing arrangements with their customers.

In high grade titanium dioxide, Iluka has negotiated new contractual arrangements with its customers. These new arrangements entail a number of components, one of which is the intention to review prices and volumes on a six monthly basis, rather than the previous annual arrangements. This contractual term may evolve to even shorter time frames in future.

Given the small cost component represented by Iluka’s products in most finished goods - for example in floor tiles, or in paint - it is the company’s view that, with adequate notice and with perseverance, the industry can pass through raw material costs without an adverse impact on final user demand.

Mining Area C Iron Ore Royalty

The Mining Area C iron ore royalty provides Iluka with a growing, low risk income stream from a part of BHP Billiton’s Western Australian iron ore operations.

Mining Area C

Royalty from BHP Billiton’s Mining Area C (MAC) iron ore operations in the Pilbara, Western Australia.

In 2010 Iluka received: n royalty income $71.3 million n capacity payments $5.0 million n $76.3 million contribution to EBITDA

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To better understand the options the company may have to generate increased value from this royalty, internal analysis was undertaken during 2010 to examine the competitiveness of the asset given possible future iron ore market developments. Preliminary work was also undertaken in reviewing market valuations of other royalty interests and in considering the advantages and disadvantages of alternative ownership structures for the royalty.

This work constitutes a shareholder focussed appraisal of alternative value-generation opportunities available to the company for this royalty. Any possible changes affecting the asset are complex and no decision has been made in terms of any alternative ownership arrangements for the Mining Area C royalty at this stage.

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Port Hedland
Yarrie
LEGEND
BHP Billiton existing
operation
WESTERN
Port
AUSTRALIA
BHP Yandi
MAC
OB 23/25
Newman OB 18
Wheelarra
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Page 10

Managing Director’s Review

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Operations

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Jacinth-Ambrosia, South Australia

Long life, zircon-rich mineral sand mining and concentrating operation. Discovered in 2004, the deposit was developed and operating at full production capacity mid 2010.

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Virginia operation, United States

Iluka’s US operation produces a high quality zircon suitable for high-end ceramics, as well as a low impurity ilmenite suitable for use in pigment manufacture by the chloride process.

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Kulwin operation, Murray Basin, Victoria

Kulwin is a principal source of rutile (high grade titanium product). Kulwin operation represents the first mining of deposits in the northern part of the basin. Full production capacity was achieved mid 2010.

2010 did not see the planned for improvement in safety performance. Performance was mixed, with injury frequency rates increasing rather than reducing as targeted, but with a pleasing reduction in injury severity achieved. There will be a renewed emphasis on achieving best practice levels of safety performance to break through the performance plateau in injury frequency that has now persisted for some years.

A crucial task is to determine the best means to respond to the current zircon supply deficit and to the tight supply conditions in Iluka’s titanium dioxide markets.

The restoration of the Virginia operation in the United States to full capacity during the year provided the main component of the company’s high quality zircon production response to improving demand. While the Virginia operation has a relatively short remaining economic life, mine and operational expansion opportunities are available and are being investigated.

Consideration is being given to enhancing zircon and rutile production elsewhere, including necessary debottlenecking activities and investments together with changes in mining plans and methods.

In relation to high-grade titanium products, Iluka has the ability, subject to appropriate pricing outcomes and suitable ilmenite feed availability, to reinstate some part of currently idled synthetic rutile capacity. These upgrading operations involve additional costs and require higher prices to provide adequate returns.

The company’s focus on product and technical development opportunities which, in part, entails determining whether value can be extracted from products considered valueless previously, will also form a part of how production capacity is utilised.

In each case, the company will remain disciplined and focussed on realising an acceptable return on capital.

Production flexibility, such as the ability to transport Jacinth-Ambrosia heavy mineral concentrate to the Murray Basin mineral separation plant, at Hamilton, as well as the Western Australian mineral separation plant, and production efficiencies that have been achieved through the transition in the operating base, will be protected.

Product and Technical Development

Iluka is committed to improving its product and service offering to its customers.

The Product and Technical development team within Iluka works with customers and with Iluka operations and marketing personnel to facilitate better performance of Iluka materials in meeting customer needs and to develop new products. Activities also seek innovative solutions which increase supply of key products; lower costs of production; provide new sources of raw materials; and derive value from those parts of the resource base which may currently be assigned little or no value.

Areas of focus include trials to determine whether the blending of lower quality Murray Basin ilmenite with Jacinth-Ambrosia ilmenite may serve as a suitable feedstock for part of the company’s synthetic rutile process; work to investigate the development of a new synthetic rutile product which may have application in markets utilising the sulphate pigment process; as well as a range of initiatives on internal production efficiencies and recoveries.

Marketing

Iluka’s marketing efforts will continue to enhance Iluka’s position in growth markets.

Logistics have been re-engineered (and will continue to evolve) to cost-effectively service customers in existing and new markets.

The company’s on-line sales portal was launched in 2010 and has evolved from a sales site to an auction site for small lots of both zircon and high grade titanium dioxide products.

While volumes traded through the site are very small currently, these volumes are expected to grow. The site is a valuable means to access part of the mineral sands market difficult to service through a direct market presence.

Page 11

Iluka Review 2010

Managing Director’s Review

Exploration

Iluka Online Sales

Iluka launched an online mineral sands sales portal in May 2010. Initially a sales site for small volumes of zircon, the site now offers an auction basis for acquiring both zircon and high grade titanium products.

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SOUTH
AUSTRALIA
EUCLA
BASIN
Eucla
Ceduna
Atacama
Jacinth
Ambrosia
Typhoon
0 5 10
km
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2010 exploration success

Brownfields exploration activity in the Eucla Basin included a further two discoveries, Atacama and Typhoon. Both are located within close proximity to the Jacinth-Ambrosia operation. The combined mineral resource of both discoveries represents a 46 per cent increase in Iluka’s Eucla Basin resource position at the end of 2010, compared with 2009.

Iluka’s seeks to achieve growth in mineral sands through exploration success.

The company plans to increase exploration expenditure progressively over the next few years, from a recent average of $20 million to approximately $25 million to $30 million. This will enable an accelerated search across Iluka’s current extensive tenement holdings and also the utilisation of new tools and techniques to improve exploration targeting.

Iluka’s project generation area is focussed on identifying and securing opportunities to establish new exploration tenement positions, in Australia and internationally.

Exploration activities are required well in advance of production. Major discoveries are rare and project lead times are often lengthy. For example, the discovery of the Jacinth and Ambrosia deposits in 2004 opened up a new mineral sands province, but a six year lead time was required before significant production from the area was available. Such project identification and development time frames are typical for major resources projects, making the identification of new provinces and careful exploration targeting an important precursor to new production.

People

Through the many changes of the past few years, Iluka’s people have demonstrated, consistently, their high levels of commitment, integrity and responsibility. Those same attributes will be called upon in 2011 as we strive to improve our safety performance, which was mixed in 2010 – a significant reduction in the number of injuries was not achieved, but there was a pleasing reduction in injury severity, while environmental and community relations performance improved.

Iluka sees workforce safety as part of a broader company value of “responsibility”. Safe workplaces are generally a result of people taking individual responsibility for their safety and for the safety of their colleagues. Policies, procedures and awareness raising activities in 2011 will be based around this principle. In the year ahead Iluka will continue to seek to attract and retain the best people while building and maintaining a diverse, sustainable and high achieving workforce that reflects its communities. The company will develop and implement programmes to foster workforce diversity in regards to gender and age and in terms of participation by indigenous people and people with disabilities.

Iluka’s remuneration policies and practices have assisted in the retention of key staff and in succession planning. Increasingly competitive labour market conditions in Australia have the potential to increase staff turnover and the company will need to retain some flexibility in its approach, particularly where skills are in high demand.

Teamwork and innovation were to the fore in a number of areas during the year and the dedication, persistence and resilience of Iluka people in transforming the company is paying off for shareholders, including the majority of Iluka employees who are also shareholders.

Government Initiatives to Reduce Carbon Dioxide Emissions

Iluka recognises the importance of taking meaningful steps to reduce the environmental impacts of its mining and processing activities. As part of normal business improvement activities, these steps include reducing energy consumption and addressing carbon dioxide equivalent emissions, notwithstanding the continuing scientific debate regarding the latter.

Mineral sands products are produced in many countries and are used in a wide range of consumer and industrial applications, and increasingly in China and other developing economies. Iluka’s mineral sands business is, therefore, subject to strong international competition.

In addition, parts of the mineral sands business, as with other value-adding upgrading activities, are energy intensive in nature, for example in the production of synthetic rutile in Western Australia which is then sold globally in competition with similar products produced in countries such as South Africa, Canada and India.

Page 12

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Managing Director’s Review

Under the Federal Government’s previous carbon reduction plan, Iluka was granted formal recognition as an Emissions Intensive Trade Exposed industry for its synthetic rutile operations. That status recognised that these operations are of economic value domestically and compete directly in global markets with similar products produced in jurisdictions that have not announced an intention to impose a carbon tax on their industries. That status provided reassurance that Iluka’s operations would not be disadvantaged on an international basis, potentially to a level that resulted in production reducing in Australia and increasing elsewhere for no net benefit in terms of carbon dioxide emissions.

Shareholders should be aware that it is very important that a similar recognition of Iluka’s competitive position is maintained under any new Carbon Tax regime. If this were not to be forthcoming from the Federal Government, it would potentially damage the competitiveness and viability of this aspect of Iluka’s operations, impacting employment and regional economies, as well as shareholder returns.

Conclusion

Iluka’s management team is pleased with the progress achieved over the past twelve months.

While the path of global economic progress is likely to remain unpredictable and consumer sentiment fragile, we are cautiously optimistic about the global economic recovery path. Despite likely volatility, we believe current supply and demand fundamentals in the mineral sands industry represent a favourable environment for the company.

We expect that shareholders should benefit from significantly improved financial performance from this year forward and we are excited about what lies ahead as we work to secure the next phase of Iluka’s growth.

Priorities for the future

Management’s current priorities are to:

n operate the business safely and in a sustainable manner;
n maximise high margin production from existing operations;
n determine the best means to cost effectively supply additional zircon and high grade titanium products into supply constrained markets;
n deliver prices which reflect market supply and demand factors, while allowing the industry time to adjust;
n invest in product and technical development to enhance and expand Iluka’s offering to customers while improving internal efficiencies;
n enhance Iluka’s presence in growth markets;
n increase investment in exploration to add to the reserve and resource base; and
n achieve and then sustain balance sheet flexibility sufficient to fund growth opportunities while providing shareholders with regular distributions.

