Bonham as Trustee for the Aucham Super Fund v Iluka Resources Ltd

JAGOT J: 1 OVERVIEW [1] 2 THE CLAIMS [6] 2.1 Misleading and deceptive conduct [6] 2.2 Continuous disclosure [9] 3 PRIMARY FACTS [10] 3.1 Iluka [10] 3.2 Mr Bonham [14] 3.3 Announcements/information Iluka released to market [17] 3.3.1 23 February 2012 announcement [17] 3.3.2 12 April 2012 report [21] 3.3.3 8 May 2012 updates [22] 3.3.4 9 July 2012 notice [26] 4 FURTHER FACTS [27] 4.1 Background - zircon [27] 4.2 Background - TIO2 [35] 4.3 Background - Iluka's management structure [49] 4.4 The sequence of events [52] 4.5 2009-2012 [59] 4.6 August 2011 [61] 4.7 September 2011 [68] 4.8 November 2011 [93] 4.9 December 2011 [101] 4.10 January 2012 [123] 4.11 February 2012 [135] 4.12 March 2012 [183] 4.13 Up to and including 12 April 2012 [196] 4.13.1 The zircon market [219] 4.13.2 The TiO2 market [234] 4.13.3 Overview up to and including 12 April 2012 [246] 4.14 The rest of April 2012 [250] 4.15 May 2012 [279] 4.16 Overview up to and including 8 May 2012 [303] 4.17 The rest of May 2012 [308] 4.18 June 2012 [391] 4.19 July 2012 [428] 5 ILUKA PERSONNEL [467] 5.1 Mr Robb [467] 5.2 Mr Cobb [477] 5.3 Mr Green [486] 5.4 Mr Tate [493] 5.5 Mr Pizzey [497] 5.6 Mr Osborn [505] 5.7 Mr Rezos [509] 5.8 Conclusions [513] 6 EXPERT EVIDENCE - LIABILITY [519] 6.1 Mr Murray (Mr Murphy and Dr Unni) [519] 6.2 Mr Rochester (Mr Murphy and Dr Unni) [569] 6.3 Conclusions [610] 7 WERE REPRESENTATIONS MADE? [612] 7.1 23 February 2012 announcement [615] 7.2 12 April 2012 report [642] 7.3 8 May 2012 updates [647] 7.4 Mr Bonham's evidence [655] 7.5 Conclusions [663] 8 REASONABLE GROUNDS FOR REPESENTATIONS? [668] 8.1 Rejecting some of Iluka's propositions [668] 8.2 Iluka otherwise acted on reasonable grounds [678] 9 CONTINUOUS DISCLOSURE [700] 10 CAUSATION AND LOSS [712] 11 LIMITATION PERIOD ISSUES [721] 12 COMMON QUESTIONS [722] 13 ORDERS [723]

1. OVERVIEW 1 This is a shareholder class action. The representative applicant, James Bonham, seeks statutory compensation from the company, Iluka Resources Limited, for alleged contraventions of s 674 (the continuous disclosure requirements) and s 1041E (false or misleading statements) of the Corporations Act 2001 (Cth) (the Corporations Act), s 12DA (misleading or deceptive conduct) of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act), and s 18 of the Australian Consumer Law (ACL) in Sch 2 to the Competition and Consumer Act 2010 (Cth). 2 The alleged contraventions all arise from the same circumstances. The circumstances concern Iluka's guidance to the market about future sales of zircon (Z), rutile (R), and synthetic rutile (SR) in 2012. The relevant period for the sales guidance is from 12 April until 9 July 2012. On 9 July 2012 Iluka revised its sales guidance. Its share price fell about 25%. The applicants claim to have suffered loss caused by Iluka's alleged contraventions. 3 There are two essential issues: (1) whether Iluka had reasonable grounds for the sales guidance during the relevant period; and (2) whether Iluka was "aware", within the meaning of ASX Listing Rules 3.1 and 19.12, of information meaning that its likely sales of Z/R/SR in 2012 would be materially less than the sales guidance during the relevant period. 4 The sales guidance involves a representation as to a future matter. Accordingly, Iluka has the onus of proving reasonable grounds for its sales guidance for the purpose of the misleading and deceptive conduct claims. Mr Bonham has the onus of proving Iluka's awareness of the relevant information for the purpose of the continuous disclosure claims. 5 For the reasons given below, Mr Bonham's case, and the class action as a whole, must be rejected.

2.1 Misleading and deceptive conduct 6 According to Mr Bonham, his misleading and deceptive conduct case depends on three types of representations (avoiding, to the extent possible, the definitions building on other definitions which characterise the applicants' third further amended statement of claim or 3FASOC): (1) express representations of forecast sales in FY 2012, called the April forecast representation and the May forecast representation: (a) the April forecast representation is that Iluka expected to achieve in FY 2012 zircon sales of 450kt, rutile sales of 225kt, synthetic rutile sales of 310kt, and saleable ilmenite sales of 350kt; (b) the May forecast representation is that Iluka expected to achieve in FY 2012 zircon sales of 400kt, rutile sales of 225kt, and synthetic rutile sales of 310kt, and expected that Z/R/SR sales volumes to be approximately one third/two thirds weighted between the first half and second half of 2012; (2) implied representations that Iluka had reasonable grounds for the April forecast representation and the May forecast representation; and (3) implied representations that Iluka: (a) did not know information which created a material risk that the April forecast representation and the May forecast representation were no longer reliable; (b) was still able to provide reliable forecasts of future revenue when it made the April forecast representation and the May forecast representation; and (c) had a reasonable basis for providing point estimates of sales for mineral sands products rather than a broad range going forward. 7 Ultimately, however, Mr Bonham did not rely on the third set of representations, but as I understand it they remain relevant to other members of the class. 8 For the misleading and deceptive conduct claims, Mr Bonham relied on s 769C(1) of the Corporations Act, s 12BB of the ASIC Act and s 4(1) of the ACL as follows. s 769C(1) Corporations Act For the purposes of this Chapter, or of a proceeding under this Chapter, if: (a) a person makes a representation with respect to any future matter (including the doing of, or refusing to do, any act); and (b) the person does not have reasonable grounds for making the representation; the representation is taken to be misleading. s 12BB ASIC Act If: (a) a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and (b) the person does not have reasonable grounds for making the representation; the representation is taken, for the purposes of Subdivision D (sections 12DA to 12DN), to be misleading . (2) For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by: (a) a party to the proceeding; or (b) any other person; the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary. (3) To avoid doubt, subsection (2) does not: (a) have the effect that, merely because such evidence to the contrary is adduced, the person who made the representation is taken to have had reasonable grounds for making the representation; or (b) have the effect of placing on any person an onus of proving that the person who made the representation had reasonable grounds for making the representation. (4) Subsection (1) does not by implication limit the meaning of a reference in this Division to: (a) a misleading representation; or (b) a representation that is misleading in a material particular; or (c) conduct that is misleading or is likely or liable to mislead; and, in particular, does not imply that a representation that a person makes with respect to any future matter is not misleading merely because the person has reasonable grounds for making the representation. s 4 ACL (1) If: (a) a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and (b) the person does not have reasonable grounds for making the representation; the representation is taken, for the purposes of this Schedule, to be misleading. (2) For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by: (a) a party to the proceeding; or (b) any other person, the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary. (3) To avoid doubt, subsection (2) does not: (a) have the effect that, merely because such evidence to the contrary is adduced, the person who made the representation is taken to have had reasonable grounds for making the representation; or (b) have the effect of placing on any person an onus of proving that the person who made the representation had reasonable grounds for making the representation. (4) Subsection (1) does not limit by implication the meaning of a reference in this Schedule to: (a) a misleading representation; or (b) a representation that is misleading in a material particular; or (c) conduct that is misleading or is likely or liable to mislead; and, in particular, does not imply that a representation that a person makes with respect to any future matter is not misleading merely because the person has reasonable grounds for making the representation.

2.2 Continuous disclosure 9 Mr Bonham contended that Iluka was aware of two types of information which it had to disclose (again avoiding, to the extent possible, the definitions building on other definitions which characterise the applicants' pleadings): (1) that a reasonably-based forecast of Iluka's expected sales for each of its products in FY 2012 was in the order of and no more than approximately 231kt to 336kt of zircon, 188kt of rutile, and 255kt of synthetic rutile (this depends on the expert evidence of Mr Murray and Mr Rochester); and/or (2) that Iluka knew when it made the April forecast representation and the May forecast representation: (a) that it did not have reasonable grounds to make the April forecast representation and May forecast representation; (b) information which created a material risk that the April forecast representation and the May forecast representation were no longer reliable; (c) that it was no longer able to provide reliable forecasts of future revenue; and (d) that it did not have a reasonable basis for providing point estimates of sales for mineral sands products rather than a broad range going forward.

3.1 Iluka 10 Iluka is a miner and global supplier of mineral sands products. Its products include zircon, rutile and synthetic rutile. 11 Rutile and synthetic rutile are titanium dioxide (TiO2) products. 12 The primary use of zircon is in ceramic tiles. 13 The primary use of titanium dioxide products are in pigments for paints.

3.2 Mr Bonham 14 Mr Bonham is retired. He has invested in shares since the early 1990s. Since early 2012 he subscribed to Lincoln Indicator's "Stock Doctor" information service (Stock Doctor). Around 8 May 2012 he read a series of Stock Doctor reports about Iluka (an 8 May 2012 report, and other reports dated 12, 17 and 23 April 2012). He gained the impression from Stock Doctor that Iluka's shares had been trading at a discount but "that its recent performance had been below expectations due to short-term market weakness", and that the "current declining sales trend was probably temporary". He then read two updates released by Iluka on 8 May 2012 (see below). He understood these as confirming what he had read in Stock Doctor and that there was an expected recovery which had "just been delayed". Mr Bonham said: The announcement [of 8 May 2012] also confirmed the impression I had formed from reading Stock Doctor's reports that [Iluka] had experienced some changes to demand and they had responded to this by changing their production levels while maintaining operational flexibility for when demand recovered. This again suggested to me that [Iluka] was in control of what it was doing and its overall expectations for the year were unaffected by the continued softness in its markets. 15 On 14 May 2012, Mr Bonham purchased 2,150 shares in Iluka for a total price of $29,503.17 (including brokerage). The price per share at the time was $13.68. 16 After Iluka's announcement on 9 July 2012 (see below) and reading another Stock Doctor report of the same date "which dropped the company from 'Star Stock' status and which otherwise confirmed my negative views", Mr Bonham sold all of his Iluka shares on 9 July 2012 for a total price of $19,384.55 (including brokerage). The price per share at that time was $9.03.

3.3 Announcements/information Iluka released to market

3.3.1 23 February 2012 announcement 17 On 23 February 2012 Iluka made an announcement to the market "Key Physical & Financial Parameters Iluka 2012". 18 The 23 February 2012 announcement said: This document provides an indicative guide to key physical and financial parameters in the Iluka business for the 2012 financial year. It supplements Iluka's Key Physical & Financial Parameters, 2012-2014 document, which was disclosed as part of the company's November 2011 Mineral Sands Briefing Session … That 2012-2014 guidance document was developed before the finalisation of Iluka's 2012 budget and current difficulties in forecasting global economic conditions means that three year average outcomes may vary significantly depending on, initially, 2012 outcomes and then the path of global economic performance through 2013 and 2014. The information contained within this document, as well as the 2012-2014 document, is derived from either budget or corporate plan information. It is, as with all such information, and in the context of: uncertain economic conditions globally; potential changes to supply and demand dynamics; and potential modification to the company's own plans (subject to change and variation) and should be treated as a guide only. Iluka does not undertake to update this information regularly in part or whole, but can be expected to comment on any material variations. Iluka does not provide pricing forecasts. The information is provided to assist sophisticated investors with the modelling of the company, but should not be relied upon as a predictor of future performance. 19 The first page of the announcement continued with a clearly visible section with a blue heading and standard black text in slightly smaller font (but not fine print) as follows: This briefing paper contains information which is based on projected and/or estimated expectations, assumptions and outcomes. These forward-looking statements are not guarantees or predictions of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the company's control, and which may cause actual results to differ from those expressed in the statements contained in this release. Factors that could cause actual results or performance to differ materially from those expressed or implied in the forward- looking statements include, but are not limited to potential changes in: - exchange rate assumptions - product pricing assumptions - mine plans and/or resources - equipment life or capability - current or new technical challenges - market conditions - management decisions While Iluka has prepared this information based on its current knowledge and understanding and in good faith, there are risks and uncertainties involved which could cause results to differ from projections. Iluka shall not be liable for the correctness and/or accuracy of the information nor any differences between the information provided and actual outcomes, and furthermore reserves the right to change its projections from time to time. Iluka does not undertake to update the projections provided in this document on a regular basis. All currency is in nominal Australian dollar terms unless stated differently. 20 The next page said: 2011 2012 Commentary Guidance Production (kt) Zircon 601 ~500 Lower 2012 production reflects Iluka's decision to flex production in light of potentially lower short term demand. A rapid production increase capability exists as market conditions warrant forecast 2012 sales volumes, dependent on global demand levels and phasing, could be ~10% lower than production. 2011 sales volumes for zircon were 514k tonnes. 2010 sales volumes were 478k tonnes. Rutile 281 ~225 Lower 2012 production reflects the announced transition to new deposits in the Murray Basin, which will interrupt mining activities for a period of ~100 days. This is in line with guidance provided previously. Sales are expected to be in line with production in 2012. Rutile sales in 2011 were 265k tonnes. Synthetic rutile 285 ~310 2012 production reflects a 2 kiln operation but with 1 kiln (SR2) undergoing a major maintenance outage (approximately two months) during the first quarter of the year. SR sales in 2012 are expected to be in line with production. SR sales in 2011 were 257k tonnes. While Iluka plans to reactivate a 3rd SR kiln in 2012, this is not expected to make a material contribution to production in the year. Ilmenite - saleable 459 ~350 Level of ilmenite available influenced by internal requirements for synthetic rutile production.

3.3.2 12 April 2012 report 21 On 12 April 2012 Iluka issued an Australian Securities Exchange (ASX) Notice "Quarterly Production Report 31 March 2012". This report said: OVERVIEW Production Iluka's first quarter production of zircon, rutile and synthetic rutile was lower than the corresponding quarter in 2011, reflecting a number of factors previously advised by the company… … Sales Revenue Mineral sands sales revenue for the 3 months to 31 March was $196.3 million (2011: $226.3 million). The lower sales revenue, despite higher product prices (as advised at the time of the 2011 Full Year Results on 24 February 2012), reflects the expected slow start to zircon sales in 2012, as well as phasing of the shipment schedule for high grade titanium dioxide products. This includes 26 thousand tonnes of high grade titanium dioxide products originally scheduled for shipment in March which had been delayed until early April. … Market Conditions Zircon Iluka has stated on several occasions that it expected a soft quarter or two of zircon demand associated with the following factors: the impact of global economic conditions on customer confidence; the effect of measures by the Chinese Government to control inflation and temper speculative activity in some parts of the Chinese property market; the timing of Chinese New Year and the need for a destocking period, especially for ceramics manufacturers. As anticipated, first quarter zircon sales figures were low as many customers did not reactivate their plants until February, and in the case of some ceramic manufacturers in China, plants remained closed through part or all of March. As Iluka has stated previously, it will take some time for a clear view on overall 2012 zircon demand and the phasing of that demand to emerge. Titanium Products Iluka continued to experience strong demand for its high grade titanium dioxide. Similarly, demand for high grade titanium products for use in the manufacture of welding consumables strengthened in the latter half of the quarter as the usage of natural rutile as a feedstock for pigment and titanium metal production limited the global availability of this product. …

3.3.3 8 May 2012 updates 22 On 8 May 2012 Iluka issued an ASX notice "Key Physical and Financial Parameters - Update" (the first 8 May 2012 update) which said: Iluka … today advises a number of changes to its 2012 Key Physical and Financial Parameters document, issued on 23 February 2012. Iluka has stated on several occasions that it expected a soft quarter or two of zircon demand associated with the impact of global economic conditions on customer confidence and business conditions in various markets, together with the effect of various government policy measures globally and the need for a destocking period, especially for ceramics manufacturers. Iluka has also stated previously that it expected it would take some time for a clear view on overall 2012 zircon demand and the phasing of that demand to emerge. After a low first quarter, zircon sales volumes improved in April. While there is some evidence of improved economic traction in major economies such as the US and China, contra-indicators also exist and large eurozone countries are exhibiting increased weakness in the face of prevailing austerity measures. The global economic outlook therefore remains far from clear. Accordingly, Iluka has decided to reduce its zircon production in 2012, from the previously advised ~500 thousand tonnes to ~430 thousand tonnes, while maintaining its high grade titanium dioxide production. The zircon production adjustment will be achieved mainly via mining lower grade ore at Iluka's Jacinth-Ambrosia operation in South Australia and processing less zircon-rich concentrate at its Narngulu and Hamilton mineral separation plants. This approach provides the maximum operating flexibility, as well as rapid response capability to return to full production throughputs at the mineral separation plants. Iluka now forecasts its zircon sales for the full year to be ~400 thousand tonnes compared with the previously forecast ~450 thousand tonnes. … There is no change to guidance for titanium dioxide production and sales from that issued at the beginning of the year, with market conditions and sales forecasts in line with expectations. Overall, Iluka expects its zircon/rutile/synthetic rutile sales volumes to be approximately one third/two thirds weighted between the first half and second half of 2012. Based on the revised zircon sales and assuming current pricing, Iluka's total revenue mix is expected to be approximately 50-55 per cent titanium dioxide with the remainder zircon and by-products. … 23 Also on 8 May 2012 Iluka issued an ASX notice "Key Physical and Financial Parameters - May Update" (the second 8 May 2012 update) which said: This document provides an indicative guide to key physical and financial parameters in the Iluka business for the 2012 financial year. The information contained within this document is derived from Iluka's budgetary forecasts and other estimates. It is, as with all such information, developed in the context of: uncertain economic conditions globally; potential changes to supply and demand dynamics; and potential modifications to the company's plans and should be treated as a guide only. Iluka does not undertake to update this information regularly in part or whole, but can be expected to comment on any material variations. Iluka does not provide pricing forecasts. … The information is provided to assist sophisticated investors with the modelling of the company, but should not be relied upon as a predictor of future performance. 24 The first page of the announcement continued with a clearly visible section with a blue heading and standard black text in slightly smaller font (but not fine print) as follows: This briefing paper contains information which is based on projected and/or estimated expectations, assumptions and outcomes. These forward-looking statements are not guarantees or predictions of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the company's control, and which may cause actual results to differ from those expressed in the statements contained in this release. Factors that could cause actual results or performance to differ materially from those expressed or implied in the forward-looking statements include, but are not limited to potential changes in: - exchange rate assumptions - product pricing assumptions - mine plans and/or resources - equipment life or capability - current or new technical challenges - market conditions - management decisions While Iluka has prepared this information based on its current knowledge and understanding and in good faith, there are risks and uncertainties involved which could cause results to differ from projections. Iluka shall not be liable for the correctness and/or accuracy of the information nor any differences between the information provided and actual outcomes, and furthermore reserves the right to change its projections from time to time. Iluka does not undertake to update the projections provided in this document on a regular basis. All currency is in nominal Australian dollar terms unless stated differently. 25 The next page continued: 2011 2012 Commentary Guidance Production (kt) Zircon 601 ~430 Lower 2012 production reflects Iluka's decision to flex production in light of lower short term demand. A rapid production increase capability exists as market conditions warrant. 2012 sales are estimated at ~400k tonnes. Zircon sales in 2011 were 514k tonnes. Rutile 281 ~225 Lower 2012 production reflects the announced transition to new deposits in the Murray Basin, which will interrupt mining activities for a period of ~100 days. This is in line with guidance provided previously. Sales are expected to be in line with production in 2012. Rutile sales in 2011 were 265k tonnes. Synthetic rutile 285 ~310 2012 production reflects a 2 kiln operation but with 1 kiln (SR2) undergoing a major maintenance outage (approximately two months) during the first quarter of the year. SR sales in 2012 are expected to be in line with production. SR sales in 2011 were 257k tonnes. While Iluka plans to reactivate a 3rd SR kiln in 2012, this is not expected to make a material contribution to production in the year. Ilmenite - saleable 459 ~350 Level of ilmenite available influenced by internal requirements for synthetic rutile production.

3.3.4 9 July 2012 notice 26 On 9 July 2012 Iluka issued an ASX notice "Forecast Sales Volumes - Update" which said: Iluka … in accordance with its continuous disclosure obligations, provides the following update on general market conditions and sales volume expectations for the full year. Lower sales volumes now forecast reflect second quarter sales below expectations, but also and more significantly, deteriorating economic outlooks, discussions (which in many cases are ongoing) with customers in relation to second half volume requirements, and completion of the initial stages of the company's usual mid year reforecast process. Market Conditions and Revised Guidance A marked deterioration in major regional economies, more pessimistic official forward outlooks and commentary and the absence of anticipated or effective policy responses since the company's previous disclosure in early May [ASX Release, 8 May, Key Physical and Financial Parameters - Update], have had a flow on impact on mineral sands customer confidence levels and future business performance expectations, which is likely to influence sales volumes materially over the remainder of 2012. … The volatility in factors which materially influence demand and which are beyond the company's direct control, as well as the company's move in recent years to shorter period sales contracts, have increased the difficulty in providing specific company performance guidance, particularly over extended periods. As a result, and given the incomplete nature of discussions with both zircon and pigment customers for second half volume requirements, this revised guidance incorporates forecast sales volume ranges rather than single point forecasts. In addition, due to the continuing uncertainty associated with economic and business conditions, Iluka's Key Physical and Financial Parameters, 2012-2014 guidance (issued in November 2011) in now redundant. A reinstatement of such guidance will be dependent on market, commercial and other considerations, including reaching a period in terms of global economic performance when multiple year forecasts can be made with an appropriate degree of confidence. The company's revised 2012 full year sales volume expectations for zircon and high grade titanium dioxide products (rutile and synthetic rutile) are detailed below. Saleable ilmenite expectations are at this stage unchanged at 350 thousand tonnes for the full year, with 219 thousand tonnes sold in the first half. Sales Volumes - 1st Half Actuals and Revised Full Year Guidance Ranges kt 2012 2012 Ist Half Actuals Full Year Sales Guidance Ranges Zircon 87 200-300 Rutile 85 140-200 Synthetic rutile 101 170-220 Total Z/R/SR 273 510-720

… Appendix - Market Commentary Iluka provides the following market commentary which would normally be provided with its Quarterly Production Report, scheduled for release on 12 July. The Quarterly Production Report will replicate this commentary. Zircon Iluka sold 87 thousand tonnes of zircon in the first half of 2012. A large scheduled shipment was deferred in June associated with port delays and current forecasts assume this volume will not be recovered. Zircon sold in the first half has achieved weighted average prices in line with previous commentary. Market conditions in specific markets and end applications affecting second half demand can be summarised as follows: • in China, the absence of direct policy adjustments to boost the property sector, with attendant implications for property construction, completions and sales, has been compounded by high finished ceramics inventory level in-country. These factors have led to a continuation of subdued customer confidence levels beyond that expected earlier in the year, albeit China's zircon demand has shown the strongest regional recovery in the second quarter. Iluka has seen the continuation of "just in time" ordering patterns which, from recent discussions with customers, (despite some encouraging factors in relation to increased demand, higher spot pricing and monetary policy easing, as well as zircon sand inventories at historically low levels) are not assumed to change materially in the second half; • continuing and more pronounced economic weakness and policy uncertainty into the second quarter in the eurozone; • continuing weakness in the main ceramics export markets for Spain and Italy, such as the fourth largest tile manufacturer, Iran, which has been impacted by sanctions; and Turkey and Egypt, both within the top 10 tile manufacturers, which have been impacted by the aborted "Arab Spring", have flowed through to continued fragile business confidence levels. From recent discussions with customers this is forestalling expected bulk re-ordering patterns, including inventory replenishment, into the second half despite low zircon sand inventories; • while demand for zircon in North America has remained relatively constant, there is new evidence of softening manufacturing output and export growth, particularly in June. This has influenced customer sentiment (a major part of Iluka's zircon sales in North America are into the manufacturing sector) and it is considered prudent to factor this into expected sales volumes estimates over the coming half; • in other developing markets, such as South East Asia and India, demand has also been negatively impacted by the macro economic settings. This has been especially significant in India (the world's third largest tile producer), where the Rupee has weakened by 15 per cent since March, making zircon sand imports (and other tile making raw materials) significantly more expensive; and • some level of thrifting, substitution and application of technology to ceramics manufacturing (difficult to forecast with confidence until ceramics inventories are worked down) which has compounded the effect of the weak economic and business conditions on customer demand. Zircon demand in non ceramic markets, namely zirconium chemicals, has been relatively stable while in foundry applications, as expected, use of alternative materials where feasible has subdued demand. A lower demand pattern in the second half appears likely in these applications, depending on economic and market conditions. Global and regional zircon demand recovery remains problematical to predict given current global economic conditions. High Grade Titanium Dioxide - Rutile and Synthetic Rutile Global economic settings referred to previously have had an impact on this sector, as the half has evolved. Iluka sold 186 thousand tonnes of high grade titanium dioxide products (rutile and synthetic rutile) in the first half of 2012. Approximately 8 thousand tonnes has been contracted but was not shipped due to shipment scheduling delays. This volume is scheduled to ship during July. Volumes sold or committed in the first half are roughly in line with previous commentary on first half expected sales trends. Weighted average rutile and synthetic rutile prices have been in line with previous disclosed information. As the second quarter progressed, softer demand for pigment and pigment inventory build began to be reported, reflecting lower European demand and weaker global export flows of pigment. In recent second half volume discussions with pigment customers it is clear that such factors are affecting some pigment producers' planned production levels, and therefore, in some cases, their high grade ore requirements. Given customer adjustments to their production base are under consideration in some cases, and in the context of existing inventories of pigment by some producers, determination of second half high grade titanium dioxide volumes is expected to take longer than in more normal market conditions. Demand in the smaller niche markets (titanium sponge and welding electrodes) has remained relatively stable but, particularly in the welding market, some weakening in second half demand has been factored into expectations.

4.1 Background - zircon 27 Zircon is a mineral sand product that is mainly used in the production of opacifier. Opacifier is produced by grinding (or "milling") raw zircon sand. Opacifier is used as a whitening agent in the manufacture of (amongst other things) ceramics, sanitary ware (ceramic bathroom fittings) and tableware. Opacifier gives these products their bright white finish or glaze due to zircon's high refractive index. Zircon sand sold by Iluka was also used in the production of zirconia and zirconium chemicals, by refractories in the manufacture of glass and other products, and by foundries for use in the production of metal casings. 28 Opacifier is used in: (a) high quality porcelain tiles that contain opacifier in the body of the tile itself. The zircon density of porcelain tiles varies depending on the required quality of the end product, and (b) glazed ceramic tiles, where zircon opacifier is incorporated in the glaze and applied as a thin coating to the surface of the tile, as opposed to being incorporated in the body of the tile itself. 29 Iluka was primarily a producer of premium-grade zircon sand (that is, zircon sand comprised of greater than 66% zircon), which represented approximately 80% of the zircon sand produced and sold by Iluka. 30 Iluka sold zircon to intermediaries who then on-sold the product (either as opacifier or otherwise processed sand) to the manufacturers of ceramics and chemicals, refractories and foundries. As a result, Iluka considered that it was difficult for it to precisely quantify how much of the zircon sand sold by Iluka was ultimately used in each end-use application. This quantification was further complicated by the facts that end-use applications differed between regions and customers to whom Iluka sold directly, particularly in China, at times on-sold the raw zircon sand to other opacifier and zircon flour producers, creating a secondary market for zircon sand. Iluka was not alone in holding this view. It was shared by other participants in the industry. 31 Iluka's sales of zircon in 2009, 2010 and 2011 were about 221kt, 479kt and 492kt respectively. Its sales of rutile in those years were about 153kt, 240kt and 266kt. Its sales of synthetic rutile in those years were about 397kt, 362kt and 257kt. As Iluka put it, following the global financial crisis in 2009: … between December 2009 and October 2011, Iluka experienced a major upsurge in demand for its zircon products around the world. This was primarily driven by the Chinese government's efforts to inject financial stimulus into the Chinese economy, and, in particular, infrastructure and residential housing development. China's demand for zircon resulted in a global shortage in the supply of zircon sand … in 2011, Iluka was unable to supply the full quantity requested by its customers. (Footnotes omitted). 32 As a result of the strong demand, Iluka increased the price of zircon from US $725 per tonne in 2009 to US $2,500 per tonne by the end of 2011. Iluka also increased its zircon customer base from 45 in 2007 to 135 in 2011. 33 By 2011 China accounted for approximately 40% - 45% of Iluka's zircon sales, Europe accounted for approximately 25% of Iluka's zircon sales, the Americas accounted for approximately 15% of Iluka's zircon sales, and Japan, India, South-East Asia and other smaller markets, which together accounted for approximately 15% - 20% of Iluka's zircon sales. 34 While Iluka contracted zircon sales and set zircon prices on a quarterly basis, it sought information from zircon customers about their yearly zircon demand on a quarterly basis at the start of each year. Pricing was set on a quarterly basis in a negotiation between the sales managers and the individual customers. Pricing varied from customer to customer, from end use to end use. As Iluka had a large number of small and very small zircon customers, Iluka considered that collecting this information was significantly more difficult than the same exercise Iluka undertook for titanium dioxide customers. Iluka also supplied only about one third of the world's zircon demand and it considered that it was difficult for it to estimate demand from outside of its existing customer base.

4.2 Background - TIO2 35 Rutile is naturally occurring high-grade TiO2 sand. The rutile mined by Iluka had a TiO2 content of between 92 - 95%. 36 Synthetic rutile is an artificial equivalent to rutile which is produced by "upgrading" chloride ilmenite, a lower-grade feedstock with an average TiO2 content of between 58% - 62%. Synthetic rutile mined by Iluka had an average TiO2 content of between 90% - 92%. 37 While both rutile and synthetic rutile are high grade titanium dioxide feedstock (or high grade ore, HGO), Iluka marketed and sold them separately due to their different value to customers. Both were generally sold to the same customers, who blended them at their sites for use as feedstock. The main use is for titanium pigment in paints. 38 Pigment was produced from TiO2 feedstocks in one of two ways: (a) through a chlorination process, producing what was referred to within Iluka as "chloride pigment", or (b) through a sulphate-based process, producing what was referred to within Iluka as "sulphate pigment". 39 Pigment producing customers who purchased HGO from Iluka were using the feedstock to produce chloride pigment. Approximately 82% of the HGO produced by Iluka was sold to chloride pigment producing customers, with the balance of rutile products being sold to producers of welding electrodes and fluxes, and producers of titanium metal. In contrast to the large number of Iluka's zircon customers, more than 90% of Iluka's high grade titanium dioxide feedstock was supplied to five major chloride pigment producers, DuPont, Tronox, Kronos, Huntsman and ISK. Europe accounted for approximately 25% - 35% of TiO2 sales by revenue, the Americas about 20% - 30% of TiO2 sales by revenue, and Japan, South East Asia, the Middle East and other smaller markets, together accounting for approximately 32% - 52% of TiO2 sales by revenue. China only accounted for approximately 3% of Iluka's TiO2 sales by revenue, which was predominantly sales of bagged rutile and ilmenite. 40 Iluka supplied approximately 23% of the global supply of TiO2 feedstocks that were supplied to producers of chloride pigment. 41 Chloride pigment producers typically ran their plants at constant rates throughout the course of a year and at (or near) full capacity due to high production costs. As a result, chloride pigment producers needed guaranteed supply of feedstock. Continuity of supply, consistency, and quality of the feedstock are seen as critical components in chloride pigment production. Iluka had a track record of being a reliable source of HGO and therefore was a supplier to almost all chloride pigment plants around the globe. In or around October or November of each year, usually prior to the annual TZMI conference, Iluka's major pigment producing customers informed Iluka how much and what type of TiO2 feedstock they planned to source from Iluka in the coming year. Iluka used the TZMI conference in November of each year to conduct face-to-face pricing negotiations with its major TiO2 customers. 42 TZMI is a mineral sands consultancy which, amongst other things, published data and held an annual industry conference attended by Iluka and its customers. TZMI describes itself as: … a global, independent consulting and publishing company which specialises in all aspects of the mineral sands, titanium dioxide and coatings industries. … TZMI has proven expertise gained from our consultants having many years of direct operating experience in the industry in chief executive, senior operational, analytical and marketing roles. … To ensure TZMI provides accurate and up to date advice, TZMI maintains the most comprehensive and current databases of industry production, market information and best practices in the world, including supply and demand models, technical data and operating cost data for all major producers. 43 Mr Robb considered TZMI the pre-eminent mineral sands consultants. 44 Between 2009 and 2011 there was a significant increase in demand for the high grade titanium dioxide feedstocks which Iluka produced. Pigment producers moved away from lower-grade "slag" (a TiO2 feedstock comprising approximately 85% TiO2) towards higher grade TiO2 feedstock in order to produce more pigment from their existing manufacturing capacity. Further: (a) there was a significant increase in the demand for paint driven by the financial stimulus following the global financial crisis, and (b) unlike its major competitors, Iluka did not have long-term off-take agreements in place at that time which allowed it to increase the price of its TiO2 feedstocks on a more regular basis. 45 Between 2009 and 2011 Iluka's price for its high grade titanium dioxide feedstock increased from a range of US $425 to US $850 per tonne to a range of US $2,300 to US $2,800 per tonne. 46 It was submitted for Mr Bonham that the evidence is that sulphate and chloride pigments are interchangeable for 80% - 90% of paint applications, so paint manufacturers could readily shift between pigments if the economics warranted it or change their feedstock to a lower quality chloride slag. I do not accept this submission. In particular, while the evidence contains statements that the products are 80% - 90% interchangeable, the evidence is also that: (a) chloride pigment paints are of much higher quality than sulphate pigment paints and sulphate pigment paints are not suitable for all applications, (b) for paint producers, consistency of colour and quality was essential and that could not be achieved by sulphate pigment paints, (c) the main cost of painting is labour not paint. An apparently cheaper sulphate pigment paint (mainly sourced from China) would need repainting before a higher quality chloride pigment paint and that would adversely affect a paint producer's reputation in the market, and (d) a chloride pigment plant producer would not immediately or readily change its feedstock blend given the need for consistent quality output and technical challenges in doing so. 47 Mr Robb also made the point (supported by other evidence) that changing to lower quality chloride slag feedstock would result in reduced yields and waste disposal issues. DuPont could use ilmenite in its processes not only because of its technical skill but because it had special waste arrangements not available to other producers. Mr Robb explained: DuPont's ability to take chloride ilmenite was not just a function of its technical skill, it was a function of the arrangements it had for the disposal of the much higher volumes of waste that came with processing chloride ilmenite rather than a higher grade feedstock and they were able to controversially deep well inject that in North America, get rid of it that way, and they were able to dispose of it into the Gulf of Mexico also. So other customers, even if they could approach the technical capability of DuPont, had the commercial problem of how could they cost-effectively dispose of the waste. 48 The consequence is that Mr Bonham's submission that paint manufacturers could shift between pigment types if the economics warranted it or change their feedstock to a lower quality chloride slag obscures what would be a far more complex and nuanced decision-making process which might have long-term reputational impacts for a paint producer.

