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Is Iluka Resources Limited a buy at this share price?

Mineral sands producer Iluka Resources Limited (ASX: ILU) has seen its share price go virtually nowhere in the past four years, and is currently changing hands at $6.94.

That may seem a long way from the low of $5.01 experienced in late 2015, but it’s also miles away from the company’s all-time high share price of $19.46 set in Jul 2011. It’s unlikely investors will ever see that share price again too for several reasons.

The miner has struggled to produce consistent profits over time, reporting a $224 million loss in the 2016 financial year (FY16) as revenues plunged 12% to $774 million. Free cash flow per share was a miserable 11.3 cents or a yield of 1.6%. Net tangible assets per share also plunged from $3.31 in FY15 to $2.18 in FY16.

The company has struggled with lower average zircon prices, which fell 20% to US$773 a tonne in FY16 compared to US$961 the previous year, and was forced to write down the value of its assets by $201 million. Production volumes of zircon and rutile also fell by 10.7% and 13.8% respectively.

The company announced a US$50 a tonne price increase in February, which may help in FY17.

Net debt has soared from net cash to $506 million, after Iluka merged with Sierra Rutile in December 2016. And to makes matters even worse for shareholders the company canned its final dividend after paying out an interim dividend of 3 cents.

Taking all those facts together suggests a company that investors should steer well clear. In fact, in 2012, I wrote that I was doing just that, despite revenues jumping 75% in 2011. At the time 12 out of 14 analysts covering the stock had a buy rating on it. Some appear to have changed their tune – according to Reuters, just four analysts out of 10 have a buy rating on Iluka, with three rating the stock a Sell, and three a hold.

I’m not even sure why so many analysts even bother covering the company considering its probably not even investment grade.

Foolish takeaway

I’d argue that Iluka’s share price is more likely to sink than rise from here, and retail investors should continue to steer well clear of Iluka Resources, given better opportunities out there.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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