David Robb Managing Director

Page 13

Iluka Review 2010

Production and Sales

Mineral Sands Production

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2010 Production ZIRCON RUTILE
500 300
The increase in year-on-year production 448.2
412.9 250.1
demand for Iluka’s products, following volumes reflects a recovery in global 400 + 56.9% 250 + 76.9%
appreciably lower demand in 2009, associated with global economic Productionvolumes 300 263.1 Productionvolumes 200150 141.4 176.3
conditions. In 2009, Iluka also decided to (kt) 200 (kt)
100
reduce production to better match supply
with lower global demand. 100 50
Lower 2010 synthetic rutile production 0 0
2010 2009 2006-2008 2010 2009 2006-2008
reflected Iluka’s decision to idle Average Average
two of its four kilns.
Lower saleable ilmenite production –
Iluka’s lowest value product – reflects
a focus on ilmenite production for
upgrading activities.
SYNTHETIC RUTILE ILMENITE (Upgradeable and Saleable)
600 2,000
+ 37.1%
500 -14.2% 500.2
– 56.5%
405.0 1500 817.6
Production 400 347.5 Productionvolumes
volumes(kt) 300 (kt) 1000
200 342.1
469.0 698.7
100 500 496.7
215.9
0 0
2010 2009 2006-2008 2010 2009 2006-2008
Average Average
Upgraded to Saleable
Synthetic Rutile
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Page 14

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Production and Sales

Mineral Sands Sales

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2010 Sales ZIRCON RUTILE
Iluka’s zircon and rutile sales recovered 500 478.7 250 240.0
+ 73.0%
strongly, associated with an improvement + 115.0% 200
in global demand during 2010. 400
idling of upgrading capacity, while Iluka’s focus on ilmenite production for internal Lower synthetic rutile sales reflect the volumesSales(kt) 300200 222.6 volumesSales(kt) 150100 138.7
consumption and the closure of lower 50
100
value ilmenite production streams,
is reflected in lower ilmenite sales. 0 0
2010 2009
2010 2009
SYNTHETIC RUTILE ILMENITE
400 396.7 400 373.7 376.4
362.5 - 8.6%
350
350
300
300
250
250
Sales
volumesSales 200 volumes(kt)(kt) 200
(kt) 150
150
100
100
50
50
0
0
2010 2009
2010 2009
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SYNTHETIC RUTILE ILMENITE
400 396.7 400 373.7 376.4
362.5 - 8.6% 350 - 0.7%
350
300
300
250
250
Sales
Sales 200
volumesSales 200 volumes(kt)(kt)
(kt) 150
150
100
100
50
50
0
0
2010 2009
2010 2009
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Page 15

Iluka Review 2010

Ore Reserves and Mineral Resources

The following provides a summary of Iluka’s ore reserves and mineral resource position as at 31 December 2010. Iluka’s complete mineral resources and ore reserves statement, reported in accordance with the JORC Code 2004, is available in the 2010 Annual Report and on the Iluka website (www.iluka.com).

Ore Reserves

Ore Reserves
In Situ Heavy Mineral	Tonnes (millions)*
OpeningOre Reserves 2010 28.09
Production/depletions (3.18)
New Ore Reserves added/adjustments 2.09
ClosingOre Reserves 27.00
Ore Reserves net change (1.09)

*Rounding may generate differences in last decimal place.

Ore reserves decreased by 1.09 million tonnes of heavy mineral. This result is lower than annual production and depletions of 3.18 million tonnes due to mine optimisation work which facilitated ore reserve additions during the year.

The main factors contributing to the change in Iluka’s inventory of ore reserves during 2010 were:

n an increase in the Eucla Basin ore reserves through mine reoptimisation, despite a full year of production from operations at the Jacinth-Ambrosia mine;
n a reduction in the Murray Basin ore reserves of 1.55 million tonnes of heavy mineral, with mining depletion of 1.68 million tonnes following the commissioning and a full year of production from the Kulwin operation, partially offset by a positive adjustment;
n an increase in the Western Australian ore reserves of 0.62 million tonnes, related to a 0.92 million tonnes increase in reserves associated with mine optimisation planning for the Cataby deposit, partially offset by production; and
n a reduction in the Virginia ore reserves of 0.2 million tonnes associated with mining operations.

Ore Reserves are estimated using all available geological and relevant drill hole and assay data, including mineralogical sampling and test work on mineral recoveries and final product qualities. Ore reserve estimates are determined by the consideration of all of the “modifying factors” in accordance with the JORC Code 2004, and for example, may include but are not limited to, product prices, mining costs, metallurgical recoveries, environmental consideration, access and approvals. These factors may vary significantly between deposits.

Page 16

Ore Reserves and Mineral Resources

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Mineral Resources

Mineral Resources
In Situ Heavy Mineral	Tonnes (millions)*
OpeningMineral Resources 2010 110.62
Additions – exploration/development 7.30
Miningdepletions (3.18)
Written off (completion of mining) (0.68)
ClosingMineral Resources 114.06
Mineral Resources net change 3.44

*Rounding may generate differences in last decimal place.

Mineral resources increased by 3.44 million tones of heavy mineral, after mining depletion and adjustments.

The positive change was influenced by:

n an increase in Eucla Basin mineral resources of 3.82 million tonnes, after mining, due to the addition of inferred mineral resources for the Atacama and Typhoon deposits (total of 4.64 million tonnes of heavy mineral);
n a decline in Murray Basin mineral resources of 2.68 million tonnes, due mainly to mining depletion and, to a lesser extent, the write down of mineral resources; and
n an increase in Western Australian mineral resources of 2.53 million tonnes, associated with mining depletion, offset by the addition of a new mineral resource - Gilmore.

The statement of Mineral Resources and Ore Reserves presented in this Report has been produced in accordance with the Australasian Code for Reporting of Mineral Resources and Ore Reserves, December 2004 (the JORC Code).

The information in this Report relating to Mineral Resources and Ore Reserves is based on information compiled by Competent Persons (as defined in the JORC Code). Each of the Competent Persons for deposits located outside Australia are members of Recognised Overseas Professional Organisations (ROPOs) as listed by the ASX. Each of the Competent Persons have, at the time of reporting, sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity they are undertaking to qualify as a Competent Person as defined by the JORC Code. At the reporting date, each Competent Person listed in this Report is a full-time employee of Iluka Resource Limited. Each Competent Person consents to the inclusion in this Report of the matters based on their information in the form and context in which it appears.

All of the Mineral Resource and Ore Reserve figures reported represent estimates at 31 December 2010. All tonnes and grade information has been rounded, hence small differences may be present in the totals. All of the Mineral Resource information is inclusive of Ore Reserves (i.e. Mineral Resources are not additional to Ore Reserves).

Page 17

Iluka Review 2010

Operations

Perth Basin

Eucla Basin

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----- Start of picture text -----

2010 Attributable production 2010 Attributable production
n 46.2kt of zircon n 150.9kt of zircon
n 41.5kt of rutile n 10.2kt of rutile
Port of Geraldton n 347.5kt of synthetic rutile n 120.8kt of ilmenite
Narngulu MSP n 255.8kt of ilmenite Jacinth-Ambrosia HMC processed in Western Australia
Two of Iluka’s four ilmenite upgrading or synthetic
Eneabba rutile kilns were operational during 2010
Cataby WESTERN
WESTERN AUSTRALIA
AUSTRALIA
Perth Kalgoorlie LEGEND
Port
Gilmore Eucla
Mine
Mineral separation plant
Synthetic rutile kiln
Bunbury
Proposed mine site
North Capel
Esperance Heavy mineral deposit
Tutunup
Iluka tenements
Tutunup South Shipping
Rail (capability)
Road
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Eucla Basin/Perth Basin

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Mining at Jacinth-Ambrosia

Mining is occurring sequentially on two contiguous deposits. Dry mining techniques are used, feeding ore to a mining unit plant which slurries the ore by pipeline to the wet concentrator plant.

Wet Concentration

The wet concentrator plant separates the various fractions in the ore to produce a heavy mineral concentrate (HMC).

Transport

Concentrate is transported by triple road trains to the Port of Thevenard, a distance of 270 kilometres. A vessel with a payload of 20-25 kt transports concentrate to the Port of Geraldton, for processing at Narngulu, a 14 to 16 day round trip.

Processing

Processing of HMC occurs at the Narngulu mineral processing plant, near Geraldton, Western Australia. The plant has a capacity of 800 kt of HMC, of which 600kt is dedicated to Jacinth-Ambrosia concentrate. Electrostatic and electromagnetic separation produces final products of zircon, rutile (and other high grade titanium products), as well as ilmenite. Synthetic rutile operations occur in the South West and Mid West of Western Australia.

Final Product Despatch

Finished products are exported through the Port of Geraldton, 9 kilometres from Narngulu.

Page 18

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Perth Basin
Eucla Basin Murray Basin, Victoria
Murray Basin 2010 Attributable production
n 157.6kt of zircon
n 198.4kt of rutile
n 56.8 kt of ilmenite
Part of Murray Basin ilmenite includes low quality,
SOUTH currently unsaleable ilmenite which is returned to the mine
AUSTRALIA
SOUTH
AUSTRALIA Broken Hill
NEW SOUTH
WALES
Atacama
Jacinth-Ambrosia
Typhoon
Tripitaka Adelaide Mildura
Port Thevernard Ceduna HMC can also be transported to Iluka’s West Balranald
Hamilton MSP for Ouyen Kulwin
processing Woornack, Rownack
& Pirro
Echo
Douglas
VICTORIA
Hamilton Hamilton MSP Melbourne
Port of Melbourne
Port of Portland Portland
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Murray Basin, Victoria

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Mining

Mining is currently occurring at the Douglas deposits, at the satellite deposit of Echo and at Kulwin. Dry mining techniques are used, feeding ore to a mining unit plant which slurries the ore by pipeline to the wet concentrator plant.

Wet Concentration

Wet concentrator plants are located at Douglas and Kulwin (the latter relocatable). Concentration entails gravity separation of the lighter fractions from the ore to produce a heavy mineral concentrate.