4.3 Background - Iluka's management structure 49 At the relevant time David Robb was Iluka's Managing Director and Chief Executive Officer. 50 A number of people reported directly to Mr Robb - Alan Tate, Chief Financial Officer and Head of Business Development Team, Cameron Wilson, Company Secretary and General Counsel, Rob Porter, General Manager, Investor Relations, Steve Wickham, Chief Operating Officer and General Manager of Australian Operations, Doug Warden, General Manager, Business Development and Exploration, Victor Hugo, General Manager, Product and Technical Development, Chris Cobb, General Manager, Sales and Marketing, Hans Umlauff, General Manager, SA Development and Project Management, and Matthew Blackwell, General Manager, US Region. These people comprised Iluka's "leadership team". 51 Iluka adduced evidenced from Mr Robb, Mr Tate, Mr Cobb, Simon Green (Iluka's General Manager, Finance and Risk at the time), George Pizzey (the chairman of Iluka's board and a non-executive director at the time), and Wayne Osborn and Gavin Rezos (non-executive directors on Iluka's board at the time).

4.4 The sequence of events 52 The events leading up to and between 23 February 2012 and 9 July 2012 are relevant to both the misleading and deceptive conduct case and the non-disclosure case. 53 I propose to deal primarily with the events identified on behalf of Mr Bonham as supporting his case, based on the submissions ultimately made for him, supplemented by reference to Iluka's submissions. I have also included uncontentious parts of the evidence where appropriate. I will deal with the expert evidence relevant to these issues after considering the contemporaneous material. 54 The documents and other evidence use abbreviations including B for budget, B1 and B2 (for versions of the budget), H for half (H1 and H2 comprising a full year) and Q for quarter (Q1, Q2, Q3 and Q4 comprising a full year). 55 The following discussion exposes that Mr Bonham's case involves propositions about the dire and bleak state of the zircon and TiO2 markets in 2012 which Iluka was allegedly determined to ignore for as long as possible. 56 I have concluded that these propositions are largely based on a combination of hindsight, a determination to focus only on information which might support these propositions, and a general theme of Iluka being allegedly concerned to ensure that the market was not informed of its real sales prospects in 2012. To that end, Mr Bonham's submissions include: (a) an extensive day-by-day account of Iluka's activities throughout the relevant period, including irrelevant and marginally relevant material and allegations outside of the pleaded case, (b) a marked tendency to focus on selected parts of documents which might be thought to support Mr Bonham's case and to ignore other parts which do not appear to do so, and (d) a determined effort to force every event or statement into a pre-conceived framework consistent with the general theme of Iluka being allegedly focused on ensuring that the market was not informed about its real sales prospects in 2012. 57 As a result, a document by document, witness by witness and expert by expert analysis is required in order to deal with Mr Bonham's submissions. 58 I start with the documents. These have the benefit of being contemporaneous records.

4.5 2009-2012 59 Mr Bonham submitted, as is the fact, that Iluka's NPAT (net profit after tax) position had also dramatically improved between 2009 and 2011 from an NPAT of $(-82.4) billion in 2009, to $36.1 billion in 2010 and to $541.8 billion in 2011. Mr Bonham's submission continued: Analysts' estimates, by the start of the Relevant Period, were for a FY12 NPAT of around $1-1.3 billion in 2012 - a stark increase even from the excellent FY11 result. Thus it is not to the point that Iluka's eventual FY12 results were its second-best ever. What matters is that the market was led to expect FY results in a given range, and what happened led to a disappointment of those expectations. The essential question is unchanged - at what point ought Iluka to have corrected those expectations? (Footnotes omitted). 60 This is not a relevant question. There is no pleaded representation about Iluka's NPAT for FY 2012. The pleaded representations relate to sales not NPAT. Iluka did not issue NPAT guidance. The pleaded representations are also by Iluka not analysts.

4.6 August 2011 61 Mr Robb's report to the board of August 2011 said zircon demand remained strong in China. It also said that customers had reported that opacifier and refractory sales had slowed in China. It noted that substitution was continuing to grow and that Iluka was investigating the potential for substitution in this market. It also noted that the shortage of high grade TiO2 feedstock was continuing and a number of pigment producers had reported a softening of demand for pigment as of late. 62 Mr Cobb and Mr Robb accepted that as a result of the scarcity of zircon in 2011, Iluka considered that it needed more information about the extent of possible substitution and thrifting. Mr Robb said that substitution and thrifting were an inevitable response of buyers to scarcity and price rises as "that's what sensible buyers do", but the "extent to which they would be successful with it, how fast the transition would occur, what other impacts they would suffer in terms of product quality, that was an unknown, as was how much of it had already occurred". For these reasons Iluka decided to conduct a review of the issue which culminated in a zircon substitution study which was presented to the leadership team on 2 August 2011. 63 The zircon substitution study had four objectives: • Identify existing and emerging substitutes to zircon in key segments • Assess the level of threat from these substitutes • Determine if growth in production outweighs substitution threats • Formulate tactics and strategies to address substitution risks 64 Key conclusions included that: (1) tile manufacturers are pursuing substitution and some successful initiatives have already been achieved and adoption of some new practices is likely; (2) the other sectors remained strong or firm albeit with some risk in the foundry sector; (3) ongoing monitoring of substitution threats is required; and (4) once sufficient information was gathered, forecasting of the impact on demand would be done. 65 Other information in the zircon substitution study included that: (1) porcelain tiles has the highest zircon density among the ceramic products, so any successful substitution in this segment can have the biggest potential impact to zircon demand; (2) there was a strong indication that most tile manufacturers are actively pursuing a number of substitutes to reduce their zircon dependence, their aim being to reduce zircon content without adverse quality penalties; (3) substitution techniques included shifting from full-body to glazed porcelain tiles, body whitening (quality impact uncertain) and reduction of the zircon bearing layer in tiles including a double press method used in China; (4) a number of successful substitution initiatives had already been realised, with drastic reductions of tile zircon content and it was likely other tile manufacturers will adopt successful substitution practices; and (5) Iluka needed to monitor substitution threats, investigate further the technical, availability and commercial aspects of the substitutes, forecast the impact on demand once sufficient data was gathered, and plan its response. 66 The key actions in the zircon substitution study included setting up regular meetings with key industry players to keep track of trend and actions, gain more direct contacts and inputs from tile manufacturers, investigate the Chinese double-press equipment manufacturer, gather body-whitening tile samples and arrange lab testing to understand better these competing products, and conduct an evaluation of potential demand impact based on the date gathered by different segments. 67 The fact that substitution and thrifting of zircon in China had been recognised as a material issue in 2011 needs to be kept in mind. Amongst other things, it means that it cannot be assumed that the effects of substitution and thrifting of zircon in China had not, in part at least (perhaps even in large part) been absorbed into the demand for Iluka's zircon in China in 2011.

4.7 September 2011 68 Iluka prepared a five year corporate plan each year. Its 2011 corporate plan for 2012-2016 was presented to and discussed by the board in September 2011. The focus of the corporate plan was medium to long-term planning. The 2011 corporate plan said that after many years of relatively stable prices both zircon and TiO2 feedstock prices have increased substantially over the last twelve months. Further, and notwithstanding the significant increases in feedstock prices, Iluka's major customers (i.e. major pigment producers and the zircon opacifiers) have been able to pass on significant price increases, enabling them to expand their dollar margins. This was said to be because of inelastic demand for the key end use applications of ceramics and chemicals (zircon) and pigment and sponge metal (TiO2), the chloride pigment industry being at or near full capacity resulting in a deficit situation, and the lack of viable substitutes for zircon and titanium in their key end use applications. 69 The 2011 corporate plan said: Whilst there has been some thrifting in zircon use over the last ten years as prices have risen from around US$300 per tonne in 2000 to US$950 per tonne in 2010, there has been little evidence of widespread substitution occurring over this period. However, with the price increasing significantly in 2011, the 2011 Corporate Plan has addressed the risk of substitution of zircon in key end use applications. The findings of the substitution work to date are summarised in section 4.4 [(extracted below)]. This work will continue as a priority with two full time resources allocated to substitution research. 70 Thrifting involves reducing the amount of zircon used in producing a product. Substitution involves using a substitute for zircon in a product. 71 The 2011 corporate plan identified that: (a) Iluka is the market leader for zircon with a 38% world market share, (b) demand for zircon is influenced by its unique properties that include opacity, wear resistance, chemical and thermal stability and useful electrical properties, and (c) Iluka has forecast zircon demand on a 'bottom up' (i.e. end use segment and demand by region basis) and a 'top down' basis (i.e. forecasting global growth and then considering the split between China and the rest of the world using a high, a base and a low demand scenario. 72 The 2011 corporate plan identified that: (a) the TiO2 feedstock market is split into two streams, being chloride and sulphate, and (b) Iluka only produces chloride feedstocks, which are used in chloride pigment process. 73 Section 4.4 of the 2011 corporate plan said: The potential for substitution or thrifting of zircon as a result of higher prices and or scarcity of product has been identified as part of the 2011 Corporate Plan. A substitution study was commenced in May to understand the potential magnitude of this threat on future zircon demand. The initial phase of the study examined all sectors of the zircon market and was conducted through interviews with Iluka customers and, where possible, companies further down the value chain (e.g. tile producers). Trade data and relevant literature was also included in the study. Initial findings were presented to Iluka's Leadership Team in August. These findings outlined the following: • the risk of substitution is highest in the ceramics and foundries markets; • tile manufacturers are actively pursuing substitution for porcelain tiles, either through alternative whitening materials, such as clays, feldspars and alumina or they are considering alternative production techniques, which only require zircon in the top layer of the tiles; • the foundry sector remains strong, although there is risk of alumina based sands replacing zircon in small castings and chromite doing the same in large castings; and • zircon consumption remains strong in the refractory and zirconia/zirconium chemicals sectors, with little risk of substitution. The next phase of the study, to be conducted over the next six months, is designed to estimate the likely impact of zircon demand growth in terms of tonnes per annum, for the foundry and ceramics sectors. The study will also estimate which geographical markets may be most impacted by possible substitution. 74 In section 5.1 of the 2011 corporate plan a strengths, weaknesses, opportunities and threats analysis identified opportunities including unmet zircon demand and a favourable market outlook providing volume and price opportunities, a favourable market outlook for rutile providing volume and price opportunities, and a threat as the zircon deficit and future potential growth gets filled through other means i.e. substitution, thrifting and new supply. 75 Section 5.2 of the 2011 corporate plan identified "strategic elephants" including that the scarcity of zircon, which was an opportunity for Iluka to increase production and price, could "lead to demand erosion via substitution and further thrifting" and that "previously uneconomic or technologically challenged projects become viable". Also the looming TiO2 feedstock global supply deficit which was an opportunity for Iluka to increase production and price also had implications as there was strong demand for sulphate pigment and China had indicated a move to chloride pigment process. Under Iluka's management system (the Argenti system) a "strategic elephant" is "any feature of truly massive significance", having an effect of at least 25 - 30% of current profits. A "strategic elephant" can be "good news or bad". Strategic elephants should not amount to more than three or four issues within any organisation. 76 Section 5.3 of the 2011 corporate plan included a key risk matrix. In the matrix substitution and thrifting (C4) is shown as a catastrophic but unlikely (at least once in 25 years) risk. It is the only risk in the "red zone" of the matrix. 77 The 2012 forecast sales in the 2011 corporate plan were 571kt of zircon, 307kt of rutile, and 341kt of synthetic rutile. 78 The overall strategy for zircon in the 2011 corporate plan was to "increase zircon prices to the optimum sustainable level whilst monitoring, and where possible, minimising substitution and market contraction", market conditions being described as involving "a supply deficit of zircon over the next three years due to global demand, assuming no major substitution, and the inability of existing producers to expand zircon production in the short term". 79 The overall strategy for TiO2 in the 2011 corporate plan was to "continue the strategy of six monthly pricing for the majority of the TiO2 products, whilst recognising and supplying a higher volume of feedstock to new and developing higher 'value in use' markets at elevated margins", market analysis having indicated "a supply deficit for high grade feedstocks … over the Plan years (2011 - 2016) and restricting existing chloride pigment producers from adding additional brown or greenfield capacity". 80 The risk of substitution and thrifting of zircon was not new. Mr Cobb explained that: … we had been aware that substitution and thrifting had been occurring throughout the history of zircon. It's part of, you know, the fact that our customers are always looking for alternatives, cheaper alternatives to zircon. It's nothing new. Zircon had been substituted broadly in the casting markets, especially in Japan years earlier. We knew there was substituting and thrifting, there always had been, but we weren't aware of the extent that that was occurring. 81 Mr Cobb and Mr Robb both said that they recalled that a "strategic elephant" could be a risk or an opportunity. It was submitted for Mr Bonham that this evidence should be rejected as the "strategic elephant" of substitution and thrifting was plainly a risk. I disagree. The "strategic elephant" identified in the 2011 corporate plan was not "substitution and thrifting". It was the market opportunities for zircon and TiO2. The market opportunities were lack of supply of zircon and TiO2 which were said to present both an opportunity (to increase production and supply by Iluka) and a risk (that customers would increase substitution and thrifting). I accept Mr Robb's evidence as follows: So would it be fair to say when Iluka in September 2011 was finalising its corporate plan, at least the final strategy paper, the very first of the strategic elephants that it had identified, the first of the potentially massive threats to its business, was thrifting and substitution in the zircon markets?---No, that's not correct, I'm sorry. The strategic elephant was zircon market opportunity. And that reflected a gap opening up, as we saw it, between demand and supply, with supply falling behind demand. Iluka was uniquely positioned because of our strength in zircon to fill that gap and the implication that you're referencing was only if we failed to fill that gap. So that if there was sufficient scarcity, that would lead to demand erosion, by definition, if there's not enough supply, demand has to adjust down to meet supply. So, no, I don't agree with you. The strategic elephant was an opportunity of a market that was growing faster than supply and we were relatively favourable - we were favourably placed to fill that gap. That was the strategic elephant. And the risk that comes there for Iluka is that there will be substitution and thrifting. That's what is said in that box?---Only if we failed to meet the gap and scarcity was a factor. 82 Mr Bonham accepted that the 2012 forecast sales in the 2011 corporate plan were for Iluka's internal planning purposes only. He submitted that the forecast sales of zircon of 571kt could be contrasted with the apparent expectations of the sales and marketing team. I deal with each of the documents referred to for Mr Bonham and his submissions below. 83 It should not be inferred that the sales and marketing team were discussing a possible "alternate case" for the FY12 budget, and using as a base for that work a FY12 zircon sales figure of 450kt. This submission is based on a two page draft document, "scenario for management discussion purposes", which contains suggested parameters for "indicative 'alternate case'". The entry for zircon says "450,000 tonnes CC [Chris Cobb] to comment on suggested reduction". Relevantly: (a) the author of this document is unknown, (b) the document remains a draft, (c) the final version was intended to be discussed with Mr Cobb, and (d) the use to be made of the "indicative 'alternate case'" is unclear. It would not be uncommon for companies to develop alternative scenarios from time to time to stimulate discussion or stress test assumptions. The existence of such documents do not found any assumption or inference that they represent the view of the company or, indeed, even the author of the document. 84 Mr Cobb received an email on 16 September 2011 attaching some information and proposing some ranges for the effect of substitution on demand. The information had been requested by production managers who wanted to be able to deal with the worst case market scenario, as well as the best cases and something in between. The worst case was said to be "something like" a 6% drop in global demand for zircon in 2012 (80kt), 11% in 2013 (140kt), and 6% in 2014 (75kt). The email said these tonnages were "very rough" but "we are looking at something in the order of 300ktpa of lost market demand by 2014 (partially off-set by growth in the other segments)". This equated to a loss of market share for Iluka of 2%, 4% and 2% of the entire market drop in 2012, 2013 and 2014 respectively or 100ktpa by 2014. 85 On 23 September 2011 Jorge Masbate of Iluka (Product Manager Zircon - Product and Technical Development, not a member of the leadership team and reporting to Mr Hugo) met representatives of Bitossi, a major tile manufacturer. According to Mr Cobb, Iluka was starting to make direct contact with tile manufacturers to better understand the issues around substitution and thrifting of zircon. However, Bitossi, like another tile manufacturer whom Iluka subsequently spoke to, Matrix, only operated in Guangdong Province when there were around 3,000 tile manufacturers in China and Iluka was very careful about its dealings in China given the risks involved to personnel. Opacifier producers also wanted to keep Iluka away from their customers (ceramic producers) as they did not want Iluka to know the margin the opacifier producers were making. This all meant information about the market in China was difficult to obtain and to draw conclusions from, but any information was a "step forward". 86 Mr Masbate's file note, which he sent to Mr Hugo, said: (a) "Bitossi still seriously concerned with the level of substitution that they observe in their markets", and (b) "Bitossi completed an internal lab test to compare tile quality produced by using different levels of calcined alumina and zircon. Visually, it was difficult to detect the variance in level of whiteness among the samples produced". Further actions were recommended focusing on Iluka obtaining further technical information about the product outcomes resulting from the substitution methods Bitossi identified. 87 Mr Bonham submitted that: The Sales & Marketing Leadership Team Report … for the previous month [September 2011] was released and noted continuing softness in the Chinese and SE [South East] Asian zircon markets and forecast a halving of sales volumes from Q3 to Q4. In some contrast, the B1 process seems to have yielded a FY12 zircon sales forecast of 571kt - better than FY11 - albeit with the 'alternate' case still acknowledged at 450kt. By late October the zircon forecast had reduced to 520kt (and was reduced further later). 88 In fact, this report (of Mr Cobb) said that "September was an exceptional month for sales volume and revenues with the entire shortfall from July and August recovered in the month". For zircon Iluka's sales volume and price was ahead of its forecasts and prices were to increase by another 10% in 2011 Q4. The report said that: • Full increase achieved though volumes impacted in China and SE Asia due to softening of the market, especially in ceramics. China volume in Q4 will be less than 50% of Q3. • European market holding up well and a number of customers are taking additional volume in Q4. … • Zircon now enters unknown territory with prices around US$2500/t delivered and substitution and thrifting becoming more widespread, Kalimantan production rising and China likely to remain soft for at least 2 quarters unless the government lifts it tight fiscal policy and allows banks to lend, and construction projects to commence. 89 For TiO2 the report said that rutile and "HyTi volumes and prices for the month and YTD [year to date] are ahead of budget and F6+6". Further: • Customers have informed us they have observed for the first time in 18 months a softening in the forward pigment demand indicators, and DuPont is already considering reducing production possibly in 2012. • It will become more apparent as to the impact on 2012 volumes at TZMI in Hong Kong but based on current volume wish list from customers this should not be an issue for Iluka given the high grade Ti02 bias. 90 The report continued: … September saw the turn down in demand in China and to some extent also in SE Asia as customers failed to take up additional zircon offered for delivery in the month at spot prices slightly above Q3 contracted material. Elsewhere in the world the situation has not shown the same downturn as yet and despite the global uncertainty, especially in Europe, the market for Zircon remains solid at present. … There is also clear signs that tile manufacturers have opted to produce less high quality porcelain tiles in favour of lower quality tiles with less zircon. Construction activity is only down by 10 to 20% … yet some customers have seen a 50% reduction in the off-take of opacifier, as the tile manufacturers have opted to change their production mix to lower or no Zircon products in response to higher opacifier prices. The high Q3 Zircon sand imports also lead to an oversupply of opacifier just as the market was starting to soften which has compounded the issue in Q4. Reduced Zircon sand supply and hence opacifier production in Q4 should rebalance the market, which together with a demand driven pull for porcelain tiles is hoped will re invigorate the market after Chinese New Year. … Currently demand for all Ti02 products remains strong across all sectors, and the price of Rutile in to the welding sector for Q4 is now over US$2000 per tonne, some US$600 per tonne above the Iluka contracted 2011 H2 pricing to the pigment sector. HyTi and Rutile 92 sales in the quarter were extremely strong with a total of 27,000t sold against 13,400 for the previous 6 month period… During late September, reports of softening in Ti02 in the medium to long term were passed on to Iluka by Kronos and DuPont, and they are looking at their options in terms of feedstock mix in 2012 should this downturn eventuate. At this stage it appears from discussions to be more a slow down from the 3 to 5 % annual growth being forecast up until recently, and not a downturn as such, but with the continued global economic uncertainty this could change, either way. Initial work is underway to prepare for the customer discussions in regard to 2012 Ti02 volumes and H1 2012 pricing during the TZMI conference in Hong Kong. It is anticipated that the customers will 'talk down' the market and feedstock prices in 2012, but the recent presentations on potential feedstock price increases by Tronox in regard to their merger makes this more difficult. At this stage it is anticipated that a sizable increase can still be achieved in High Grade Ti02 Feedstock in H1 2012. 91 The "halving of sales volumes" forecast was a reference in the report to an expected "reduction in Q4 sales to China by around 50% to approx 25,000t" which would then be followed by a re-invigoration of the Chinese market in 2012 after Chinese New Year. 92 In other words, the B1 budget forecast of 571kt at this time in the budget process was not "in some contrast" to Mr Cobb's report.

4.8 November 2011 93 Mr Bonham referred to a file note about meetings between Iluka and its TiO2 customers at the TZMI conference in November 2011. According to these submissions: (1) at least four major pigment customers (Hunstman, DuPont, Tronox and Kronos) were recorded as expressing - in varying but uniformly trenchant terms - their concerns over Iluka's proposed pricing increases for 2012; (2) by late 2011 Iluka was offering only half-yearly contracts (save for a legacy arrangement with DuPont) so that it had no binding agreements with customers about sales for the second half of 2012 and thus in the event of a downturn in the market in the first half of 2012, Iluka was wholly exposed; (3) Iluka's feedstock competitors were offering feedstocks - in particular, slags - under longer-term contracts, including "legacy" contracts that were expected to remain in place at least through part of 2012; and (4) Iluka's feedstock sales as negotiated during late 2011 and into 2012, for the 1H/12 period, were its best guide to customers' production plans and likely purchases during the balance of 2012 and the real danger was that the absence of binding contracts for 2H/12 would mean that sales would slump - that is, not be committed at all - when the contracts for the current half-year ended. 94 This negative view of Iluka's position in respect of TiO2 in late 2011 is ahistorical. The reality was that: (1) it was to be expected that customers would seek to drive Iluka's prices down; (2) the shorter contracts had enabled Iluka to increase prices when demand was high during 2011; and (3) overall 2011 had been a strong year for TiO2 sales with some softening late in the year, but an expected upturn in demand in the second half of 2012. 95 Mr Bonham also submitted this: From at least early November 2011 there develops an increasing disconnection between the budget forecasts and the information being received by Iluka regarding the zircon market. On 2 November 2011, Mr Cobb received some detailed analysis of the expected effect of zircon substitution and thrifting from Endeka, which Mr Hind described as "very much work in progress" but "the numbers are built up sector by sector, region by region so [it] is more than just a wild stab in the dark". The bottom line was a forecast from Endeka that thrifting and substitution would reduce global zircon demand in the ceramics sector by around 32% or 250ktpa. Endeka's analysis was subsequently incorporated into Iluka's own Corporate Planning slide packs, with no suggestion that it reflected some kind of scare-tactic deployed by Endeka for the purposes of that company's negotiations with Iluka. Indeed, the plausibility of Endeka's analysis is supported by Iluka's own December 2011 work on assessing likely zircon demand in 2012. A spreadsheet of some managers' assessments (including Mr Cobb) recorded an average forecast of 1285kt - that is, around 200kt less than Iluka's estimates of FY11 demand - and no return to FY11 levels until FY13. 96 Endeka was one of Iluka's opacifier-producing zircon customers. The spreadsheet which showed reduced global zircon demand of 250kt or 32% was part of the information Endeka provided to Iluka on a confidential basis. I do not accept that this evidences a disconnect between Iluka's consideration and the information available to it. In particular (and as Iluka submitted): (1) Mr Cobb did not take Endeka's views at face value. He asked if Endeka would "share their substitution work with us prior to TZMI so we can understand where the 100 to 200kt opacifier demand destruction they are referring to is occurring" and was told it had been provided on a confidential basis and hopefully Endeka would share its final views before the TZMI conference; (2) accordingly, Endeka's views were not final at his stage. Further, Endeka had an interest in providing information to Iluka to keep Iluka's prices down. Mr Cobb said about Endeka: It was a very unusual situation at the time in that they were struggling economically and they had very little working capital and we were supporting them on an almost month-by-month basis in terms of credit and it was very much in their interest to try and talk the story down and try and make sure the prices didn't rise any further. And that was discussed among the team. Anything we received from my customers where they are talking it down, we need to balance that with all the other external information we've got; and (3) the spreadsheet did not give any indication of the time period over which the posited reduction in demand would occur, nor whether it included any proportion of the posited reduction which had already occurred. 97 Contrary to Mr Bonham's submissions, Iluka did not adopt Endeka's analysis. Rather, in June 2012 a draft slide pack for internal purposes reported the spreadsheet as representing Endeka's analysis. 98 Mr Robb made a presentation to equity analysts on 17 November 2011. Mr Robb said: There are three slides of disclaimers today. Normally these things are skipped over. They are taken as read. Please pay attention to them today. It is different. … Turning to Mineral Sands Market Characteristics. We believe it is a favourable supply and demand outlook for high grade titanium dioxide feedstocks and for zircon. The industry faces a period where there are few quality responses available to the industry. … Macro economic factors are things that obviously can overrule the best analysis and the best laid plans. We are mindful, therefore, of a balance that we need to preserve between what we are doing and what is happening in the world generally. In terms of current conditions we have seen, for many customers, improved profitability through 2011 despite the price increases that we have achieved for our raw material. … There is a global crisis of confidence wherever you look. There is a fear that political leadership, by its absence or incorrect decision making, will lead to a very poor outcome globally. Added to that liquidity issues are increasing. The issues of credit tightening, bank liquidity, bank pressures in Europe, et cetera, is an increasing factor for our customers. China sentiment, which is always, in my 20 year experience of working with opportunities in China, they tend to be either full on our full off in their view of the world. Building plants with no supply or deciding that even if they can get supply the outlook for a little while is quite gloomy, therefore panic. So I think you need to be aware of that aspect of China. It is one of the reasons why we feel it is possible that you may see a soft zircon quarter or two. Sentiment driven - also issues around leadership change in China, Chinese New Year and the timing of it this year, winter, et cetera, are all factors in the mix. You need to be careful in thinking about all of those factors when you think about China. Therefore, we believe that a clear view of 2012 will take some time to emerge. High grade titanium, on the other hand, demand is very solid. 99 Mr Robb also said: What are the game changers? The game changers are either big new discovery but we all know that there's a lead time associated with that and I think balance of probabilities would suggest it has - there's a fair chance it would Iluka that would make that discovery in any event or technology, so substitution, new ways of either utilising our product or doing without it. But the evidence is at the moment whilst naturally customers are being increasingly creative, naturally people are trialling new formulations and whatever, is the aggregate impact of all of that, a game changer to the supply/demand picture. Our assessment at the moment is no. 100 This message, that: (a) there was strong demand for Iluka's premium TiO2 products, (b) it would take some time in 2012 for zircon demand to emerge due to economic conditions in China, (c) substitution and thrifting was occurring but was not a permanent structural market change removing the demand for zircon, and (d) the world was entering a period of global economic uncertainty was consistent with Iluka's consideration at this time and thereafter in early 2012.

