Mineral sands producer Iluka is reviewing what to do with a royalty it holds on BHP’s iron ore operations in Western Australia.

Iluka earned $41.2 million in the first half of 2019 from the royalty and that’s expected to increase to as much as $120 million to $250 million annually by 2023 as BHP develops its South Flank operation.

Iluka said it would explore a range of options, including demerging the Mining Area C (MAC) royalty or setting up a specific dividend policy.

“Capital requirements, business plans, management structures and cost and tax implications will also be examined as part of the Review,” Iluka said.

“Given the substantial scale of the mineral sands business and the prospective scale of MAC, the time is right to formally review Iluka’s corporate and capital structure with the objective of fully capitalising on the respective features of both assets,” said Iluka chairman Greg Martin.

Iluka said it has appointed Gresham Advisory Partners, Herbert Smith Freehills and Greenwoods to advise it on the review and expects to provide an update on it when Iluka announces its full-year results in February.

Separately, Iluka announced quarterly results from its core business, saying mineral sands production was up 17 per cent on the previous quarter, to 198 kilotonnes.

At the company’s Jacinth-Ambrosia mine in South Australia – the world’s largest zircon mine – Iluka moved minng operations from its Jacinth North deposit to the Ambrosia deposit ahead of schedule and under the $35 million budget.

But Iluka said the performance of its rutile mine in Sierra Leone was below expectations.

Issues included “maintenance outages and interruptions to mining as a result of wet season conditions and power outages,” Iluka said, although an external specialist maintenance team was able to rectify an issue related to gland water supply infrastructure.

Rutile is used in the production of titanium, as a pigment and in ceramics, while zircon is used as a whitening agent in the ceramics industry and in the foundry and refractory industries.

Demand for zircon has remained for subdued in key markets, particularly in the ceramics industry, where tile production has moved from China to other Asian countries.

Iluka said it had responded by enhancing loyalty rewards and adjusting its product offering.

Iluka said that in the first half of next year it expects to have a plan for developing its Wimmera zircon and rare earths project 40km southwest of Horsham in western Victoria.

An Iluka project team has also returned to Sri Lanka to work on developing Iluka’s sulphate ilmenite deposit in the northwest part of the country, after having withdrawn following a devastating string of terrorist bombings on Easter Sunday in Colombo.

At 1049 AEDT, Iluka shares were up 5.6 per cent to a three-month high of $9.32.