Processing

The Hamilton mineral separation plant is capable of accepting Murray Basin, as well as Eucla Basin concentrate. Utilising electrostatic and electromagnetic separation, final products of zircon, rutile and ilmenite are produced. The HMC processing capacity is ~700kt annually.

Transport

Concentrate is transported by road from Douglas (90 kilometres) and Kulwin (340 kilometres) to the Hamilton mineral separation plant. Production from northern deposits also has capability of being transported by rail. From Hamilton finished product is transported 85 kilometres to the Port of Portland for export, or in containers to Melbourne.

Final Product Despatch

Finished products are predominantly exported through the Port of Portland. Facilities at the Port include purpose built mineral sands storage and ship loading facilities.

Page 19

Iluka Review 2010

Operations

Eucla Basin/Perth Basin

Iluka undertakes mining and concentrating activities at the Jacinth-Ambrosia operation, in the Eucla Basin, South Australia. Jacinth-Ambrosia is Iluka’s principal source of zircon. The mine also produces rutile and chloride ilmenite.

Mining activities started at Jacinth-Ambrosia in November 2009, after a successful project construction phase which commenced in 2008. During the first half of 2010, trial shipments of Jacinth-Ambrosia zircon were sent to customers for testing in their plants. Product quality was assessed as high and there was strong acceptance of this new, ceramicgrade zircon product.

Jacinth-Ambrosia produces heavy mineral concentrate, which is shipped from the Port of Thevenard to Iluka’s Narngulu mineral separation plant in Western Australia. As part of the development of the Jacinth-Ambrosia operation, the Narngulu plant was expanded, with additional facilities constructed to accept and process Jacinth-Ambrosia concentrate. The construction, commissioning and ramp up of the Narngulu mineral separation plant to full design production on Jacinth-Ambrosia concentrate was achieved during the year.

Associated with achievement of name plate capacity, the remaining mining operations at Eneabba in the Mid West of Western Australia ceased.

Ore treated in South Australia exceeded budget due to high throughput and plant availability. Iluka built a stockpile of heavy mineral concentrate during the year to help mitigate potential production outages given the extended logistics chain from South Australia to Western Australia. This, and the treatment of the remaining Eneabba concentrate at Narngulu, meant that the Narngulu mineral processing plant produced approximately 150 thousand tonnes of zircon originating from Jacinth-Ambrosia, a major part of 197 thousand tonnes of zircon production in total at Narngulu during 2010. Production in 2011 is expected to be exclusively sourced from Jacinth-Ambrosia heavy mineral concentrate.

Jacinth-Ambrosia is South Australia’s first mining operation in a mixed use regional reserve, with environmental management standards necessarily high. Iluka achieved both construction completion and a year of operation without breaching any environmental licence conditions and without a lost time injury. Consistent with the company’s aim to facilitate local employment, as well as indigenous training and employment, an indigenous employment aspirational target of 20 per cent was set and achieved early in 2010. Over one third of total employees at Jacinth-Ambrosia are drawn from surrounding regional areas in South Australia.

Current priorities for the Jacinth-Ambrosia operation include:

n fine tuning and debottlenecking operations to increase throughput;
n progression of a study to assess the potential to expand the operation;
n a logistics review to reduce transportation and handling costs; as well as
n production flexibility, reliability and cost reduction initiatives following the first year of operational experience.

Page 20

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Operations

Western Australian Synthetic Rutile Operations

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Iluka operated two of its four ilmenite upgrading, or synthetic rutile kilns, during 2010, with synthetic rutile kiln 2 (SR2) in the South West of Western Australia and SR3 in the Mid West of Western Australia. The other two kilns have been idled, reflecting Iluka’s decision not to operate assets which do not generate adequate returns.

Both SR2 and SR3 kilns achieved record throughput in 2010. SR3 kiln was scheduled to cease operation in June 2010, but with the achievement of higher prices, this kiln continued operation until December. Minor repairs associated with a partial refractory lining failure took place in December, with the kiln undergoing more extensive repairs in the first quarter of 2011, before being run mainly on a research and development basis, to test various Iluka ilmenite feed blends. The kiln is expected to be idled later in 2011, with Iluka operating predominantly on one kiln (SR2) during 2011. This kiln has a production capacity of approximately 200 thousand tonnes of synthetic rutile.

Western Australian Mining Operations

Iluka is currently developing the Tutunup South mine in the South West of Western Australia. This is scheduled to be completed mid 2011 and supply ilmenite as a feed source for Iluka’s synthetic rutile operations, to facilitate the recommencement on a full time basis of a second synthetic rutile kiln in 2012. Non magnetic materials (zircon and rutile) will be processed at the Narngulu mineral separation plant, depending on plant availability.

The company is also investigating the recovery of valuable heavy minerals, including zircon, from stockpiles, in the Mid West of Western Australia.

Synthetic rutile is a modified ilmenite with a composition of 88 to 95 per cent titanium dioxide. The non titanium components of ilmenite are removed by a reduction process in large rotary kilns to produce synthetic rutile.

Page 21

Iluka Review 2010

Operations

Murray Basin, Victoria

Iluka’s Murray Basin operations include mining in the southern part of the Basin near Douglas and, more recently, at the first of the deposits in the northern part of the basin – Kulwin.

Heavy mineral concentrate from the Douglas mining operations, referred to as the Bondi deposits, and from Kulwin, are fed into the company’s mineral separation plant at Hamilton. Final product is shipped from the Port of Portland or sent by rail for export through the Port of Melbourne.

Murray Basin is predominantly a rutile production province, although the southern deposits have generated a significant zircon production stream. Most of the ilmenite production is not currently commercial and is stockpiled or returned to the mine void. Test work to be undertaken in 2011 will evaluate whether Murray Basin ilmenite can be used in a blend as a potential synthetic rutile feed source.

In the southern part of the Basin, mining has occurred on the various Bondi deposits since 2007. Mining in the Douglas area has been extended by six months to early 2012 through successful mine and reserve optimisation.

The Echo deposit is a zircon-rich satellite deposit. Iluka mines at Echo and transports ore to Douglas for concentrating, before being blended with the Bondi heavy mineral concentrate. Mining commenced at Echo in March 2010 and is scheduled to cease during 2011.

The Kulwin operation is in the northern part of the basin and is a “fit for purpose” development, with mining and concentrating equipment constructed in a modular fashion, capable of being re-located to subsequent mine developments.

Mining and concentrating activities at Kulwin are expected to cease in the first quarter of 2012 when it is planned to relocate the mining unit and concentrator plant from Kulwin to the Woornack, Rownack and Pirro deposits, approximately 25 kilometres away.

The Woornack, Rownack and Pirro project is in the final stages of a definitive feasibility study, with some critical path activities such as the provision of high voltage power to the site currently being undertaken. During 2011, it is planned to carry out preparatory work including:

n establishment of site infrastructure (roads and communications);
n earthworks and civil construction for the relocated plant, and
n the removal of overburden in preparation for mining activities.

In 2010, a scoping study was completed for the Balranald project, providing the appropriate confidence to progress the project to a pre-feasibility study.

The Balranald project encompasses the deposits of West Balranald and Nepean, located in south western New South Wales. The deposits are large, but also deeper than other deposits Iluka has mined in the Murray Basin. The Balranald deposit contains approximately 14.5 million tonnes of heavy mineral resources, with rutile assemblages ranging from 12 to 15 per cent.

The pre-feasibility study is expected to take two years and include:

n evaluation of various mining methods;
n ground water management studies;
n engineering options; and
n transport and logistics studies.

Page 22

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Operations

Virginia, United States

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Virginia
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Virginia, United States

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Mining

Mining is occurring at two separate deposits, Concord and Brink. Dry mining techniques are used, feeding ore to a mining unit plant which slurries the ore by pipleine to the wet concentrator plant.

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Wet Concentration

Wet concentration upgrades the mined ore to a high value heavy mineral concentrate (HMC).

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Transport

Concentrate is transported by road a distance of 20 miles to Stony Creek mineral separation plant (MSP).

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Processing

Processing of HMC occurs at mineral separation facilities located at Stony Creek. The MSP produces final products of chloride ilmenite, zircon and staurolite.

Iluka’s Virginia operation involves dry mining at two deposits, with two wet concentrators which upgrade the ore to valuable mineral in concentrate. The heavy mineral concentrate is transported to a mineral separation plant which produces final products of chloride ilmenite, zircon and staurolite.

The majority of the Virginia ilmenite is sold domestically within the United States for the production of titanium dioxide pigment.

Virginia zircon produces one of the highest quality ceramic opacifiers, making it attractive to high-end ceramic tile and sanitary-ware producers. In addition, low levels of impurities make it sought after as a feedstock for zirconia and refractory producers. Virginia also produces staurolite which is sold into the construction and maintenance industries and used as an alternative to coal slag, garnet and silica based blasting media.

The Virginia operations began 2010 operating on a 10 days on, 4 days off schedule, an adjustment made in response to global economic conditions in 2009. As demand increased and inventory was sold, the scheduled ramp-up to full production was brought forward from October to February for the mineral separation plant, and to July for mining operations.

Operationally, the focus is upon maximising margins through increased production (debottlenecking and process efficiencies) and increased revenue by optimising the suite of zircon products for which Virginia is known, particularly its ultra premium zircon product.

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----- Start of picture text -----

2010 Attributable production
n 58.2kt of zircon
n 251.5kt of ilmenite
LEGEND
Mine Washington D.C.
Mineral separation plant
VIRGINIA Richmond
Concord Stony Creek MSP
Brink
Raleigh
NORTH
CAROLINA
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Page 23

Iluka Review 2010

Exploration

Exploration underpins mineral sands growth within Iluka, through adding new mineral resources to the portfolio and in their progressive conversion to ore reserves.

Iluka expands its mineral resource base and ore reserves through:

n exploration for new heavy mineral deposits in existing sedimentary basins through both a greenfield and brownfield (near infrastructure) exploration approach;
n global mineral sands geological prospectivity modelling, designed to target heavy mineral occurrences with the potential to generate an acceptable risk-weighted return;
n mine optimisation, which addresses the most efficient staging for monetization of the ore reserve base of the company, from preliminary scoping studies to detailed mine planning; as well as
n mineral resource acquisitions, either direct or via joint venture/farm-in arrangements.

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Enhanced satellite image of the Eucla Basin, South Australia with Iluka tenement holdings shown.