4.9 December 2011 101 Contrary to Mr Bonham's case, Iluka's December 2011 work did not support the plausibility of Endeka's analysis. The "realistic" estimate in Ms van Wyk's spreadsheet was a 2012 global demand of 1,285kt down from 1,469kt in 2011, with an increase back to 1,459kt in 2013. This equated to Iluka's sales being 450kt for 2012 (on a 35% market share basis). 102 Mr Tate did not "downplay" this document. There is no reason to reject his evidence that this was a piece of work "which would not be of the level of detail and rigour to be an assessment of what we would seek as to demand", which "would be an outcome of the more detailed work done by sales and marketing". 103 Further, Mr Cobb's evidence was not that the work represented a "two-year independent supply and demand scenario in conjunction with the sales and marketing team". Mr Cobb said the work was "basically Lizelle [Ms van Wyck of the business development team] putting together a two-year independent supply and demand scenario in conjunction with the sales and marketing team". This means the estimated demand was projected over a two year period not that it was the outcome of two years of work. Mr Cobb said the document represented "what Lizelle thought". Mr Cobb's own estimate at the time was a global zircon demand of 1,250kt on both a realistic and optimistic scenario. Mr Cobb could not explain how Ms van Wyk's document averaged the other inputs. 104 In other words, the December 2011 work: (a) cannot be said to have represented any final view that Iluka had reached, (b) was Ms van Wyk's understanding of the composite views of various sales and marketing employees, (c) was averaged on a basis that Mr Cobb could not explain, and (d) does not appear to have otherwise been finalised or adopted. 105 It is also relevant that Ms van Wyk was not part of the leadership team. She was a senior analyst in the business development team reporting to Mr Tate. Given Iluka called Mr Tate to give evidence, no inference should be drawn that Ms van Wyk's evidence would have been adverse to Iluka had she been called as a witness. 106 It is also not "illuminating" that the December 2011 work assumed Iluka's market share for zircon globally remained around 35%. The document was not an analysis of Iluka's market share, but of global zircon demand. It was submitted for Mr Bonham that in "the last year in which zircon supply had exceeded demand, namely 2009, Iluka's market share had fallen as low as 22%". The problem with this submission is that: (a) 2009 is in the midst of the global financial crisis, (b) no-one in Iluka or otherwise was suggesting another global financial crisis of that kind in 2011/2012, and (c) Iluka was not predicting supply exceeding demand. To the contrary, much of Iluka's focus was on controlling supply of its high quality mineral sands to match demand. 107 On this basis, Mr Bonham's related submission that if Iluka's market share fell to 22% in 2012, its sales would fall to 283kt if global demand was 1,285kt is meaningless. No-one in Iluka was considering such a scenario. It would have been inconsistent with: (a) the expectations within Iluka as reflected in the report concerning September 2011 results signed-off by Mr Cobb, (b) Mr Cobb's input to Ms van Wyk's document, and (c) Iluka's view that its 2011 market share could be as high as 38%. 108 Nor does the December 2011 zircon consumption "leading indicators" document support the submissions for Mr Bonham. That is a high-level document suggesting that downturns in zircon demand were potentially best predicted by Organisation for Economic Co-operation and Development (OECD) Leading Indicators and Purchasing Managers' Index (PMI) and upturns by monthly floor space sold (MFSS). For present purposes the relevant point is that the document does not support an inference that Iluka accepted, or ought to have accepted, that the MFSS data for late 2011 exposed that the expected zircon demand throughout 2012 would remain materially below 2011 levels. 109 Iluka's board met on 21 December 2011 and considered Mr Robb's November 2011 report and the B1 budget. The B1 budget included anticipated zircon sales of 551kt, rutile sales of 241kt and synthetic rutile sales of 332kt. 110 Mr Robb's report recorded that: Zircon Late October and November saw an acceleration of the downturn in demand globally for Zircon, with the ceramics market recording the largest decline … The major cause of the situation in China is a lack of confidence and liquidity issues associated with the Central Government's efforts to control inflation … Given the proximity of Chinese New Year (late January) it remains to be seen if industry will be reinvigorated in the next 6 weeks or defer expanding production again until February, selling down finished stocks, where available, in the meantime. The latter is considered the more likely scenario. Elsewhere in the world the demand situation has also deteriorated, not surprisingly particularly in Europe. … The level of substitution, thrifting and production of 'zircon free' tiles has increased, driven by zircon sand price rises, although the exact volume impact on consumption in the ceramics sector is as yet uncertain. Data gathering efforts continue and Iluka is working closely with both Endeka and Bitossi in this regard. … Titanium Dioxide Products As reported previously during late September a softening in Ti02 demand was indicated by Kronos and DuPont as the China slow down coincided with reduced demand from US and European customers as they reduced their raw material inventory levels. All the major producers have now reported a turndown in demand in Q4 and are anticipating a soft H1 2012 before a potential upturn that is forecast for the second half. … All major pigment customers have now agreed on price and volumes for H1, although some volume loss occurred due to the market softness … All currently see demand for pigment improving in the second half of 2012 and are monitoring the situation carefully with a view to ramping back up. 111 That is, by December 2011 Iluka expected: (a) a continuation of the recent downturn in zircon demand (from its record high) until February, and (b) a continuation of the recent downturn in TiO2 demand (from its record high) until the second half of 2012. 112 Mr Cobb made a presentation to the board on the 2012 budget. This recorded that zircon sales would remain soft in Q1 of 2012 but "demand improves in Q2". The presentation showed that while the budget included "a softer start to zircon market compared to Corporate Plan", demand was assumed to "recover Q2, so overall levels are above 2011". The presentation included a "risks and opportunities" section which referred to risks of a global economic meltdown, decreasing Chinese demand, declining zircon prices, Kalimantan exports and substitution and identified actions to address these risks. 113 As Iluka submitted: … after hearing from Mr Robb and management, the Board agreed that the 2012 Budget would be carried forward to its meeting in February 2012 for final approval. This was consistent with Iluka's usual practice. The purpose of that practice was to allow the B1 Budget to be updated to take into account the full-year results for the previous year. However, in 2012, the decision to carry forward the approval of the budget had the further purpose of giving management more time to assess market conditions, and, if required, to update the sales forecast. This was specifically noted in the submission to the Board. (Footnotes omitted). 114 As Mr Tate and Mr Pizzey explained, this decision was taken to enable the board to receive up to date information in February 2012 as it "was an abnormal year, lots of uncertainty, lots of volatility … an extremely volatile period". 115 The substance of Iluka's consideration and the processes it adopted are irreconcilable with the case theory advanced for Mr Bonham of an increasing "disconnect" between Iluka's forecasting and available information. Iluka was aware of the issues on which the submissions for Mr Bonham are focused and had identified actions to enable it to better understand and deal with those issues. 116 By 23 December 2011 Mr Simon Hay (Sales and Marketing Manager for China) and Mr Masbate had completed a field trip to China. Mr Simon Hay and Mr Masbate were not part of the leadership team. Mr Simon Hay reported to Mr Cobb. Mr Masbate reported to Mr Hugo (now deceased). Mr Hugo was responsible for product and technical development, not sales, which was Mr Cobb's responsibility. Mr Cobb was called as witness. Accordingly, no inference should be drawn that the evidence of Mr Simon Hay or Mr Masbate would not have assisted Iluka. 117 Mr Masbate provided a draft report on the field trip where discussions had been held with Bitossi and Matrix (opacifier producers in Guangzhou province), the distributor of Bitossi's products in one province and two tile producers. This draft report (sent to Mr Simon Hay, Mr Cobb and Mr Hugo) said: • Their customers have typically reduced actual consumption of zircon opacifier by 40 - 60%, with a few higher than 60% (close to approximately 80%) • The two main substitution routes were double-charge pressing systems and use of 'treated' raw materials, which are achieved either by acquiring own 'washing machine' and treating feedstock materials or buying from the market pre-treated raw materials • The double-charge pressing system gained rapid implementation in 2011, which allowed production of double-layered porcelain tiles, with zircon only present at the top 20 - 40% • The 'washing machine' and 'treated raw material' route was also rapidly taken up and successfully implemented by tile producers • Rapid uptake of these practices was paved by relatively easy implementation (availability of local technology), low capital required (Chinese-made), minimal plant interruption and strong drive to reduce production cost on the part of tile producers (survival). … Inspection of the double-charge press retrofit show that implementing the change is neither a demanding effort, nor it will cost substantially. This technology is offered by local Chinese equipment manufacturers and can be implemented with minimal interruptions. … In conclusion, based on the information gathered during the visit, it can be reported with high certainty that real and substantial reduction in zircon opacifier has already been achieved by the Chinese tile producers. This reduction ranges from 40 - 60%, but some have achieved closer to about 80%. … Ongoing close monitoring of the substitution activities in the Chinese must be continued to determine best business response. 118 Mr Hugo responded on 23 December 2011: A sobering report if substitution is as prevalent as indicated. I think we need to resist drawing conclusions too quickly and I suggest your file note reflects that this is still largely the opinion of others. We need to do more work and undertake more visits before drawing our own conclusions and factoring these substitution scenarios into our demand forecasts. 119 This response from Mr Hugo was hardly surprising. Taken at face value the field trip report was suggesting a permanent reduction of zircon demand in China of 40% - 60% as a result of substitution and thrifting. It was doing so based on discussions with two opacifier producers in one province (albeit large producers), which had an interest in trying to drive Iluka's prices down, and two tile producers out of about 3,000. Mr Hugo's response was sensible in these circumstances. 120 Mr Simon Hay responded on 23 December 2011, saying: Victor, I understand your point but how much evidence do you want? We saw the double charging machine, how simple it is, how easy to retro-fit, the physical effects on the tile. Coupled with the reduction in sales it already appears conclusive to me. Outstanding questions to me are how much is the loss of zircon sales to the ceramic sector is due to 1 lower ceramic tile output, 2 low-priced sand from competitors (Indonesia, Hainan), 3 switch to lower quality tiles (fashion or driven by price???), 4 change in formulation, 5 acid washing, 6 double-charging (perhaps subset of 4). 1 is relatively easy, can get trade stats. 2 we can estimate sales into ceramics, 3-6 we need to work on. I talked to Ida about preparing a waterfall chart and we will work on that next year. Also the key factor is when the economy recovers, will zircon demand recover? For demand to recover the producers need to make a margin. At current Iluka zircon price and opacifier price there is negative margin so the opacifier makers need to pass on price increases. Will be hard to an industry coming out of a slump with over-capacity. I hope to answer my own questions some time in 2012. 121 Mr Bonham made much of Mr Simon Hay's rhetorical question to Mr Hugo, "how much evidence do you want?" and that "it already appears conclusive to me". However, the email has to be understood as a whole. I infer that Mr Simon Hay was saying that the evidence of effective substitution and thrifting was conclusive but he agreed that he did not know what effect that would have on the demand in China for Iluka's zircon given an array of considerations, some permanent and some temporary. Mr Simon Hay believed that he should be able to answer these questions "some time in 2012". In other words, Mr Simon Hay was not suggesting that all of Iluka's planning for 2012 had to be revised because it had fundamentally misunderstood the impact of substitution and thrifting. 122 The final version of the field trip report dated 30 December 2011 omitted the conclusions and instead asked these questions: Ongoing close monitoring of the substitution activities in the Chinese must be continued to determine best business response. Answers to some key questions will still have to be sought and validated: • How much of the zircon sales reduction is due to substitution; due to use of cheaper zircon from elsewhere, e.g. Hainan, Indonesia, Western Africa; due to production of lower-quality or darker tiles; and due to overall slow-down in construction activity? • How much of the Chinese tile producers have adopted the double-charge press system and the acid-treated raw materials? What is the distribution of those that implemented both substitution routes? How valid is the view that most of the Chinese tile producers have indeed adopted these routes? Can the observed recent demand reduction be attributed mostly to substitution? • Are there further improvements in the double-charge systems being pursued by the Chinese ceramic tile equipment manufacturers? Do we expect other substitution routes to be taken up widely in China, such as reactive calcined alumina?

4.10 January 2012 123 Mr Cobb responded to Mr Simon Hay's email of 23 December 2011 on 13 January 2012, saying: I tend to agree with you that the Chinese Tile producers have made the changes that will permanently reduce Zircon usage per M2 of tile, and the only thing that will increase overall volume of demand will be a volume growth driven by an improved economic climate. I however accept Victor's point, and we do need to continue to visit as many tile producers as we can and collect the data on double charging and cleaning up of the clays across a wider sample. 124 Mr Simon Hay then said: This is what will start to pull together in 2012. There are some good ceramics journals where we can get some of the info and we will do more visits like we did to Guangzhou recently. 125 It is apparent that, like Mr Hugo, Mr Cobb understood the issue to be important but did not take the information to be unexpected or indicative of any fundamental misunderstanding by Iluka to date about future demand for zircon in China. 126 On this basis, it cannot be inferred that Mr Simon Hay or any other employee of Iluka had concluded that thrifting and substitution in China's ceramics sector meant that zircon demand in the ceramics sector would be reduced permanently by 40% - 60%. Rather, they considered that: (a) it was likely that thrifting and substitution in China's ceramics sector would be permanent features, (b) they did not know how much of the recent reduction in demand was a result of such thrifting and substitution or of other factors (including temporary factors), and (c) future economic conditions overall would determine demand including increased demand depending on increased volumes of ceramics. There is no suggestion from the contemporaneous evidence that Iluka's internal response to this information involved any form of blind or unreasoning optimism. 127 The information Iluka released on 12 January 2012 (quarterly production report for the end of 2011) reflected its views as apparent from its internal consideration, that is, 2011 had seen excellent sales of zircon and TiO2 and that: (1) a strong first nine months of zircon sales volumes was partially mitigated by a weaker fourth quarter; (2) for zircon Iluka "expects a soft sales period ahead, with a clear view on overall 2012 zircon demand and the phasing of that demand taking time to emerge"; (3) demand for high grade titanium dioxide products was robust throughout 2011, but moderated slightly in the fourth quarter; and (4) Iluka is well positioned from an operational, balance sheet and margin position to continue to respond appropriately to market conditions for its products by flexing production, sales and inventory. 128 Mr Bonham also relied on a 20 January 2012 email from Mr Cobb to Mr Robb. This email provided Mr Cobb's views on the market. It said: Ti02 All currently going as anticipated, in fact we may well pick up our first SR shipment to Russia in the next few days… … Paint sales in Q4 were strong and other than DuPont who are trying to use only HGO they have available to them from LTCs [long term contracts] and add ilmenite to the blend to cut cost, all others seem to be operating as normal. Ilmenite prices rising in China due to a shortage, and about to sell 20kt in Q1 at approx US$300/t CIF, so again good margins. Tight China pigment market likely to improve imports to benefit western producers. Zircon Not so pretty. Having considered all of the following I am coming to the conclusion that 2012 is going to be a very difficult year for the following reasons China - … The key is - will the tile demand return after CNY [Chinese New Year] - probably but I don't anticipate the resurgence we saw in 2010 which quickly depleted the stocks and drove new production. Construction is down nearly 30% YOY [year over year] in Q4, a large proportion is now in low cost housing with lower Zircon demand, and the government continues to talk about reducing house prices... … Europe - Economically a basket case and confidence at an all time low… USA … The rest of the customers are OK - down a bit but not too bad at this stage and are signs overall that the US is back on a recovery. … So my take, and as you know I am a glass half full person, is Q1 is going to be totally dependent on what happens post CNY, and that is likely to become apparent in the next 3 weeks. I will have a much better feel for Europe and exports to the Middle East after a week at the Ceramics fair in Valencia in the first week of February, and together will be able to make a more educated guess on Q1 and Q2 Zircon volumes by 10th Feb. As it stands today I don't see an underlying business strength globally to support the current budget zircon volumes and retain the pricing gains we have achieved over the last 12 months. Based on current information I would suggest the pessimistic case of 480kt will be a stretch. Assuming we achieve 60kt in Q1 and 120kt in Q2, that still leaves 150kt for each of Q3 and Q4. That would equate to a H2 annualised market of 1.7m tonnes, based on 35% market share.. Hopefully we still have time to see what eventuates over the next few weeks before we finalise with the budget with the Board. 129 This is important for a number of reasons. It demonstrates that: (a) Mr Cobb was hardly an unreasoning optimist - even with his "glass half full" approach he considered Iluka needed to revise its zircon sales planning down, (b) Mr Cobb had no hesitation on informing Mr Robb of his views despite them being negative, (c) Iluka's processes included various scenarios including on a pessimistic basis (the pessimistic scenario then being 480kt of zircon sales in 2012, compared to the 2011 corporate plan sales of zircon of 571kt and the B1 budget of 551kt). Mr Cobb was not foreshadowing disaster. He thought that the demand for zircon in China "probably" would return after Chinese New Year and TiO2 sales were tracking as anticipated. 130 Mr Cobb also said in a 24 January 2012 sales and marketing report for December 2011 to the leadership team that: … • All sales volumes ahead of budget except Zircon (-3%) due to declining demand in Q4. • Zircon / Rutile and SR prices ahead of budget by 44%, 59%, and 33% respectively. … Zircon … The global zircon market accelerated its downturn through Q4, 2011. … A pick up in global zircon demand hinges upon the extent of the Chinese government's relaxation of restrictive policies, the extent of real substitution that takes hold in susceptible sectors and the ability of Europe to pull itself out of the financial turmoil that is causing anxiety throughout the EU and the rest of the world. It is not likely that we will get any clarity around this until at least late in Q1 or early Q2, 2012. Titanium Dioxide Products … … Companies walk a tight line here as they don't want to harm their stock build for the traditional spring paint season, yet the uncertainties in both China and especially in Europe, cause concern that the paint season may not eventuate as strongly as predicted. With one exception, all major pigment customers have now agreed on price and volumes for H1, although some volume loss occurred due to the market softness… … … Positively however, all still see pigment demand improving in the second half of 2012 and are monitoring the situation carefully with a view to ramping back up. 131 Mr Cobb and Mr Tate exchanged emails about zircon sales volumes on 24 January 2012. Mr Cobb sent Mr Tate the content of the email of 20 January 2012 to Mr Robb and said he had told Mr Robb that at present "we would find achieving even 480kt a stretch for 2011". Mr Cobb said he "suggested to David [Robb] we waited until Friday 10th Feb to make that call, he indicated if we could wait until then and still make the Board meeting that was fine". Mr Tate said "that is fine, and makes sense - 450kt may be tough if we are the ones that take the load to support prices - which is our strategy". Mr Cobb responded saying: Once the picture is clearer we will develop the strategy for Zircon - but in principle we intend to lead by holding our price and accepting the volume impact for Q1 and Q2. On Ti02 currently I see strong markets for Rutile and Premium SR, the 100kt of SREP and SR 85 is contracted, but softness for Rutile 92 and HyTi. At this stage I would hold the Ti02 budget as is and work on a stronger H2. All this depends on the world not imploding as either Europe collapses in a debt heap or China doesn't rebound in Q2. Happy times - good job we have a balance sheet. 132 In answer to a further query from Mr Tate, Mr Cobb said: I agree the world of Ti02 could change in H2, just couldn't justify a reduction in H2 sales volumes of Rutile 95 or Premium SR based on current sales demand. If there is any area of Ti02 we may need to look at reducing sales in the budget it is to the welding sector with R92 and HyTi. Not an easy time to do a sales budget that is for sure, so the longer we can delay the final figures the better. 133 These are not the kind of emails that would be sent by a person reluctant to share bad news or timid about giving his opinions. Mr Cobb was being forthright and clear about his views and why he held them. He was not suggesting that the world would implode, Europe would collapse in a debt heap or that China would not rebound in Q2 of 2012. These were all possibilities but Mr Cobb plainly did not believe them to be probabilities at this time. Nor did he consider these possibilities mean that Iluka could not appropriately and reasonably devise sales guidance. 134 I note that in Iluka a "stretch" target was standard practice. Iluka generally set stretch targets to reflect a target "beyond what was easily achieved", so people had to "go beyond the norm to reach those targets" which was then taken into account in remuneration and bonuses. As Mr Cobb put it this was done to "grow the business. Basically, if you set soft targets, you get soft results".

4.11 February 2012 135 Mr Wickham sent Mr Robb and others (including Mr Tate and Mr Cobb) an "alternate 2012 Budget Scenario". By inference, this must mean an alternative to the version of the draft budget presented to the board in December 2011. This alternative version forecast sales of 454kt of zircon, 228kt of rutile and 322kt of synthetic rutile. It is apparent that the 454kt sales for zircon reflected Mr Cobb's then view. 136 Mr Robb responded on 3 February 2012 that he thought the "the right 'stretch' and messages are achieved by a Budget that features": Zircon Sales ~470kt (so ~10% drop on 2011 sales) Rutile Sales ~228kt (~15% less than 2011) SR Sales ~322kt (~25% more than 2011) 137 Mr Robb explained: This was an alternate budget scenario, as I stated in my affidavit, so it was part of the process of pushing and prodding and testing and trying to find what was referred to as the sweet spot in a budget, balancing production, production costs, sales, taking account of sales forecasts that were coming from marketing and, yes, the language there, achieving stretch in a budget. So it was part of a process which was still not complete at this time and which was accompanied by an email that I had sent people, either here or shortly afterwards, I can't remember, around that the budget needed to be reasonable in the context of market conditions, including as to quarterly sales. So this is all part of the dynamic that I think is inherent in any budget process, where you get pushing and prodding, testing and stretching, including from the CEO. I don't see it as anything unusual in that regard in my entire career. 138 Part of the relevant context for this is that Iluka had responded internally to the global position by reducing its sales forecasts for zircon in 2012 from 571kt in September 2011 to 470kt by February 2012. This does not suggest that Iluka management were blind to the realities of its markets or that they wanted to avoid or defer decisions showing a reduction, as opposed to continuing growth, in sales. As a producer of its products by mining, Iluka had good reasons to want its sales forecasts to be accurate given its strategy of matching production to demand. 139 The submissions for Mr Bonham identify this period as involving "a curious process of sales 'allocation'". It is unclear what this means. It was submitted that, somewhat unusually, in the FY12 B2 process the production plan was finalised before the sales plan. However, given the circumstances, the fact that production was reduced to reflect forecast sales is not surprising and is of no significance. It was also submitted that Ms Diamond (Iluka Sales Finance Support Manager) allocated a 12% increase in sales in China. In fact, Ms Diamond raised a specific question about the allocation of sales to China. It could not be inferred that Ms Diamond, whose work was only an early step in the process, ignored information about the state of the market in China. Nor would it be inferred that Mr Cobb did so given the specific issue Ms Diamond raised about China in her covering email. Ms Diamond was the Sales Finance Support Manger reporting to Mr Cobb. She was not a member of the leadership team. 140 It was also submitted for Mr Bonham that this "allocation" process involved about 78kt being allocated to "blue sky" (referred to in Iluka as "planning") customers, being buyers apparently to be won by Iluka despite the alleged indications of an oversupplied market and the likelihood of fierce price competition from other zircon suppliers or from customers dumping inventories. Mr Bonham also noted that this was about 60% higher than the level Mr Cobb regarded as more normal. The submission continued: Consider that for a moment. In blunt terms, Iluka based almost one-fifth of its FY12 zircon sales forecast upon an assumption that it would win new customers, in an oversupplied market in which it intended to hold prices, even at the cost of sacrificing sales in the (likely) event that competitors or customers sought to undercut those prices. (Emphasis in original). 141 To respond to this submission, it is relevant to note that Mr Cobb sent Mr Robb another email about Europe on 14 February 2012 following discussions with all Iluka's major zircon customers at a European trade fair, noting that: • All fully support the Iluka approach of holding firm the pricing and matching production and sales volume to demand - their biggest fear is a sand price collapse. • Almost all our customers agreed reluctantly that they had their best ever year in 2011, in both revenue and profit. • Approach by all is to sit tight and monitor the situation in regard to opacifier prices and wait for them to start to rise. · • Even at current levels of consumption we anticipate new orders for material in Q2 given the 1.5 month delivery time ex Australia. · • Time for brave men. 142 Further, Mr Hugo emailed Mr Robb on 15 February 2012 saying that: What we know at present is that there is substitution of zircon in porcelain tiles through: a) changes to tile manufacturing technology (eg. use of the double charge system, where 40% to 60% of the tile thickness is replaced by non-zircon bearing materials) b) alternative raw materials (eg. alumina or "washed clays and feldspars". We have not yet been able to quantify the longer term demand impact of the above. Nor have we been able to predict the potential demand increases in other areas through new or expanded uses of zircon. I think it would be safe to say at this stage that we are aware of the above trends, and that they are not unexpected given the price increases in zircon versus alternative materials. It is still too early to quantify what this will mean for demand, but we have a program of work in place to a) quantify the potential impact and b) promote the use of zircon over other materials in ceramics. 143 Notes from a European trip of Mr Hudson (Iluka Sales and Marketing Manager - Americas and Western Europe, reporting to Mr Cobb and not a member of the leadership team) on 15 February 2012 record that: • Most ceramic businesses had their best ever year in 2011, revenue and EBITDA [earnings before interest, taxes, depreciation and amortisation] • Sand/flour/opacifier stocks vary from 3-6 months stock (at reduced/current consumption), with an average of 4 months… 144 On 16 February 2012 Mr Hugo sent an email to Mr Cobb about substitution asking how confident Mr Cobb was about the 470kt sales prediction saying "[y]ou are much closer to customers, so will have a better feel for these numbers, but my experience is that it is hard to predict volumes when there aren't contracts in place". As to substitution impacts, Mr Hugo said that the "key question is whether this drop from substitution has already happened (ie all in Q4 2011) or will happen over a longer period of time" and at 470kt "we need to ask ourselves (and explain to investors) how we plan to grow our market share [of a reduced overall market of 1.15mt] by 6% in an oversupplied market and hold price?" 145 Mr Bonham submitted that it is apparent Mr Hugo was "expressing considerable scepticism" about the 470kt sales forecast. In fact: (a) Mr Hugo's email was in response to some workings of Mr Cobb provided to Mr Hugo estimating that, with substitution impacts, to achieve 470kt Iluka would be increasing its market share from about 35% to 39%, (b) Mr Hugo's posited 6% increase in market share was based on a global demand of 1.15mt and Mr Hugo said "I am sure it [global demand] will be more than 1.15mt", (c) Mr Hugo's email was as much about the strategy of Iluka holding its price as it was about the 470kt estimate, (d) nothing in the email suggests Mr Hugo believed the 470kt estimate to be incorrect, and (e) Mr Hugo accepted that Mr Cobb was in a better position than he was to judge demand. Further, if Mr Hugo had held such a view then there is no reason to infer that he would have withheld that view from Mr Robb. Rather, Mr Hugo's 15 February 2012 email to Mr Robb disclosed the true position that Iluka was not then able to provide a reliable estimate of the extent of substitution impacts but was carrying out further work to enable it to do so. This is consistent with Mr Cobb and Mr Hugo testing a range of substitution impacts in their exchange of emails. 146 The "blunt" assessment for Mr Bonham about "blue sky" customers also overlooks these facts: (a) Iluka's customers had stockpiles of zircon and did not want prices reduced, (b) Mr Cobb anticipated that demand would grow once stockpiles had been reduced, (b) Mr Cobb said he considered that there was not a massive difference between his then estimate of 450kt and Mr Robb's estimate of 470kt and others within Iluka shared Mr Robb's view, (d) it was standard for salespeople to have to search for additional volume from existing customers and to find new customers, and Iluka had successfully done so over a number of years, and (e) Mr Cobb was always of the view that he second half of 2012 would be "very strong" once stockpiles of zircon had been run down with sales involving "additional customers and additional volumes to our current customers". Further, on the evidence, Iluka did not embrace "blue sky" thinking. Its "planning customers" included existing customers taking additional volume and new customers. It had substantially increased both its customer base and sales volumes over the previous years. It did not consider itself to be part of a mature market. 147 On this basis the submission for Mr Bonham that the "planning" allocation was being "pumped up" is not sustainable. Nor is the submission that Iluka considered the market would be over-supplied with zircon throughout 2012. Neither submission reflects the contemporaneous views of Iluka. In fact, Iluka considered that stocks or zircon would be run down in the first half of 2012 with the consequence of a "very strong" second half of 2012. There is no evidence any person within Iluka considered that an estimate of sales of 450kt to 470kt was unrealistic at this time. They thought this range involved an appropriate and achievable "stretch" as opposed to a soft target. They were aware of the issue of substitution and thrifting but and had factored in their views about substitution on global demand albeit recognising that they rightly appreciated that quantification of the impact was complicated (including because it was not clear to what extent the impact had already been absorbed in 2011). The views of the apparently more pessimistic Mr Hugo and more optimistic Mr Cobb about substitution were not dissimilar. Mr Cobb estimated a reduction in global demand to about 1,250kt in 2012 (from 1,470kt in 2011) and Mr Hugo was sure global demand in 2012 would be more than the worst estimate of 1,150kt. The proposition that these estimates exclude the impact of substitution and thrifting is untenable. 148 Mr Hudson's further notes of his February 2012 European field trip included a discussion with Kronos (a TiO2 customer) saying: CEFIC [European Chemical Industry Council] Jan pigment data, stocks +45%, sales (compared with Jan 2011) -22%, A/P area disaster. Only positive is that the US was flat. 149 Mr Bonham submitted that there: … is no real dispute as to the veracity of Kronos' report as to the substance of the CEFIC data. There is no tenable suggestion, for instance, that Kronos would misrepresent the data, given that Iluka was able to verify it with other CEFIC members. Indeed, nothing in the Iluka documents indicates that the company's officers disbelieved the report. And the report was grim… 150 Iluka was not a member of CEFIC and had no means to verify the source information. It was dependent on its customers, who had an interest in pushing prices down, to provide it with information about CEFIC data. The evidence is that Iluka brought a necessary and sensible degree of scepticism to its customers' negotiating tactics - which had seen it materially raise and maintain prices between 2009 and 2011. It is also relevant that: (a) the comparison is with 2011 - a year of excellent (record) results in terms of sales volume and prices, (b) all other information from customers pointed to an improvement in the second half of 2012 for TiO2, and (c) Mr Hudson's file note also recorded that the Kronos representatives said "Kronos Board meeting last week, message remains that production will run flat out/sales go and sell at higher prices". This latter statement is not consistent with a TiO2 market which was collapsing in 2012. 151 On 17 February 2012 the sales and marketing report to the leadership team for January 2012, signed by Mr Cobb, recorded that: Zircon The significant downturn in demand observed in late Q4, 2011, continued into early 2012. While this downturn was initially concentrated in China, by December/January it had become a global issue with zircon sales stalling due to reports of increased inventory levels of both zircon sand and finished ceramic products. … Recent discussions in Europe indicate that customers are understanding of the situation and are standing back from the market until the sales of opacifier based on lower feedstock input prices are exhausted and opacifier prices increase again. The major concern of all customers is a falling zircon sand price. They are looking for a period of stability in feedstock pricing, at current levels, whilst the current softness plays out. … Looking forward, indications are beginning to show that the duration of the housing correction in China could be longer than first anticipated. An important indication of China demand will be available from mid-February onwards, once all customers have returned from holidays. Stocks are typically not excessive, which should result in a prompt effect on Iluka's sales when demand recovers. Europe and the US on the other hand may take longer to recover given the stocks that are in the pipeline. Further bulk shipments are unlikely in the first quarter, but based on the current consumption rates it is envisaged that orders for bulk shipments will be placed for delivery in Q2. The next four to six weeks will therefore play an important role in shaping the zircon sales outlook for 2012 and whether the reduced demand being experienced at present will be relatively short term or of longer term impact. Titanium Dioxide Products As reported previously, demand for Ti02 products has also slowed slightly recently, though no where [sic] near as noticeably as for zircon. A two tier market is starting to emerge, so while demand for high grade synthetic rutile (i.e. 91%) and natural rutile (95%+) remains strong and shipping schedules are tight, there has been lower demand for lower grade synthetic rutile (85 - 89%) and HyTi (88 - 92%). The two tier market may in part be due to the significant change in prices at the beginning of January which has resulted in a wide disparity in industry pricing and Iluka's price for 90 - 92% HyTi and rutile being now well above some competitor prices for 95% rutile… … Nevertheless, the outlook for H2, 2012 generally looks much stronger than H1 and an upturn in sales of all high grade Ti02 products is anticipated. 2012 production of rutile 95 and premium SR is largely committed and stocks are tight, so customers commencing discussions as to any additional H2 high grade ore availability will need to consider purchasing the rutile 92, HyTi 90, and Std SR. 152 This information is consistent with the other information within Iluka from this time. The global demand for zircon was soft but it was not possible to know if the reduced demand would be short-term or longer-term until after Chinese New Year. The demand for TiO2 products had slowed (to a far lesser extent than for zircon) but was still good for high grade products and demand was expected to increase in the second half of 2012. 153 This sets the context for the board's consideration of the 2012 budget on 22 February 2012. The report to the board said: The key change to the budget has arisen from a revised outlook for zircon sales in 2012, following the lower than anticipated sales in Q4 2011 and the onset of slower sales in 2012. Management's revised outlook is for zircon sales in 2012 of ~470kt, compared to ~550kt in the December budget… 154 Sales volumes for 2012 in the B2 budget were identified as 469kt of zircon, 228kt of rutile and 322kt of synthetic rutile. 155 The board adopted the 2012 budget on this basis. 156 The 23 February 2012 announcement was then made, with the forecast sales volumes for zircon of 450kt, rutile of 225kt and synthetic rutile of 310kt. 157 Accordingly, in terms of its forecast 2012 zircon sales, Iluka had not hesitated to reduce its previous internal estimate by 100kt from 550kt in the December 2011 B1 budget to 450kt in the 23 February 2012 announcement, a reduction of 18%. Again, this does not suggest that the Iluka leadership team or board were reluctant to ensure that the market were aware of a downturn in Iluka's prospects for 2012. It also does not suggest that Mr Cobb or Mr Robb, in particular, were given to unreasonable optimism or had a tendency to defer dealing with bad news. The fact that the 23 February 2012 announcement reflected Mr Cobb's less optimistic view of 450kt of estimated zircon sales compared to Mr Robb's more optimistic view of 470kt of estimated zircon sales is also important. Iluka was taking the more conservative approach to sales guidance that its internal deliberations had generated. This course of events is not reconcilable with Mr Bonham's case theory of a company reluctant to face reality in 2012 and determined to avoid sharing bad news until it could no longer be avoided. 158 Mr Bonham does not claim that, at the time it was made, the 23 February 2012 announcement was misleading or deceptive. As noted, the terms of the 23 February 2012 announcement are not confined to the forecasts of sales. Those forecasts are made in a specific context which cannot be ignored. The context reflects Iluka's views at the time that the global economic outlook was difficult to forecast and sales would depend on global demand levels. These were not mere boilerplate disclaimers. They represented Iluka's genuine views about uncertain economic conditions. The forecasts provided also represented Iluka's genuine views about appropriate guidance to sophisticated investors for 2012 sales volumes recognising its dominant message that due to global economic uncertainty reliable (in the sense of more probable than not) predictions could not be made. There is no apparent divergence between Iluka's actual views and those expressed in the 23 February 2012 announcement. 159 As noted, Mr Bonham did not read the 23 February 2012 announcement. Had he done so he would or reasonably should have realised that the forecasts of sales volumes were made in a specific context of global economic uncertainty. Acting reasonably he could not have understood the 23 February 2012 announcement (had he read it) to confirm what he had read in Stock Doctor to the effect that Iluka was trading at a discount. Iluka was coming off a bumper year in 2011 with record sales and prices, and had substantially reduced forecast zircon sales for 2012 as a result of the soft market in the last quarter of 2011. Iluka was saying that zircon sales in 2012 depended on uncertain global economic conditions. Iluka did not suggest that its shares were trading at a discount. That was Mr Bonham's view relying on Stock Doctor. 160 No reasonable person reading the 23 February 2012 announcement could have understood Iluka to be saying that its sales forecasts were certain or more probable than not or predicted by Iluka with confidence. In context, they were mere guidance, not "a predictor of future performance", being the best that Iluka considered it could do given the "current difficulties in forecasting global economic conditions". These were not boilerplate disclaimers reasonably able to be ignored. They related to specific circumstances applicable to the time at which the 23 February 2012 announcement was made. 161 Iluka was aware of the issue of substitution and thrifting. It knew it had to take this into account, along with a range of other issues. It did so. Iluka understood that its internal budget for zircon (that is, the 470kt) was weighted to the second half (48kt in Q1, 90kt in Q2, 155kt in Q3 and 177kt in Q4). This was reasonable because Iluka expected that its second half performance would be much stronger than its first half performance for a number of reasons including destocking in the first half of 2012 after which demand should increase. There was no good reason to infer that the increase in the second half of 2012 would not exceed the second half of 2011 given the historical growth in the market. As Mr Cobb also put it about zircon: If you look at what it was doing in Q3 in 2011, we achieved in those two consecutive quarters almost 300,000 tonnes and the assumption that was being made at the time was that the second half of 2012 was going to see a number of key factors occurring, following the recovery in China, following the releasing of loans for housing, and we basically saw the factors with ..... stocks ..... it was running down stocks, so we saw not only a strong second half because of macroeconomics, but also a need for our customers to restock. 162 Iluka was thus expecting both a resurgence in global macro-economic conditions in the second half of 2012 and a period of restocking by customers. Those expectations were reasonable in the circumstances at the time and based on historical trends in the market including thrifting and substitution. 163 As to the specific impact of thrifting and substitution, Mr Cobb said: The forecasting that we produced came from the sales and marketing managers predominantly and they were talking to our customers and the customers were obviously, in the numbers they were providing them, which we consolidated into our forecasts, they would be building in the demands from their customers and the impacts of thrifting and substitution and therefore we considered they were taken into account by the numbers being provided to us by our customers… … We knew there was an impact, we knew it had started occurring in the past, we knew substitution and thrifting wasn't a new thing in our industry. Whenever prices went up, people looked to reduce the costs. Therefore we wanted to try and quantify it so we could actually show the impact that it was having on our sales. 164 Mr Cobb was not alone in these views. Mr Robb said: … the budget was the result of a top-down bottom-up process that considered all manner of factors, including discussions with customers. The aggregate of all of that process was the numbers that you see on the chart. In a market that grows typically every year, as I said earlier, it is not surprising to see, you know, results that are higher than previous years… … if you take the total down and you assume that there is a slow period at the beginning, it is entirely reasonable in my mind, looking back, that you could have a catch-up. You are still acknowledging that there is an overall effect. But of the tonnes that are not subject to that overall effect, they can be caught up in the second half, rather than be sold in the first half… … It's in the context of a very slow half for Iluka, particularly as it was pushing or holding price, and in that environment you - the question is better addressed to Mr Cobb. My understanding is that in that environment you can surrender market share and then you get it all back and then some later on in the period when you are the person with stock and others are largely sold out… 165 Mr Pizzey said while the phasing issue was not discussed at the board meeting he could recall: … coming off a slump, which may have been caused partially by political interference in China and other places, it would not be unusual to see a spike upwards if this didn't represent true demand but representing covering what was two particularly low quarters in a previous Q1 and Q2 … it wouldn't be unusual for two quarters to have a catch-up when the previous two quarters were so low. I can understand the reasons why it might be presented as significant growth but it may be pipeline filling … I'm no longer in the business of any resource but that's how I would analyse it. I'm not saying it was brought to my attention at the time. 166 The TZMI report for December 2011 received by Iluka in January 2012 said: The zircon market has had a fairly volatile year in 2011, with demand outstripping supply in the first half of the year and prices rising to record highs, followed by subdued demand in the second half and a slowdown in price increases. … The rate of price increase of zircon is expected to slow in the final quarter of 2011 and in the first two quarters of 2012 in line with the slowdown in Chinese demand during this period. An upturn in demand is expected from the second half of 2012 when construction activity in China is expected to increase, thereby stimulating further demand for zircon. … While there has been talk of zircon substitution having an effect on the global ceramics market in particular, in TZMI's opinion there is no solid evidence that this is significantly influencing zircon demand. Future consumption of zircon will be mainly determined by the global growth rate of tiles and sanitaryware production and the composition of the overall tile product mix, which itself will be influenced by future fashion trends… 167 This TZMI report is consistent with the views of Iluka at the time. It supports an inference that Iluka's views were well-informed and reasonable. 168 Given the lack of any claim that the 23 February 2012 announcement was made without reasonable grounds, it is difficult to understand the purpose of the submissions for Mr Bonham that the announcement was unreasonable because: (a) the sales volumes of zircon in the second half of 2012 were equal to the best quarters of 2011, and (b) the sales volumes involved 78kt of zircon sold to "planning" customers. 169 As noted, the contemporaneous evidence does not support Mr Bonham's propositions. As to (a): (i) the expectation of a resurgence of demand in the second half of 2012 once stocks were depleted was reasonable based on the available information, and (ii) the phasing was not part of any announcement or update by Iluka. As to (b): (i) "planning" customers are not necessarily new customers. They may be new customers or may be existing customers buying additional volumes of zircon, which Iluka had achieved in previous years, and (ii) the 78kt figure reflects the budget total of 469kt, not the total in the 23 February 2012 announcement of 450kt. On that basis, sales to "planning" customers represented 59kt of the total, and (c) the documentary record enabling identification of "planning" customers is not clear and coherent in any event. 170 Nor is it apparent why the forecasts about sales volumes in the 23 February 2012 announcement of TiO2 were without reasonable grounds. The case for Mr Bonham depends on propositions that: (a) Iluka's high quality feedstock was also high priced, which would drive customers to use lower quality feedstock, so that demand for chloride pigment did not necessarily reflect demand for Iluka's TiO2 feedstocks, (b) the high price of Iluka's feedstocks would drive customers to sulphate based feedstocks, and (c) there were advantages in customers continuing to use existing long-term suppliers. 171 The problem with these arguments is that none of these market theories were unknown and none found favour within Iluka at the time. Iluka was aware of the nature and dynamics of the markets within which it operated. It knew that lower grade chloride slag was being sold under longer-term contracts where lower prices were fixed, but that new contracts for chloride slag would include higher prices, reducing the price difference compared to Iluka's high grade feedstocks. It knew that changing feedstocks, and potentially both the quality of the product and the waste produced, was not as straightforward as Mr Bonham's case now suggests. It knew that sulphate pigment was materially inferior in quality to chloride pigment. In this regard Mr Tate explained to market analysts in November 2011 that: When we look at pigments, in the West since 1970 there has been a move to the chloride pigment process, which is considered superior as it is cheaper and more importantly environmentally friendly. The sulphate pigment process is an older technology of batched process, more expensive to operate and also considered from an environmental point of view as higher waste and a dirtier technology, but this technology has really seen a resurgence in China. The chloride process technology is closely held by the chloride pigment producers and as such to date, China hasn't had the ability to switch to that process in any large way… … … so for example the waste generated at a chloride pigment plant, from the rutile is 10 times lower than that of a 60% grade ilmenite. As well, of course, from pigment production point of view, the higher the feed grade, the higher the throughput of the pigment plant, and therefore the production of the pigment plant. Obviously this has margin benefits as well as capital intensity issues, and in a market which is approaching a higher level of capacity right through the pigment industry, obviously this is a lever that the pigment producers wish to pull as far as possible. … … producers tending to use a blend of products to achieve the required higher grade and quality. Also of note, there is only one pigment producer currently who has the proven capability to use significant ilmenite in their pigment plants [DuPont]. All others require a blend of higher grade products. … Chinese consumption of pigment is currently heavy-weighted to the sulphate market, due as I mentioned earlier to its predominant production base being in a sulphate pigment. But it imports 25% of its consumption from the chloride market for higher end use. In addition this consumption is likely to grow, either through further imports as quality requirements require, or as a result of an internal Chinese directive for the coating industry to move to the chloride pigment production process within China as part of a process to improve environmental performance. 172 This does not support the case for Mr Bonham that chloride pigment producers could readily switch to lower grade chloride slag or that the sulphate pigment market was destined to eradicate the chloride pigment market. Rather, the weight of evidence (including that of Mr Murphy from TZMI) is that quality sulphate pigments plants from the west would not increase production capacity and the vast majority of sulphate pigments from China were not of acceptable quality or consistency. Posited increase in the demand for sulphate pigments was predicated on the assumption that China would be able to achieve acceptable quality and consistency in the future, but that had not been achieved by 2012. 173 For these reasons I do not accept that anything that Iluka knew or ought to have known by February 2012 meant that it lacked reasonable grounds for the 23 February 2012 announcement, even if the sales forecasts in those documents are considered in isolation from their surrounding context (which they should not be). 174 Mr Bonham submitted that after the 23 February 2012 announcement Iluka "continued to receive adverse news regarding the zircon market". However, it would be accurate to say that Iluka continued to receive the news it expected about the zircon market. 175 On 23 February 2012 Mr Masbate sent an email to Ida Ma (an Iluka business analyst who reported to Mr Tate and was not a member of the leadership team), and to Mr Cobb and Mr Hugo, about zircon demand modelling work Ms Ma was undertaking. Mr Masbate said to Ms Ma that he had consulted with Mr Cobb and she should "tentatively" use "the following substitution impacts on the zircon demand for use in the initial development of the model": 2011 - 50 kt*, which can be loaded mostly on the 2nd half 2012 - 150 kt*, additional 100 kt substitution for whole year (median of the range of internal views/estimates) 2013 - 180 kt* … 2014 - 180 kt* … 176 Mr Masbate also provide a spreadsheet for Ms Ma to use in her model showing the effect of the posited substitution amounts on regions. He said "[h]ope this help[s] you in getting the model up and running". 177 This email was not "bad news". It was not "news" at all. It was a part of a modelling exercise. The range of internal views/estimates of substitution provided was for the purpose of modelling demand impacts only. Again, the important facts are: (a) there was a range of internal views about the effect of substitution and thrifting, (b) Iluka was actively assessing the impact of those views on demand, and (c) the notion that in formulating its sales forecasts Iluka was ignoring the issue of substitution and thrifting is untenable. 178 Mr Hind (an Iluka marketing manager) emailed Mr Cobb on 25 February 2012 about his meeting with Endeka. The file note records that: • Endeka still think there is massive substitution of zircon (through changes in styles/designs rather than technical substitution by Al2O3 etc) based on what they are seeing from their customers · • Stand by earlier claims that there has been a 200 - 250,000mt pa loss of market … • Believe 2012 will be down 50% on 2011 volumes, heavily weighted to H2. 179 This information is not straightforward. Substitution by reason of style and design changes is not the same as substitution by technical processes. Styles and designs may be inferred to be temporary phenomena. Further, the email does not disclose whether the 250kt loss of market is said to have occurred already in 2011 in whole or part or was expected to occur over some period of time. Endeka's view that "2012 will be down 50% on 2011 volumes" is also unclear. It is not apparent if this means global zircon demand (which is improbable given that would involve far more than a loss of 250kt) or Endeka zircon demand. 180 Mr Cobb asked if Mr Hind knew how Endeka got to a 250kt loss of market which "seems excessive". Mr Hind responded: The 250kt loss is as per the summary Endeka provided for our review in Hong Kong (attached): • 37kt loss from Frits (-20%) • 53kt loss from Frits & Engobes (-17%) • 160kt loss from Porcelain Tiles (-54%) 181 This does not resolve the uncertainties discussed above. 182 This also does not suggest that Endeka's view was "separate from the effects of economic conditions in China or Europe". Nor could the views have been separate from Endeka's view that opacifier producers had been building up zircon stock in 2011. Iluka held the same view that the first part of 2012 would be a period of destocking of zircon, with demand resuming in the second half. The difference is that Endeka's view about demand being down 50% (whatever the source) in 2012 was more pessimistic than that of Iluka. It is also relevant that Endeka's views about substitution were that it was being driven by style changes, not technical changes. Iluka had also considered this possibility, having earlier noted that design trends were a temporary factor. This would not have reinforced to Iluka that Endeka considered that there had been a permanent structural change in the zircon market by substitution and thrifting by technical methods.

