Iluka pursues sustainable economic outcomes allowing us to share economic benefits with the communities in which we operate, while creating and delivering value.
We undertake a range of activities to advance the objective of delivering value, with a business approach comprising the following key elements:
- operating with a cost focus and flexing operations in line with demand;
- seeking a sustainable price environment for mineral sands products;
- preserving and advancing growth opportunities;
- exploring for minerals in prospective locations;
- disciplined capital allocation; and
- acting counter-cyclically where appropriate.
In 2017, significant activities included:
- the integration of the Sierra Rutile operation;
- the consolidation of our Australian mineral separation plants following a detailed review of Iluka’s production portfolio and projects;
- pursuit of an appropriate pricing strategy to allow sustainable returns; and
- increase in US operations rehabilitation provision by US$90 million following detailed planning and analysis for the closed sites.
For 2017, Iluka recorded a loss after tax for the year of $171.6 million, compared with $224.0 million for the previous corresponding period. The higher mineral sands revenue achieved – driven by increased volumes and prices from the Mining Area C iron ore royalty – resulted in a strong underlying performance. Free cash flow of $322 million was generated with Iluka ending 2017 with net debt of $183 million, down from $506 million at the beginning of the year.
Further information on Iluka’s financial results and economic performance can be found in the Iluka 2017 Annual Report, available on our Iluka website www.iluka.com.
Our activities have the ability to create direct and indirect economic benefits to countries and communities in which we operate, including:
- employment opportunities;
- investment in community infrastructure and services;
- local procurement supporting community businesses wherever practicable; and
- community support through sponsorships and partnerships.
Iluka engages in a wide range of partnerships and contributes to a large number of community programs and events. Some of these programs are closely tied to business objectives, such as employee diversity, environmental excellence and local employment and procurement, while others are influenced by regional and local development priorities.
In 2017, we contributed $1,213,000 globally in community investment, comprised of $607,500 in corporate level programs in Australia and $605,869 to site and regional level initiatives in countries where Iluka has a presence.
In 2017 Iluka maintained several major corporate partnerships including:
- University of Western Australia – Iluka Chair in Vegetation Science and Biogeography, Western Australia;
- Virginia Polytechnic Institute and State University in Blacksburg, Virginia;
- Clontarf Foundation, Australia; and
- Ochre Contemporary Dance Company, Western Australia.
Sierra Rutile has a well-established community affairs department made up of Sierra Leoneans, predominantly from the local community, to conduct engagements and monitor social performance. The Sierra Rutile Foundation was the funding vehicle for corporate social responsibility initiatives. This has been replaced with a new Community Development Agreement (CDA). The CDA was developed to govern the sharing of benefits with local communities. A Community Development Committee (CDC) was established to implement the CDA. Going forward, corporate social responsibility spend will be directed to two key areas – education and the activities of the CDC.
All Iluka sites make a range of contributions to their local communities. These include programs and events in the areas of youth, education, sport, culture, community safety, mental health and the arts. In 2017, over 80 organisations, events or groups received contributions from Iluka, including:
- Jackson and Devon Anderson (JADA) Technical Institute, Sierra Leone;
- Ruby Rose Educational and Recreational Centre, Sierra Leone;
- Ceylon Chamber of Commerce, Sri Lanka flood relief, Sri Lanka;
- SHINE, Western Australia; and
- Undalup Association – NAIDOC festival, Western Australia.
Iluka does not grant applications for support of religious or political activities, and does not provide funds to political parties.
A summary of the economic value generated and distributed from Iluka’s activities in 2017 is provided below.
|2017 economic contribution|
|A$million||Revenue||Operating costs||Employee wages and benefits||Payments to contractors and suppliers|
*Refer to page 25 for Iluka’s tax contribution summary
 Figure includes statutory payment of $139,000 to Agricultural Development Fund (ADF) of Sierra Leone as per government conditions.
We are proud of the contribution we make to the communities in which we operate and take our responsibility to pay our taxes seriously. In 2017 Iluka paid $47.1 million in income taxes, royalties and other payments to national, regional and local governments.
Iluka understands the need for transparency on its tax payments and has now published the company’s taxes paid data for a third year in a row following adoption of the Australian Board of Taxation’s Voluntary Transparency Code in 2015. This year, the company’s tax transparency reporting has been integrated into this report, including Sierra Rutile’s contributions. This reflects the recognition by Iluka and its Board of the importance of tax transparency in meeting the company’s sustainability objectives and the impact of taxes paid in context of Iluka’s overall economic contribution and therefore its social licence to operate.