Page 24

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Exploration

Eucla Basin, South Australia/Western Australia

Iluka holds the majority of exploration tenements in the Eucla Basin and has the only mineral sands mining operation in the region, at Jacinth-Ambrosia. Iluka’s substantial tenement holding extends along the inland edge of the Eucla Basin from South Australia into eastern Western Australia – a distance of approximately 1,200 kilometres. Iluka’s tenements secure an area of approximately 50 thousand square kilometres and account for approximately 61 per cent of Iluka’s total Australian tenements and tenement application packages.

The Eucla Basin (refer satellite image page 24) is assessed as Iluka’s most prospective heavy mineral target region. To date, Iluka has discovered over 13.9 million tonnes of heavy mineral resources, has two advanced prospects and numerous heavy mineral drill intercepts to follow up.

Recent exploration activity in the Eucla Basin has included:

n discovery of two heavy mineral resources within close proximity to the JacinthAmbrosia operation. An inferred mineral resource of 4.6 heavy mineral tonnes has been determined for both the Typhoon and Atacama discoveries[1] .The combined mineral resource represents a 46 per cent increase in the end 2009 resource position for the Eucla Basin. The Typhoon discovery lies approximately four kilometres from Jacinth-Ambrosia, while Atacama is approximately nine kilometres north east of Jacinth-Ambrosia. Unlike Jacinth-Ambrosia, both discoveries are ilmenite dominated with a lower zircon assemblage than Jacinth-Ambrosia. Dependent upon further evaluation and testing of the ilmenite quality, both represent tie-in opportunities to the Jacinth-Ambrosia operation and a potential ilmenite feed source for Iluka’s synthetic kilns, or for direct sale;
n Iluka has commenced a large radiometric/aeromagnetic survey in the Eucla Basin over an area of 8,200 square kilometres;
n greenfield exploration was completed along first pass regional stratigraphic lines, north and north west of Jacinth-Ambrosia. Including the brownfield work near Jacinth, a total of 80 regional traverses were completed with encouraging zones of heavy mineral mineralisation intersected along several traverses; and
n a third exploration drilling programme involving 2,400 metres was completed to test prospective areas along the Western Australian portion of the Eucla Basin.

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----- Start of picture text -----

SOUTH
WESTERN AUSTRALIA
AUSTRALIA
EUCLA BASIN
Geophysical Survey
8,200 square km
Mojave
Eucla Dromedary
Tripitaka Gulliver’s
Ceduna
Atacama
Jacinth
LEGEND
Ambrosia
Mine
Typhoon
Heavy mineral deposit
Iluka tenements 0 5 10
km
----- End of picture text -----

1Refer Iluka ASX Releases dated 28 January 2011 and 15 July 2010

Page 25

Iluka Review 2010

Exploration

Murray Basin, South Australia/Victoria/New South Wales

Iluka’s second main area of current exploration commitment is on the company’s Murray Basin tenement holdings across northern Victoria and into the south-west portion of New South Wales; a tenement holding area of 24 thousand square kilometres.

Recent exploration activities have included:

n greenfield exploration to assess targets in the northern portion of the Murray Basin. Exploration continued in Victoria and in New South Wales to test new areas in the north west margin of the Murray Basin and Iluka is seeking to locate stratigraphies suitable for hosting mineral sands;
n a 7,200 square kilometres aeromagnetic survey, commencing in the first quarter of 2011, to cover portions of the tenements in the northern portion of the Murray Basin; and
n mineral resource delineation programmes continued on both the Nepean and West Balranald deposits, as part of studies for the potential development of these large rutile-dominated deposits.

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----- Start of picture text -----

SOUTH
AUSTRALIA
NEW SOUTH
Broken Hill WALES
MURRAY BASIN
Nepean
Adelaide Mildura
Euston Deposits West Balranald
Ouyen Balranald
Woornack, Rownack Kulwin
& Pirro
LEGEND
Port
Echo
Mine Douglas VICTORIA
Mineral separation plant Melbourne
Hamilton Hamilton MSP
Proposed mine site Port of Melbourne
Heavy mineral deposit PortlandPort of Portland
Iluka tenements
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Page 26

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Exploration

Perth Basin, Western Australia

Exploration in the Perth Basin represents a minor component of Iluka’s overall Australian exploration activities with the activity that is occurring evaluating remaining tenements for potential ilmenite feedstock for Iluka’s synthetic rutile production process. Iluka is undertaking a process to divest a large part of its Perth Basin tenement holdings.

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----- Start of picture text -----

EXPENDITURE PROFILE ILUKA TENEMENT POSITION – 31 DECEMBER 2010
$17.9 million for 2010 Total 81,650 sq km
Perth Basin
Other (including 1,150
exploration overheads)
Other
16% 6,400 Murray Basin
Project 24,100
Generation
10%
49% Eucla
Perth Basin 4% Basin
50,000
21% Eucla Basin
Murray Basin
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Page 27

Iluka Review 2010

Product and Technical Development

Iluka established a dedicated Product and Technical Development function in 2009. This function, along with the company’s marketing and exploration commitments, represents an investment in the future of the mineral sands sector.

As part of Iluka’s focus on enhancing value capture from its own resource and production base, as well as extending its offer to customers, Iluka is increasing its resourcing of innovation and research and development activities in mineral sands.

The Product and Technical Development area facilitates innovation in terms of the products Iluka offers to its customers; enhances the company’s technological capabilities to support current and future production; and contributes technical expertise to the cost-effective development of the company’s new mining and processing operations.

During 2010, two new product management positions (one for titanium dioxide and one for zircon) were established to provide a technically-oriented interface between customers and Iluka. The industry professionals appointed to these roles, in combination with Iluka’s broader technical and engineering capabilities, provide an additional level of technical support available to customers. Their role also compliments Iluka’s sales and marketing presence, enabling Iluka to work with customers to better understand product applications and the means to improve product output and efficiency.

Areas of focus by Product and Technical Development in 2010 have included:

n commissioning support for the new projects;
n development of new titanium dioxide products, with an emphasis on using low value or waste feedstocks (for example, Murray Basin ilmenites) and idled synthetic rutile kiln capacity to develop products for growth markets. In this regard, trials of blending Murray Basin and Jacinth-Ambrosia ilmenites for processing in synthetic rutile kilns have commenced, with encouraging initial results;
n detailed assessment of the technical and economic aspects of producing additional zircon from waste streams and tailings stockpiles held by the company and potentially available from third parties; and
n technical input to feasibility assessments of potential new mining operations in both Murray Basin and Western Australia and reviews of alternative mining and concentrating techniques.

The work in each of these areas is ongoing but has proved encouraging, in that a number of novel opportunities were identified and considered sufficiently feasible (both financially and technically) to warrant further investment in 2011.

The focus in 2011 remains on attempting to develop and commercialise a number of new titanium products utilising Iluka’s existing synthetic rutile capacity and what has been previously assessed as low value or unsuitable ilmenite. If successful, it will enable the company to source an increased proportion of its ilmenite feed for its synthetic rutile capacity from internal sources and to do so without the attendant operating or capital costs which would be entailed in securing this ilmenite feed from other parties or through new mine developments.

Page 28

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Sales and Marketing

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----- Start of picture text -----

ZIRCON SALES
500
400
300
kt
200
100
0
2008 1H 2H 2009 1H 2H 2010
2009 2009 2010 2010
2008 2009 2010
Asia (ex. China) China Europe
Americas Other
----- End of picture text -----

Sales back to 2008 levels
China above 2008 levels
47% of Iluka’s 2010 sales
Recovery in Europe and North America
Customer requirements exceed supply

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RUTILE AND SYNTHETIC RUTILE SALES
700
600
500
400
kt
300
200
100
0
2008 1H 2H 2009 1H 2H 2010
2009 2009 2010 2010
2008 2009 2010
----- End of picture text -----

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----- Start of picture text -----

Asia (ex. China) China Europe
Americas Other
----- End of picture text -----

Strong recovery in North American pigment demand
Minimal sales of high grade titanium feedstock to China, given sulphate-orientated nature of pigment market

Despite Iluka reducing production significantly in the second half of 2009 to better match demand, and the recovery of demand in China in late 2009, the company entered 2010 with relatively high levels of zircon inventory. In contrast, high grade titanium feedstock levels were low. Initially, the extent of recovery in global demand in 2010 for mineral sands products was difficult to determine, with customers uncertain about the operating environment for their businesses.

Zircon

A strong recovery in global demand, clearly evident in the latter part of the first half, saw Iluka’s zircon inventory drawn down by mid year and exhausted in the second half.

Since the second quarter of 2010, demand for zircon exceeded Iluka’s supply capacity. Consequently, customers have been supplied only a portion of their requirements. This shortage of supply, in Iluka’s assessment, is an industry-wide phenomenon, with inventory of raw material suppliers and direct customers at critically low levels. Many of Iluka’s zircon customers, particularly in China, have added capacity during the year but have been unable to operate this additional capacity as planned, while others have been forced to idle existing capacity due to lack of feedstock supply.

Iluka secured three price increases in 2010, increasing prices by approximately 30 per cent to a weighted average price of over US$1,000/tonne. A further price increase in the first quarter of 2011 increased weighted average prices by a further 20 per cent relative to the year end level, with Iluka in discussion with customers in relation to second quarter 2011 pricing.

Iluka supplies both premium grade and standard grade zircon to the ceramic, zirconia, foundry, and zirconium chemical sectors. Since 2008, Iluka has sold the majority of its zircon on a quarterly pricing or spot sales basis. Indicative annual volumes are provided to customers as part of the process. It has been Iluka’s practice to provide customers with advice of planned price increases a month in advance so that customers can adjust their pricing arrangements to their customers. Most of Iluka’s zircon is sold on a delivered basis either in large bulk shipments, or in containers or in bags.

In May 2010, Iluka supplied initial samples of Jacinth-Ambrosia zircon to customers to test in their own plants. The market response has been highly favourable, with Jacinth-Ambrosia zircon exhibiting the appropriate attributes to be the main zircon feedstock to the ceramic opacifier market, replacing Eneabba zircon.

In the first half of 2010, Iluka launched an online sales portal for small volumes of zircon. This platform advised volumes available at a set price. It has enabled Iluka to cater for part of the market which is difficult to service on a direct basis. Later in 2010, the platform evolved to offer both zircon and high grade titanium products (rutile and synthetic rutile) through an auction facility.