4.12 March 2012 183 Mr Robb's report to the board about February 2012 (dated 14 March 2012) recorded that zircon sales were low and were expected to remain so in March. Further, in terms consistent with a report from Mr Cobb of about the same time, Mr Robb said: Zircon While the global zircon market remains depressed, recent market information and announcements comprise a mixed bag of data. China is still very quiet, but showing a few positive indicators. However, the European markets are showing no indication of recovery at this stage. Previous expectations of an early recovery post Chinese New Year have not been realised and Iluka sales tonnage for February was therefore lower than expected… … Titanium Dioxide Products A brighter picture with strong demand for our high grade titanium products in spite of a pigment inventory increase globally… 184 This does not support the submissions for Mr Bonham of an "unrelenting tale of grim results" for the TiO2 market. 185 Further, the divergence from Iluka's expectations was not that zircon sales were low and slow, but that the sales had not picked up after Chinese New Year as quickly as expected. While Mr Bonham treats this as the continuation of an impending catastrophe in the zircon market, the fact that zircon sales had not picked up as quickly as Iluka expected after Chinese New Year could not reasonably be taken as an indicator to that effect. For example: (1) Iluka was dealing with less than one month's results after Chinese New Year; (2) Mr Cobb said that the February 2012 results did not cause him to consider that the budget sales figures could no longer be justified (which were higher than the figures in the 23 February 2012 announcement); (3) Mr Cobb explained that: (a) as he had said in his 16 March 2012 report on sales and marketing, there were still a number of signs that Iluka would see a recovery in zircon demand in the later part of 2012; (b) the negative sales variance in February 2012 with respect to natural rutile was minor; and (c) he maintained the view that once the pricing issue with DuPont had been resolved, DuPont would resume purchasing natural rutile from Iluka (as it had done in previous years). 186 Consistently with this, Mr Cobb's 16 March 2012 report said: While the global zircon market remains depressed, recent market information and announcements depicts a mixed bag of data, but maybe the first glimmers of a brighter outlook. China is still very quiet, but showing a few positive indicators of late. However, the European markets are showing no signs of an upturn and recovery at this stage. … 187 Mr Hudson emailed the sales and marketing team on 17 March 2012 saying that: What I am hearing for pigment is bleak. Have had an email in Draft for 2 days on the Feb CIFEC results, not pretty. Not bad either, but if the paint season doesn't start soon production cuts will have to ensue. They are looking (hoping) for flat pricing in H2. 188 This email does not say that pigment producers were going to cut production. It said that if the paint season did not start soon then producers would have to cut production. Iluka knew the paint market was seasonal. 189 Mr Hudson sent another email to the marketing team on the same day saying that he had been told by Kronos that the CEFIC February results involved a "21% decreases in sales Feb YOY", with high levels of stock being held, and that he had been told that "if the paint season didn't eventuate the best we could hope for in H2 was flat pricing". As Mr Hudson noted, flat pricing was "[n]ot bad to hear". Further, Kronos was a customer interested in talking down Iluka's prices and Mr Hudson otherwise displayed some scepticism of Kronos's position saying "Kronos are now waiting for news of production cuts (it won't be them first - never is) and believe that will signal a downturn". 190 An internal Iluka slide presentation for pigment demand in March 2012 forecast a slowly increasing chloride pigment demand and a more rapidly increasing sulphate pigment demand to 2020. The picture presented in the slides was not "bleak" for chloride pigment, as Mr Bonham would have it. The picture was steady. 191 Another internal Iluka presentation from March 2012 about the Americas and Western Europe said: TiO2 Pigment • No paint season yet • Dismal CEFIC results, brightest part is that US demand is flat, all other areas - 20% • CH pigment substitution by SU where possible • Large price differential $4100 vs $3600 • DuPont probable no intent to take any PIGO in H2 other than LTC SREP and SR85 • Kronos current cash flow deficit cf Budget • HT and Tronox quiet … • SU pigment king at the moment 192 While this picture is bleaker than that otherwise presented to that time, the key propositions are that: (a) the source of the information is unclear, (b) to the extent that it reflected the views of TiO2 customers, the information could not be taken at face value, (c) it is not clear whether anyone in Iluka accepted the information or not, (d) it is not clear whether, if anyone in Iluka accepted the information as currently accurate, that person also considered that, as a result, there would be no increase in TiO2 demand in the second half of 2012, and (d) the message was that the paint season, and associated seasonal upturn in demand, had not started. 193 Mr Bonham referred to an email exchange about an analyst's report (J Capital, prepared by Mr Murray and dated 28 March 2012, discussed further below), the summary of which included that: … • Zircon sales in China's domestic market are down 30% in the first quarter. Ceramics sales are down 20-30%. We think Iluka is selling around 15,000 tons of product a month in China. • Although Chinese zircon imports rose in February, about one-third of the volume went to bonded warehouses, meaning that the product has not been paid for by distributors. Moreover, imports of lower-quality zircon from Indonesia and other Asian markets surged. … • We see little or no improvement in the construction market in 2012 and expect the zircon market to further deteriorate in this year. (Emphasis in original). 194 Mr Cobb responded on 30 March 2012 that he was: … concerned at the detail that is in this J Wire report, either they have some very savvy people on the ground and/or access to Iluka information. The reality is they are pretty much on the money - in fact they have overstated our sales in Q1 and underestimated the stocks we are building. Wait to see the impact on our share price. 195 Mr Porter (whose responsibility was investor relations and corporate affairs) responded that: Yes - they were a bunch of jokers initially but do seem to have honed into things. As I may have said they cater exclusively for the US short selling hedge fund community

4.13 Up to and including 12 April 2012 196 Ms Ma and Mr Barry Murphy (Iluka Manager, Planning and Industry, not a member of the leadership team and reporting to Mr Tate) provided draft results of the modelling of zircon demand in April 2012 for discussion purposes. The model included demand drivers of global (by regions) GDP growth, urban population growth and industrial production growth, weighting of the drivers, substitution and thrifting assumptions and a range of demand forecasts. 197 In the modelled "mid mild" scenario (mid-level demand and mild substitution and thrifting assumptions) the forecast global demand for zircon in 2012 was 1,383kt. In the "mid extreme" scenario the global forecast for 2012 was 1,353kt. Even the "low extreme" scenario was 1,346kt. All ranges were above Mr Cobb's then view of a global demand for 2012 of around 1,250kt. 198 The March 2012 performance report (prepared in April 2012) identified that Iluka was falling short of budgeted sales for zircon and rutile but that sales of synthetic rutile were up. The summary said that zircon sales remained low. Rutile sales volumes were below budget due to shipping delays from March into April which were expected to be recouped in Q2. While sales were low, prices of both zircon and rutile were higher than expected due to more premium zircon sales and higher spot prices of rutile than budgeted. It was noted that over half of the zircon sales occurred in March and that "small tonnage from Chinese customers returning and the first bulk shipment to a customer left from Portland to Rasa". It also noted that the "quarterly rutile variance is due to a delayed ship of Rutile 95 for Tioxide Europe who had difficulty obtaining a vessel. The customer's Rutile 95 was not loaded until the 1st April. Demand for Rutile 92 has been strong in March, tonnage has now been fully contracted for the first half. Interest is now being shown for EB Hyti, the only high grade Ti02 stock now available in H1". 199 On this basis, the information being provided to Iluka about the TiO2 market from some of its customers was not being supported by sales results, as the variance from budget for rutile was by reason of a delayed shipment and was expected to be recouped. Further, sales of synthetic rutile exceeded budgeted sales. Prices of both were high. This would not have indicated any serious issue with the TiO2 market. 200 On 11 April 2012 Mr Robb emailed the proposed April 2012 report to be released to the ASX (discussed above) to the board saying: … 2. we have deliberately not included forward commentary. QPR's are generally retrospective only and in previous cases where we have made prospective comments, they related primarily to material price changes which we were disclosing or confirming, or to material changes in our operating assets. Those conditions do not apply now; 3. we are being very consistent with our earlier commentary about "it will take some time for a clear picture to emerge on overall zircon demand…." and avoiding the temptation to provide commentary based on limited and often contradictory economic data or purchase intention comments from customers. We should not try and guess the shape of the demand recovery when we have said we won't do so; and 4. in line with the above, as I have discussed with John, we are not doing a detailed F3+9 forecast when there is no compelling reason to do so as it is more logical to allow the maximum passage of time before updating our views. We will do an F4+8 in May as part of updating the Board and preparing commentary in advance of and for the AGM. We are currently working with three zircon volume scenarios and a Base Case within those scenarios which presents no guidance issues. It is fair to say that achieving the Budget would be seen today as a significant stretch (and therefore aligned to an optimistic view), but that is, as I said, a perception based on limited data. 201 Mr Robb's reference to "limited and often contradictory economic data or purchase intention comments from customers" warrants close consideration. It discloses that, consistently with the evidence of former Iluka employees in this proceeding, Iluka had good reason to be sceptical about information provided by its customers about the customers' markets. Viewed objectively and without hindsight, it would be difficult for any person involved in the markets at the time to have accepted that there were major and permanent substitution issues confronting the zircon or TiO2 markets which would cause ongoing and substantial reductions in demand given that: (a) sales and prices of both had been increasing materially over the past two years, (b) the slowdown in the first half of 2012 was expected due to the need to destock, the impact of policies of the Chinese government and global economic uncertainty, (c) while zircon sales in Q1 were low more than half the sales had occurred in March 2012 and there had been signs from China considered to be positive, and (d) while sales of rutile had been low that was due to a shipping issue and demand for rutile was still strong. 202 The fact that Iluka decided not to do a detailed F3+9 forecast (when it would do so ordinarily) and chose to wait until May 2012 to do an F4+8 forecast and Mr Robb's statement that it would be "fair to say that achieving the Budget would be seen today as a significant stretch" do not constitute "an acknowledgement that the company's management had real doubts that the full-year forecast was now maintainable" and that the only reasonable response was to change the forecasts in the 23 February 2012 announcement as a result. As Mr Bonham put it: By early April 2012 Iluka was unable (or unwilling) to complete its usual F3+9 reforecast because it was now so uncertain about the demand recovery upon which its existing forecast so heavily depended. And this was in circumstances where it had previously assured the market that it was confident about demand recovery. (Emphasis in original, footnotes omitted). 203 These submissions are not sustainable. 204 The only reference to "confidence" by Iluka to which Mr Bonham referred is in its 2011 full year results released on 23 February 2012. This report referred to the soft demand for zircon expected for Q1 and possibly Q2 in 2012 and said that a "clear view on overall 2012 zircon demand and phasing to take time to emerge". The report then said "Iluka confident about demand recovery as sentiment improves". This statement is not repeated in Iluka's other public statements said to contain the April and May 2012 forecast representations. Mr Bonham also apparently did not read the 2011 full year results report. No reasonable person contemplating buying shares in Iluka in the period between 12 April and 9 July 2012 could have relied on such a statement without referring to, at the least, the 23 February 2012 announcement in which Iluka identified the difficulty of forecasting in the then uncertain global economic conditions. The statement also does not indicate when sentiment might improve. The statement said only that Iluka was confident that demand would improve when sentiment improved. It did not say that it expected sentiment would improve in 2012; rather, it repeated that a "clear view on overall 2012 zircon demand and phasing to take time to emerge". Iluka always held the view that the demand for zircon would increase over time as a result of increased urbanisation irrespective of substitution and thrifting or short-term volatility given the cyclical nature of the market (with periods of destocking and restocking) overlying changing macro-economic conditions. The evidence does not support an inference that this view, that there would be demand recovery when sentiment (I infer, global economic confidence) improved, was unreasonable. 205 Further, it is apparent from Mr Robb's email of 11 April 2012 that he did not consider that Iluka's 23 February 2012 announcement was now inaccurate or unreasonable. This explains Mr Robb's comment that Iluka "should not try and guess the shape of the demand recovery when we have said we won't do so". Mr Robb was right - in the 23 February 2012 announcement Iluka had said: (a) there were current difficulties in forecasting global economic conditions, (b) as a result the three year average outcomes previously published may vary significantly, (c) outcomes would depend on the path of global economic performance from 2012 to 2014, (d) the information provided was subject to these considerations and was a guide only, (e) the information should not be relied on as a predictor of future performance, and (f) the zircon guidance was dependent on global demand levels and phasing. For Iluka then, in April 2012, to have attempted to revise its guidance would have been meaningless. It had no basis upon which it could so with any greater confidence than it had in February 2012. 206 Mr Robb's observation that it "is fair to say that achieving the Budget would be seen today as a significant stretch" was not saying that he or others within Iluka then believed that it would fall materially short of the guidance provided in the 23 February 2012 announcement. This is apparent from the facts that: (a) a "significant stretch" did not mean that it was impossible or even more likely than not that Iluka would fall materially short of the guidance provided in the 23 February 2012 announcement (which was 20kt less than the budgeted amount for zircon) - it meant that meeting the guidance was now aligned with the optimistic (but not impossible or even unreasonable) view of outcomes for 2012, and (b) this perception was based on limited data. 207 This view accords with the evidence. Mr Cobb said that at this time he maintained the view that the sales figures included in the 2012 B2 budget remained achievable. Mr Robb said that Iluka delayed its next forecast to enable it to obtain more information over the next month. It was not put to him that at this time he considered Iluka could not meet the guidance it had provided in its 23 February 2012 announcement. Rather, Mr Robb said that at this time Iluka had 25kt of zircon sales to make up over 9 months, the slow start to the paint season for TiO2 products was not atypical, and "TZMI's overall position was extremely bullish on TiO2 demand and prices in 2012. If memory serves me correctly, they were more bullish than our own internal budgets and forecasts at the time". This evidence effectively undermines the propositions put for Mr Bonham. Mr Robb also continued to reject the proposition that paint producers could readily switch from high grade ores in favour of cheaper chloride slag (excluding DuPont which was the only producer using ilmenite because it had specific waste arrangements which enabled it to do so profitably when other producers did not). Mr Robb reiterated that changing feedstock in this way was not a "simple decision". 208 Mr Tate's evidence reinforces the reasonableness of Iluka's conduct. He explained: The reason that the forecast was delayed was because our process for the year had been abnormal. We would usually agree our budget in December and that tended to be based on a forecast put together in October. It was an abnormal year, lots of uncertainty, lots of volatility, so we actually updated our budget which was abnormal, an abnormal process. We actually updated the budget in February to incorporate actuals to December and our latest view, at that stage, in February. Previously for an F3+9 we would have actuals possibly up to October and then we'd be forecasting November, December, January, February, March and the remainder of the year. This year, because we'd just completed the budget, because we had actuals to January, my recollection was that at this stage we had F3+9. I think if you go to the final reports and also the MD's report, at this stage, there was no indications from marketing that the zircon sales or any other sales were actually streaming significantly different to what the expectations were, they hadn't gleaned any new information. So to embark on a forecast process at that stage in which we didn't have any new information or new data points, we determined that it was better to delay it one month, in which time we'd have more up-to-date information and be in a better position to actually forecast. 209 Mr Tate continued saying: My recollection was that the first quarter was expected to be highly uncertain and low. It depended on the outcome after Chinese New Year and at this period of time, the discussion or the commentary from marketing was still that their views hadn't changed, that they'd seen a pick-up in March, that actually January and February had been very low and they expected the third quarter, or the second quarter to pick up, but still uncertain. So to forecast at this stage, putting in that info, we had no new data points, we had no new views of the uptick and we'd run the risk of running a forecast, getting ourselves confirmed on these numbers with the uptick and being no clearer. 210 Mr Robb and Mr Tate both made the salient point - by April 2012 Iluka did not have any new information that enabled it to provide any more reliable guidance than it had in its 23 February 2012 announcement. Mr Bonham's focus on the poor sales performance for zircon in particular by that time is misplaced - that is what Iluka had been expecting. The only issue of concern was the lack of clear signals of the expected upturn in demand for zircon. Iluka did not view that lack as an indicator there would be no increase in demand for zircon. The decision to wait until May 2012 to do an F4+8 forecast was reasonable given the circumstances relating to zircon. Mr Bonham's case is weaker still with respect to TiO2 products. The prevailing view was that while the start of the paint season was delayed the market for TiO2 products was still strong and demand would rebound in the second half of 2012. 211 Mr Tate rejected any notion that Iluka had delayed its forecast so it would not have to disclose the outcome, saying: If that's a question, no, that's not the case. Our continuous disclosure obligations override any forecasting process. So at any stage in which we have the view that we've got new views or new information which is material, our continuous disclosure regime would require us to disclose that. Although you have other documents which give marketing's view in March, at this stage there wasn't any new information which would change their view of how the market was unfolding. We are not driven by continuous disclosure by our forecasting regime and I can assure you we did not delay forecasts on the basis that we thought it might give a number that might be lower than what we had budgeted. It was to ensure that we got - because it was such an abnormal process in the budget, at that stage we would only have one more month of actuals, or two, and that's the normal process, to have at least three, and that was the basis .... … … their overall view that they expected the second quarter to be - if I recall, March was actually higher than had been budgeted and at this stage at the time when we were going through this, there wasn't expected to be a material change in our overall forecast. … … to the best of my recollection, what we got from sales and marketing, overall they'd seen an uptick and at this stage looking at 450,000 tonnes, there wasn't anything to indicate that our overall target would change. If there was, that would be a process we would go through. But as I say, that commentary, as I recall, was highly scrutinised and they were comfortable that the overall target would still be met. 212 Mr Bonham submitted that "Mr Robb's explanation overlooks the fact that Iluka had in fact done significant work on the F3+9, and the results thus far had suggested a significant decline in Iluka's zircon sales forecast, similar to what it eventually disclosed on 8 May". The fact that work was done is immaterial. It is apparent that the work was preliminary. In one draft document for discussion purposes dated 3 April 2012 total zircon sales for 2012 are identified as 416kt. In another which is undated total zircon sales for 2012 are identified as 428kt. In another the figure 404kt appears. The status of all of these documents is unknown. The evidence of Mr Robb, Mr Cobb and Mr Tate is clear - they were aware of and had carefully considered all relevant circumstances at the time and remained of the view that the forecast (that is, the sales guidance from 23 February 2012) was achievable. Even if Mr Robb considered the forecast (as opposed to the B2 budget figure for zircon) to be a "significant stretch", it was standard for Iluka's sales budgets to involve stretch (as described above, meaning achievable but not easily achievable). 213 Mr Bonham submitted that "a forecast is not to be maintained until there is no doubt as to the extent by which it must change. The forecast must be amended or withdrawn once there is sufficient doubt as to whether it is reasonable. Iluka's response of 'if in doubt, let it stand' was not one that was open to it". 214 These propositions are too generally expressed. Iluka's position was not that it would not change its forecast sales until there was no doubt about the extent of the revision required. The concept of "sufficient doubt" about the continuing reasonableness of a forecast also tends to obscure the issue. The issue is whether in all of the circumstances known or that reasonably should have been known at the time Iluka had reasonable grounds to maintain its sales guidance in the terms in which it had been issued. Lack of reasonable grounds is not proved by the existence of doubt about Iluka being able to achieve its sales guidance in the mind of one or other employee of Iluka. 215 In any event, the relevant personnel in Iluka, including Mr Cobb, Mr Tate and Mr Robb, did not consider that the 23 February 2012 guidance had become unachievable by 12 April 2012. Their position was not that the guidance given in February 2012 must not be changed until there was no doubt about the extent of the change. The guidance in February 2012 had already expressed significant doubt about the capacity to provide reliable guidance given the uncertain economic conditions. No-one from Iluka suggested that its position about guidance was "if in doubt, let it stand". 216 Mr Bonham noted that analysts' reactions to the 12 April 2012 report was described by Iluka as "benign". According to Mr Bonham this was because the 12 April 2012 report had implicitly maintained Iluka's full-year guidance. This is inaccurate. The email from Mr Porter of 13 April 2012 about the response of analysts to the 12 April 2012 report notes that: The level of first quarter revenue was well below broking expectations. While there have been some modifications to forecast zircon sales, in some cases second half high grade titanium dioxide pricing and hence earnings/valuations, the changes are relatively minor and commentary benign. 217 That is, analysts had not made any major adjustment to their analysis despite the first quarter revenue being well below their expectations. If anything, this suggests analysts shared Iluka's view that demand would increase throughout 2012 after a slow start. 218 Mr Bonham identified a series of matters he submitted meant that Iluka did not have reasonable grounds to maintain the guidance in its 23 February 2012 announcement as at 12 April 2012. I deal with each of those propositions (in italics below).

