ILUKA RESOURCES LIMITED — Interim / Quarterly Report 2003

Aug 26, 2003

2003 Half Year Report to Shareholders

Overview

Iluka's operational performance in the first half of 2003 was significantly better compared with the corresponding period in 2002 with Group production levels for all mineral sands products apart from rutile, being higher in response to improved cost management, operating practices and planning initiatives implemented as part of the business improvement program. The benefits from the business improvement process were particularly evident in the improved production and mineral processing performance of the USA and Western Australian operations. Although the USA operations did record a loss in the first half, the underlying profitability of the operations improved towards the end of the half and this improvement trend is expected to continue in the second half of 2003 and beyond.

Despite difficult and uncertain global economic conditions, sales of mineral sands products in the first half of 2003 were in line with Iluka's plan in terms of both volumes and US\$ prices. Compared with the corresponding period in 2002, the most notable difference was a 53,000 tonne reduction in synthetic rutile sales. This was mainly a result of the sales in 2002 being underpinned by higher than normal inventory levels and timing differences in shipments. Synthetic rutile sales are expected to significantly increase in the second half of 2003.

The Company also made considerable progress in other areas including a significant improvement in its environment, health and safety performance, the completion of a US\$100 million debt raising program, the completion of a pre-feasibility study for the Douglas mineral sands project in the Murray Basin and the ongoing exploration program in Western Australia, the Murray Basin and the USA.

Financial Performance

Unfortunately the benefits of improved operational efficiencies, higher production and the sale of non-core assets in the first half of 2003 were unable to offset the impact of lower sales revenues, a A\$3.9 million write-down relating to the revaluation of inventory in the USA and higher Group depreciation/amortisation charges and tax expenses. As a result the net consolidated operating profit (after tax) for the period under review was A\$36.7 million which represents a 10.7% decrease compared with the corresponding 2002 half-year profit result of A\$41.1 million.

Total revenue for the period (inclusive of A\$3.7 million in other revenue and A\$11.9 million in asset sales, the majority of which relates to the sale of properties on North Stradbroke Island and an Iluka exploration tenement), decreased by A\$95.6 million (20.4%) to A\$374.1 million. The decrease in revenue reflects sales from Koba Tin which was divested during 2002 and lower mineral sands sales in 2003.

Group sales revenue from continuing operations decreased by A\$27.2 million (7%) to A\$358.5 million which reflects mineral sands sales revenues decreasing by A\$27.6 million (7.5%) to A\$342.2 million and partially offset by coal sales increasing by A\$0.6 million (3.8%) to A\$16.3 million.

On a regional basis, mineral sands sales revenues from the Western Australian operations decreased by A\$22.2 million (7.8%) to A\$263.1 million which was partially offset by US sales revenues increasing by A\$8.4 million (20%) to A\$50.4 million. CRL's sales revenues (100% level) decreased by A\$13.8 million (32.5%) to A\$28.7 million during the period.

Depreciation and amortisation charges in the first half of 2003 compared with the corresponding period in 2002 increased by A\$5.6 million (10.1%) to A\$61.1 million. The increase in depreciation and amortisation was primarily due to higher amortisation of RGC fair value adjustments and a full six months of depreciation applicable to the Old Hickory and zircon finishing plant assets.

Net cash inflow from operating activities improved by A\$96.0 million to A\$78.8 million. This improvement is attributable to the timing of debtors' collections, an underlying improvement in operational costs and better controls over the payment terms to creditors following the successful implementation of SAP.

Income tax expenses in the period increased by A\$6 million (111%) to A\$0.6 million. The increase in income tax expense is the result of no tax expense shelter being available in the current period as the Company recognized tax credits associated with tax losses in the prior period. The increase in tax expense has been partially offset by a net over provision of A\$5.6 million, largely attributable to an under estimation of a research and development concessional deduction and the reversal of timing differences not previously brought to account of A\$10.6 million.

Net debt decreased by A\$49.3 million to A\$398.9 million at the end of the first half and gearing was 30.3% at the end of the period. Borrowing costs in the period increased by A\$0.6 million (4.8%) to \$13.2 million.

An interim dividend of 10 cents per share, franked to 9.2 cents (compared with 10 cents per share, partially franked to 2 cents, paid in 2002) will be paid on 19 September 2003 to all shareholders registered at 8 September 2003.