Titanium Feedstocks

The 2010 year commenced with high grade titanium feedstock supply in balance. Pigment demand - the main end use product of Iluka’s titanium feedstocks - strengthened as most chloride pigment producers restored their operations to full or close to full capacity. In an attempt to improve the yield from installed capacity, many pigment producers sought to procure higher grade titanium feedstocks to replace lower titanium feedstock products. This increased the demand for rutile and premium synthetic rutile.

In Iluka’s case, rutile was substituted with synthetic rutile to meet customer requirements, while the supply of synthetic rutile supply was constrained by Iluka’s previous decision to idle two of its four kilns.

Consequently, high grade titanium feedstock availability remained tight throughout 2010. While Iluka contracted its budgeted production at the beginning of the year, the company was able to produce higher than planned volumes of synthetic rutile. This uncontracted volume was sold at spot prices higher than the long term contracted prices.

Page 29

Iluka Review 2010

Sales and Marketing

ZIRCON END USE APPLICATIONS

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----- Start of picture text -----

(2010 estimate)
Other
Foundry 4%
11%
Refractories 11%
19%
Chemicals
Source: Iluka and TZMI
----- End of picture text -----

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----- Start of picture text -----

55% Ceramics
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The 2010 year was the last in which Iluka had the majority of its titanium production still under long term contractual arrangements. By the end of 2011 Iluka will have no tonnage under long term contract.

In the fourth quarter, Iluka undertook negotiations with its major pigment customers for 2011 titanium feedstock volumes and prices. In relation to volume, Iluka will have insufficient high grade titanium feedstock available to meet all customer demands and, as such, Iluka was unable to provide customers with their requested volumes in full. Pricing arrangements were determined on a six monthly basis, with Iluka achieving a “step-change” in prices, with weighted average rutile and synthetic rutile prices increasing by over 30 to 40 per cent relative to 2010 average prices.

Marketing Structure

Iluka made further enhancements to its marketing capabilities during 2010. The Asian and North American offices were expanded, with the South East Asian Marketing Manager relocating to the Shanghai marketing office. Most marketing administration functions were decentralised from Perth, providing three regional offices in different time zones the flexibility and coverage to meet customer requirements.

Additional warehouses were opened, including two in Europe and one in North America, to enable a just in time sales capability from local stocks. Iluka now has six warehouse distribution points, including three in China, with plans to expand this presence globally.

REGIONAL ZIRCON CONSUMPTION

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----- Start of picture text -----

1,500
1,200
900
kt
600
300
0
2005 2006 2007 2008 2009 2010
China Europe Asia/Pacific
Americas Other
----- End of picture text -----

Source: Iluka and TZMI

Iluka’s analytical capabilities were further enhanced during the year, with the extension of work on supply/demand fundamentals to include end-product demand characteristics; demand and pricing potential in niche but high growth markets; supply inducement analysis and an inventory data base.

Iluka was also able to expand its offer to customers through the work of the Product and Technical Development area, and it is confident that this technical resource to customers will improve the value in use proposition of Iluka’s products.

2011

Iluka expects high grade titanium and zircon markets to remain in deficit in 2011. Under this situation, Iluka believes there is the potential for continued price increases.

The company has an active focus upon increasing zircon supply to key markets, including China. Iluka will continue to work with its long term, loyal customers to maximise material available during the year. This includes the potential to increase production, progressively, from some existing operations.

Iluka has plans to expand its warehouse distribution and product lot capabilities into existing, strategic locations.

The Iluka Online Sales site will be expanded with a more diverse selection of products for both sale and auction.

Page 30

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Mineral Sands Market Conditions

Zircon

The zircon market in 2010 recovered strongly from the global economic conditions experienced in 2008 and 2009. In 2010, global zircon demand is estimated to have been 1.3 million tonnes, over 45 per cent higher than the 2009 level of 900 thousand tonnes. Strong end use markets in China, including the ceramics and chemicals sectors, and a recovery from low level demand in Europe and North America, influenced the rebound in demand in 2010.

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TOP TILE CONSUMERS
2008 Total = 8.3 billion sqm tile
China
34%
Other 47%
8%
5% Brazil
India
3%
Iran
3%
Indonesia
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At the beginning of 2010 there was significant uncertainty regarding how quickly and to what extent zircon markets would recover after the global economic crisis. As the year progressed it became evident that zircon demand in China was surpassing levels of previous years. This was due in large part to the Chinese construction market (commercial, infrastructure and residential) and its increasing demand for ceramic tiles. Solid growth was also experienced in the Chinese chemicals sector, where end use applications include manufacturing, electronics and protective coatings. Zircon markets in other parts of Asia also recovered in 2010 and, while not returning to 2008 levels, demand in the United States and Europe was well up on 2009.

The extent of zircon demand recovery has been such that many zircon suppliers, including Iluka, finished 2010 with minimal or no raw material stocks. Inventory levels in end use markets remain well below historical norms. For this reason, Iluka believes that underlying zircon demand was stronger than the estimated 1.3 million tonnes in 2010.

Source: Ceramic World Review

During 2011, Iluka expects the zircon market to tighten further. Limited new supply, low inventories throughout the value chain and continuing demand growth are expected. Independent mineral sands consulting body, TZMI, forecasts that less zircon will be available in 2011 than in 2010 because inventory levels have been depleted to well below 2009 levels and are no longer available to supplement new production.

China, Brazil, India, Iran and Indonesia consume over half of the world’s tiles
Zircon intensity of use in these economies remains well below developed economies

Iluka’s inducement analysis suggests that zircon prices will need to increase further to rationally induce new supply in the industry. New project lead times, technical issues and funding constraints for mooted projects, are all likely to be issues affecting the timing and level of new industry supply (refer Mineral Sands Market Briefing Session, November 2010 on the Iluka website).

TILE CONSUMERS GDP GROWTH

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----- Start of picture text -----

12
10 level of new industry supply (refer Mineral Sands Market Briefing Session, November 2010
on the Iluka website).
8
6
4
2
CHINA ZIRCON SAND IMPORTS – 2010
0
600
-2
-4 500
China Brazil India Iran Indonesia World Advanced
Economies 400
kt
2008 2009 2010 2011f 300
200
Source: IMF
100
• These economies were relatively immune
from 2009 GEC impacts
• Resilient demand indicated even if further 0 Jan Feb Mar Apr May Jun Jul Aug Sep Nov Sep Dec
global economic slowdown
Australia South Africa Indonesia Other
2006 2007 2008 2009 2010
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----- Start of picture text -----

ANNUAL GDP GROWTH (%)
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Source: China Customs Bureau and Iluka

Page 31

Iluka Review 2010

Mineral Sands Market Conditions

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China Urbanisation

China represents the world’s largest consumer of zircon, with demand linked strongly to both urbanisation and increasing per capita consumption. Unlike other raw materials, zircon and titanium dioxide demand may display mid to later cycle demand characteristics, with urbanisation a powerful dynamic underpinning demand.

Construction activity, industrial production and living standards in China, as well as some other developing economies, have all recently grown at rapid rates. However, by most measures, consumption and raw material intensity of use measures in China remain well below those of developed economies.

In a recent presentation to a mineral sands industry conference, McKinsey and Company[1] gave its assessment of the ongoing development phenomenon in China. Key points from the McKinsey presentation include:

n industrialisation is key to China’s economic growth: about 40 per cent of the total labour force still works in the farming sector. Given that developed economies typically have 3-8 per cent of their labour force working in the agricultural sector (Korea has 7.2 per cent), China is still far from completing its urbanisation at this point;
n industrialisation requires urbanisation, which to date has been primarily in coastal regions. Over the next twenty years, the urbanisation trend will move inland such that by 2025 the number of tier 1-3[2] cities will increase from 45 to 147;
n China’s urban living space is small relative to other Asian comparables. Floor space per capita in Chinese cities is estimated at 22 to 27 square metres depending on whether migrant workers are included, compared with 35 square metres in Japan and 43 square metres in Taiwan;
n China’s installed “capital stock”, such as machinery, remains low with further growth to come. For example, steel capital stock is around 15 per cent of the United States level on a population adjusted basis; and
n conditions in China remain conducive to development, including strong growth in labour productivity, broadly affordable housing and measured government fiscal and monetary policies.

Accordingly, in Iluka’s assessment, the demand profile for zircon and titanium dioxide in China remains highly favourable, with demand for Iluka’s products influenced by both economic growth, as has been seen in other raw materials, but also potentially the “wealth effect” where consumers demand higher quality goods, such as ceramics and sanitary ware.

1 Sourced with the author’s permission from a presentation by Oliver Ramsbottom at TZMI 2010 Congress.

2 Tier 1- 3 cities defined as having population of at least 1.5m and GDP per capita greater than US$1,500 per person.

Page 32

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Mineral Sands Market Conditions

Zircon: Attributes and Applications

Opacity (whiteness) high refractive index (zircon refracts and reflects white light well) Resistant water, chemical and abrasion resistance of glazes due to hardness of zircon

Temperature stable low thermal expansion coefficient, high thermal conductivity, high melting point Non-wetability against molten metals

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Opacifier in Ceramics floor & wall tiles | sanitary ware | table ware

Refractory & Foundry steel / glass production casting of jet turbine engines

Low thermal neutron absorption increases nuclear Zirconium Metal nuclear reactor efficiency reactor cores / rods heat Inert corrosion resistant exchangers

Unique properties compound derivatives of zircon suitable Zirconia & Zirconium based for diverse industrial and chemical applications chemicals refractories | pigments | abrasives electronics | catalysts | fibre optics

Iluka Zircon Sales by Region (% of Annual Total)

	2005	2006	2007	2008	2009	2010
China	15	14	23	34	53	41
Asia	16	16	17	15	21	14
Americas	26	25	24	15	13	17
Europe	43	45	36	36	10	26
Other	–	–	–	–	3	2

Page 33

Iluka Review 2010

Mineral Sands Market Conditions

Titanium Dioxide

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TITANIUM FEEDSTOCK END USES
(2010 estimate)
----- End of picture text -----

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----- Start of picture text -----

Welding and Other
Ti Metal
4% [6%]
90%
Pigment
Source: Iluka and TZMI
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REGIONAL PIGMENT CONSUMPTION

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----- Start of picture text -----

6,000
5,000
4,000
kt
3,000
2,000
1,000
0
2005 2006 2007 2008 2009 2010
China Asia/Pacific Americas
Europe Rest of the World
Source: Iluka and TZMI
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----- Start of picture text -----

GLOBAL TITANIUM FEEDSTOCK CONSUMPTION
----- End of picture text -----

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----- Start of picture text -----

8,000
7,000
6,000
kt 5,000
4,000
3,000
2,000
1,000
0
2005 2006 2007 2008 2009 2010
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Global titanium dioxide demand returned to pre-global economic crisis levels in 2010. Demand is estimated to have grown by 9 per cent to 6.2 million tonnes, following a 5 per cent decline in 2009. The recovery was experienced across each of the three main end use markets of pigment, titanium metal and welding products.