4.13.1 The zircon market 219 Housing policy in China was suppressing new construction and the carryover effects on ceramics and therefore zircon: this was one reason Iluka had reduced its guidance for zircon sales in its 23 February 2012 announcement. It was not a new circumstance after the 23 February 2012 announcement. It had already been factored into the guidance provided in the 23 February 2012 announcement both as to production and sales, but also as part of the global economic uncertainty. Iluka had also seen sales begin to increase in March 2012. 220 Europe was a "basket case" in terms of economic activity relevant to zircon demand: this too was not a new circumstance arising after 23 February 2012 announcement. It had been taken into account in the terms of the announcement. 221 Thrifting and substitution was relatively easy, inexpensive, quality-acceptable, likely to accelerate across the Chinese manufacturing sector, and likely to be permanent: Iluka had been considering increased substitution and thrifting risks since mid-2011. Information included that some or even most of the substitution and thrifting resulted from a willingness to accept lower quality tiles and fashion trends. Iluka did not consider that the results of substitution and thrifting were "quality acceptable". Nor did it consider that the practice involved a permanent structural change which would cause a collapse in demand for zircon. For good reasons Iluka was not willing to rely on information from its customers given their interest in driving down the price of zircon. Iluka accepted that substitution and thrifting would impact global demand for zircon but also considered that its effect would be more than offset by increased urbanisation. Iluka did not have a final view about the extent of the impact and rightly considered that overall demand would be determined by economic factors. Iluka knew all of these things before it issued its 23 February 2012 announcement. It knew also that TZMI's view was that while there had been "talk of zircon substitution having an effect on the global ceramics market in particular, in TZMI's opinion there is no solid evidence that this is significantly influencing zircon demand". After the 23 February 2012 announcement Iluka carried out further work gathering information and modelling demand impacts of substitution and thrifting. It rightly did not take Endeka's views at face value. Its own modelling did not forecast a collapse of the zircon market. 222 Thrifting and substitution initiatives were being pursued in European ceramics markets as well, and again likely to be permanent: the comments above about substitution and thrifting apply. Further, there was no comparison between the ceramics market in Europe and the ceramics market in China, or the extent or effect of thrifting and substitution in the European market. 223 The effect of policy/economic conditions, and thrifting and substitution initiatives, was likely to reduce global demand for zircon by at least 180ktpa (Hugo), 200ktpa (Cobb) or 200-250ktpa (Endeka): even assuming that these estimates can rightly be attributed to Mr Hugo or Mr Cobb, which is doubtful given that Iluka's work was ongoing because of the difficulty of quantification, these figures are meaningless as it is not apparent what proportion of the estimated reduction was: (a) already incurred in 2011, (b) to be incurred in 2012, (c) to be incurred after 2012, (d) the result of a permanent technological change or a temporary change in style and fashion, or (e) likely to be offset by increased demand from increased urbanisation. Further, Iluka rightly did not take Endeka's views at face value. It cannot be inferred that Mr Cobb, in proposing the 2012 zircon demand of 450kt (a view he continued to hold in April 2012), had disregarded his own views about the overall or net effect of thrifting and substitution on demand. 224 Competitors and customers had a recent history of reacting to zircon oversupply (and downward price pressure) by reducing prices (in the case of competitors) or dumping existing inventory (in the case of customers): the evidence is that Iluka's customers did not want the price of zircon to collapse as they were also suppliers of opacifier. Iluka had also successfully increased sales and prices over a number of years and knew that it could offer higher quality products than its competitors on a consistent and reliable basis. None of this information was new after the 23 February 2012 announcement. 225 Iluka intended to maintain price, and was prepared to forfeit volume before reducing price to compete with the competitors or customers: this had always been Iluka's position and it had been successful in increasing price and supply in the past. Also, the evidence is that Iluka's customers did not want the price of zircon to collapse as they were also suppliers of opacifier. None of this information was new after the 23 February 2012 announcement. 226 Despite those matters, Iluka's B2 sales forecast assumed it would win around 78kt of 'new' but unidentified customers: "planning" customers were not necessarily new customers. They could be existing customers requiring additional volume or new customers. Iluka had successfully increased both sources of demand in the past. None of this information was new after the 23 February 2012 announcement. Further, the 78kt of sales from "planning" customers relates to the B2 budget (470kt of zircon) not the 23 February 2012 announcement (450kt of zircon). 227 The B2 forecast moreover assumed that by Q3/12 and despite all the matters above, Iluka's sales would revive to the levels of its best quarters in 2011: there were rational reasons for this expectation as it was based on stocks being depleted in the first half of 2012 and an anticipated upswing in demand in China after Chinese New Year which was usual. None of this information was new after the 23 February 2012 announcement. 228 2011 had been a year of restocking by zircon customers, building inventory above normal production requirements: Iluka was aware of this and took it into account in its 23 February 2012 announcement. 229 Zircon customers were holding high levels of inventory (being finished product in China, or inventory sand in Europe): views as to the level of stock held varied between supply of 3 to 6 months, but Iluka was aware of this and took it into account in its 23 February 2012 announcement. 230 These circumstances meant that any upturn in demand was likely to be met, in its early stages, from existing inventories rather than new purchases of zircon from Iluka: this was one reason why in its internal deliberations leading up to the 23 February 2012 announcement Iluka considered that in the first half of 2012 would be soft. 231 There was no change yet in housing policy in China, and even if a change were announced the best internal estimate available to Iluka predicted a 5-6 month lag between a shift in the MFSS and actual revival of zircon sales: Iluka considered that the March 2012 results in fact were hopeful. The proposition about the MFSS data is overstated. Iluka was working on modelling zircon demand but the idea it considered (or ought reasonably to have considered) that there would be a 5-6 month lag between a shift in the MFSS and actual revival of zircon sales is untenable. The evidence is also that customers did not wait for construction demand to build inventory. If demand in future was anticipated (for example, from a change in the policy of the Chinese government which had been trying to slow down an overheating economy), the evidence is that customers purchased immediately in anticipation of future price rises. That is, Mr Bonham's "time lag" theory is economically unsound and not reflective of the way in which the zircon market operates (see further the expert evidence below). 232 In the last year (2009) when the zircon market had been oversupplied, Iluka had again acted as a price-leader and maintained pre-existing prices longer than other suppliers, and had seen its market share fall to around 22%: 2009 was the global financial crisis. It was not comparable to conditions in 2012. The expert economic evidence of Dr Unni discussed below exposes the fallacy this proposition involves. No-one was suggesting before late June/early July 2012 that the world was entering the equivalent of another global financial crisis. 233 On the other hand, Iluka's FY12 budget forecast of 450kt zircon sales implicitly reflected a continuing market share of around 32.5% (if global demand were assumed at 1,383kt) or 37.5% (if demand were assumed at 1,200kt): Iluka was not driven by market share. Its market share had varied over time. Its focus was sales and price. None of this information was new after the 23 February 2012 announcement.

4.13.2 The TiO2 market 234 HGO price increases since 2009 had roughly doubled the production costs of the chloride pigment producers using HGOs: despite record prices pigment producers had also made record profits in 2011. Iluka knew these facts before the 23 February 2012 announcement. 235 Chloride pigments were interchangeable with sulphate pigments for the vast majority of paint applications: this proposition is inaccurate. The evidence is clear that sulphate pigment paints were materially inferior to chloride pigment paints and that, in paint production, quality matters. This was also not new information after the 23 February 2012 announcement. 236 Chloride pigment producers were facing increased price competition from sulphate pigment producers, including in traditional 'chloride' markets: the evidence is that sulphate pigment paints were inferior in quality and consistency, which were important considerations for paint producers. This was also not new information after the 23 February 2012 announcement. 237 Chloride pigment producers were all accustomed to slag as a feedstock alternative to HGOs, and able to change feedstock mix to increase the proportions of slag (or in the case of DuPont, ilmenite) at the expense of HGOs: the evidence does not support the proposition that changing feedstocks was as straightforward as Mr Bonham's case assumes. Paint producers had changed to higher grade TiO2 feedstocks after 2009 to increase yield from their plants. Waste considerations were relevant. So too was quality of output. These were individualised and not straightforward decisions for each producer. This was also not new information after the 23 February 2012 announcement. 238 Chloride slags (and variants such as upgraded slag) were reliably priced some hundreds of dollars per tonne lower than HGOs, whether under legacy contracts, new contracts or as spot sales: see above. This was also not new information after the 23 February 2012 announcement. 239 New slag production was coming on line, in particular from the Rio Tinto operations in Canada: it is apparent that Iluka routinely monitored the position of its competitors. There is no foundation in the evidence to infer that this information was anticipated to be material to Iluka's position in any unanticipated way. In Mr Robb's report to the board for November 2011 it was noted that Rio Tinto's expansion plans in Canada had been "included in Iluka's supply model". As such, this was not new information after the 23 February 2012 announcement. Further, the expert evidence indicates that the supply of chloride slag remained tight and Rio Tinto had to increase production from Canada as its mining operations in Madagascar had met with problems. 240 Chloride pigment producers were likely to have set production schedules before the November 2011 TZMI conference in Hong Kong: this was a known characteristic of the market due to the continuous running of the production process. The available information in late 2011 indicated that TiO2 demand would remain strong particularly in the second half of 2012. The demand was known to be seasonal and thus a slow start to 2012 was anticipated. This was not new information after the 23 February 2012 announcement. 241 Chloride pigment producers had reacted badly to Iluka's proposed pricing at the November 2011 meetings: this was not new information after the 23 February 2012 announcement. Nor was it a reason to predict any major slump in the TiO2 market. It would be surprising if customers reacted warmly to any price increase. 242 Iluka had no security as to sales to pigment customers beyond the half-yearly contracts in place for 1H/12, and no recourse if pigment customers adjusted their production schedules or changed their feedstock mix for 2H/12. Not only did Iluka have no contracts in place, it also had no arrangements whatsoever (not even 'commitments') as to the critical issue of pricing for 2H/12: this overlooks the fact that it was a strategy of Iluka to enter into shorter-term contracts to enable it to take advantage of the capacity to increase prices in response to market demand. This strategy had enabled Iluka to raise prices for TiO2 products to their highest level yet, whilst its pigment producing customers had their most profitable year in 2011. To present this as a negative is to misunderstand the market dynamics at the time. Even Iluka's customers at the time expected a strong second half of 2012. On this basis, the capacity to negotiate prices for the second half of 2012 would have been seen as advantaging Iluka. 243 Strong paint demand and strong pigment forecasts for FY12 were no guarantee of demand for chloride pigments, and forecasts as to chloride pigments were no guarantee of demand for HGOs as opposed to other feedstocks like slag: this is a meaningless over-simplification. Iluka knew about the increase of demand in China for sulphate paints. It knew that paint producers were trialling sulphate pigments. It also knew that chloride pigments were more efficient, produced less waste, and were of materially higher quality (including consistency of product). It knew that for a chloride pigment producer to reduce feedstock quality was not a straightforward decision for a number of reasons. None of this was new information after the 23 February 2012 announcement. 244 Apart from the public announcements from paint and pigment manufacturers forecasting strong demand for their products in FY12, Iluka had received a consistent stream of information to the effect that the paint and pigment markets were soft and that its chloride pigment manufacturing customers were throttling back production of chloride pigments or changing feedstock mixes to use less HGOs: this is an over-simplified and inaccurate representation of the evidence. 245 It was also submitted for Mr Bonham that "against all those background matters, but entirely consistent with them, the company's Q1 results revealed Z/R/SR sales a full 30% below its late-February budget forecast". Again, this is an over-simplification. Zircon and rutile sales were down. Synthetic rutile sales were up. Rutile sales were down partly due to a delayed shipment. Further, the comparison is between Iluka's internal phasing and sales. It is not between any public statement by Iluka and its actual sales as Iluka made no public statement about phasing of sale volumes.

4.13.3 Overview up to and including 12 April 2012 246 Mr Bonham's case that as at 12 April 2012 Iluka had no reasonable grounds to maintain the guidance in the 23 February 2012 announcement is unsustainable. Nothing had happened after 23 February 2012 which Iluka knew or reasonably ought to have known meant that the guidance in the 23 February 2012 announcement, in the actual terms in which it was given, ceased to lack reasonable grounds. Even if the 23 February 2012 announcement made the April forecast representation (which it did not - see below) the same conclusion applies. At worst, by 12 April 2012, the April forecast representation (if made) had become more optimistic than it had been as at February 2012. An optimistic forecast is not an unreasonable forecast. 247 It also was not unreasonable for Iluka to wait for another month to gather more information before it made a decision. This was not unreasonable as: (a) the guidance given in the 23 February 2012 announcement was qualified in all of the respects identified, so that if the guidance continued to be operative so must all of the qualifications, (b) Iluka had expected a slow start to 2012, (c) the only new information was that the start to 2012 had been slower than Iluka's expectations, (d) there were rational reasons for the slower than expected start of which Iluka was aware, (e) there had been only one month after Chinese New Year and that had seen signs of an increase in demand for zircon, and (f) the slower start to the TiO2 market than expected was not perceived by the market generally as indicative of any long-term structural issue. The prevailing view was that the TiO2 market was still strong. 248 Further, the 12 April 2012 report, as noted, said nothing about sales volumes other than that sales were low for the reasons given. It is not Iluka's responsibility that analysts then deduced its sales volumes and published in that regard. In any event, there is no suggestion Mr Bonham relied on analysts' reports other than Stock Doctor. 249 Nor does the 12 April 2012 report repeat the alleged April 2012 forecast representation or refer to it in any way. It is not apparent that either Mr Bonham (who had not read the 23 February 2012 announcement) or an ordinary and reasonable member of the class of actual or potential investors in Iluka would or might have understood the 12 April 2012 report as repeating or continuing the alleged April 2012 forecast representation. As noted, if it did, it could not have done so without also repeating or continuing all of the qualifications made in the 23 February 2012 announcement which are inconsistent with the proposition that it made the April 2012 forecast representation in the first place. It is also not apparent that Mr Bonham (acting reasonably) or ordinary and reasonable members of the class of actual or potential investors in Iluka would or might have understood the report as doing other than confirming that Iluka's expectations of a slow start to 2012 for zircon sales were being fulfilled.

4.14 The rest of April 2012 250 On 19 April 2012 Mr Cobb sent the sales and marketing report for March to the leadership team. The report said: Zircon • Sales volume remains low going into Q2 in a soft market, but some signs of improvement in China and India. • Orders for Q2 zircon deliveries higher than Q1, but still low compared to 2011 • Indications that major competitors are discounting zircon prices in China • European market remains very depressed, especially Italy … TiO2 • Pigment customers report softer Q1 and delay in the start to the 'Paint season" • By contrast the Paint producers are reporting a strong Q1, potentially running down stocks of Ti02 pigment. 251 Sales of zircon were down 19kt compared to the B2 budget of 469kt (and thus not down compared to the 23 February 2012 announcement guidance of 450kt). Rutile sales were down 12kt and synthetic rutile and ilmenite up compared to the B2 budget. The report repeated that "March has shown some signs of demand reappearing in other regions [not Europe]. Over half the zircon sales for Q1 occurred in March", the negative rutile variance was due to a shipping issue and "[d]emand for Rutile 92 has been strong in March, with tonnage now fully contracted for the first half. Interest is now being shown for EB HyTi, the only high grade Ti02 stock still currently available in H1", and there was strong demand for ilmenite in China. Prices were maintained or increased. The report also said: Zircon The quarter ended with the zircon market still remaining soft. Total volume was 75% lower than the same period in 2011. March represented over half the quarter's sales volume, including the first bulk shipment for the year to Japan and the first reasonable tonnage to Chinese customers. Latest market data remains mixed about the global outlook. Reports are that the Chinese economy should be bottoming out over the next couple of months, heading towards an improved H2 2012. Early Q2 orders show Indian and Chinese customers are commencing to replenish stocks of sand. Volumes are still lower than 2011 levels, however an improvement to Q1 2012. … In Europe, stocks of opacifier and sand remain high. Latest indicators show no sign of recovery until the second half of 2012. Titanium Dioxide Products The Ti02 market remains buoyant, in spite of the reported slower start to the year for the chloride pigment industry. Latest reports suggest the paint season has just commenced and demand for pigment is likely to improve quickly over the second quarter. An area of concern is the pricing differential that is appearing between sulphate pigment from China and the Chloride product from the West… The western paint producers are rapidly changing their formulations to use up to 10% of this lower priced and lower quality Ti02 pigment to reduce their overall input costs. 252 In oral evidence, Mr Cobb described this as a "small level of substitution" of TiO2 feedstocks. Mr Cobb rejected the proposition that this was a new development. Mr Cobb also rejected the proposition that the second half of 2012 was shaping up to be two of the poorest quarters that Iluka had experienced. He said: If I had believed that, I wouldn't have put forward the numbers I did. 253 Mr Bonham's repeated emphasis on the "bleak" picture is again over-stated. Relevantly: (a) the fact that sales of zircon were 75% below 2011 sales for the same period involves comparing an expected soft period with a record year, (b) the mixed global outlook and bottoming out of the market in China were consistent with the expected increase in demand in 2012 H2, and (c) the lack of signs of recovery in Europe were also on the basis of an expected increase in sales in H2 2012. 254 Mr Bonham's focus on negative information is skewed by hindsight given the other information at this time that: (a) March represented over half the quarter's sales volume, including the first bulk shipment for the year to Japan and the first reasonable tonnage to Chinese customers, (b) global economic data remained mixed, (c) the Chinese economy should be bottoming out over the next couple of months, heading towards an improved H2 2012, (d) Early Q2 orders show Indian and Chinese customers are commencing to replenish stocks of sand, (e) the latest indicators [from Europe] show no sign of recovery until the second half of 2012, (f) the TiO2 market remains buoyant, and (g) the paint season has just commenced and demand for pigment is likely to improve quickly over the second quarter. 255 Mr Bonham submitted that: The Chinese economy "bottoming out" was, of course, only an early first-step toward a revival in zircon demand. First the economy had to bottom up, then construction had to resume, then the projects had to reach completion, then buyers had to purchase the apartments, then the new homeowners had to fit them out with ceramics, and then the ceramics manufacturers might start to resume purchases from the millers and, in turn, from the zircon suppliers like Iluka. (Emphasis in original). 256 As noted, this submission is not consistent with the evidence about the operation of the zircon market. It is apparent that Iluka and opacifiers managed their supplies of zircon carefully. They did not wait for a demand to appear before production and purchasing. They acted on the basis that, if confident about future demand, supply had to be secured immediately to avoid future price increases. 257 Mr Bonham also relied upon a statement in the 19 April 2012 report as follows: Discussions continue with DuPont and Huntsman in regard to longer term off take agreements for HGO and chloride ilmenite thus attempting to lock in the current high and probably unsustainable sales margins. 258 According to Mr Bonham it was "rather hard to see how it could be said to be reasonable for Iluka to hope that two such sophisticated customers as DuPont and Huntsman would lock themselves into contracts at prices that even Iluka regarded as unsustainably generous to it". It is not apparent where this point goes. No part of the case for Mr Bonham involves sales prices other than to the extent that Mr Bonham proposes that Iluka's high sales prices placed it at increased risk of reduced sales volumes. 259 Insofar as DuPont and Huntsman are concerned, Mr Robb said: (a) the view was that the overall TiO2 market was buoyant, (b) Huntsman and DuPont were discussing with Iluka longer-term off-take agreements which would not have been happening if they were proposing to reduce their supply, (c) any company would have tried to lock-in higher prices, (d) chloride ilmenite was very important to DuPont for its competitive advantage and Iluka was essential to DuPont's supply of chloride ilmenite, (e) DuPont had a new negotiating team in place who were on a learning curve, and (f) in all of the meetings he had with senior management of pigment makers, including Huntsman and DuPont, he could not recall one saying that they would take their business elsewhere. It is also apparent that, in the past, pigment producers had managed to pass on price rises to their customers and still make record profits in 2011. 260 On 26 April 2012 TZMI's April 2012 report was distributed within Iluka. This report included the following information: Green shoots emerging in the zircon sector after hiatus There is no doubt that the zircon market went through a considerable downturn in demand in the last quarter of 2011 and during the first quarter of 2012. This caused increased uncertainty in the zircon sector as to how the rest of 2012 might unfold. … There remains significant uncertainty around the demand recovery for the rest of 2012, although the longer term fundamentals have remained unchanged. It is widely anticipated that zircon demand will improve in the second half of 2012, but it is not expected to return to the heady levels seen in the first three quarters of 2011. … … there are already signs in the US that confidence in the construction and housing markets has begun to recover and the forecast for the second half of 2012 is more positive. … While zircon prices have stabilised, the other impact was on the production of ceramic tiles in China. That sector is starting to make a slow recovery, with evidence of destocking and ceramic tile manufacturers bringing plants back into production… The other impact of high zircon prices is price induced thrifting in ceramic tiles. There is evidence tile manufacturers are actively seeking ways to save on raw materials in the production process, particularly zircon which is in many circles seen as expensive for use in the bodies of porcelain tiles. Nonetheless, the extent of the reduction of use of zircon in ceramics is still the subject of much conjecture and it may be some months before tangible evidence emerges of the true extent of thrifting or substitution. … The ceramic tile industry in China is expected to turn the corner once the Government renews its push in the Social Housing Program and eases access to credit, providing an uplift of confidence in the construction and housing sector, therefore boosting tile output. … While the zircon sector may have had a hiatus in the last quarter of 2011 and into the start of 2012 from its previous red hot status, there are green shoots emerging in 2012. It is too early to tell if the recent positive signs will lead to improved demand and market conditions for the sector in the short term. However, an improved outlook for the global construction industry does provide some confidence particularly for the second half of this year. 261 The TZMI report also said: It is widely expected that the new incoming government in China will jump start the social housing program, giving the economy an added stimulus and increasing the demand and consumption of raw materials, particularly iron ore, but also TiO2 pigment and zircon for use in the ceramics industry. … Longer term growth in China is looking brighter than previously forecast. The [International Monetary Fund] said that leading indicators for Asia have strengthened, growth is gaining momentum, and domestic demand in many Asian countries has remained strong. 262 In respect of TiO2, the TZMI report said: Despite the market fluctuations witnessed towards the end of 2011, sentiment among major feedstock producers suggests that the underlying fundamentals of the industry remain unchanged, a view confirmed by the ongoing market tightness for high-grade feedstock witnessed this year so far. … Despite total import volumes in the first quarter this year being considerably lower than those identified in early 2011, China's TiO2 pigment imports for February 2012 showed growth for the third consecutive month. Most recent figures indicated that China's economy is expected to grow by more than 8% in 2012 which suggests that these import volumes will continue trending upward. … Demand for TiO2 pigment in Europe is expected to remain muted in 2012 as economic uncertainty continues. … Although macro-economic indicators suggest that there may still be some turbulence in the TiO2 sector, market fundamentals continue to point towards strong underlying demand for titanium feedstocks in the short to medium term. A number of new projects and expansion plans at existing producers, are providing ongoing signs of the improving health of the industry. 263 Mr Bonham submitted that, in contrast to the TZMI report, Iluka's guidance from 23 February 2012 assumed that the second half of the year would see demand equal to the "heady levels seen in the first three quarters of 2011". The fact that by April 2012 TZMI did not expect zircon sales in H2 2012 to match sales in Q1-Q3 2011 does not mean that Iluka's 23 February 2012 sales guidance had become unreasonable. TZMI acknowledged that it was "widely anticipated that zircon demand will improve in the second half of 2012", even if not to the 2011 levels. The difference between Iluka and TZMI, by April 2012, is one of degree and timing only. TZMI did not expect sales to reach 2011 levels in the second half of 2012. Iluka continued to believe its sales guidance was achievable, but recognised that it had to undertake a reforecasting process to determine if its guidance needed revision. 264 In this regard, Iluka had started its work for the proposed F4+8 forecast. A memorandum copied to the leadership team of 26 April 2012 said: As a result of ongoing global uncertainties, the formal forecasting process for Q1 was deferred one month until more information was available regarding customer's expected appetites, particularly for zircon. 265 The memorandum set out the key steps and timeline for the forecasting process with a proposed submission to the board on 16 May 2012. 266 The essential complaint for Mr Bonham seems to be that Iluka was not acting fast enough and ought to have revised its 23 February 2012 guidance down by 12 April 2012. As explained, however, there is no evidence that any employee of Iluka in fact considered that the 23 February 2012 guidance (even focusing solely on the sales numbers and not the surrounding qualifications) was unreasonable as at 12 April 2012. Nor, in the circumstances, were they bound to reach such a view by that time. They appreciated that Iluka had to review its forecasts and decided to obtain an extra month's information before doing so for good reasons. 267 Mr Bonham submitted that by late April 2012 "the internal forecasting correspondence begins to reflect a reluctant recognition among senior management that the February guidance had become indefensible". I do not accept this characterisation of events. There is no proper foundation for an inference that Iluka's senior management were "reluctant" about anything. Expressions of disappointment about events does not signify a reluctance to accept reality. Further, Mr Bonham's version of reality involves focusing only on negative information to the exclusion of all of the other information available to Iluka. 268 Accordingly, Mr Bonham noted that on 27 April 2012 Mr Hudson sent an email to the sales and marketing team about Kronos saying: Small (but bad) feedback from Juergen today, while March sales were good, they are echoing what everyone else is saying is that the pigment market now is terrible. Not as bad as 2009, but absolutely not what they were expecting/hoping and getting worse by the day. Spring paint season has sputtered to a halt, after a brief ray of light. 269 The email is reflecting one piece of feedback from a customer which is itself mixed - how can March sales be good but the market be terrible at the same time? Further, in the same email chain there was information about Iluka finally cracking the domestic market for TiO2 in Vietnam. It is also relevant that: (a) Kronos had provided inconsistent information to Iluka previously (see above), (b) Kronos was a customer wanting to have prices reduced, (c) Mr Cobb understood the paint season had started in America by this time and considered that this information from Kronos related to Europe only, and (d) Mr Robb recalled (correctly) that Kronos were requesting additional tonnes around early April 2012 so the information was a "mixed bag" as was normally the case for a global market. 270 On 27 April 2012 Ms Diamond sent the "latest revenue forecast" to Mr Cobb. Mr Bonham said that: On 27 April 2012, Mr Cobb received a "zircon profile" predicting Iluka's Q2 sales would be 80kt (cf. budget of 90kt) and total zircon sales for 2012 would be 380kt (cf. budget of 470kt).But the extent of adherence to the February forecast is evident in the phasing reflected in that 'profile'. It still predicted a remarkable upturn for Q3 and Q4, with 71% of the yearly forecast sales volumes being in 2H12, and 37% just in Q4. It is difficult to see how that assumed upturn could be justified. Nothing about Chinese housing policy, or European economic conditions, or the factors conducing to thrifting and substitution suggested any revival in Iluka's zircon fortunes. In terms redolent of hope over reasoned calculation, even Mr Cobb noted that the profile forecast "matches our low case scenario … and maintains the second quarter volume of 80kt - hope we can reach this number?" (our emphasis). (Footnotes omitted). 271 The forecast provided by Ms Diamond was for Mr Cobb to review. It was based on information provided by the sales and marketing managers for each region. In Mr Cobb's experience the information provided by the sales and marketing managers for each quarterly review were slightly overly pessimistic. Mr Cobb considered that this resulted from their interactions with customers who generally presented a negative view of the market to improve their negotiating position on price. It was part of Mr Cobb's role to "review and consider Iluka sales reforecasts to seek to ensure that the reforecasts both appropriately reflected Iluka's discussions with its customers as to their expected demand, and were not impacted by unrealistically negative customer outlooks (whether genuinely held or tactical)". Further, the variance from the B2 2012 budget does not represent the variance from the 23 February 2012 guidance for zircon which was 450kt (compared to the B2 budget of 470kt). 272 Mr Cobb responded to Ms Diamond on 28 April 2012. His email asked Ms Diamond to review the overall average pricing for zircon which looked wrong. The email also said: The volume matches our low case scenario which I think is already anticipated by David and maintains the second quarter volume of 80kt - hope we can reach this number? Over revenue at $2.08m still a great result in my book if we get there. 273 It was not put to Mr Cobb that this email involved "hope over reasoned calculation". Mr Cobb gave oral evidence that he always did a "reality check" of sales volumes in forecasting. He said that he discussed the forecasting with Mr Robb over the following days. Based on these discussions he then sent an email to Ms Diamond saying that he wanted to re-run the estimate adding in a 25kt planning customer for zircon. He and Ms Diamond agreed to run two scenarios, one with an extra 25kt of zircon being sold to a planning customer (giving a total of 406kt of zircon sales instead of 380kt). 274 Further, it is simply wrong to propose that "nothing" at this time suggested an increased demand in zircon in the second half of 2012. The evidence is that: (a) such an expectation was held generally in the industry including by TZMI (who had recently said that this was "widely anticipated") , (b) there were signs in the market that supported that view at the time, (c) there was a new government coming in China which TZMI said was "widely expected … to jump start the social housing program", and (d) like Iluka TZMI saw that there was an "improved outlook for the global construction industry" which "does provide some confidence particularly for the second half of this year". 275 Mr Bonham submitted that a "similar reluctance to undertake a root-and-branch review of the failing B2 projections is apparent in the 'Market Overview' presentation on 30 April 2012". Again, the submission about "reluctance" by Iluka is inaccurate. This overview recorded that US growth would slow in early 2012 then grow slightly in 2012 H2, there was a threat of severe recession in Europe, the growth in China/south-east Asia would reduce, China was predicted to ease macro policies after a tight starting point in 2012, inflation was now dropping rapidly so there was room for movement on the economy in the next few months, and a change of leadership mid-year (in China) is likely to trigger an economic stimulus. The overview also noted that "April Zircon sales exceeded total Q1 volume". The zircon sales outlook was described this way: 2012 F8+4 Sales Volume of 380kt vs Bud 471kt • Assume a slower recovery than Budget • China volumes improving - Q3/Q4 compared to [Budget] • Q2 -60% down in Europe compared to budget. 20% down in H2 276 The overview also noted with respect to China and south-east Asia: • Q2 sales of ~ 21 kt at this stage is well up on Q1 (5 kt) • Indonesian imports of ~ 11 kt of zircon sand equivalent each of the last 2 months • Customers running down their sand inventory • Negotiate hard then want urgent supply 277 As repeatedly noted, for zircon, the (internal) B2 budget projection was 20kt higher than the 23 February 2012 announcement. It is also relevant that, in addition to the objective contemporaneous factors discussed above that supported the view that sales of zircon in China would rebound in 2012 H2, this overview recorded that: (a) zircon sales increased in April 2012, (b) customers were running down sand inventory, and (b) customers were negotiating hard, then wanted urgent supply. These are all positive indicators for a rebound in demand for zircon in the second half of 2012. 278 In these circumstances it cannot be said that the evidence supports an inference that Iluka was reluctant to review its 23 February 2012 guidance. It was reviewing its 23 February 2012 guidance. It was faced by mixed signals but there was ample information to support the view that demand would be heavily weighted to the second half of 2012.

