MAC Royalty

The cornerstone asset of Iluka’s royalty business is a revenue royalty interest over the BHP operated Mining Area C iron ore operation in the Pilbara, Western Australia (MAC Royalty). The MAC Royalty provides payments comprising of:

·         quarterly royalty payments equal to 1.232% of Australian denominated revenue from the MAC Royalty Area; and

·         one-off production capacity payments of A$1 million per one million dry metric tonne increase in the annual production during any 12-month period.

Iluka first received revenue from the MAC Royalty in 2003, and over the period (up to 31 December 2019), it generated a total of A$881 million. In 2019, the MAC Royalty delivered A$85 million in revenue, 53% higher than 2018, largely as a result of higher iron ore prices and prior to any increase in production and sales resulting from the South Flank expansion. 

The MAC Royalty agreement is with the Mining Area C joint venture parties: BHP, Itochu and Mitsui.

Mining Area C is one of four hubs within BHP’s Western Australian Iron Ore operations (WAIO), contributing 60 million wmt of iron ore in 2019 (100%), located in the Pilbara region in the North of Western Australia. The Pilbara region is one of the premier iron ore regions in the world, with Western Australia accounting for more than 50 per cent of global supply in 2018.

Mining Area C has two major mining areas, North Flank and South Flank which as a combined mining hub is expected by BHP to operate for over 30 years².

·         North Flank: has been in production since 2003 and produced 60 million wmt in 2019.

·         South Flank: is currently in development, with first production targeted to occur in 2021.

Both mining areas within Mining Area C operate as open pit, producing ore which is crushed, beneficiated (where necessary) and blended to create high-grade lump and fines products. Iron ore products are then transported along the Port Headland-Newman rail line to the port facilities at Port Headland.

An indicative outline of the MAC Royalty Area is shown below.

South Flank Development

The South Flank project was approved by BHP in June 2018 and construction is currently more than 84% complete¹. The project is a US$3.6 billion capital investment (on a 100%) and is expected to produce 80 million wmtpa, replacing volumes from Yandi, a nearby BHP mine, as it reaches its end of economic life in the early-to-mid 2020s².

BHP has stated that iron ore production from the Mining Area C is expected to increase from 60 million wmtpa in 2019 to approximately 145 million wmtpa by 2023. The South Flank mine will be one of the largest producing iron ore mines BHP has developed, integrating the latest advances in autonomous-ready fleets and digital connectivity³.