Global production of titanium pigment, of which titanium dioxide is the largest component, increased by approximately 15 per cent in 2010. Pigment plant capacity utilisation in key markets - Asia and North America - is now at or above the pre-2009 levels and in many cases operating at full capacity. Iluka is not a supplier to Chinese pigment production, as it is fed predominantly by lower quality titanium feedstocks. However, pigment is a globally traded commodity and North American and Asian pigment plants export large volumes of pigment to China to meet demand for higher quality applications, such as in the automotive sector. This indirect exposure to China’s construction and industrial production growth is contributing to the current market tightness experienced in high grade titanium feedstocks.

Welding markets recovered in 2010. Rutile is used in the production of several types of welding rods and demand is linked to steel utilisation. The large-scale urbanisation underway in China and other Asian countries has led to strong growth in the welding market, which now accounts for around 30 per cent of global rutile production.

Demand in the global titanium metal market remained lower than pre-global economic crisis years. However, a recovery in titanium sponge demand was evident in 2010, while installed titanium sponge production capacity continued to increase in a number of countries, but most notably China. The outlook for this sector remains positive due to the metal’s unique characteristics, making it a key input to aerospace, defence and specialised industrial applications.

The dynamics in the titanium dioxide market have led to a tightening of supply over 2010. Iluka expects this situation to continue during 2011, with limited additional production of high grade titanium feedstock from new projects. Sustained price increases are required, in Iluka’s assessment, to generate adequate returns and rationally induce new supply. Iluka itself has latent capacity in the form of its idled synthetic rutile kilns and, as such, the capability to reactivate production if economic outcomes warrant.

Refer to Iluka Mineral Sands Marketing Briefing session slides and transcript on www.iluka. com for additional information on supply and demand and Iluka’s inducement analysis.

TiO2 Content of Titanium Products

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Form of Titanium TiO2%
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Rutile	92-96
Synthetic rutile	88-94
Leucoxene	65-90
Ilmenite
- Sulphate	52-54
- Chloride	58-62

Source: Iluka and TZMI

Page 34

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Mineral Sands Market Conditions

Titanium Dioxide: Attributes and Applications

Opaque, white and bright high refractive index (refracts & reflects white light)

UV protection absorbs UV light energy (transfers to heat) – prevents fading, peeling, cracking

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Pigment paints & coatings | plastics | paper

Non toxic safe for use in foods, cosmetics and pharmaceuticals

High strength-to-weight ratio strong as steel but 45 per cent lighter, twice the strength of aluminium, important fuel efficiency benefit in aerospace applications

Corrosion resistant forms an inert protective oxide coating, self repairs when mechanically damaged

Slag formation important constituent of welding to shape, hold and protect the weld pool from atmospheric conditions

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Titanium Metal aircraft engines & airframes military | chemical processing & desalination plants | medical sporting equipment

Welding Flux Agent ship building | fabrication

Nanoparticles significant research into nanotechnology shows Nano Materials dye-sensitised promising new applications for titanium dioxide solar cells | arsenic removal in water treatment | noise absorption

Iluka High Grade Titanium Sales by Region (% of Annual Total)

	2005	2006	2007	2008	2009	2010
China	0	0	0	2	3	2
Asia	39	44	39	34	35	27
Americas	27	18	18	24	21	30
Europe	23	26	27	24	19	25
Other	11	12	16	16	22	16

Page 35

Iluka Review 2010

Sustainability

Sustainability is a key component of shareholder value creation and delivery for Iluka, and a central component of the company’s licence to operate. Iluka places a high organisational priority on internal policies, systems, procedures and behaviours that facilitate continued improved performance in a number of areas, but with a focus on:

n health and safety performance;
n environmental management;
n people; and
n communities and stakeholder engagement.

Health and Safety

Iluka’s safety performance in 2010 did not meet the high standards expected, as reflected in the following chart, which displays an adverse movement in key safety measures during 2010.

In 2010 Iluka was not successful in achieving its total recordable injury frequency rate (TRIFR) target of 13.5, with a recorded a rate of 16.4. The lost time injury frequency rate per million hours worked increased in 2010 by 23.3 per cent compared with 2009.

There were no fatalities at Iluka’s operations during the year.

The TRIFR target for 2011 is 11.9, an 11.8 per cent improvement on 2010.

Iluka’s injury severity rate declined year-on-year, which at 47.4 was a 19.2 per cent reduction from 58.7. This indicates that those reported incidents which did occur were predominantly minor.

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----- Start of picture text -----

2010 ILUKA SAFETY PERFORMANCE
60 TRIFR, SEVERITY RATE & LTIFR
50 47.4
40
30
20
16.4
10
3.7
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Total Recordable Injury Frequency Rate (TRIFR)
Severity Rate
Loss Time Injury Frequency Rate (LTIFR)
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Page 36

Sustainability

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Environment

Iluka is committed to operating in a responsible manner and ensuring adherence to all conditions in regulatory licences. Extensive environmental management plans govern the company’s operations at each operating site and these along with experienced environmental management personnel as well as regular reporting of Level 2[1] and above environmental incidents through to the company’s Board of Directors, seek to ensure a strong focus on environmental performance.

Iluka recorded no Level 5 or 4 incidents, the most serious categories. This is the eighth consecutive year the company has reported no incidents at these levels. There were also no Level 3 incidents in 2010. Iluka recorded 494 Level 1 incidents in 2010, down from 587 in 2009, and 59 Level 2 incidents compared with 96 in the previous year.

Water Usage

Iluka’s total water usage in 2010 reduced by 33.7 per cent relative to 2009 reflecting the cessation of mining operations in Western Australia, predominantly at Eneabba. The lower water usage in Western Australia was partially offset by increased water usage associated with the ramp up of the Jacinth-Ambrosia and Murray Basin Stage 2 mining and concentrating operations. However, in these two operations, the predominant use of water in mining and concentrating activities is saline water, typically not useable in other applications.

Energy Consumption

Iluka’s total energy consumption in 2010 was 10,071 terra joules (TJ), an 8.2 per cent reduction relative to 2009.

Overall lower energy usage, reflects the idling of mining operations in Western Australia, as well as the operation of two out of the company’s four synthetic rutile kilns.

Increased energy usage in South Australia and at the Murray Basin in Victoria, reflects the commencement and increase in production to capacity at the two new mining and processing operations which, in the case of the Murray Basin, has also entailed a higher level of processing throughput at the company’s Hamilton mineral separation plant.

Iluka is committed to achieving energy efficiency improvements and reducing its carbon dioxide gas emissions on a unit of production basis. Iluka completed its second year of reporting to the National Greenhouse and Energy Programme (document is available on Iluka’s website – www.iluka.com).

Iluka successfully implemented 11 new Energy Efficiency Opportunity (EEO) projects during 2010 equating to a reduction in total energy of 545TJ annually, constituting an approximate 5 per cent reduction in energy usage.

1Level 1-5 rating system; Level 5 referring to the most serious environmental impact

Page 37

Iluka Review 2010

Sustainability

Carbon Dioxide Emissions

Iluka’s operations recorded carbon dioxide emissions of 995 thousand tonnes (ktCO2e) in 2010 representing an 8.1 per cent decrease on its 2009 result of 1,083 ktCO2e and a 33.6 per cent reduction relative to the 2006-2008 average of 1,630 ktCO2e. The carbon emissions reduction is consistent with the decline in the company’s Western Australian ilmenite upgrading, or synthetic rutile operations, where coal is the primary fuel used in the production process.

During 2010, Iluka’s synthetic rutile operations received formal recognition as an Emissions Intensive Trade Exposed industry under the previously proposed Carbon Pollution Reduction Scheme.

Rehabilitation

Rehabilitation and closure activities are a major focus of the company’s Western Australian operations given the maturity of Iluka’s mining operations in this area. In 2010, approximately 115 hectares of land was progressed to topsoil stage in the Mid West and South West regions of Western Australia, with final rehabilitation to occur in 2011. In the Murray Basin, re-establishment of previously mined areas in the Douglas region to grazing and pastoral use continued with an additional 25 hectares of land rehabilitated in 2010. In the United States, Iluka closed its Florida/Georgia operations and commenced rehabilitation activities in 2006. Reclamation in Georgia was completed in 2010 and the company fulfilled its environmental obligations with regulators. Reclamation and remediation of the Florida mine and processing sites is continuing with approximately 100 hectares rehabilitated during the year.

People

Iluka seeks to build and maintain a diverse, sustainable workforce of talented people that reflect the communities in which the company operates. It is recognised that leadership at all levels is required to create alignment of purpose which, together with the right resources, is crucial to the achievement of Iluka’s objective – to create and deliver shareholder value.

Within that context Iluka seeks to offer a sense of achievement to its employees based on the principles of accountability, commerciality and engagement and maintains a work culture reflecting its values of: commitment, integrity and responsibility. It includes a high standard of health and safety behaviour and the development of individuals, leaders and teams to achieve extraordinary performance.

Diversity

Iluka respects the diversity of the communities in which it operates and recognises the opportunities that it creates for its business.

Iluka currently supports gender equality, parental leave, flexible hours where practicable and has a strong commitment to indigenous employment at all our operations. Iluka’s workforce currently is approximately 20 per cent female, a level above comparable industry benchmarks.

A Diversity Committee has been established to develop and implement programmes to further foster workforce diversity in regards to gender and age and in terms of participation by indigenous people and people with disabilities. Iluka’s progress in this regard will be assessed and reported on a regular basis.