The information provided in this report, together with data published in Iluka’s Annual Report, reflects the disclosure requirements under the Australian Voluntary Tax Transparency Code (the Code) and the UK Finance Act 2016. Iluka adopted the Code in 2016 and has published a Tax Transparency Report for the 2015 and 2016 income years. The Code is divided into Parts A and B with both parts recommended to be adopted by large businesses, such as Iluka. Part A of the Code aims to improve tax disclosures contained within general purpose financial statements. Part B of the Code details Iluka’s approach to tax policy, strategy and governance, as well as providing information on the total tax contribution for the year and international related party dealings. For 2017 and going forward, Part A information (including commentary on Iluka’s Group and Australian effective tax rates) is reflected in Iluka’s Annual Report. Part B requirements are addressed in this report.
Tax policy, strategy and governance
Tax governance is an essential and important element of Iluka’s corporate governance framework. Iluka’s tax governance framework, including its Tax Risk Policy, emphasises a prudent and responsible approach to tax management and operates within our broader governance and risk management framework. The Tax Risk Policy is reviewed annually by the Board and sets out the accountability and reporting framework for managing Iluka’s tax risks. Key to our approach to managing tax risk is meeting our obligations to pay taxes in accordance with the respective prevailing tax laws and ensuring payment obligations are met on time.
The broader tax governance framework operates to ensure that Iluka is compliant with statutory reporting and disclosure obligations and that all material tax risks are recognised, managed and recorded in a manner consistent with:
- the Board’s risk management philosophy;
- generally accepted industry practice and corporate governance standards;
- guidance from regulatory authorities; and
- shareholder expectations.
Tax issues are regularly reported to and considered by the Board and senior executives at meetings of the company’s Audit and Risk Committee.
Tax planning is undertaken in this context, with material tax risks identified at the earliest opportunity and risk mitigation strategies implemented. In structuring Iluka’s commercial activities, the company considers – among other factors – the tax laws of the countries in which it operates, with a view to maximising value on a sustainable and responsible basis for shareholders. All tax planning is undertaken with commercial and economic substance and with regard to the potential impact on Iluka’s reputation and commercial objectives.
Given the scale of Iluka’s business and volume of tax obligations, risks will inevitably arise from time to time in relation to the interpretation of tax law and the nature of our compliance arrangements. We proactively seek to identify, evaluate, manage and monitor these risks. Where there is significant uncertainty or complexity, external advice will be sought.
The company acts with integrity in dealing with all stakeholders, including tax authorities, with whom Iluka maintains a transparent, respectful and professional relationship.
International related party dealings
Iluka’s principal activities are mineral sands exploration, project development, operations and marketing, and rehabilitation. These activities are undertaken in a number of countries across the globe through subsidiaries and branches which are considered international related parties in respect to Iluka.
Our operating model leads to intra-Group services and transactions including support services for management and other intra-Group services, the sale and purchase of commodities, financing arrangements. The aggregate value of these intra-Group transactions comprises less than 2% of sales revenue.
Under Iluka’s Tax Risk Policy, all international related party transactions are priced in accordance with the Organisation for Economic Cooperation and Development (OECD) guidelines and local laws. Iluka obtains independent advice from transfer pricing experts to ensure that the transactions are compliant with legal and local tax requirements, are priced on an arm’s length basis and appropriately documented.
Tax contribution summary
Taxes represent a significant part of our economic contribution to the main countries in which we operate. The following table illustrates the types of taxes paid, collected and remitted by Iluka in 2017 to national, regional and local governments in jurisdictions that Iluka conducts mining operations. Taxes paid in other jurisdictions in which Iluka has a presence have not been included on the basis that they are not material to Iluka’s overall tax contribution.
Royalties paid to national, regional and local governments continue to be the largest component of our taxes borne, followed by corporate income tax. Payroll taxes collected and remitted to governments on behalf of employees represents 43% of our total tax contribution (before net taxes refunded).
|Total payments made by country|
|AU$ m||Corporate income tax||Royalties||Fees1||Employer taxes2||Other3||Total taxes borne||Employee payroll taxes4||Net taxes refunded5|
|Total AU$ m||9.9||26.5||3.5||6||1.2||47.1||35.5||(25.6)|
Note 1 Payments to governments for the right to use an area for exploration or extractive activities.
Note 2 Payments to governments in relation to Iluka’s capacity as an employer. This includes payroll taxes and Australian fringe benefits tax.
Note 3 Property and sales tax paid to state governments.
Note 4 Payroll and employee taxes withheld from employee remuneration and paid to governments.
Note 5 Foreign denominated taxes were converted to AU$ using an average daily exchange rate for 2017 of 0.803 from the Reserve Bank of Australia.
Note 6 Net refunds of transactional taxes, such as Goods and Services Tax (GST) and Value Added Tax (VAT).