4.15 May 2012 279 The April day zero report (produced on 1 May 2012) showed total (Z/R/SR) expected sales volumes of 127kt compared to the B2 budget of 170kt. Mr Bonham stressed that this was 25.3% below the B2 budget. As Mr Cobb noted, however, this report also showed that the April zircon sales were only 1kt below budget. This was consistent with the expectation of increased demand from China. 280 On the same day, 1 May 2012, Mr Barry Murphy circulated a review for a group planning committee meeting. The review included: (a) the statement that Chinese government policy measures remain a key determinant of the Chinese construction sector, (b) a graph showing a projected global zircon consumption identified as bottoming out in 2012 at 1,050kt and rising to 1,250kt in 2013, (c) a range of substitution and thrifting models yielding a 2012 range of 1,000kt to 1,200kt for global zircon demand, with the mid-mild option yielding a global demand of 1,050kt for 2012, and (d) similar exercises for TiO2 indicating planned expansions for chloride pigment demand only (that is, no increase in demand beyond known expansions). 281 Mr Bonham submitted that there could be "little doubt that this [that is, the mid-mild option] represented the most recent and considered analysis that the [product and technical development team], with input from the [sales and marketing team], had been able to develop", projecting global demand for zircon in 2012 of 1,050kt. According to Mr Bonham: This is critical. Iluka called no witness to explain, undermine or in any direct way challenge the bases for that forecast as to global demand. The model is clearly the product of extensive and careful work. It was circulated to the most senior management team short of Board level, namely the Leadership Team, and not for laughs - it was for the sober purpose of the Corporate Planning exercise. But at a global demand forecast of 1050kt, it meant that Iluka's February guidance of 450kt zircon sales assumed almost 43% market share over the full year. 282 Mr Bonham's thesis is that, by inference from this document, it is apparent that Iluka was aware that global demand would be 1,050kt in 2012, with the consequence that it was unreasonable to consider that Iluka would hold 43% of the market as necessary to achieve its sales guidance from 23 February 2012 of sales of 450kt of zircon. According to Mr Bonham, subsequent documents indicate that Iluka never changed its internal view of global zircon demand in 2012 from 1,050kt. 283 None of these submissions can be accepted. 284 This review was for the purpose of a meeting to be held on 4 May 2012. The information in the review had not been considered by the leadership team. That was the purpose of the meeting scheduled for 4 May 2012. The review was identified as a "Draft for management discussion purposes only. Preliminary assessment subject to change". The total demand projected to be lost to substitution and thrifting by 2012 (150kt) comprised 50kt lost in 2011 (which would be embedded already in Iluka's record results for that year) and another 100kt in 2012. The review recorded that "[a]n expanded investigation of modernisation, substitution and thrifting is on the way". This is a reference to the work which was continuing to be undertaken within Iluka to quantify the impacts of substitution and thrifting. Mr Cobb's evidence was also clear and consistent. His estimate of global demand for zircon in 2012 was 1,200kt to 1,250kt. He emphatically rejected the proposition that Iluka or he had adopted an internal estimate of 1,050kt. Subsequent documents, referring to a global demand for zircon in 2012, of 1,200kt support Mr Cobb's evidence. 285 Mr Robb recalled that he had a conversation with Mr Murphy of TZMI on or around 2 May 2012 in which Mr Murphy expressed the view that he was a "bit nervous about zircon" and finding "China a bit hard to read", but also thought people were "underestimating the strength of the TiO2 market". 286 Also on 2 May 2012 Ms Diamond circulated a proposed F4+8 forecast with zircon sales of 402kt, rutile sales of 220kt, and synthetic rutile sales of 311kt. 287 It is apparent that, contrary to Mr Bonham's theory of Iluka being reluctant to act, the leadership team, or relevant members of it, took the view that the up-to-date information had to be reported to the board. It is also apparent that once they were apprised of the current information, senior management acted with some urgency. By 5 May 2012 (a Saturday) Mr Robb had prepared a report to the board which included draft ASX announcements (which became the 8 May 2012 updates). Mr Robb's covering email to the directors said: An F4+8 re-forecast has been prepared following meetings in Perth with all key managers involved over the course of the past week. We now believe the 2012 budgeted zircon sales figure is not likely to be achieved and it is appropriate to lower our zircon production to avoid an excessive stock build up and update our market guidance accordingly. Lower volume results in higher unit costs and these are adjusted also. Capex has also increased. Zircon prices and TiO2 volumes and prices remain in line with expectations and no change to guidance is required. It is proposed to hold a teleconference with Directors at 2pm WST on Monday to discuss the attached. 288 The board met on 7 May 2012 and approved the two 8 May 2012 updates with some minor amendments. After the meeting Mr Robb noted to the board in another email that the "solid" description of the TiO2 market had been deleted as Mr Robb preferred to "avoid that re-statement until we engage with major customers about 2H volumes and prices - because, while not likely given evidence to date, it is conceivable some may contemplate battening down the hatches if economic data deteriorates just in case the world implodes. I prefer the more neutral 'in line with expectations' language". This discloses Mr Robb's view that any deterioration in the TiO2 market was unlikely. 289 It will be recalled that the first 8 May 2012 update said "Iluka now forecasts its zircon sales for the full year to be ~400 thousand tonnes", with no change to the forecasts for TiO2, with a one third and two third weighting between H1 and H2. The qualifications in the second 8 May 2012 update included all of the disclaimers and that the information was provided to "to assist sophisticated investors with the modelling of the company, but should not be relied upon as a predictor of future performance". Given their terms, the 8 May 2012 updates could only be understood in the context of the 23 February 2012 announcement and the context set out in that document. 290 Accordingly: (a) far from being reluctant to change its sales guidance, Iluka acted almost immediately on the up-to-date information prepared in early May 2012, and (b) Iluka acted before finalising its F4+8 forecasting process. This is inconsistent with Mr Bonham's thesis of a company reluctant to act and unreasonably slow to respond to information. By the 8 May 2012 updates Iluka reduced its sales guidance for zircon sales in 2012 from 450kt to 400kt. Over the period of about 9 months between September 2011 and early May 2012 Iluka had reduced its estimated zircon sales from 570kt to 400kt, a reduction of around 30%. I find this irreconcilable with the case for Mr Bonham. 291 Mr Bonham would have it that Iluka's position in the 8 May 2012 updates was unreasonable as to both zircon and TiO2. 292 Mr Cobb explained that he considered the 8 May 2012 guidance reasonable based on the available information at the time as: (1) the revised sales figure for zircon of 400kt was approximately 68kt lower than the figure included in the 2012 B2 budget (470kt). The downward revision captured Iluka's negative budget variance to date of approximately 20kt (being the 19kt recorded in the March 2012 performance report and the 1kt expected variance recorded in the April 2012 day zero report), whilst providing an additional "buffer" of approximately 50kt to reflect the slower than expected recovery in the global zircon market; (2) the allocations made to Iluka's customers in the F4+8 reforecast were made based on the regional sales and marketing managers' discussions with those customers; (3) he maintained the view that a recovery in the zircon market would be seen in H2 2012, which was supported by external commentary he considered at the time, including the TZMI report for April 2012 which Iluka received on 26 April 2012; (4) he viewed the introduction of export taxes on Kalimantan concentrates from April 2012 as being likely to restrict exports from this source to China; and (5) as set out in the March 2012 sales and marketing report: (a) year to date sales of rutile and synthetic rutile were in-line with budget, other than a non-permanent negative variation in Iluka's natural rutile sales that was caused by shipment delays; and (b) he was of the view that the northern hemisphere paint season had begun and demand for pigment (and, by extension, TiO2 feedstocks) would improve quickly commencing Q2 2012. 293 Mr Bonham's essential complaint in respect of zircon sales is that the guidance of 8 May 2012 was based on zircon sales in 2012 H2 returning to the "heady levels" seen in the first three quarters of 2011. Mr Bonham said that: … there was nothing in the information available to Iluka, as recorded in the evidence, either before 12 April or in the period from then until 8 May, that could fairly be said to have provided reasonable support for an expectation that the bleak market conditions of the first five months of 2012 were going to reverse, and blossom into such a splendid turnaround as to enable Iluka to achieve, in the shrinking time left, even this reduced full-year guidance. 294 This rhetoric is over-blown. As Iluka submitted, the (internal) forecast zircon sale volume for 2012 Q3 was 134kt, which was lower than 2011 Q2 (141.7kt) and 2011 Q3 (154.7kt). The 2012 Q4 forecast sales volume for zircon was 157kt, but included 5kt of sales not included in the quarterly sales figures (giving a sales volume of 152kt, just below that in 2011 Q3). Given the available information (see above), this was not unreasonable. The information pointed to significantly increased zircon demand from China in the second half of 2012. 295 Further, the position for the TiO2 market was never as bleak as Mr Bonham would have it. 296 Mr Bonham sought to reinforce the alleged unreasonableness of the sales guidance in the 8 May 2012 updates, saying: Moreover, and indeed over the same weekend that the Board was considering management's recommendation as to a revised zircon forecast, the senior [sales and marketing team] personnel were so despondent about the zircon situation that they were discussing the one thing that Iluka had emphasised it did not wish to do, namely a discounting of zircon prices. Even then, Stephen (not Simon) Hay expressed doubt that discounting would be enough actually to solve the thrifting and substitution problem. (Footnotes omitted). 297 In fact, the email chain from this time shows that there were a range of views about prices and their effects on demand in Iluka. 298 Mr Hind (a marketing manager reporting to Mr Cobb, and not a member of the leadership team) referred to the possibility of lowering the zircon price to "head off the threat of further substitution and derail some of the potential new entrants". Mr Stephen Hay (another manager reporting to Mr Cobb, and not a member of the leadership team) said this may make no difference to demand, but suggested ways to do so as a trial without affecting the overall price. Otherwise it was noted in the exchange that: (a) Q3 was eight weeks away so there was time to discuss the issue further, (b) Europe was "starting to come alive" but was still well below average, and (c) some substitution (10-20%) was due to lack of zircon availability, not price. The email exchange discloses no particular "despondency" about zircon. It discloses a debate between personnel who reported to Mr Cobb about the price-demand interaction, but there is no suggestion in the exchange that the 8 May 2012 updates were unreasonable. 299 It also relevant to note that Mr Robb also did not consider that lowering prices would significantly increase demand for zircon. Mr Robb said that if a market leader like Iluka lowered zircon prices then it was very likely other zircon suppliers would follow suit, with no net effect on the distribution of demand in the market and the prospect of customers in fact deferring purchases in the hope of further price reductions. In other words, Mr Robb viewed a short-term reduction in volume to be preferable to a longer-term undermining of the price structure of the market. 300 Mr Bonham's proposition that Iluka's position was also unreasonable with respect to TiO2 is irreconcilable with the evidence that: (a) TZMI considered the market fundamentals continued to point towards strong underlying demand for titanium feedstocks in the short to medium term, (b) the overall view was the TiO2 market was buoyant, (c) Mr Cobb's view was that the paint season has just commenced and demand for pigment was likely to improve quickly over the second quarter, (d) the work on the F4+8 forecast indicated guidance consistent with the 23 February 2012 announcement for TiO2, and (d) the work on negotiating volumes and prices with Iluka's pigment customers had not yet commenced and no customer had revised its feedstock supply requirements as notified in late 2011. 301 Mr Bonham submitted that: The analysts' reactions to the 8 May 2012 announcement were relatively muted - understandably, given the opacity of Iluka's disclosure. The analysts had already been applying downside risk to Iluka's guidance, at around 9%, and that discount continued but now against a lower base figure. The commentary did not suggest that analysts - a proxy for the market overall - were aware of issues in zircon such as thrifting and substitution or risks of competition and loss of market share, nor in the feedstocks market the extent to which the price competition facing the Iluka's pigment customers, and the abortive paint season, were impacting both sales to date and the prospects of better sales over the balance of the year. (Footnotes omitted). 302 Iluka's disclosure was not opaque. Analysts could not have been unaware of thrifting and substitution as relevant issues, given the information Iluka itself had published. The paint season was not "abortive". It also seems unlikely that analysts, like Iluka, overlooked the issues which, as Mr Bonham would have it, made Iluka's position at 8 May 2012 about the zircon and TiO2 markets unreasonable. To the contrary, the generally consistent position of analysts would suggest that Iluka's position was not unreasonable in the circumstances.

4.16 Overview up to and including 8 May 2012 303 It is apparent that Iluka, through Mr Robb and Mr Cobb in particular, considered that the sales guidance provided in the two 8 May 2012 updates was reasonable and, indeed, appropriate. The submissions for Mr Bonham appear to reflect hindsight rather than the objective contemporaneous circumstances. It could not be concluded that the guidance provided in the 8 May 2012 updates was without reasonable grounds. Reasonable minds could differ with respect to the extent of the increase in zircon demand in the second half of 2012, but there were rational reasons for Mr Robb and Mr Cobb to consider that the 400kt guidance was reasonable. Iluka's posited demand levels for zircon were based on a somewhat more optimistic view than TZMI's views, but this does not indicate that Iluka's views were unreasonable. 304 Iluka's views were based on close consideration of both negative and positive factors about the zircon market including that: (a) thrifting and substitution were occurring in respect of zircon, leading to a reduction in global demand, (b) sales to China had increased after the very slow start to 2012, (c) lack of demand in China for zircon was primarily due to Chinese economic policy (slowing the construction demand) and reserves held by customers, and (d) there were good reasons to expect that Chinese economic policy would change in the second half of 2012 and that zircon reserves were being consumed. 305 The same conclusions must be drawn in respect of Iluka's views about the TiO2 market but, additionally, those views were shared by TZMI. The overall conclusion that the TiO2 market was buoyant was reinforced by a number of considerations including that: (a) sales had been in accordance with the budget, other than for a temporary shipment delay, (b) March and April TiO2 sales had been good, (c) Mr Cobb considered on this basis that the northern hemisphere paint season had started, (d) Mr Cobb expected sales to increase quickly in Q2 2012 and thereafter, (e) while future growth of the sulphate pigment market was anticipated, all information also pointed to maintenance and slight growth in the chloride pigment market, and (f) thrifting and substitution were not straightforward, either technically or as to longer-term cost, given considerations of quality, consistency, output, and waste production. 306 It is also relevant that there was no indication of a collapse in price in either the zircon or TiO2 markets. Iluka's leadership team had not considered price reductions in any formal or systematic manner. It may be inferred that this was because prices had been not only maintained successfully, but also, in some cases, increased. Iluka's strategy of maintaining prices over volume had enabled it to increase prices, for its high grade products in particular, to record levels. There was no indication that its strategy was wrong or that a short-term reduction in sales volumes could not be sustained, given Iluka's consistent messaging that it could "flex" production (that is, reduce production) to be consistent with demand. Iluka had in fact reduced production given the decreased demand in late 2011 and the beginning of 2012. 307 There is also no evidence of any person within Iluka or otherwise expressing any view that the 8 May 2012 updates lacked reasonableness. None of the lay witnesses called by Iluka accepted any suggestion to that effect in cross-examination. Mr Bonham's propositions to that effect are said to be based on contemporaneous circumstances but, in my view, his characterisation of those circumstances is affected by hindsight and a determination to focus only on information suiting Mr Bonham's case. The reasonableness or otherwise of guidance of the kind provided by Iluka is to be evaluated in the context of the circumstances as they existed at the time and without hindsight.