Page 38

Sustainability

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Iluka Workforce Distribution

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Location Employees
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Perth Basin,Western Australia	318
Eucla Basin,SouthAustralia	89
MurrayBasin,Victoria	214
Corporate,Perth,Western Australia1	144
Virginia,US	139
Shanghai,China	7
Total Group	911

Contract mining and other activities account for approximately 1,000 contractor positions

1 Includes exploration, business development, sales and marketing, product and technical development, and technical functions, in addition to usual corporate roles

Community and Stakeholder Engagement

Iluka recognises that engagement and consultation with stakeholders is essential in the establishment, operation, rehabilitation and relinquishment of its facilities.

Extensive stakeholder engagement occurred to facilitate the progression of planning and approval activities for Iluka’s new projects, including Woornack, Rownack and Pirro (Victoria) and Balranald (New South Wales).

Page 39

Iluka Review 2010

Group Summary Financials

Group Profit and Loss Summary – $m

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2010 2009 % Change
Mineral Sands Revenue 874.4 576.0 51.8
Cash costs of production (543.8) (453.6) (19.9)
Inventory movement (2.9) 33.4 n/a
Restructure and idle capacity cash charges (13.2) (50.1) 73.6
Rehabilitation and holding costs for closed sites (10.4) – n/a
Government royalties (17.1) (13.7) (24.8)
Marketing and selling (24.1) (10.2) (136.3)
Asset sales and other income 7.4 14.2 (47.9)
Product, technical development and major projects (5.6) (4.2) (33.3)
Exploration (14.5) (16.2) 10.5
Mineral Sands EBITDA 250.2 75.6 230.9
Depreciation and Amortisation (218.6) (176.2) (24.1)
Mineral Sands EBIT 31.6 (100.6) n/a
Mining Area C 75.9 50.2 51.2
Currency hedging and foreign exchange 8.9 0.1 n/a
Corporate and other (30.3) (26.0) (16.5)
Significant non-cash items – (67.6) n/a
Group EBIT 86.1 (144.1) n/a
Net interest costs (30.9) (18.4) (67.9)
Interest capitalised (Jacinth-Ambrosia and Murray Basin) – 12.5 n/a
Rehabilitation unwind and other finance costs (15.3) (16.8) 8.9
Profit (loss) before tax 39.9 (166.8) n/a
Tax Expense (3.8) 61.5 n/a
Profit (loss) from continuing operations 36.1 (105.3) n/a
Profit from discontinued operations (CRL) – 22.9 n/a
Profit (loss) for the period 36.1 (82.4) n/a
Average AUD/USD (cents) 92.0 79.3 16.0
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Page 40

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Group Summary Financials

Financial Ratios

	2010	2009	% Change
EBITDA/revenue margin % 35 17 105.9
Gearing(net debt/debt + equity) % 21.8 25.9 15.8
Interest cover (EBITDA/net interest expense) times 11.7 5.8 101.7
Return on equity% – annualised 3.2 (7.5) n/a
Basic and diluted earningsper share – cents 8.6 (20.2) n/a

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RELATIVE SHARE PRICE PERFORMANCE 2010
280
260
240
220
200
%
180
160
140
120
100
80
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
ILUKA ASX 100
Materials Midcap 50
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Page 41

Iluka Review 2010

Five Year Physical and Financial Information

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Production & Sales 2010 2009 2008 2007 2006
Production Volumes (kt)
– Zircon 412.9 263.1 385.1 513.8 445.7
– Rutile 250.1 141.4 140.1 216.1 172.8
– Synthetic rutile 347.5 405.0 467.3 526.6 506.6
– Ilmenite (saleable) 469.0 342.1 586.2 931.7 934.9
– Ilmenite (upgradeable) 215.9 496.7 641.0 702.5 752.5
Average AUD:USD spot exchange rate (cents) 92.00 79.34 85.35 83.90 75.35
AUD:USD range (cents) 81.23/1.02 62.91/93.68 60.38/98.05 76.98/ 93.25 70.54/79.08
Summary Financials
Revenue from operations (excluding hedging) 874.4 576.0 988.5 938.6 1,003.2
Earnings before depreciation, net interest and tax
304.7 99.6 274.6 287.7 199.2
(excluding asset impairment/write-downs)
– Mineral Sands EBITDA 250.2 75.6 186.3 230.6 257.3
– Mining Area C EBITDA 76.3 50.2 56.8 19.9 19.1
– Other EBITDA (21.0) (9.5) (47.0) 18.1 4.5
Depreciation and amortisation (219.0) (176.6) (161.7) (148.0) (112.7)
Net interest and finance charges (46.2) (22.7) (35.6) (59.2) (40.8)
Income tax (expense) benefit (3.8) 61.5 7.7 (20.1) (14.2)
NPAT (excluding asset impairments/write-downs) 36.1 (35.1) 73.7 51.1 66.2
NPAT (inclusive of asset impairments/write-downs) 36.1 (82.4) 77.5 51.1 21.0
Operating cash flow 163.6 83.9 233.0 95.5 142.2
Capital expenditure (117.2) (521.6) (198.4) (118.2) (172.7)
Net debt (312.6) (382.1) (215.7) (598.1) (596.5)
Capital and Dividends
Ordinary shares on issue (millions) 418.7 418.7 380.7 242.2 232.9
Dividends per share (cents) 8.0 n/a n/a 10.0 22.0
Franking level (per cent) 0 n/a n/a 100 100
Opening year share price ($) 3.58 4.64 4.11 5.94 7.00
Closing year share price ($) 9.14 3.58 4.64 4.11 5.94
Financial Ratios
EPS, excluding asset impairments/write-downs (cents) 8.6 (8.7) 17.8 21.6 50.2
Cash flow per share (cents) 13.3 (2.2) 19.9 1.5 (0.2)
Return on shareholders’ equity (per cent),
3.2 (3.2) 7.9 6.8 3.3
excluding asset impairments/write-downs
Gearing (net debt/net debt + equity) (per cent) 21.8 25.9 17.4 44.3 45.4
Financial Position as at 31 December
Total assets 1,939.9 2,098.4 2,058.1 1,868.0 1,864.5
Total liabilities (815.3) (1,003.1) (1,020.1) (1,116.4) (1,148.0)
Net assets 1,124.6 1,095.3 1,038.0 751.6 716.5
Shareholders’ equity attributable to members of Iluka Resources 1,124.6 1,095.3 979.8 683.6 647.2
Net tangible asset backing per share ($) 2.54 2.46 2.69 3.04 3.00
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All figures are in A$ million unless otherwise indicated

2009 restated for change in hedge accounting in accordance with amendments to AASB 2008-8

Page 42

Operating Mines – Physical Data

12 Months to 31 December 2010

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	Jacinth- Ambrosia	Murray Basin1	Western Australia	Australia Total	Virginia	Group Total
Mining
Overburden Moved bcm 1,276.0 10,059.5 1,132.3 12,467.8 – 12,467.8
Ore Mined kt 9,621.6 8,586.4 3,626.2 21,834.2 4,448.2 26,282.4
Ore Grade HM % 7.6 20.9 9.9 13.2 8.6 12.4
VHM Grade % 6.1 5.5 8.2 6.2 7.5 6.4
Concentrating
HMC Produced kt 628.3 656.5 389.9 1,674.7 381.6 2,056.3
VHM Produced kt 520.2 445.6 329.6 1,295.4 315.1 1,610.5
VHM in HMC Assemblage % 82.8 67.9 84.5 77.4 82.6 78.3
Zircon 51.5 30.4 12.8 34.2 16.2 30.9
Rutile 6.7 34.1 10.0 18.2 – 14.8
Ilmenite Saleable 24.1 10.4 62.0 27.6 66.4 34.8
Processing (HMC to fnished product at a mineral separation plant)
HMC Processed kt 423.2 591.0 442.2 1,456.4 389.0 1,845.4
Finished Product kt
Zircon2 150.9 157.6 46.2 354.7 58.2 412.9
Rutile3 10.2 198.4 41.5 250.1 – 250.1
Ilmenite Saleable 78.8 56.8 81.9 217.5 251.5 469.0
Ilmenite Upgradeable 42.0 – 173.9 215.9 – 215.9
Synthetic Rutile Produced kt – – 347.5 347.5 – 347.5

1 Murray Basin Ore Grade HM excludes grade attributable to low quality, unsaleable ilmenite which is returned to the mine, and is typically ascribed no value.
2 Zircon production volumes predominantly comprise a premium grade product used extensively in the ceramics industry for opacifier, together with a small proportion of standard grade product used in the manufacture of fritz and glazes for ceramic tiles and in the production of zirconium chemicals. As displayed in this table, Iluka processed approximately two thirds of HMC production from the Jacinth-Ambrosia operation, which reached name plate HMC production mid year 2010. Part of the HMC is to be utilised as a strategic stockpile for risk mitigation purposes, associated with the extended logistics chain from the South Australia mining and concentrating operations to the Western Australia based processing facilities, while residual Western Australian HMC was also processed through the Narngulu processing facility during the year.
3 Rutile production volumes predominantly comprise a rutile product with a titanium dioxide content of 95 to 96 per cent, together with a small proportion of material with titanium dioxide content between 90 per cent and 92 per cent.

Explanatory Comments on Terminology

Overburden moved (bulk cubic metres) refers to material moved to enable mining of an ore body.

Ore mined (thousands of tonnes) refers to material moved containing heavy mineral ore.

Ore Grade HM % refers to percentage of heavy mineral (HM) found in a deposit. In the case of Murray Basin it excludes grade attributable to low quality, unsaleable ilmenite which is returned to the mine.

VHM Grade % refers to percentage of valuable heavy mineral (VHM) – titanium dioxide (rutile and ilmenite), and zircon found in a deposit.

Concentrating refers to the production of heavy mineral concentrate (HMC) through a wet concentrating process at the mine site, which is then transported for final processing into finished product at one of the company’s two Australian mineral processing plants, or the Virginia mineral processing plant.

HMC produced refers to heavy mineral concentrate (HMC), which includes the valuable heavy mineral concentrate (zircon, rutile, ilmenite) as well as other non valuable heavy minerals (gangue).

VHM produced refers to an estimate of valuable heavy mineral in heavy mineral concentrate expected to be processed.

VHM produced and the VHM assemblage – provided to enable an indication of the valuable heavy mineral component in HMC.

HMC processed provides an indication of material emanating from each mining operation to be processed.

Attributable finished product is provided as an indication of the finished production (zircon, rutile, ilmenite – both saleable and upgradeable) attributable to the VHM in HMC production streams from the various mining operations. Finished product levels are subject to recovery factors which can vary. The difference between the VHM produced and finished product reflects the recovery level by operation, as well as processing of finished material/concentrate in inventory. Ultimate finished product production (rutile, ilmenite, zircon) is subject to recovery loss at the processing stage – this may be in the order of 10%.