	2003 Half Year	2002 Half Year
Sales revenue (A\$m)	358.5	$443.4*$
EBITDA (A\$m)	113.8	103.8
EBIT (A\$m)	52.7	48.3
Operating profit before tax (A\$m)	40.0	35.7
Tax expenses/benefits (A\$m)	(0.6)	5.4
Outside Equity Interests (A\$m)	(2.7)	0.0
Profit after tax (A\$m)	36.7	41.1
Earnings per share (cents)	15.8	18.9
$ROE**$	8	10.8
Interim dividend per share (cents)	10	10
Franking (%)	92	20
Operating cash flow per share (cents)	33.8	(7.9)
Interest cover (times)	9	8.6

Financial Performance - Key Results

* includes Q1 sales of A\$57.7 million from Koba tin prior to the sale of this asset in Q2, 2002

** ROE annualised

Production and Sales Overview

Group production levels for all key products (apart from rutile) increased in the first half of 2003 compared with the corresponding period in 2002. The improved production performance in the period was underpinned by higher production and processing levels at the Western Australian (including synthetic rutile) and USA mineral sands operations. Coal production from the Narama Coal joint venture was also slightly higher. Rutile production was lower compared with the previous period in response to lower mineral assemblages and recovery rates at the mid-west operations and difficult mining conditions at Consolidated Rutile Limited's (CRL) dredging operations on North Stradbroke Island.

Group sales of zircon and ilmenite increased in the period under review compared with the corresponding period in 2002 as a result of increased production. Conversely sales of synthetic rutile and rutile decreased in the first half of 2003 compared with the corresponding period in 2002. The decrease in sales was primarily a result of timing differences in shipping in the southwest. USA and CRL as well as two planned shipments from the mid-west being deferred to the third quarter as a result of adverse weather conditions. Coal sales in the period were only marginally lower compared with the previous period and were in line with contractual requirements.

2003	2002	Product (tonnes)	2003	2002
		Leucoxene/Hyti
75,188	82,586	production	6,340	5,233
76,390	80,042	sales	17,674	28,494
		Zircon
235,227	188,488	production	196,421	167,111
200,283	253,476	sales-1	179,482	149.441
		Coal
707,774	636,820	production	592,710	498,000
331,432	293,159	sales	515,000	517,433

Iluka Group production and sales to 30 June

Notes

1 Zircon sales include zircon flour

2 Production and sales numbers include Iluka's 50% interest in Narama coal and 100% of Consolidated Rutile Limited

3 Ilmenite production includes ilmenite used to produce synthetic rutile

Areas of Specific Management Focus

Environment, Health and Safety

Iluka's safety performance continued to improve in the first half of 2003 compared with the previous corresponding period as evidenced by a lost time injury frequency rate (LTIFR) of 4.0 compared with 8.8 at the same stage last year. This translates to 9 lost time injuries in the first half of 2003 compared with 20 during the first six months of 2002.

The Company also made further progress in the area of environmental management with the number of level 3 and above environmental incidents reducing to 7 in the first half of 2003 compared with 23 in the previous period. There were no level 4 or 5 incidents recorded in either the period under review or the previous corresponding period.

USA Private Placement Debt Market

The Company successfully completed a US\$100 million debt raising in the USA private placement debt market in late June. The debt raising is part of a capital restructure to lengthen the maturity profile of Iluka's debt facilities and pay down Australian bank debt facilities. The restructure positions the Company to be able to fund internal growth projects including the Murray Basin and USA expansion projects.

Business Improvement Program

Good progress was made in the first half on the Company's business improvement program which is targeting an initial A\$40 million per annum increase in pre-tax earnings by the end of 2004 from both cost savings and margin enhancements from de-bottlenecking mining and processing operations.

The review phase for two waves of performance improvement (representing 50% of the cost base) was completed during the period under review and an initial 135 cost saving or margin enhancement initiatives were implemented by the end of July. The initiatives implemented to date will deliver savings of A\$11 million and margin enhancements of A\$15 million, on a full year basis. The Company expects that significant additional cost savings and margin enhancements from the first two waves will be realised over the second half of 2003 and 2004, as the balance of the initiatives are progressively implemented.

The third and fourth waves of performance improvements have been combined into one wave (representing 50% of the cost base) and the initial review phase will be completed by late 2003. As a result the majority of the cost savings and margin enhancements from the implementation of wave three initiatives will be realised during 2004 and the balance realised during 2005.

CRL Production Disruption

Operations at CRL's Yarraman mine on North Stradbroke Island were suspended in mid-July after the ladder section of the dredging equipment was damaged. Repairs are expected to cost in the order of A\$1 million and the dredging operation is not expected to be fully operational until mid-October 2003. CRL does have insurance for plant damage and business interruption and is working through a claim with its insurer.

In order to minimise the impact on production and sales. CRL plans to commence supplementary dry mining within the existing Yarraman dredge mine path in early September and feed the ore via a dry mining slurry unit, to the Yarraman floating concentrator. Supplementary dry mining operations are also planned to commence at the Ibis mine in early October.

Development Projects

USA - Florida and Georgia

Planning and environmental approvals for the Lulaton deposit in Brantley County, southern Georgia, were received in early 2003. Subsequently an administrative appeal was lodged against the approvals by a local resident and four environment groups, delaying the start up of construction.

In late-July, an agreement was reached with the petitioners and the appeal was dropped in exchange for Iluka making commitments in respect to environmental management at the Lulaton site including support for community environmental education and clean-up efforts, assistance with the creation of a conservation easement to protect native long-leaf pine and ongoing liaison and meetings with the petitioners. Construction activities at the Lulaton site commenced in mid-August and are expected to be completed in the first quarter of 2004. The site is expected to be fully operational during the second quarter of 2004.