4.17 The rest of May 2012 308 Between 10 and 14 May 2012 an exchange of emails shows that Iluka's views were orthodox. A report about a TZMI presentation in London included that: Titanium feedstock • TZMI remains fairly optimistic about titanium feedstock prices, in particular the higher-grade products such as rutile and [synthetic] rutile • The painting season is Q2 and Q3 and the pigment guys are geared for offtake to increase. So should see good demand in the months ahead. At present inventory of feedstock is about 60 days compared with 55 normally; if falls below 50 days prices could be even stronger. • Markets which are also still strong include South America, Middle East where demand is growing; • TZMI thinks there could be ~20% hike in H2 higher-grade TiO2 prices as inventories still fairly low. • China feedstock market could get a boost from plans to kick start social housing - this takes pain[t]. … • TZMI see Iluka as really well-placed in high-grade rutile because it has the capacity to produce [synthetic] rutile • TZMI believes TiO2 is still a suppliers market with rutile, for example, likely to see prices of +$3000/t Zircon • Zircon market remains weak because of China where tiling etc is being deferred because of slowdown in building and sales of residential buildings. Some sign that inventory has moved. • TZMI expects Iluka and the other majors to remain disciplined on zircon and even thinks Iluka could reduce sales a bit more than guided so far - perhaps another 50kt down. • TZMI believes that Iluka could have ~100kt of zircon inventory in China to ensure it is ready for increasing demand when it comes • The sign that the Zr market is improving is when customers start taking bulk shipments; not obvious yet • Note that zircon is more vulnerable in near-term than ilmenite because it is primarily consumed in tiles and accounts for 5%-25% of cost of tile. In case of ilmenite TiO2 is only about 5% of retail price of a tin of paint. 309 Mr Cobb responded to Mr Robb that Iluka needed to "be careful we don't fall into a trap of believing everything 'Dr Phil' [Mr Murphy of TZMI] prophesises" as he had heard pigment stocks were very high and customers were trying to get Iluka to take back H1 high grade ore so either Mr Cobb was "being bamboozled by … customers or Phil is wrong, and [he] will challenge Kronos and DuPont next week on the subject". Mr Cobb said he was "concerned that as the highest priced supplier of bulk HGO to pigment we will be the first to be chopped back on tonnage if they throttle back the plants - loosing [sic] large tonnage in H2 to push prices a few hundred dollars doesn't make sense we need our competitors pricing to catch up in H2". 310 In other words, Mr Cobb did not accept TZMI's view that titanium feedstock prices would increase by 20%. Mr Cobb did not want Iluka to increase prices of its titanium feedstock due to a view that if pigment producers reduced production, as the highest priced feedstock, Iluka's products would be the first to be reduced. This does not support Mr Bonham's case as: (a) the issue being considered is an increase in prices, (b) Mr Cobb's concern is conditional on pigment producers reducing production, (c) again, Mr Cobb did not take customers' statements at face value and was going to talk further to Kronos and DuPont, and (d) again, Iluka was not taking TZMI's more bullish views about titanium feedstock at face value. 311 Mr Porter was also cautious about the TZMI view about price increases for titanium feedstock saying that he doubted this related to high grade weighted ore prices and this was a "longer term game". 312 Mr Robb's response was: Got to "know when to hold 'em, know when to fold 'em, know when to walk away and know when to run". We are currently "holding 'em". Time will tell if that's enough. 313 This response (referencing the song The Gambler) indicated only that Iluka would be holding its TiO2 prices and not increasing them as TZMI indicated would be possible. It does not suggest that Iluka considered its guidance about H2 sales of titanium feedstock to be a gamble. As Mr Robb said, the statement that "[t]ime will tell if that's enough" did not mean that he saw holding prices as a gamble against losing volume. The context was a posited increase in TiO2 prices which Iluka rejected. Iluka's position also confirms that, despite TZMI's views, Iluka did not consider there to be an opportunity to increase prices for its high grade ores at that time. TZMI's views (and Iluka's response) were inconsistent with the notion of a collapsing market for TiO2 products. 314 TZMI's views are also inconsistent with Mr Bonham's case that at all relevant times from 12 April 2012 a reasonably-based forecast of Iluka's expected sales for 2012 was no more than 188kt of rutile and 255kt of synthetic rutile. If TZMI had thought this at any time, it would have said so (compare TZMI's position on zircon from April 2012, discussed above and below). Rather, TZMI believed that Iluka would be able to materially increase prices for its TiO2 products. Mr Bonham's case on TiO2 thus involves characterising TZMI's state of mind as even more unreasonable than that of Iluka at this time. Mr Bonham's case fails to confront the problem that if his case on TiO2 is correct, then the leading market consultant in the industry held an even more optimistic view about the TiO2 market at the time than Iluka did. 315 As to zircon, TZMI's view that it considered Iluka's sales guidance of 400kt could be reduced a "bit more", by 50kt, was public information. TZMI was not suggesting that Iluka's guidance of 400kt was unreasonable. It simply held its own view that 350kt was more reliable. It is difficult to characterise a 50kt variance in views as indicating one view (TZMI's) was reasonable and another view (Iluka's) was unreasonable. Iluka's guidance was 12.5% above what TZMI may be inferred to have considered to be reasonable for zircon at this time. This is inconsistent with Mr Bonham's case that a reasonably-based forecast of Iluka's expected sales for zircon in 2012 had to be in the range of 231kt to 336kt. This range (based on Mr Murray's evidence - discussed below) involves a variance of 105kt or 31% to 45% of the total. Again, Mr Bonham's case fails to confront the problem that if his case on zircon is correct, then the leading market consultant in the industry also held a view at the time that lacked reasonable grounds. Mr Bonham's argument in respect of the views of analysts, that unlike Iluka they did not know about substitution and thrifting or its extent, cannot apply to TZMI given how well informed TZMI were about the industry. As discussed further below, even in respect of the views of analysts, this argument is dubious given that: (a) their reports refer to substitution and thrifting, and (b) the notion that J Capital (Mr Murray discussed below) alone were aware of the extent of substitution and thrifting at the time is inherently implausible. 316 A TZMI report about the TiO2 industry issued on 10 May 2012, reflecting public announcements to that time by pigment producers, included information that: (a) Kronos reports higher sales in Q1 - Kronos commented that it is not seeing any appreciable demand reduction from an increased use of extenders. Kronos plans to keeping running its plants at maximum rates during 2012 to satisfy the expected demand, (b) Huntsman reports higher sales, launches new product - improvement in demand is forecast, mainly in North America and some parts of Asia, but Huntsman remains cautious with its outlook for Europe, (c) DuPont reports strong demand in North America - DuPont commented that volumes were up 10% quarter-on-quarter, showing improvement in all regions in line with seasonal patterns and general economic stabilisation and DuPont indicated it has shifted to lower grade, lower priced feedstocks to reduce the impact of the feedstock price increases, and (d) Tronox announced record Q1 results - Tronox believe that any slack in orders since the fourth quarter of 2011 is largely attributable to temporary factors, namely destocking in China, the efforts of the Chinese government to tame inflation and uncertainty primarily in southern Europe. Tronox continue to expect this period to evolve into more sustained growth as these conditions are resolved. 317 None of this information is reconcilable with Mr Bonham's case about Iluka's TiO2 products. 318 An email exchange between Mr Porter, Mr Tate and Mr Robb on 12 May 2012 about Rio Tinto included Mr Cobb's observation that being the highest priced supplier "wasn't going to bring the greatest security", Mr Cobb also saying Iluka had always recognised this to be so. The evidence is unclear whether this related to zircon or TiO2. In any event, Mr Bonham's point was that "Iluka stood to lose sales and market share to its competitors by reason of its high prices and the absence of binding sales contracts". Again, this is an inaccurate over-simplification. Iluka had gained from shorter-term contracts due to its capacity to increase prices. It had premium grade products which most other suppliers did not. 319 Mr Cobb circulated his April 2012 sales and marketing report on 14 May 2012. This report said: Zircon • Customers deliveries improving, but remains lower volumes than 2011 • Increasing supply to China from Kalimantan and other Regions • Opacifier prices increasing slightly in Europe - still at breakeven or loss • Potential impact of Indonesian export ban on concentrates from May 2012 • Opacifier and ZOC [zirconium oxy chloride] demand remains subdued globally. • All warehouses carrying high stocks, with new facility in Malaysia to open in May TiO2 • Pigment customers report soft start to Q2 • High feedstock and pigment stocks in US and Europe • All chloride customers looking to defer Q2 tonnage • Chinese internal pigment prices have fallen on back of lower domestic demand • Chinese sulphate pigment exports at low prices disrupting western markets • Large scale Vietnamese ilmenite exports ahead of ban 320 The report said further: Zircon The start of Q2, 2012 has triggered the first substantial zircon volumes sold in 2012. However, the level of activity from January to April 2012 is still far lower than 2011 (yoy down 70%). Customers remain cautious and are maintaining lower levels of stock, replenishing just in time, and in smaller quantities than in the past… In China, customers are still affected by the downturn in construction; however their availability of finance purchases appears to now have improved from Q1. There has been easing of monetary policy following the release of lower GDP growth figures in the first quarter (the worst in 11 quarters). The tight government controls over the housing market remains and is expected to continue for 2012 as they endeavour to drive down prices. … Titanium Dioxide Products It has become increasingly apparent that the Chloride pigment industry is now suffering lower demand than anticipated entering Q2. Q1 demand was better than normal for this winter period in the Northern Hemisphere and there is still time for the paint season to take off in May and June. The major concern is the price differential between Chloride and Sulphate pigment and a corresponding increase in exports of cheap sulphate pigment from China to the west as the major paint manufacturers use it as leave to try to force down chloride pigment price. By contrast demand for Chloride pigment in China is now reported to be minimal. All Iluka pigment customers have responded by throttling back production rates where possible. If the painting season does not improve in May and June then purchasing of the higher cost chloride feedstock will be minimised to reduce raw material costs. In the case of DuPont they are maximising the use of chloride ilmenite feedstock, including our residual LTC supply, to lower feedstock cost and ratchet down pigment yield while maintaining full production capacity through the plants. 321 This report also recorded that Iluka was offering rebates to some zircon customers in the interests of maintaining the price and avoiding a price and profitability collapse. 322 Around the same time Mr Robb (for his report to the board) was provided by Ms Diamond with the same information as in Mr Cobb's report of 14 May 2012. It is not "bizarre" that the information provided to Mr Robb did not mention substitution and thrifting. The information related only to sales and marketing in April 2012. Accordingly, Mr Bonham's reference to a "conspicuous lack of information included ... on substitution and thrifting" in Mr Robb's report to the board of 14 May 2012 is misplaced. The report was dealing with the market and demand in April 2012 only, as derived from Mr Cobb's report. There was no new information on substitution and thrifting to report. 323 Mr Bonham submitted that, given this information, the best that Iluka could hope for at this time was that TiO2 sales in H2 2012 might match sales in H1 2012. I disagree. While the paint industry was "now" suffering lower demand, Q1 demand for the northern hemisphere was better than usual, and there was "still time for the paint season to take off in May and June". The fact that all "chloride customers [were] looking to defer Q2 tonnage" should not be misunderstood. The customers were not cancelling their proposed orders for 2012 H2. I infer that they were seeking to defer delivery so they would not have to pay for stock they could not immediately use. Lower demand in H2 2012 was contingent on the paint season "not taking off" in May and June 2012. Importantly, Iluka had not yet negotiated its agreements for supply of customers for H2 2012. It would not know the position until it had done so. Given that those negotiations were imminent (or just starting) in mid-May 2012 it would have been odd, to say the least, for Iluka to issue further sales guidance in mid-May 2012. It must also be recalled that Iluka had the recent information from TZMI about the strong position of the pigment market, as well as TZMI's view that Iluka was in a position to increase prices. Mr Bonham's case, that this could all relate to the sulphate pigment market and does not take account of the capacity for cheaper chloride slag to be used in feedstocks, cannot be reconciled with the views of TZMI which, it must be inferred, did not consider Iluka's TiO2 guidance to warrant any comment (in contrast to is zircon guidance). It also cannot be reconciled with the public announcements of the pigment producers which are summarised in the TZMI report of 10 May 2012. 324 An email from Mr Robb of 14 May 2012 does not establish that Mr Robb considered that zircon demand would drop to 1,000kt in 2012. The email refers to Mr Tate's work on inventory histories. The email said that if Mr Tate's "supply/demand work is right, with these inventories" Iluka needed to contemplate a "big lift in resources devoted to creating/capturing new zircon demand" and/or a "short sharp shock to clear inventory (and deter investment in more zircon production)" such as a production shutdown. The email continued, saying: Note, however, that a forecast of -400kt in Z demand in 2012 (from ~1.4mt to ~1mt) must mean: 1. China's zircon demand more than halving. If the issue is mainly in ceramics, i.e. half of China demand, then that would imply China ceramics-related demand will be zero in 2012. This seems unlikely. 2. Europe, 25% of global demand, going to zero for all of 2012. Again unlikely. 3. However, a combination of the above, plus extreme de-stocking through the chain, is possible. My conclusion is that we can't know what's really going on without being able to separate out the effects of: 1. regional economic impacts 2. de-stocking 3. thrifting 4. substitution 325 In other words: (a) Mr Tate had done work to identify the zircon inventory of customers (that is, presumably how much zircon they had available), (b) if his inventory work was right, then estimated global demand for zircon in 2012 would go down from 1,400kt to 1,000kt, but (c) Mr Robb considered that possible but unlikely because it pre-supposed that China ceramics-related demand would be zero in 2012 and that Europe, 25% of global demand, would also fall to zero for all of 2012. 326 Contrary to the submissions for Mr Bonham, this email in fact reinforces that Iluka's position that demand would increase in H2 of 2012 was both genuinely held and reasonable in the circumstances. As such, and again contrary to Mr Bonham's submissions, the email did not acknowledge that "a combination of demand issues in China and Europe, plus 'extreme destocking', would explain this drop off in demand". That is a fundamental misreading of the email. As Mr Robb said, he was responding to a hypothesis he found unlikely to be correct. He clearly rejected the proposition that the demand for zircon would remain poor throughout 2012, saying the hypothesised events (zero demand in China, zero demand in Europe and extreme destocking, by which he meant throughout the entire supply chain) were unlikely. He also said that the levels of inventory were not sufficient to fill demand in any event. It is clear that, at this time, Mr Robb did not accept an estimated global zircon demand as low as 1,000kt or anything close to that figure (such as the posited internal "Iluka" view of 1,050kt advocated by Mr Bonham). 327 Further email exchanges around 14 May 2012 show that Iluka was keeping a close eye on its competitors and technological developments. They also disclose that Iluka was seeking new zircon markets given the permanent relative reduction in demand in China from thrifting technologies. Mr Cobb said that "the largest change in demand globally, other than economical factors, is the adoption in China of double charging or double pressing, where the opacifier is only used in a thin top layer of the tile and the main body is Zircon free. This technology will not be dropped whatever the Zircon price and the usage through the whole body has ceased in these applications for ever". Mr Cobb was not saying that overall demand would not increase over time including in 2012. Further, the notion that Mr Cobb had disregarded his own views in his estimate of global zircon demand in 2012 is unrealistic. Mr Cobb's email also makes clear that he remained of the view that Iluka should not sacrifice price for volume, saying that "I am sure if we were foolish enough to drop the price we could secure additional volume as the prices went into free fall". 328 Internal Iluka email exchanges about ilmenite between 14 and 16 May 2012 also do not expose the negative position Mr Bonham posits. The context was ilmenite, not all TiO2 feedstocks. The observation of Ms Diamond on 14 May 2012 that the market was seeing "a weakness enter into [chloride] pigment industry due to lower demand and [chloride] vs [sulphate] price differential (in spite of pigment producers Q1 announcements)" is not indicative of a material collapse of the market. The recipient of the email (Mr Stephen Hay) was also not overly concerned noting (sensibly) that the information would be considered in the review of market conditions proposed for June 2012. He also noted other factors: (a) "so long as demand is there we benefit from producing the higher grade SR products as a priority", (b) "[m]arketing are actively looking at ways to participate in the sulfate space", (c) "[l]ack of ilmenite from Vietnam may result in significant increase in ilmenite prices (if it takes hold)", (d) "Iluka can benefit from participation in, and perhaps some leadership of, the market", and (e) as to zircon, "still slower than expected but some encouraging signs in China and perhaps now even Europe ... But still a very long way to go until we could anticipate stock draw down and reversing production cuts". 329 It is also relevant that Ms Diamond referred to the public announcements of pigment producers. As submitted for Iluka: Kronos reported that it planned to keep running its plants at maximum rates during 2012 to satisfy the expected demand. Huntsman forecasted improvement in demand in North America and some parts of Asia (but remained cautious with its outlook for Europe). Overall, it expected prices to continue to increase. DuPont, meanwhile, reported that demand in the first quarter was strongest in North America, with demand in Asia stabilising, and, importantly, destocking coming to an end. 330 Tronox announced record results for 2012 Q1, saying that it considered the slack in orders since Q4 2011 was temporary and "what won't change anytime soon is the combination of pigment producers operating near full capacity and global titanium ore demand at or exceeding supply". All of this information suggested a strong TiO2 market for 2012. 331 Iluka was entitled to give these public statements real weight. While it could not take private statements to it at face value because customers wanted to drive down the price, it was entitled to give real weight to customers' public statements about both actual and expected performance. These were statements to the world at large. They were not being made to Iluka in the context of ongoing negotiations about price. The statements of the pigment producers did not accord with the information they had been giving to Iluka, which reinforces Iluka's good sense in considering all of the information and weighting it according to its likely reliability. This common sense is reflected in Mr Cobb's subsequent email of 12 June 2012 about the TZMI TiO2 industry report issued 10 May 2012, where Mr Cobb characterised the report as "a good summation of the prosperity of our pigment customers despite their gloom and doom". Mr Cobb's view also cannot be reconciled with Mr Bonham's proposition that despite the optimism of pigment producers, Iluka would miss out on increased demand in H2 2012 because of it being the highest priced. 332 Contrary to the submissions for Mr Bonham, there is no suggestion in these public statements that pigment producers were referring to the sulphate pigment market only. Of the pigment producers, only Huntsman and Kronos also had sulphate pigment plants. Yet the same positive message was being given by DuPont and Tronox. There was simply no rational reason at the time for Iluka to anticipate that the public statements of its pigment customers were wrong or that, despite all previous dealings between it and its customers, Iluka would not benefit from markedly increased TiO2 sales in 2012 H2. 333 Mr Robb made a presentation to a conference on 16 May 2012 and his slides accompanying this presentation were issued to the ASX. The slides included the full disclaimers included in the 23 February 2012 announcement. 334 As to zircon, the slides said: (a) the zircon market was experiencing soft demand conditions (evidence of demand recovery across markets and Europe remains subdued but customer sand stocks almost exhausted), (b) Iluka has flexed production in line with demand and will hold inventory as needed, (c) prices were holding, (d) major customers were supportive of Iluka's approach (direct customers now holding low inventory levels of opacifier and bulk order interest resuming), (e) tile producers under inventory and margin pressure technology, thrifting, and (f) Iluka remains confident about medium term demand fundamentals. 335 As to TiO2, the slides said: (a) evidence of sustained feedstock cost flow through (next challenge further downstream (e.g. paint manufacturers/retailers) and painting season impact in 2Q/3Q 2012), and (b) chloride vs sulphate margins shifting, dependent on supply position (strong ilmenite prices, new Iluka SR products + more on way = processing + marketing flexibility, and balance between contract flexibility and supply/offtake security). 336 Mr Cobb had been involved in the preparation of this presentation, as had Mr Tate and Mr Porter. 337 Mr Cobb said that the presentation about market conditions reflected his views at the time including that: (a) there was evidence of demand recovery in Iluka's zircon markets, including low zircon sand inventory amongst Iluka's European customers and month-on-month sales volume increases, (b) major customers did not object to Iluka's position with respect to price, and direct customers were holding low levels of opacifier inventory, and (c) Iluka remained confident about medium-term demand fundamentals. 338 Mr Robb said at this time he considered that: (a) zircon markets were fragmented, tended to exhibit growth and new markets could be targeted by Iluka and he considered there was growth potential in emerging economies, (b) even in more depressed markets, customer stocks of zircon were close to if not already exhausted, meaning customers were likely to have a need to replenish stocks in the near term, (c) there had been an uptick in customer interest in bulk orders for zircon, (d) there had been encouraging data in March and April 2012 in relation to Iluka's bid system, which was used by customers to lodge "bids" to get zircon supply, (e) global growth in zircon demand was likely to be led by developing countries, which at that stage were some of the largest consumers of tiles, and (f) China's export of ceramic tiles had increased in March. 339 Mr Robb also considered that in relation to rutile and synthetic rutile, conditions were favourable in respect of the chloride segment of the market that Iluka supplied at the time, and there was the potential for growth in the other feedstock markets. 340 Mr Bonham focused on Mr Cobb's comments in the process of preparing the presentation as supporting his case. Mr Cobb's information was that: (a) while zircon demand was slow in China it had re-commenced, (b) global demand for zircon had reduced by about 200kt over the past 12 months, (c) the low demand for zircon in China was due to low quality tiles in low cost and rural housing which did not use Iluka's premium quality zircon. 341 Mr Cobb's estimated 200kt global demand reduction for zircon does not support a global demand in Mr Cobb's mind of 1,050kt for 2012. Mr Cobb was saying that the 200kt represented his total reduction of zircon demand in 2012 including for the effects of substitution and thrifting. Further, a proportion of this 200kt demand reduction (insofar as it related to substitution and thrifting) had already occurred in 2011, when Iluka achieved record sales of zircon. Global demand in 2011 had been estimated to be 1,469kt in 2011. A 200kt reduction in demand would see global demand in 2012 of 1,269kt which accords with Mr Cobb's evidence that he held the view throughout the first half of 2012 of a global demand for zircon in 2012 of 1,200kt to 1,250kt. 342 Mr Robb's view about Mr Cobb's meaning (that he was referring to the effects of substitution and thrifting only reducing demand by 200kt) is immaterial. Mr Cobb repeatedly made plain his view that his estimate of total global zircon demand in 2012, having regard to all factors including substitution and thrifting, was about 1,200kt to 1,250kt. Mr Bonham submitting that this "was not a realistic estimate having regard to the softened market and all of the information available by that time", does not make it so. Mr Cobb had around 35 years' experience in the mining industry. Amongst other things, between 2004 and 2009, he was the Managing Director and Chief Executive Officer of an ASX listed mineral sands mining company whose products were marketed by Iluka. During this period he worked closely with Iluka. He joined Iluka as Sales and Marketing Manager in 2009. Mr Cobb was well qualified and experienced to perform his role within Iluka including to estimate demand as reliably as possible. 343 Mr Bonham also submitted that Mr Porter's comments in the process of preparation of the presentation were illuminating. However, this involves taking Mr Porter's comments out of context. Mr Porter thought Mr Robb could give details of positive signs in the zircon market (low and depleting inventory in China, drawdown of higher stocks in Europe, relatively close alignment of Hainan Island pricing with Iluka's) without "over egging it", rather than continue the theme of "phasing of demand taking time". 344 Mr Robb responded: I'm frustrated in that I've no other option than to prevaricate (and be "theoretical and conceptual") because the demand work is in no shape to present. Also our supply/demand work hasn't got too good a track record, so trotting it out as a "science" is fraught with danger. 345 This also does not support Mr Bonham's case. Mr Robb was not suggesting that the demand work could have been in better shape. He was recognising the complexity of that work (given that the market was global, fragmented and opaque) and that it was not a "science". No doubt this is why Iluka qualified all of its sales volumes information to the public so extensively. Mr Robb was certainly not suggesting that Iluka knew one thing (its sales volumes guidance was unreliable) but was telling the market another (that its sales volume guidance was reliable). As discussed above, the guidance Iluka provided was always heavily qualified and for good reasons given that its markets were global, fragmented, opaque and complex. 346 Mr Bonham submitted that Mr Robb's email disclosed that "Iluka simply did not know what global demand was doing at this time, such that it had no means of determining whether its extant zircon sales forecast had reasonable grounds". 347 This is an inaccurate over-simplification. Iluka had never suggested that its guidance could be relied on as a predictor of future performance and had repeatedly expressly said to the contrary. It had said its guidance was for sophisticated investors to use in modelling. It gave no future price guidance. Mr Bonham's submissions ignore these facts. Even if these facts are ignored, Mr Robb was not suggesting Iluka was simply "in the dark" about demand. One reason it was not "in the dark" was because it could reduce production to match demand. Another was that it had a successful track record leaving aside the global financial crisis in 2009. Yet another reason was that it had long experience in the markets in which it operated. Iluka was also in regular receipt of up to date information from its sales employees in each region. It had a global presence and was aware that market forces differed between regions. In other words, Iluka was in as good a position as it could be to estimate annual demand for its products. 348 Otherwise, and contrary to Mr Bonham's submissions: (1) it is not apparent that Iluka was predicting in this presentation that global zircon demand in 2012 to be 1,400kt - this involves reading a lot into a simple graph of global zircon consumption over time and in any event he source of the graph is said to be TZMI; and (2) the presentation gave a clear message that Iluka was in a period of soft demand for zircon - one reason for which was said to be thrifting. 349 In his presentation Mr Robb also made these valid points: (1) Iluka was operating in different markets so "generalisations in our industry … can be dangerous"; (2) "it is clearly … better to have two horses pulling a margin cart than one"; (3) "[w]e trade globally and we are exposed to the health of the world"; (4) pigment production is capital intensive (unlike zircon use) and security of supply is critical; (5) "markets can come out of nowhere in our business" and the zircon market was not mature as new demand areas had emerged; (6) the zircon market had been soft, but positive signs were being seen as stocks are exhausted, prices were holding, interest in bulk orders was returning, and Iluka's bidding website was encouraging which was a good lead indicator of the market trend; (7) conversely Iluka had seen negatives in terms of customer thrifting and investment in known technology to produce tiles with a lower zircon intensity, particularly in China, but Mr Robb firmly held the view that "square metres win over any efforts to reduce the intensity of zircon in tiles so space wins over time and developing economies are a big part of the story"; (8) Mr Robb was confident about China due to the drive for urbanisation with residential floor space set to double over the next 10 to 15 years and a strategy of constructing buildings with an expected life of only 20 years; (9) "[t]itanium dioxide market conditions are healthy"; (10) "[f]eedstock buyers are clearly seeking supply security"; (11) "we will grow in a way which enables us to target all of the feedstock markets, not just the chloride segment, where we are traditionally very strong"; and (12) "we are number one in chloride, that's great, we are good in high-grade, we think we have an enormous opportunity to be strong in sulphate as well". 350 Mr Bonham's criticisms of these messages are misplaced. Iluka's TiO2 sales were not "unhealthy". They were slower than expected to date in 2012, but Iluka was well placed to benefit from increased sales in H2 2012 given its high grade products, secure supply, capacity to adjust production, and to obtain the best possible price. 351 Mr Bonham referred to a Merrill Lynch report covering this presentation showing that the report reflected the presentation but both were at odds with Iluka's internal documents. This is inaccurate. Iluka is not responsible for Merrill Lynch's analysis. Mr Robb had been clear that the zircon market was soft. The focus of his speech was clearly the medium to longer term, not 2012. According, there is no material discrepancy between Mr Robb's presentation and Iluka's internal commentary. 352 Iluka completed its F4+8 forecast on 17 May 2012. It was presented to the board on 22 May 2012. It identified sales in 2012 of 402kt of zircon, 222kt of rutile and 305kt of synthetic rutile, as reflected in the 8 May 2012 updates. 353 Mr Bonham submitted that this was too optimistic and unreasonable, and that: Mr Robb's evidence was that, while Mr Cobb and other senior managers were "postulating numbers", their work was always "accompanied with health warnings about the difficulty of data gatherings", and that their "work was inconclusive". However, it is fair to assume, as acknowledged by Mr Cobb, that the data recorded in documents like the 1 May 2012 presentation and subsequent drafts contained the best information Iluka had been able to compile as at each successive date. The best available information to Iluka at this time was that global zircon demand in 2012 would be 1,050kt ("mild" substitution impact - adopted as the "base case"). (Footnotes omitted). 354 I do not accept these submissions. Specifically: (1) Mr Robb's evidence about the inconclusive nature of the work on future zircon demand did not involve a criticism of others within Iluka - I would infer that the nature of the issue made reliable (in the sense of more probable than not) estimates difficult from late 2011 onwards, which explains the significant qualifications Iluka placed on the information it published in this regard; (2) the 1 May 2012 presentation was prepared to present to a group planning committee - it was not the views of the committee or the leadership team (see above); (3) Iluka did not act on the basis of an assumed demand in 2012 of 1,050kt or adopt that as its demand estimate (nor, it would be inferred, did TZMI); (4) Iluka accepted that the 23 February 2012 guidance of 450kt of zircon sales for 2012 had to be reduced as a result of information of the continued soft state of the zircon market (which occurred on 8 May 2012), but it cannot be inferred that it did so on the basis of the modelled global demand in the 1 May 2012 presentation of 1,050kt being accurate and appropriate for adoption. It is far more likely that it acted on the basis of a global demand for zircon in accordance with Mr Cobb's estimated range (1,250kt) which would involve a market share for Iluka of around 32% if its achieved sales of around 400kt in 2012. Mr Cobb's evidence supported this inference in the following exchange: I showed you before, Mr Cobb, the document from the corporate planning session that identified a mid-mild scenario of 1,050 tonnes for 2012. Looking at this email and recalling that corporate planning document, does that refresh your memory at all as to whether by mid-May 2012 you had become aware of the forecast that is reflected in that corporate planning document that I showed you earlier this 25 afternoon?---No, definitely not. My opinion at this time was that the market was 1,250 to 1,200 and subsequent to you showing me that document, I still believe that the actual - I mean, that was a draft - the actual final corporate plan must have had the outcome of what the forecast was for 2012, and I still think it was higher than 1,050. 355 Taken with the contemporaneous documents, this evidence is compelling. It does not support an inference that Iluka considered global demand for zircon would be 1,050kt in 2012. It supports the inference that Iluka estimated global demand for zircon would be 1,200kt to 1,250kt in 2012, requiring a reduction in Iluka's guidance for zircon sales volumes to around 400kt. This was not unreasonable in all of the circumstances at the time. 356 On 17 May 2012 Mr Cobb and Mr Hudson met with DuPont to discuss terms for H2 2012. DuPont proposed that Iluka was not "understanding how bad the pigment downturn may be", while Iluka said that it was not "being advised by any of the other majors the same degree of severity". DuPont said the current disagreement would not affect the long-term relationship and it would contract its tonnage in H2, but would be stockpiling it. This should be understood as part of a complex negotiation, not a sign of impending catastrophe in the TiO2 market. 357 Mr Bonham then noted that on 17 May 2012 Mr Barry Murphy emailed an updated corporate plan presentation to the leadership team and that on some slides in this presentation the global demand for zircon was 1,200kt and in others the global demand for zircon was 1,050kt. Mr Bonham submitted that the "only reasonable inference that can be drawn is that the 1,200kt figures excluded an allowance for the impact of substitution and thrifting, while the 1,050kt had made allowance for this factor in the amount of 150kt". Mr Bonham said 150kt was a conservative estimate for substitution and thrifting in the circumstances. 358 There are a number of reasons to reject these submissions: (a) the presentation was a draft for discussion purposes with the leadership team and said to be a "preliminary assessment only", and thus could not be inferred to have represented the views of the leadership team, (b) the submission is inconsistent with the clear and cogent evidence of Mr Cobb about his views as to zircon demand, (c) the posited reductions in demand due to modernisation, substitution and thrifting were projected on a cumulative basis until 2014 (150ktpa on a mild scenario and 300ktpa on an extreme scenario), and (d) despite the negative effect of modernisation, substitution and thrifting on demand, demand was posited to grow in 2013 and 2014. 359 The fact that Mr Hugo emailed the leadership team on 19 May 2012 with information about products competing with zircon shows only that Iluka was keeping a close eye on technological developments. 360 Nor is the email from Mr Hudson of 19 May 2012 about a meeting with Tronox all bad news. The email includes that: (a) Q1 2012 was a record for Tronox, but there was market decline and price erosion, (b) Iluka's dilemma was that it "was hearing similar stories (but not from all producers), yet the paint producers were trumpeting increased profits and ability to increase paint price more than the pigment increases they were expecting", and (c) paint producers "had been hoping for an excellent year, and now see it evaporating. I suggested that whilst it may not end up 'excellent', it would still be good. He agreed". 361 In other words, the chloride pigment producers had been expecting another record year in 2012, but it looked like they were going to get merely a good year instead. This is far from the propositions for Mr Bonham about Iluka's TiO2 market in 2012. 362 Mr Bonham also places an unreasonable emphasis on the deferral of shipments. The shipments were not being cancelled. Tronox was trying to defer a shipment for one to two months only. It still wanted to receive the products. In any event, the context was price negotiations for H2 2012 products. 363 Emails about the price difference between chloride and sulphate feedstocks on 20 and 21 May 2012 are of no significance. Mr Robb had asked a question - to what price level will high grade chloride feedstock prices need to drop to restore chloride pigment margins to that of sulphate pigment producers, assuming a sulphate ilmenite price of $350/t? The answers show the complexity of price considerations in this market. They do not suggest anything else about the market other than what was known - the margins for sulphate pigment producers were greater than for chloride pigment producers. 364 Mr Bonham submitted that around this time more reports that "things had taken a turn for the worst in pigment" were received in the form of consistent feedback coming from the majority of Iluka's largest customers and as reflected in CEFIC data. Again, this is over-simplified and inaccurate. Iluka and DuPont were in the middle of complex price negotiations. There was give and take on both sides. DuPont said the pigment world had taken a turn for the worse and they were preparing for a 2012 without growth. This was in the context of an expected record year for 2012 on top of the record 2011 year. No growth in 2012 would still be an equal record year to 2011. DuPont wanted to delay the last H1 shipment. Iluka agreed instead to extend terms (I infer for payment) by 14 days. DuPont then indicated it may need increased tonnage in H1. DuPont also agreed to "take the H2 tonnage if at all possible but couldn't commit 100%". The conclusion was Iluka saying that the "negotiation progress is unacceptable and they [DuPont] need to step up the pace if they want to do a deal - they promised they will do so". This is not representative of a collapse in demand but of tough commercial negotiations on both sides. 365 Further, the information about the CEFIC data for April 2012 merely confirmed Iluka's view that, contrary to the position of TZMI, it was not appropriate to try to raise prices for TiO2 feedstocks at this time. This was because there was an estimated 3 months' supply stockpiled by the end of April 2012. Mr Hudson said this was "scaring everyone". But the context is important. Mr Hudson was not suggesting that Iluka's views about the TiO2 market were wrong. He was saying that Iluka had been right not to adopt TZMI's views about a price increase for TiO2 feedstocks. In any event, the expert evidence indicates that the information Iluka was being given about the CEFIC date by its customers (the data was otherwise confidential to the customers) was confused and confounding. Iluka did not have the raw data. It was being provided with relative information comparing 2012 to the record 2011 year. 366 Ongoing negotiations with customers from around mid-May 2012 also do not reflect the case theory for Mr Bonham. It is apparent that while customers were trying to defer H2 tonnages and were using that threat to get a better deal on price: (a) negotiations with Cristal had only just started and the idea that Iluka should have written off any sales to Cristal at this time is unreasonable, (b) discussions with Tronox were just starting but the indication was Tronox would take its full H2 allocation, and (c) DuPont had locked in its 100kt allocation of SR. 367 Iluka was also continuing to investigate the effects of substitution and thrifting. Mr Cobb said, however, that as at 20 May 2012 and by reference to continuing work by Mr Masbate, the "cross-section of tile manufacturers (particularly in China) that Iluka had managed to obtain some information about in the first half of 2012 was still too narrow to allow Iluka to reliably extrapolate from the data". Mr Cobb considered that the estimate of a reduction in global demand for zircon of 114kt, as posited in Iluka's most up to date zircon demand model at that time, was appropriately reflected in Iluka's F4+8 zircon sales reforecast (which already included a reduction of approximately 115kt of zircon sales as compared to the level of sales actually achieved by Iluka in 2011). 368 A document dated 21 May 2012, an update for the leadership team about the 2012 corporate plan for the period 2013-2017, disclosed a forecast global consumption of zircon for 2012 as 1,200kt (again, inconsistent with Mr Bonham's insistence of Iluka having adopted an internal estimate for 2012 global zircon demand of 1,050kt). This document also said that for substitution and thrifting: • Quantification complex: data limitations; decomposing cyclical demand losses (Europe, China property confidence, de-stocking) versus structural demand destruction. 369 This document also continued to estimate the total impact of substitution and thrifting as 150kt by 2012 (50kt in 2011 and another 100kt in 2012), which is inconsistent with Mr Bonham's propositions that the estimate of 1,200kt for global demand was excluding substitution and thrifting and that Iluka's estimate of global demand for zircon in 2012 consistently remained 1,050kt. This document also remained a "[d]raft for management discussion purposes - preliminary assessment only". It too contained the routine note that an "expanded investigation of modernisation, substitution and thrifting is on the way". 370 This document also contained the following information about zircon: • Demand soft both cyclical (Europe, China) and structural (substitution, modernisation and thrifting) forces at play. Decomposing by force complex. European risk to downside. China data is mixed. New end-uses (e.g. chemicals) emerging. • … • Limited further supply in 2012 and 2013, except for Indonesia. Grand Cote and Kwale due in 2014 delays possible. • Iluka currently the 'market balancer' holding price, flexing volume. • Iluka influential to whether market is balanced or surplus path to be determined based on maximising "($Price - $Unit Cost) * Volume kt" equation over time. 371 Mr Bonham submitted that despite everything Mr Pizzey and Mr Robb were "upbeat" at the annual general meeting on 23 May 2012 and did not mention: (a) thrifting and substitution impacting zircon demand, including it being a structural change, resulting in a permanent shift in the demand curve, and (b) Iluka's projections of a significant reduction in global zircon demand in 2012, nor that there was a risk or likelihood that this decline would disproportionately affect Iluka's zircon sales and market share. 372 In response to these propositions generally: (a) the only relevant issues in this proceeding are whether Iluka's statements as pleaded were likely to be misleading or deceptive and whether it contravened its continuous disclosure obligations, the relevant focus being only volumes of Iluka's sales, not NPAT or any other topic, and (b) there is no basis in the contemporaneous material to reject Mr Robb's view that urbanisation in China would lead to overall increased demand for zircon irrespective of thrifting and substitution. 373 Otherwise: (1) Mr Pizzey's presentation at the annual general meeting on 23 May 2012 showed that risks remained on the global economic scene and Iluka was not immune from those risks; and (2) Mr Robb's presentation at the annual general meeting on 23 May 2012 showed that: (a) Iluka's actions to curtail production of zircon in a period of market softness were right; (b) Iluka had to deal with continuing global uncertainties creating a shifting landscape; (c) economic growth, business confidence and technological changes are notoriously difficult to predict with precision; (d) demand is often more volatile than supply, particularly in global markets such as the mineral sands markets; (e) Iluka was making technical and other advances in targeting the supply of the sulphate pigment market which it currently did not supply; (f) Iluka does not disclose sales until its June quarter report, but Q1 revenues reflected the softness of the zircon market and Q1 shipping issues had meant that a substantial part of TiO2 product had not shipped in Q1; (g) while there was some evidence of improved economic traction in major economies, European demand remained subdued and could deteriorate; (h) Iluka did not consider that lower zircon prices would result in additional demand and inventory holdings were low seeing bulk order interest resuming; and (i) the high-grade TiO2 market was undergoing change. 374 On this basis, it could not be said that Mr Pizzey and Mr Robb were "upbeat" about sales volumes in 2012. They were positive about Iluka's medium to longer-term performance, but this is different from 2012 sales. Mr Bonham's criticisms of the presentations are unfounded. 375 Nor is Iluka responsible for the analysis by Goldman Sachs contained in its 21 May 2012 report. The salient point about that analysis is that Goldman Sachs, like Iluka, believed that there was no means to accurately assess the demand impact of thrifting and substitution. The same observations apply to the analysis by Macquarie which modelled Iluka's zircon sales at 350kt for 2012. Mr Bonham submitted that Macquarie "had not appreciated the extent of the problem in the same way as Iluka treats it (as a permanent or structural problem) because Macquarie continued to model sales growth in future years in line with historical compound annual growth rates". This is inaccurate. While Iluka accepted that a degree of thrifting and substitution were permanent, it did not accept that demand for zircon would be permanently reduced. It considered that demand for zircon would increase (including because of urbanisation in China and new markets) after the period of softness. 376 Another point can be made here. It is a forensic curiosity because, ultimately, Mr Bonham's case is to be determined on the evidence as it exists. The curiosity is this. In respect of the zircon market, Mr Bonham's case theory is that demand would be permanently reduced by thrifting and substitution so Iluka's guidance from February 2012 lacked reasonable grounds, and Iluka should have known that and disclosed it by and from 12 April 2012. In respect of the TiO2 market, Mr Bonham's case theory is that demand would be permanently reduced by thrifting and substitution and the growing sulphate pigments market so Iluka's guidance from February 2012 lacked reasonable grounds, and Iluka should have known that and disclosed it by and from 12 April 2012. But circumstances after 2012 are unknown. Mr Bonham's case theories might be right or might be wrong over the medium to longer-term. Iluka's markets may or may not have been permanently adversely affected in the way Mr Bonham posits. What this means is that Mr Bonham's case can only be assessed by reference to the evidence about circumstances in and as expected from 2012. 377 Further, the supply of ilmenite from Kalimantan was not a new issue in May 2012. It was an ongoing issue for Iluka. In a complex and fragmented global market, the idea that this necessarily meant lost market share for Iluka on some irrevocable basis is naïve. 378 Iluka's June quarterly report was scheduled for release on 12 July 2012. Contrary to Mr Bonham's submission, Mr Porter was not warning in his email of 29 May 2012 that this report would have to include sales volumes. Mr Porter was simply saying that he wanted to "ensure that this timing looks OK for you given we will have sales volumes and cash costs included in this disclosure". Mr Cobb emailed back with a query and said he was "hoping to get a months [sic] grace to have some better news on H2 to go with the low H1 Zircon numbers" and "[s]till chasing sales but looks like Zircon will be a shade under 100kt for H1 at this stage, that will set some demanding questions as to how we sell 300kt in H2". Mr Porter noted that the broker average of forecast zircon sales for Iluka in 2012 was now 360kt so a lower outcome would not be a surprise to some. Iluka thus had to decide whether to adjust numbers again or "ignore this garbage and stick to our guns". 379 Mr Bonham noted that Mr Porter sent this exchange to Mr Green who was General Manager of Finance and Risk, so Mr Porter presumably "felt this information posed a serious enough risk that it needed to be flagged with Mr Green". This is mere speculation, and difficult to reconcile with the description of the issue as "garbage". Apart from this it is apparent that: (1) analysts had not taken Iluka's sales guidance at face value, given their average projection of 360kt for zircon sales in 2012 at this time - akin to the 350kt identified by TZMI as representing its view; (2) consistently with the reasoning above, it is difficult to characterise one view (Iluka's) involving sales guidance of 400kt of zircon as unreasonable and another (the average of analysts' views) involving a projection of 400kt of zircon sales as reasonable; (3) on Mr Bonham's case the sales' estimates by analysts as at May 2012 would be unreasonable, in common with TZMI's estimate; and (4) Dr Unni's evidence (discussed further below) undermines the proposition of Mr Bonham that analysts were taking Iluka's sales guidance at face value. Dr Unni concluded that as of 12 April 2012, 70% of the equity analysts projected Iluka's 2012 zircon sales to be within a band of plus or minus 5% around Iluka's guidance and 80% of the analysts projected Iluka's 2012 zircon sales to be within a band of plus or minus 10% around Iluka's guidance. However, Dr Unni also said: (a) "… although the level of detail provided in these reports varied with respect to the research on which the analysts based their zircon sales projections, several analysts described relatively extensive research performed to arrive at their projections. For example, the analyst report from Macquarie dated 1 March 2012 includes evidence from survey research of 20 Chinese tile producers underlying the analysis. The analyst report for Credit Suisse dated 12 April 2012 described incorporation of research performed related to Chinese property developers underlying their projections. The equity report from CLSA dated 9 March 2012 described direct discussions with Chinese tile manufacturers"; (b) "… there was no clear consensus among these equity analysts with respect to the level of downward influence the factors described by Mr Murray (discussed below) would have on Chinese zircon demand and Iluka's sales of zircon in China for the remainder of 2012". For example: on 9 March 2012 the CLSA view was that substitution among Chinese tile producers was not a large concern, and on 21 May 2012 the Goldman Sachs analyst report noted that zircon demand in China had been adversely impacted by substitution, but that "There are no means of quantifying this…"; (c) "… all forecasts for Iluka's Chinese zircon sales that I reviewed in this matter that were available as of 12 April 2012, including Mr Murray's own purportedly 'reasonable' forecast range, reflect the expectation that Iluka's Chinese zircon sales would increase considerably after the first quarter of 2012."; and (d) "[t]he contemporaneous forecasts of every equity analyst for Iluka that I have reviewed, for worldwide sales of zircon for 2012 during the Relevant Period exceeded Mr Murray's purportedly 'reasonable' forecast range". 380 In other words, the evidence indicates that analysts were undertaking their own work, and until May 2012, the results they were reaching were generally consistent with Iluka's views. By May 2012, the majority of analysts were taking a more conservative view than Iluka about zircon sales, consistent with the publicly stated approach of TZMI from May 2012. Again, and in accordance with the views expressed above about the divergence between the views of Iluka and TZMI about zircon sales evident from May 2012, this does not establish any unreasonableness on the part of Iluka. The variance (40kt to 50kt) is not large and is 10% to 12.5% of the total estimated sales of 400kt on Iluka's part. As noted, given that Mr Murray's range involves a variance of 105kt or 31% to 45% of the total, the conclusion of lack of reasonable grounds on the part of Iluka at this time is unsustainable. 381 Mr Hudson's email on 29 May 2012 about an industry event said that while the industry prefers the premium zircon product it was making do with standard material and the fear was "current slack demand will become the norm". Mr Hudson suggested ways forward on zircon, none of which are easy to understand and all of which disclose that the market was not as straightforward as Mr Bonham assumes. These were: • Maintain current pricing until level playing field established. We can supply 500 tonne lots to anyone who wants it until that happens. [Estimate of] 3-6 months • Assuming we want zircon demand to increase above current levels, then • Move zircon to a level that will reignite ceramic flour/opacifier demand, and deter small start ups • If we are prepared to produce/sell lower volumes and never see 600k sales again, then demand will recover slowly as China, European economies improve. But we will probably starve in the meantime • Imperative that we don't hurt our biggest supporters who have bought Q2 to help us 382 A response from Mr Hind of 29 May 2012 suggests he believed a price reduction would re-stimulate demand (which was not the view of Mr Cobb or Mr Robb). Mr Hind referred to purchasing by Endeka who needed the stock. Mr Hind also said: We dismissed Endeka's prediction back at TZMI that demand would fall 30%, but to date their view is continuing to be substantiated in the market and proving to be more accurate than ours. Interestingly Endeka also believe 2010 is the better basis for demand comparisons and forecasts. They now believe 2011 was just an anomaly influenced by government stimulus spending after the GFC and not true demand. 383 Mr Hind considered that price reductions would deal with the impacts of substitution but not reduced housing and construction activity. 384 Mr Cobb noted in response that discussions had been scheduled for the following week "behind closed doors" about these issues. 385 Mr Bonham submitted that Mr Cobb was trying to shut this discussion down. This is untenable. Mr Cobb was saying that the issues would be discussed on a confidential basis the following week. 386 Mr Bonham submitted that by this time it "was abundantly clear that Iluka had no reasonable prospect of achieving its zircon sales guidance". I disagree. What was becoming apparent was only that Iluka might not achieve its sales guidance for zircon in 2012. It was not clear that it would not do so. Iluka always had the possibility of price reductions available even if it was reluctant to do so. Other circumstances also had to be considered. It was nearly the end of May 2012, so awaiting the full May results was sensible. As also noted, a meeting was scheduled for the first week in June 2012 which would consider demand issues for the balance of 2012. The May results also had to be reported to the board meeting in June 2012 (scheduled for 20 June 2012). 387 An email from Mr Simon Hay on 30 May 2012 about his visit to the Gunagzhou ceramics fair recorded that: (a) Bitossi were running three mills instead of five and substitution was not finished in China. While ceramics plants wanted to use zircon they could not due to the price. Iluka was not listening to customers, (b) another customer said that the global market is bad and she was reducing the price of her products to survive, and (c) other customers had the same story - "conditions are tough, our price is too high and can't buy [from] us". Mr Cobb responded: Plenty to talk about next week, and not a lot of good news around at the moment other than Kalimantan might slow down dramatically. Shame it didn't happen a month ago before the RBM and Exarro's started to cut prices. We need to react to the changing circumstances, but on the basis of knowledge if possible so any quotes from competitors would be useful? 388 This response was realistic and reasonable. Mr Cobb was not ruling out recommending price reductions to stimulate demand but wanted to ensure that if he did so any reduction was appropriate in the current circumstances. 389 The idea, inherent within Mr Bonham's case, that Iluka should have dropped everything and raced to revise its sales guidance at this time (even if just for zircon) is unrealistic. Acting reasonably, Iluka had to await the May results. It had to have its meeting in the first week of June 2012. It had to work out for itself if its 400kt sales guidance for zircon, which was only 40kt to 50kt above the recent estimates by TZMI and analysts, needed to be revised, part of which had to involve consideration of price. I do not accept that Iluka was determined never to reduce price if circumstances justified it. It is clear that Iluka preferred to sacrifice volume over price, but the idea that it would never consider price reductions is too extreme and not supported by the evidence which indicates that, at his time, price reductions were being considered by Iluka management. 390 Ms Diamond emailed the May results to Mr Green and Mr Cobb on 31 May 2012. All sales volumes were below forecasts for the month.