Ilmenite saleable is ilmenite produced for sale rather than as a synthetic rutile feedstock.

Ilmenite upgradeable is that which is used in the manufacture of synthetic rutile. Typically 1 tonne of upgradeable ilmenite will produce between 0.58 to 0.62 tonnes of SR. Iluka also purchases external ilmenite for its synthetic rutile production process.

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Iluka Review 2010

2011 Key Physical and Financial Trends

The following table provides an indicative guide to key physical and financial parameters in the Iluka business in 2011, with commentary on 2012, as currently envisaged.

Iluka Physical Trends

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2011 Explanatory Notes –
2010 2012 Commentary
Guidance refer over page
Production (kt)
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Zircon	413	~500	Expected to be ~500kt	A
			Expected lower production (~200kt) due to
Rutile	250	~250	transition to new deposits at WRP, following completion of mining at Douglas and Echo in early	A
			2012
Synthetic rutile	347	~220	If 2nd kiln operational in early 2012, then ~320kt expected in that year	B
Ilmenite – saleable	469	~430	Impacted by internal requirements for synthetic rutile production; expected to be no higher than 2011
Total	1,479	1,400

Iluka Financial Trends

	2010	2011 Guidance	2012 Commentary	Explanatory Notes – refer over page
Cash Costs ($m)
Production costs 544 ~540 Expected to be lower, but dependent on mine move and kiln operation, and cost infation C
Z/R/SR unit costs A$/tonne 538 ~560 Expected to be lower, dependent on production cost factors above but offset by higher total Z/R/SR production
Other cash costs 92 ~115 Expected to be fat – refer explanatory comments over page D
Restructure, rehab & idle costs 24 ~5 2010 costs related to idling of mining operations and kilns
Non Cash Costs ($m)
Depreciation & amortisation 219 ~195 Expected to reduce to ~$150m E
Other 15 ~15 Expected to be at a similar level E
Capital Expenditure 117 ~100 Expected to be at a similar level, dependent on project cost infation, expansion decisions and investment opportunities
Operating Cash Flow 164 
Net Debt 313 
Gearing (nd/nd+e) % 22 

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2011 Key Physical and Financial Trends

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Business Commentary – Explanatory Notes

Note A

Production in 2011 is expected to be influenced by the following factors:

n extension of Douglas and Echo mining operations in the Murray Basin to early 2012;
n expected mine move from Kulwin to the Woornack, Rownack and Pirro deposits in the Murray Basin in the first quarter of 2012. As such there will be one mining operation in the Murray Basin in 2012 with a period in which mining activities will not occur, associated with the relocation of mining and concentrating equipment from Kulwin to the Woornack, Rownack, Pirro deposits; and
n commencement of Tutunup South in the South West of Western Australia from mid 2011. Ilmenite produced will be used as a feed to the synthetic rutile (SR) operations.

Note B

SR production estimate in 2011 reflects operation of one kiln (SR kiln 2), with SR kiln 3 primarily to operate on a research and development basis but with some commercial production. SR kiln 3 is currently planned to be idled at the end of the first half. Iluka is working to recommission SR kiln 1 in the South West of Western Australia, in 2012. If this were to occur in 2012, production capacity from these two kilns would be ~320 thousand tonnes. Reactivation of additional SR capacity will be dependent on market conditions.

Note C

Cash costs of production estimate includes the following main components:

n mining and concentrating costs; transport of heavy mineral concentrate; separation; synthetic rutile production and costs for externally purchased ilmenite and production overheads. Also includes landowner royalty payments, but not State Government royalties.
Factors influencing cash cost of production estimate for 2011 include the following:
n extension of mining operations at Douglas and Echo (as above) associated with mine optimisation;
n the build up of some HMC stockpiles in advance of the planned mine move from Kulwin to Woornack, Rownack and Pirro (hence an inventory build), scheduled for early 2012;
n commencement of mining at Tutunup South in the South West of Western Australia, with commissioning and ramp up activities expected from mid year; and
n operation of one SR kiln (SR kiln 2) for 12 months and operation of one other SR kiln (SR kiln 3) for several months on a R&D basis. Production guidance assumes saleable product from one kiln only.

Note D

Other cash costs include the following: Australian State Government royalties; major project evaluation costs; marketing and selling costs (including marketing overhead costs and port costs); product and technical development costs; exploration expenditure expensed; corporate and overhead support costs; and restructure costs/plant idling costs (where appropriate).

In 2011 total other cash costs expenditure is estimated at ~$120 million. The increase, relative to prior years, reflects a higher level of investment within the business in the areas of: exploration, product and technical development, project development, as well as organisational development activities.

Note E

Depreciation and amortisation in 2011 expected to be influenced by: commencement of Tutunup South mine depreciation in the 2nd half, extension of depreciation of Douglas and Echo mines in the Murray Basin, Victoria until early 2012.

D&A charges are expected to be materially lower in 2012 (at approximately $150 million).

Other non-cash costs include $15 million for the unwind of the discount on rehabilitation provisions which are recognised as a liability at net present value (the unwind is reported as a finance cost).

Other – Inventory Movements

Inventory movement – although Iluka does not guide on this component, it comprises the following elements: store stocks; work-inprogress and finished goods. To the extent that inventory of finished or semi-finished goods increases, this will have a positive Profit and Loss impact while costs are held on the balance sheet until the product is sold.

Page 45

Iluka Review 2010

Iluka and Mineral Sands Information

For more information on Iluka Resources and the mineral sands sector, please refer to the Iluka website and the following publications:

2010 Annual Report

n includes detailed financials, corporate governace statement and remuneration report, Ore Reserves and Mineral Resources report, as well as Board and Leadership Team profiles

Mineral Sands Marketing Briefing Session (November 2010)

Mineral Sands Technical Information

Briefing Papers

n Mineral Sands Products: Attributes and Applications
n Mining Area C Iron Ore Royalty
n Iluka’s Exploration Focus
n Mineral Sands Physical Flow Information
n Titanium Metal

Virtual Mine Site Tours

n Murray Basin, Victoria
n Jacinth-Ambrosia, South Australia

2011 Calendar

2011 Calendar
19 January	December Quarter Production Report
25 February	Announcement of Full Year Financial Results
9 March	Record date for Full Year Dividend
6 April	Full Year Dividend paymenta date
28 April	March Quarter Production Report
23 May – 9:30am EST	Closure of acceptances of proxies for AGM
25 May – 9:30am EST	Annual General Meeting – Melbourne Convention and Exhibition Centre, Melbourne, Victoria
21 July	June Quarter Production Report
25 August	Announcement of Half Year Financial Results
20 October	September Quarter Production Report
31 December	Financial Year End

All dates are indicative and subject to change. Shareholders are advised to check with the company to confirm timings.

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Corporate Information

Company Details

Iluka Resources Limited ABN: 34 008 675 018

Stock Exchange Listing

Iluka’s shares are listed on the Australian Securities Exchange Limited. The company is listed as “Iluka” with an ASX code of ILU. The company had 418.7 million shares on issue as at 31 December 2010.

Level 23, 140 St George’s Terrace, Perth WA 6000 Australia

Postal Address:

GPO Box U1988, Perth WA 6845 Australia Telephone: +61 8 9360 4700 Facsimile: +61 8 9360 4777 Website: www.iluka.com

It also contains links to other sites, including the share registry.

Share Registry Inquiries

Shareholders who require information about their shareholdings, dividend payments or related administrative matters should contact the company’s share registry:

Computershare Investor Services Pty Limited

Level 2, Reserve Bank Building, 45 St Georges Terrace, Perth WA 6000 Australia

Postal Address:

GPO Box D182, Perth WA 6840 Australia Telephone: +61 3 9415 4801 or 1300 733 043 Facsimile: +61 8 9323 2033 Website: www.computershare.com

Each inquiry should refer to the shareholder number which is shown on issuer-sponsored holding statements and dividend statements.

Dividends

Iluka recommenced dividend payments with the 2010 full year results. Iluka has suspended its dividend reinvestment plan.

Investor Relations Inquiries

For shareholder, potential investor and media inquiries of the company, please contact:

Dr Robert Porter General Manager, Investor Relations [email protected]

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AI assistant

ILUKA RESOURCES LIMITED — Annual Report 2010

65116_rns_2011-04-11_22eb3982-f685-484f-ac45-175edab46520.pdf

ILUKA REVIEW

Contents

Disclaimer – Forward Looking Statements

2010 Areas of Focus

Principal Areas of Progress

Iluka’s Geographical Production and Market Position

Chairman’s Review

Health, Safety and Environmental Performance

2010 Financials

Chairman’s Review

2010 Financials

Chairman’s Review

Returns to Shareholders

Board Structure

Management and Employee Contribution

Transition to New Operations

Strong Demand and Limited Supply

Managing Director’s Review

Improved Pricing

Mining Area C Iron Ore Royalty

Mining Area C

Operations

Jacinth-Ambrosia, South Australia

Virginia operation, United States

Kulwin operation, Murray Basin, Victoria

Product and Technical Development

Marketing

Managing Director’s Review

Exploration

Iluka Online Sales

2010 exploration success

People

Government Initiatives to Reduce Carbon Dioxide Emissions

Managing Director’s Review

Conclusion

Priorities for the future

Production and Sales

Mineral Sands Production

Production and Sales

Mineral Sands Sales

Ore Reserves and Mineral Resources

Ore Reserves

Mineral Resources

Operations

Perth Basin

Eucla Basin

Eucla Basin/Perth Basin

Mining at Jacinth-Ambrosia

Wet Concentration

Transport

Processing

Final Product Despatch

Murray Basin, Victoria

Mining

Wet Concentration

Processing

Transport

Final Product Despatch

Operations

Eucla Basin/Perth Basin

Operations

Western Australian Synthetic Rutile Operations

Western Australian Mining Operations

Operations

Murray Basin, Victoria

Operations

Virginia, United States

Virginia, United States

Mining

Wet Concentration

Transport

Processing

Exploration

Exploration

Eucla Basin, South Australia/Western Australia

Exploration

Murray Basin, South Australia/Victoria/New South Wales

ILUKA RESOURCES LIMITED Annual Report 2010