In addition, Iluka is investing a further US\$2.6 million to expand the mobile concentrator (MC1), which was relocated in early 2003 to a deposit adiacent to the Green Cove Springs (GCS) operations. Options for prolonging the operation of the GCS dredging operation beyond the planned closure at the end of 2003 are under review.

Murray Basin

During the first half of 2003, the Company completed a pre-feasibility study (PFS) for the development of the Douglas minerals sand project (acquired from Basin Minerals during 2002) in the Murray Basin in south-west Victoria. The study focused on refining the original plan to develop the Douglas mine near Horsham and a large-scale minerals separation plant near Hamilton to produce finished products in 2005. As part of this process the Southern Grampian Council approved the planning permit application for the proposed mineral separation plant at Hamilton. This decision was subsequently appealed and Iluka has continued to work through the planning approval appeal process. A final decision on the planning permit for the mineral separation plant is expected in the third quarter of 2003.

In parallel. Iluka also investigated opportunities to optimise mineral processing operations in the Murray Basin. This work demonstrated that plans to utilise processing facilities in Western Australia and/or the staged development of mineral processing facilities in the Murray Basin provided minimal benefits and a large scale mineral separation plant located near Hamilton remained the most effective option to process minerals from both the Douglas and KWR deposits.

The Company will now undertake a detailed feasibility study (DFS) in the second half of 2003 to complete the detailed engineering and design work and further refine timing and capital cost estimates. Although subject to the DFS outcome, Iluka currently expects to invest approximately A\$190 million to develop the Douglas mine, mineral separation plant and associated infrastructure. Construction is expected to commence in the first half of 2004 with mining commencing in late 2004 and production of finished products (rutile and zircon) in the second half of 2005. Work is also continuing on development plans for a startup in mid-2007 of mining and mineral concentrating operations at the KWR deposits, located near Ouven.

Consolidated Rutile Limited

Following the completion of an extensive evaluation process, CRL will invest A\$25 million to upgrade the Ibis plant in early 2004 and dredge directly from the Ibis mine to the Enterprise deposit, once the upgrades are completed. The Enterprise deposit is the most significant remaining mineral sands resource on North Stradbroke Island with an expected mine life of approximately twenty years.

CRL expects to complete mining operations at the Ibis deposit in early 2004 and complete the plant modifications, upgrades and commissioning activities by the end of the first guarter of 2004. The transitional dredging phase to access the Enterprise deposit is expected to take 12 months to complete.

Exploration

The majority of exploration activity during the first half of 2003 was focused on the Western Australian Basin, the Murray Basin in eastern Australia and the Atlantic Basin in the USA. The Company's expenditure on exploration in the period was A\$7.3 million.

In the Western Australian Basin, exploration continued around the Eneabba, Cataby, Gingin, Yoganup and South Capel areas. A total of 46,882 metres was drilled during the period.

In the Murray Basin, exploration efforts concentrated on the Company's NSW tenements with the initial reconnaissance of the two newly acquired tenements (purchased from Consolidated Broken Hill) now complete. The two drilling rigs were stood down in June for the planned mid-year break whilst laboratory data is received and assessed. A total of 52,714 metres was drilled during the period. The Company also closed its Mildura exploration office and laboratory and relocated staff and equipment to Hamilton in south-west Victoria.

In the Atlantic Basin, exploration activities focused on areas near existing operations in Florida and Virginia. A total of 13,217 metres was drilled during the period. A comprehensive review of the regional geology of the Atlantic coastal plain has generated a more detailed model of the region's exploration potential and several new "grassroots" exploration targets have been identified for follow up.

Outlook for the Balance of 2003

Group mineral sands production is expected to increase in the second half and 2003 full year production levels for all products (apart from rutile) are expected to exceed 2002 full year production levels. Some potential exists for further production increases in the second half as a number of production enhancements identified during the business improvement program are progressively implemented (e.g. Green Cove Spring's mobile concentrator upgrade scheduled for the third quarter of 2003).

The market outlook in terms of contract sales and demand for both titanium minerals and zircon remains sound, despite pigment producers reporting softer markets for their products. Sales volumes for most products and particularly synthetic rutile are still expected to increase in the second half as planned. Zircon pricing remains firm with upward market sentiment.

The Company expects to benefit from the improvements in production and sales, a modest contribution from the first two stages of the business improvement program and lower than expected full year tax expenses. However, these benefits may not fully offset the potential impact on full year earnings from a higher level of exposure to A\$ exchange rate movements in the second half 2003 compared with the level of exposure in the first half. As a consequence the Company is anticipating a 2003 full year profit of between A\$80 to A\$90 million after tax.

Tan Mackenzie Chairman

KM (Mike) Folwell Managing Director

27 August 2003