4.18 June 2012 391 On 1 June 2012, Mr Green (who at this time was also Iluka's acting Chief Financial Officer) circulated the May day zero report to the leadership team. The report reflected the sales update of 31 May 2012. On 5 June 2012, Mr Porter forwarded the report to Carly France (Iluka manager, corporate affairs) saying: It looks to me like we are moving towards: soft quarter revenues and sales; risk to guided zircon volumes; emerging softness for 2nd half rutile and SR volumes (plus at best no pricing increase) - all of which will create significant challenges in terms of equity market assessment and likely share price… 392 Mr Porter was not saying that it was impossible to achieve the guidance for zircon volumes, but was acknowledging that Iluka was now moving towards there being such a risk. As a result, Mr Bonham's submission that "[y]et still no disclosure was forthcoming from Iluka" is misplaced. 393 Mr Bonham's references to 5 June 2012 reports of Goldman Sachs and Bell Potter (and subsequent reports of other analysts) are unhelpful. The fact that analysts expected the market for zircon to rebound in 2013 and the future is not material. Mr Bonham would have it that this proves that analysts (and thus the market) were not aware of the permanent structural changes to Iluka's markets wrought by substitution and thrifting leading to a permanent and major reduction in demand for its products. The problems for this proposition, apart from the observations above about Dr Unni's evidence to the contrary, are that: (a) it is not clear that there were permanent structural changes to Iluka's markets wrought by substitution and thrifting leading to a permanent and major reduction in demand for its products, because what occurred after 2012 is unknown, (b) it is not clear that Iluka was wrong that any permanent structural changes to Iluka's markets wrought by substitution and thrifting would not be offset by increased demand from increased urbanisation and new markets, (c) this case is not about representations made by analysts, but the conduct of Iluka, and (d) Iluka is not responsible for representations made by analysts. 394 In an email also of 5 June 2012, Mr Porter said that the TiO2 market was "concerning". Mr Porter also forwarded an email from Mr Masbate about the Gunagzhou ceramics fair to Mr Cameron Wilson (Iluka's company secretary and general counsel) saying "[d]ouble if not triple whammy - weak demand for both sets of products and significant substitution in zircon". Mr Wilson said that if Iluka was facing sustained substitution risks it had disclosure ramifications. Mr Porter responded that they did not know the quantification of the impact and the general perspective was that "floor space expansions (and demand for zircon with this and general tightness in supply) will eclipse any impact of thrifting or substitution". Mr Porter expressed the view that the impact was simply unknown. This is consistent with the other evidence, both contemporaneous and current from Iluka's witnesses. The idea that Mr Porter was involved in any form of withholding of relevant information from Iluka's company secretary and general counsel cannot be accepted. Iluka plainly did have the view that the impact of substitution and thrifting would be absorbed by an overall increase in demand over time irrespective of the expected soft first half of 2012 for zircon demand. 395 Mr Bonham submitted, however, that Iluka had been able to make an estimate of the impact of substitution and thrifting as 150kt, albeit this was conservative. As discussed above, however, it is apparent that Iluka had not adopted that estimate. In some Iluka internal analyses a figure of 150kt of lost global demand for zircon by 2012 had been used, 50kt of which had had already been incurred in 2011. This had been said on 23 February 2012 to represent the "median of the range of internal views/estimates". On that basis, a 50kt reduction in demand was embedded within the estimated global demand for zircon in 2011 of 1,469kt. A reduction of a further 100kt in 2012, reduced demand as a result of substitution and thrifting to 1,369kt. This was materially higher than the internal global demand estimate Iluka should be inferred to have held by this time of around 1,200 to 1,250kt. 396 The fact that Mr Wilson accepted Mr Porter's explanation that the generally held view was that the impact of substitution and thrifting was difficult to quantify and was expected to be more than offset by growth in construction does not mean that Mr Wilson was "towing [sic] the line". This assumes that Iluka had a "line" and that the "line" was that it should not disclose that its markets (particularly zircon) had been subject to a permanent structural change which would materially reduce the demand for its products in perpetuity. As discussed, while Iluka expected substitution and thrifting using the technologies developed in China to be a permanent feature of the market, there is also ample evidence that: (a) the extent of these activities was affected by price, (b) Iluka's high grade products were still considered to be premium, and (c) there would still be increasing demand for Iluka's products over time. 397 On 5 June 2012 Mr Hudson sent an email for the purpose of the preparation of Mr Robb's report to the board about May 2012. This email said: The TiO2 pigment market continued its sudden demand slide that began in April. Not only is cheaper Chinese sulphate pigment having a substitution effect in traditional chloride pigment markets, but the European economic nausea is creating great uncertainty for all parties alike. Production has been cut by all major producers, and feedstock shipments are being cancelled and deferred. Pigment stocks in Europe have reached 700,000 tonnes, or twice the normal amount, and warehouses and other storage locations are at a premium. Our competition is actively in the market offering unsold tonnage for H2. A significant question is whether this is a temporary slump, or a longer term issue. Zircon continues to be the only part of the ceramics market that is performing poorly, as all other contributors are having a good year. Tiles are being manufactured at a pace similar to 2011, only with less opaque frits and glazes, and substituted aluminas and other materials in the body. US demand, that had been the one bright spot, fell in May with the cancellation of tonnage in the fused sector, due to declining markets and cheaper competition from Foskor in [South] Africa. Both product lines are in for rocky times ahead. 398 Mr Simon Hay sent an email on the same day which said: Zircon market conditions showed no sign of improvement with concerns over European and tight policy on property as the 2 main themes quoted by customers. Most sectors are zero or negative margin on Iluka zircon so customers are seeking lower priced, lower quality feedstocks. Indonesian supply continues to meet much of the demand however the new tax and ban on concentrate exports has many customers worried. We conducted a private briefing for customers at the Ruidow conference and announced the cutback in production. Customers were generally supportive but still sought price relief and adopted a cautious approach to further orders preferring to wait for our Q3 price. No new orders were received. Domestic pigment demand continued a downward trend. The ilmenite price was affected by slower demand however market sentiment remains that this will be a short-term issue with the expansion of sulphate pigment capacity and looming ban on ilmenite exports from Vietnam causing tight supply. Outlook Zircon - no improvement expected in market or economic conditions expected in June. Some potential upside if the Indonesian ban/tax causes a reduction in exports. Customers generally have low zircon stock and may be forced to buy at short notice: Iluka with warehouses and ample stock will be in a strong position. TiO2 - no improvement expected. 399 This is relevant information because it exposes that, so far as Mr Simon Hay and Mr Hudson are concerned (and contrary to Mr Bonham's case of the poor performance and prospects of both markets from no later than 12 April 2012): (1) for the TiO2 market, the drop in that market had been sudden and had continued. While the email identifies the slide as having started in April 2012, this is inconsistent with the evidence discussed above which indicates a slide starting in around May 2012; and (2) for the zircon market, expectations for the second half of 2012 remained mixed. While there was no current sign of a rebound in demand, customers had destocked and were worried about continuing supply from Kalimantan that may mean Iluka had to fill demand at short notice. 400 In the context of the preparation of the 2012 corporate plan and in anticipation of a planning session scheduled for 6-8 June 2012 a draft document (the author of which is unknown) identified threats as including that: (a) zircon substitution continues, resulting in permanent demand destruction which exceeds pessimistic case, and (b) pigment industry migrates to sulphate technology. The draft document also identified a range of scenarios between 2012 and 2017. The zircon optimistic, base and pessimistic cases for global consumption of zircon in 2012 were all 1,100kt. Iluka's market share ranged from 20% (pessimistic) to 36% (optimistic), with a base case of 32%. This gave Iluka zircon sales for 2012 of 220kt (pessimistic), 351kt (base), and 400kt (optimistic). The document explained that the optimistic case assumptions were "[c]urrent tight China property policies relaxed. Germany bails out Europe. US housing recovery". The base case assumptions were "Europe struggles through. Chinese growth as per forecast - 8.2%. US avoids recession". The pessimistic case assumptions were "Europe Collapses, Global Recession including China. Customers not incentivised by price". The optimistic price assumption was a reduction in price from the actual price of $2,500/t to $1,975/t. The base price assumption was a reduction in price from the actual price of $2,500/t to $2,320/t. The pessimistic price assumption was maintenance of the price of $2,500/t. 401 The document is a draft. Its author is unknown. Its purpose was for the discussions scheduled for 6-8 June 2012. I infer that these must be the discussions "behind closed doors" which Mr Cobb had referred to on 29 May 2012. The draft document is also more complex than it might first appear given the interaction of the assumptions, particularly as between assumed economic conditions and assumed price. 402 Accordingly, the idea that this draft document represented the considered view of Iluka at this time cannot be accepted. It was a draft for the leadership team to consider and discuss during the meeting scheduled for 6-8 June 2012. The fact that the draft included possible price reductions indicates that Iluka was considering whether such reductions might be implemented. Further, the "optimistic" case (estimating zircon sales of 400kt as per Iluka's sales guidance) was not unrealistic. It involved a price reduction for zircon of around 20% and macro-economic assumptions that were plausible. I do not infer that this was outside the bounds of reasonableness at the time. Even if this document did represent Iluka's considered view, the upper end of the range for zircon sales remained 400kt. The fact that this represented an optimistic view does not mean it was unreasonable. 403 I infer (although it is not clear from the evidence) that the leadership team meeting on 6-8 June 2012 did not yield a view that Iluka's sales guidance had to be revised at that time. I infer that this resulted from the following: (a) while the 400kt sales estimate for zircon was now the "optimistic" case, the overall view must have been that the guidance could still be achieved, (b) it is apparent that the markets were perceived to be highly volatile at this time and Mr Cobb at least held the view that there were signs of improvement from China for zircon which would be consistent with the view that customers had effectively destocked and demand could increase suddenly, and (c) a board meeting was scheduled for 20 June 2012 by which time the signs of improvement in China might be more advanced, even if the position would not be certain by that time. 404 An email of 8 June 2012 exposes that Mr Cobb expected analysts "to be disappointed" with the first half sales for zircon. This email was sent in response to correspondence from Morgan Stanley Research stating that "[z]ircon sales of ~130kt in 1H12 are needed if it is to be on track for 400kt in 2012". 405 Work on the report to the board meeting for June 2012 continued. Mr Bonham submitted that it was plain from the drafting process that "more information on substitution and thrifting ought to have been included in earlier reports". It is not clear where this submission goes. In any event, I disagree. It is apparent that Mr Cobb's view was that at this time Iluka was experiencing "rapidly changing market dynamics that changes by the week". Mr Cobb also said "things are looking better in China potentially but won't know for sure before the Board" (meaning the meeting scheduled for 20 June 2012). The draft report was sent to Mr Robb on 12 June 2012 under an email noting the "emerging emphasis in respect of the Industry Demand and Supply section". 406 Mr Bonham referred to a June 2011 TZMI report about the global sulphate pigment market which Ms Ma sent to, amongst others, Ms Diamond. The only point Mr Bonham made about this was that it is uncertain how the information in it was reconcilable with Mr Robb's comments on 16 May 2012 about Iluka entering the sulphate pigment market. This is immaterial. 407 Mr Robb's amendments to the draft report to the board do not "tone down" the content. They are stylistic changes. The message in the draft report was not changed. 408 For zircon, the report said: (a) the opacifier industry remains soft in all regions driven by low tile demand, substitution and the recent Italian earthquakes, (b) in China the low level of demand is a result of substitution and thrifting of opacifier against a background of weak tile demand, (c) Europe continued to be affected by macro-economic issues, (d) the Q3 zircon price has been announced and held at the same level as Q2 in anticipation of a tightening of the China supply situation, and (e) in the first two weeks of June there have been some encouraging signs of improvement in China as the government recognises the need to stimulate the economy. This has flowed through into increased enquiries from our customers which will hopefully turn into orders in due course. 409 For TiO2 products, the report said: (a) all major chloride pigment customers report slowing sales of pigment, and high levels of stocks of both feedstock and finished product, (b) all chloride pigment customers requested deferment of some Q2 HGO tonnage but after negotiations all but 10kt scheduled to be delivered to Tronox will be sold, (c) the key drivers of the lack of demand for pigment are the continuing economic uncertainty emanating from Europe, and the availability of cheaper Chinese sulphate pigment which was being imported for use in undercoats and lower quality products as an extender, and (d) against this background the price for HGO to chloride pigment producers has been maintained at H1 levels with a focus on locking in the budgeted volumes ahead of a possible declining demand situation. 410 Mr Robb said that he understood this report to indicate that much of the shortfall in sales in May 2012 was due to timing issues rather than permanent losses, and to the extent otherwise he did not consider a single month's data to mean that the figures included in the F4+8 reforecast were unachievable. 411 I do not consider this position to be unreasonable. In respect of zircon, it must have appeared to Iluka from the evidence, including customer inquiries, that it was beginning to see the rebound in demand that it (and all others in the industry) had expected in the second half of 2012 as customers came to the end of a destocking period and the Chinese government began restimulating the economy. In respect of TiO2 products, the substitution being seen was for undercoats and extenders, meaning that demand still existed for Iluka's premium products. Iluka, it must be inferred from the report, believed it could lock in its sales of TiO2 products for the second half of 2012 before the market possibly declined. I am unable to accept that either: (1) Mr Cobb and Mr Robb, who both knew the details of this report for the board, were trying to make the situation appear materially better than they believed; or (2) Mr Cobb and Mr Robb were blind to the reality that Iluka's sales guidance had become unreasonable. 412 The minutes of the board meeting on 20 June 2012 record that: The Managing Director addressed his written report. The meeting discussed the status of the current volume and price negotiations with zircon and Tio2 customers and the outlook for the second half. It was noted that because those negotiations were ongoing and incomplete that there was no basis on which to review previously forecast sales volumes and prices but that once the position became clearer a review would undertaken by management in accordance with the company's normal disclosure review process. In recognition that the situation was the subject of ongoing management review and might require a Board meeting to be convened before the next scheduled meeting in August, the Company Secretary was asked to ascertain the whereabouts and availability of directors over the coming weeks should a meeting be required to be convened at short notice. 413 This is important. It discloses that Mr Robb and the board had discussed the issue of the guidance in the 8 May 2012 update. It discloses that Iluka accepted that it needed to monitor the ongoing status of its guidance. Iluka decided to await the completion of its negotiations with its customers for sales volumes in the second half of 2012 before deciding whether to maintain or revise its sales guidance from the 8 May 2012 updates. Iluka also recognised, however, that once that process of negotiation with customers was further advanced it might not be able to wait until the next scheduled board meeting in August 2012 to make a decision about the guidance. 414 Mr Bonham would have it that this was too little and too late. Relevant facts, however, include that: (a) negotiations with customers about the second half of 2012 were still continuing, (b) Iluka had long-term relationships with customers which, it is apparent, it was (appropriately) exploiting to convince them to acquire their anticipated tonnage for the second half of June 2012, (c) if it was going to revise its guidance, Iluka needed to have a reasonable basis for the new guidance, which would be provided by the agreed sales volumes for the second half of 2012, (d) the posited sales volumes for the second half of 2012 would be finalised as part of Iluka's F6+6 forecast, and (e) it must be inferred that the overall view of Mr Robb and Mr Cobb was accurately reflected in the report to the board, as discussed above. 415 Further, in the face of the resolution of the board of 20 June 2012 it is not possible to infer that Iluka had concluded by that time that it would not meet the sales guidance it had provided in the 8 May 2012 updates. 416 Critically, Mr Cobb said that around the time of the consolidation of Iluka's May results (early to mid-June 2012) he "began to suspect that it may be difficult for Iluka to achieve the sales results forecast during the F4+8 reforecasting process" but could not form a conclusive view as: (1) Iluka was still engaged in negotiations with customers in relation to H2 2012 contractual commitments; (2) he had not yet received feedback and reforecast sales from the Iluka's regional sales and marketing managers ahead of the upcoming F6+6 reforecast; (3) the impact of the 25% export tax on Kalimantan zircon-concentrate was as yet unclear (this is the zircon source of the same premium quality as Iluka's sold at a cheaper price); and (4) it was not yet clear what impact Iluka's decision to not reduce the price to all the customers, but to offer rebates to certain existing zircon customers, would have on demand in H2 2012 (this is the rebate scheme for some customers Iluka had implemented in or around April 2012). 417 It was not put to Mr Cobb that this evidence was inaccurate or unreasonable. I accept this evidence. I infer that Mr Cobb's view was significant to the terms of the report to the board on 20 June 2012, but that Mr Robb was also independently satisfied that the report was properly reflective of the current circumstances. 418 On 24 June 2012 Mr Cobb sent Mr Robb an email which said: Having engaged with all our customers now for H2 I am of the belief we need to move the price of Natural Rutile, SR and HyTi down by US$100 to secure volume. Demand is soft and although customers want to buy they have much more attractive offers on the table given they are not looking for yield from the plants. Chloride slag is still available at US$1000 below our price and the danger is customers will walk away unless we at least make a gesture to show we are supporting them in tough times. I have run some calculations and based on what we anticipate to place in H2 if this gesture secures an additional 5kt of SR Premium, or 4kt of Rutile 95 it is value neutral. Not something I enjoy doing but I think well worth while [sic] to potentially secure volume. Happy to discuss but need to move fairly quickly to lock in H2 volume. 419 This email discloses that by this time Mr Cobb considered (as he had not done previously) that a reduction in TiO2 price was needed to secure volumes for TiO2 products for the second half of 2012. Mr Robb asked Mr Cobb to call him to discuss this issue. I consider that had Mr Cobb held this view as at 20 June 2012 he would have communicated it to Mr Robb and Mr Robb would have decided if he agreed with that view for communication to the board for its meeting on 20 June 2012. This indicates to me that circumstances were developing quickly at this time and the issue of possible price reductions to achieve volume remained possible. In these circumstances to infer that Iluka's sales guidance had become unreasonable (in the sense of lacking reasonable grounds) is difficult. Iluka was involved in a commercial balance between the risks of a possible hit to sales volume or a possible reduction in price. I infer it was in the process of working out the balance to be struck through its negotiations with its customers for second half volumes. 420 I do not find it unreasonable for Iluka to have taken the view that the best evidence of the market for the second half of 2012 was the process of negotiation with its customers for volumes in that period. If Mr Cobb was right about the signs of improvement from China and customers being at the end of a destocking cycle, then zircon sales as per Iluka's guidance may have been achievable, even if optimistic. If Mr Cobb was right that Iluka could lock in sales of its TiO2 products for the second half of 2012 before a perceived decline in demand, then again TiO2 sales as per Iluka's guidance may have been achievable, even if optimistic. While, by this time, Iluka's sales guidance was by no means a certainty for zircon or TiO2 or even a probability, it remained a reasonable possibility depending on the outcome of its sales negotiations for the second half of 2012. Given the terms of Iluka's sales guidance, I consider this enough to have ensured it had reasonable grounds for its representations as to future matters. 421 I infer that negotiations with customers were still continuing throughout late June 2012. In particular, while Iluka was not reducing prices, it is apparent from the evidence that price and volume negotiations were complex because of the different grades of product available and that Iluka and its customers negotiated package deals for overall outcomes rather than on a product-by-product basis. Iluka was also offering rebates to some customers. 422 Work on Iluka's F6+6 forecast was also underway. 423 By late June 2012 Mr Robb and Mr Porter were considering whether global volatility had increased over 2012 and was now such that global and regional demand was "virtually impossible to predict", and whether this should cause Iluka to suspend giving further sales guidance. This was another approach Iluka was reasonably entitled to consider given the circumstances at the time. 424 On 27 June 2012 Ms Diamond sent Mr Cobb a draft F6+6 presentation which proposed 2012 sales as follows: (a) zircon - 322kt, (b) zircon tailings - 100kt, (c) rutile - 208kt, and (d) synthetic rutile - 225kt. I infer that these figures must have reflected the outcome of the negotiations for the second half of 2012 to that time. 425 Around the same time steps were being taken for a board meeting to occur in respect of the F6+6 forecast over the weekend of 7-8 July 2012. 426 On 29 June 2012 Ms Diamond sent Mr Cobb an update of the draft F6+6 reflecting the up to date June 2012 shipments. This proposed sales as follows: (a) zircon - 293kt, (b) zircon tailings - 100kt, (c) rutile - 208kt, and (d) synthetic rutile - 225kt. It is apparent that the final June 2012 outcomes had resulted in a material reduction of the estimated zircon demand for the second half of 2012. 427 Mr Cobb responded the following day, 30 June 2012, saying he agreed with this forecast but it needed to be accompanied by "a list of the volume and pricing changes made and why and a clear statement that based on the current global economic situation this remains an [sic] stretch forecast". It follows that Mr Cobb now considered that it was unlikely that Iluka would or could meet the 8 May 2012 guidance by 30 June 2012. Mr Cobb was scheduled to take leave but ensured that he would be available for the review of the F6+6 scheduled to be discussed on 6 July 2012.

4.19 July 2012 428 It is also apparent that substantial other work was being undertaken for the meeting of the leadership team about the F6+6 scheduled for 6 July 2012. 429 The day zero report for June 2012 was issued on 2 July 2012. Combined total sales for all products were 275kt compared to the F4+8 forecast of 316kt (a 56kt variance). 430 A group sales forecast email of the same date, 2 July 2012, proposed a total 2012 sales variance of 177kt, noting that: Zircon The zircon market remains soft. The F4+8 assumed an increase in demand at the end of June, with full ramp up by Q3. The economic climate is slower than predicted, with no expectation of change until 2013. … Prices remain as target. Rutile The Dupont negotiation strategy and the softer market has meant a reduction in Rutile volume. 5kt Rutile 95 and 5kt Rutile 92 was targetted [sic] for Dupont if negotiations had changed track. The softer market also means there is no interest from other customers. … SR Products - The softer pigment market, has caused a number of customers to reduce their production and defer feedstock requirements. The F6+6 assumes SR Premium volume recovers at the end of Q3, once excess stocks have been eliminated in the market. … Note the June final numbers are still being reconciled and invoiced. A final true up will be finalised tomorrow. 431 On 3 July 2012 Mr Cobb was copied into an email asking the extent to which Mr Robb and Mr Porter were across the draft F6+6 forecast information. Ms Diamond said that the quantum of the zircon variance may be new. Mr Cobb said that he had not discussed forecast numbers with Mr Robb but had indicated a few weeks ago where he thought the numbers "might land". He said that these "numbers are 20 to 30 kt lower for HGO and Zircon than I anticipated at that time, a function of negotiations with Zircon and HGO customers since that time and lack of improvement generally in the markets. He is also aware of the approx US$100/t discounting of the HGO and Zircon price to try and win orders". This discloses that even from early to mid-June 2012 market conditions had deteriorated in late June 2012 more than Mr Cobb was anticipating. By this time (and from 30 June 2012) I accept that Mr Cobb's view must have been that Iluka's sales guidance needed to be revised downwards, but it is not apparent that Mr Cobb had reached any concluded view as to what demand for the second half of 2012 the revised guidance ought to reflect. 432 On 3 July 2012 Mr Robb received from Mr Porter a draft ASX release which Mr Porter said was for "contingency planning purposes only" in the event that the outcome of the F6+6 reforecast necessitated an update to Iluka's extant guidance. Mr Porter's email also said that: Here is what I came up with some of the forward looking material not included as I don't have forecast numbers as yet but have assumed for planning purposes some possible softness in conditions and a possible change in views. 433 The attachment to this email said it was a "draft - for contingency planning purposes only & dependent on outcome of F6+6". The attachment referred to the marked deterioration in global economic conditions and the consequential need to modify Iluka's sales guidance. No quantitative guidance figures are contained in the attachment. 434 This is consistent with inferences that by early July 2012: (a) the signs of improvement in respect of zircon demand in China in June 2012 had not materialised by the end of June 2012 into increased demand of sufficient magnitude to support Iluka's sales guidance, (b) Iluka's belief that it could lock in TiO2 sales for the second half of 2012 before demand declined further had also not materialised by the end of June 2012, (c) the relevant people, including Mr Robb and Mr Cobb, expected that it would be necessary for Iluka to revise its sales guidance down, but did not have a firm view as to the guidance, if any, which ought to be given in its place, (d) the relevant people, including Mr Robb and Mr Cobb, realised that issues that would have to be resolved at the meeting of the leadership team scheduled for 6 July 2012 was if sales guidance could be provided and, if so, the nature of that guidance, which would require further analyses to be prepared and available for consideration on 6 July 2012, and (e) the possibility foreshadowed at the meeting of the board on 20 June 2012 that the board would have to meet at short notice to decide revised guidance was being realised, with steps taken to ensure the board could meet immediately after the 6 July 2012 leadership team meeting. 435 In the morning of 6 July 2012 Ms Diamond circulated an email about the F6+6 forecasting process and results. The presentation showed that: Zircon June Ramp Up assumed in F4+8 did not materialise F6+6 sales slower ramp up in line with a GFC2 Ceramics sales remain low (hi yoy so% down, H2 30% down) … Ti02 Dupont Ti02 Sales - 100kt contracted full year Other pigment customers still in negotiation for H2 Tronox SR Premium volume - highest risk 436 This is the first occasion when any relevant person suggested 2012 might be equivalent to a "GFC2" for Iluka in respect of zircon. The observation resulted from the June sales and F6+6 draft. Negotiations with pigment customers were continuing with only DuPont contracted for its tonnage. 437 Draft attached notes (which may be those of Mr Cobb as marketing manager) record that: • Zircon China Ceramics totally dead. Our only sales coming from ZOC + fused zirconia. … We saw some positive signs but maybe over-emphasized them but now customers say worse than 2009 or worst ever, May + June terrible. There is a rate cut in China tomorrow - central [government] is obviously worried. If [Indonesia] resumes as Peter predicts, I expect zero sales if we hold firm. Could be crunch time. Europe Customer stocks close to zero (anecdotal) because they dread holding a time bomb in the warehouse for when they see prices falling … • Ti02 US/Europe - Pigment, having extreme difficulty in getting anyone to call back, let along commit to any tonnage. All are producing to order at the moment because inventory warehouses are full. Feedstock needs will be predicated by production scenarios, and those remain totally opaque (bad pun I know). All are openly equating this time as the same at the end of 2008 - without any tonnage indications, we have advanced little in pricing… 438 The "crunch time" to which Mr Cobb is referring, in my view, is a reference to price. The context is to "Iluka holding firm" which I consider is a reference to the fact that it had held firm on price for zircon products. I infer that Mr Cobb was saying that if Iluka continued to hold firm on price it would not achieve zircon sales for the rest of 2012. Mr Cobb also said "[w]e saw some positive signs but maybe over-emphasized them but now customers say worse than 2009 or worst ever". I consider this accurate. Iluka had seen positive signs leading up to the 20 June 2012 board meeting which I consider explains the approach in the report to the board and of the board. It is also apparent that despite the additional time from 20 June 2012 Iluka had not advanced in its negotiations with customers who were now openly comparing the circumstances to the global financial crisis. 439 I accept Mr Cobb's contemporaneous characterisation of the circumstances. That characterisation does not support the conclusion that before early June 2012 Iluka's sales guidance lacked reasonable grounds. 440 More work was being completed for the scheduled meeting on 6 July 2012. A slide pack for the meeting summarised the key points as: • Lower zircon sales from continued delay in market recovery, [especially] Europe • Lower synthetic rutile demand, [especially] for Premium as pigment customers reduce production • Rutile demand weighted to Q4 … 441 The presentation included forecast sales for zircon in Q3 and Q4 in 2012 on the basis of the draft F6+6 forecast, a pessimistic case and a low case. The analysis shows zircon sales in 2012 Q1 had dropped to as low as Q2 in 2009, with only Q1 in 2009 having still lower sales. Between 2008 and 2012 there are two clear periods of serious declines in sales - Q1-Q3 in 2009 and Q1-Q2 in 2012. The pessimistic case analysis disclosed sales of zircon improving only slightly in 2012 Q3 and Q4 above Q2. 442 The presentation dealt with rutile in the same way. Sales between 2008 and 2012 show that sales of rutile were down in Q1 2012 (the third lowest result after Q1 and Q2 in 2009), but increased sharply in Q2 2012 (which was consistent with expectations). However, Q3 and Q4 were expected to be periods of low sales, albeit not as low as Q1 2012. 443 The analysis for synthetic rutile was not as stark, but the trend was similar - low Q1 sales followed by an increase in Q2 2012 but with no anticipated increase in sales in Q3 and Q4 2012. 444 As Mr Cobb explained the three alternative scenarios presented were as follows: (1) the draft "F6+6" sales scenario, which reflected the draft F6+6 sales forecast figures of 319kt for zircon, 206kt for natural rutile and 224kt for synthetic rutile; (2) the "low" sales scenario, which included forecast sales of 263kt for zircon, 177kt for natural rutile and 174kt for synthetic rutile; and (3) the "pessimistic" sales scenario, which included forecast sales of 218kt for zircon, 149kt for natural rutile, and 174kt for synthetic rutile. 445 Later on 6 July 2012 the leadership team met. They prepared draft revised sales guidance for the board to consider of 200kt to 300kt for zircon, 140kt to 200kt for rutile, and 170kt to 220kt for synthetic rutile. 446 Mr Green said that at the meeting on 6 July 2012 the leadership team agreed: (a) that the matter had to be elevated promptly to the Board; and (b) that this would be done at the board meeting to be held the next day on 7 July 2012. As discussed … above, Iluka did not revise guidance on sales volumes until it had a basis for doing so, which would arise from the reforecasting process, which included the preparation of revised physicals. Given the finalisation and review of the physicals, the Leadership Team now considered that there was a clear basis for revision to Iluka's guidance. 447 Paragraph 100 of Mr Green's affidavit said: During my time at Iluka, the company regularly released guidance to the investment market in relation to Iluka's physical and financial characteristics, having regard to Iluka's operations and the general state of the global zircon and Ti02 markets. Iluka's practice was generally to not give explicit guidance on sales but rather to focus on production, as these volumes were controllable by the company, and provided indications of sales relative to prior periods and/or production. Actual sales volumes achieved by the company were released to market in the Quarterly Production Reports. Where Iluka did give explicit guidance on sales (whether in the form of general commentary or specific estimated volumes), Iluka did not revise such guidance until it had a clear basis for doing so. This required it to undertake a rigorous reforecasting process, which included the preparation of a revised sales forecast. 448 Mr Robb's contemporaneous notes of the meeting assisted him to recall that Mr Cobb said words to the effect: We are still negotiating with almost everybody. Our forecasts are not based on completed negotiations, especially in the case of TiO2. In the case of zircon, we are in a standoff in the China market due to fears around the economy. We are seeing customers producing to order only, which has meant that the pigment market has turned sour. Our customers are reticent to make quarterly commitments, and we are instead seeing increased use of monthly deals. We still have not been able to agree volume and therefore price for the second half of the year yet for TiO2 uncontracted sales. 449 Mr Robb said that at this time it became apparent to him that "the uptick in zircon sales which, in the F4+8 reforecast, had been anticipated to occur in from the third quarter of 2012 was not likely to materialise" and that global economic conditions had suddenly deteriorated in a similar manner to the 2009 global financial crisis. Mr Robb said that as a result he: … agreed that we could be sufficiently certain the full year sales projections for zircon, rutile and synthetic rutile were not likely to materialise, even understood in light of the qualifications and disclaimers which accompanied that guidance [and] therefore determined that [he] needed to recommend to the Board that Iluka make further updates to its guidance to the market, notwithstanding that the F6+6 reforecast and Iluka's discussions with customers in relation to second half volume requirements were both still ongoing. 450 A meeting of the board was confirmed for 7 July 2012. 451 More work was completed to enable presentations to be made to the board. 452 Mr Robb's notes of the board meeting on 7 July 2012 assisted him to recall that he said statements to the board meeting to following effect: Our last forecast and market update was based on the F4+8, which itself represented a delay of one month in our normal process in an attempt to increase the data available to the company. Our sales forecast then assumed progressive recovery in the second quarter and maintenance of that trajectory throughout the third and fourth quarters, with zircon recovering and TiO2 remaining solid. We now have evidence that those assumptions, although reasonable at the time, have been overtaken by global economic deterioration and more pessimistic outlooks. We are also now more pessimistic. We think we now have an obligation to update the market. We are still seeing some inconsistency between reported demand, future demand forecasts and global economic data. So we will need to maintain flexibility in case we are wrong and for the medium term. 453 The board resolved to approve the 9 July 2012 notice. The minutes record that: The Managing Director provided the Board with an overview of progress to date in the mid­ year re-forecasting process ("F6+6") undertaken by management since the June Board meeting. It was noted that this process had culminated in recommended changes to the company's 2012 full year sales guidance as presented in the draft ASX release titled "Forecast Sales Volumes - Update" ("ASX Guidance"). It was further noted that management's view that revised guidance was required had only crystallised in the 24 hours prior to the meeting following analysis of: second quarter sales results and trends; recent economic and market data; plus ongoing feedback from the Marketing team in regard to the probable impact of lower demand on second half zircon and Ti02 sales. Messrs Green, Cobb and Wickham then, in turn, addressed management's slide presentation on the F6+6 2012 sales and. production volume outlook. The meeting discussed in detail the current market conditions for zircon and Ti02, full year sales scenarios based on different rates of market recovery, possible sales ranges and recommended updates to existing market guidance. The meeting also considered second half 2012 product pricing and other marketing issues, together with inventory and production implications in respect to the various sales scenarios. It was noted that management would continue to review possible production responses for subsequent approval by the Board, once finalised. The Board reviewed and discussed the proposed ASX Guidance. Subject to a number of minor wording changes, the Board RESOLVED to approve the ASX Guidance for release to the ASX. 454 Mr Bonham submitted that the statement that "management's view that revised guidance was required had only crystallised in the 24 hours prior to the meeting" was self-serving. 455 However, it is apparent from the evidence that: (a) the leadership team had decided at the meeting on 6 July 2012 that the issue of guidance had to be escalated to the board, (b) it was not until that meeting on 6 July 2012 that the leadership team had considered and decided on the range of the revised guidance that should be recommended to the board, and (c) the information necessary for the meeting on 6 July 2012 was only finalised on that day, with the meeting itself being deferred until alter in that day to enable that information to be available. 456 Mr Robb engaged in a discussion with analysts later on 9 July 2012 where he said: … the revised forecasts reflect the fact that within Iluka, and personally, we are considerably more pessimistic about the performance of major global economies and, perhaps more relevantly, their future trajectory, than we were at the beginning of the year, or indeed we were two months ago. I think there are now clear indications that global output is falling. The US, for example, is being sucked into the downward spiral of the eurozone which is, itself, getting worse rather than stabilising, while China's malaise, if I may call it that, now seems likely to last until after the leadership transition, certainly in terms of any major stimulus measures that might have been expected to occur earlier. For evidence, we look, as I'm sure you do, in trying to make sense of the volatility that we see - but we do look at statistics such as, most recently, the June PMI and ISM readings which fell by 1.7 points in manufacturing and 1.9 in non-manufacturing globally. Or, if you look at the US ISM index in June specifically, it fell below the break-even level of 50 for the first time since July 2009. Or, if you consider recent comments by European and US central bankers about bleaker pictures and more widespread weakness than a couple of months ago. Or, in China, the dramatic lowering of its main interest rates last week. These are indicators as to how the world is travelling and they are not as good as they were. In terms of our markets and our customers, conditions can perhaps best be summed up in the following way, I think. In titanium dioxide (TiO2), from strong outlook for demand over the northern hemisphere summer and into the second half with our customers therefore running plants for maximum yield and looking to build inventory, we now see them running for minimum practical yields, using the cheapest possible feedstock blends to do that, and trying to run down inventory. The pigment market has, in essence, gone from full steam ahead to full stop in a little over eight weeks, as I'm sure you will have observed from commentary in that sector. … In zircon, ceramic sales remain low and in China, for example, sales are mainly going into the ZOC (zirconium oxy chloride) and diffused zirconia segments… Investments in more efficient tile-making technologies, experimentation with partial substitutes and with alternative zircon sand processing approaches, such as additional grinding or acid washing, are also having an effect on demand. Although, I think you might argue that the Chinese property market may have bottomed out with recent surveys suggesting the average price of housing may have risen in 100 major cities in June, from May, that's after nine months straight of price declines. Our customers' sentiment is that it is dominated by the fact that expected major stimulus hasn't come, significant loosening of policy settings around the property sector has not occurred, and, in the words of one of our major customers, they expressed the view that conditions now have become worse than they were in 2009. In Europe some opacifier makers, for example, have resorted to toll milling to ensure they make a margin in local markets that are weakened, and, of course, export markets for Europe have slowed dramatically. In those export markets it's clear that the Arab spring has spluttered, but we see a continuation, therefore, of just-in-time buying, buying to supply only from firm orders, or, as I mentioned, for tolling reasons only. So, in terms of our forecasts, how might you think about that? I think our last forecast in early May, based on the data we had available at that time, and our first quarter sales performance, we felt at that time that some evidence of improved economic traction existed. But we identified that contrary indicators also existed and some increased weakness in the face of austerity measures globally. We made - I made the point then that the global outlook remained far from clear. However, our sales volume forecast then, which was split, obviously with a majority of the volume to the second half, assumed a progressive recovery through the second quarter and maintenance of a positive trajectory through the third and the fourth quarters. I guess I might sum up the economic views of the time as Europe perhaps muddling though, US manufacturing strength remaining persistent and, as I mentioned, in China, some relaxation of property market inhibiting policies. The cumulative benefits of all of that being a progressive return of consumer and business confidence flowing into demand for our products. Clearly that confidence is increasingly difficult to find today. We've come to the view that we now have evidence that those, I think, reasonable at the time, assumptions have been overtaken by global economic deterioration and more pessimistic outlooks, and we are more pessimistic also, and that is reflected in the forecasts we've just released. … I think the major thematics that underpin our confidence in the industry remain unchanged in relation to the emerging world in relation to urbanisation in terms of required additions in floor space, etcetera, and the rise of consumerism in those emerging economies. So I think it's very important at this time, within Iluka, that we maintain our focus on that longer term horizon in the same way as we address the shorter term issues we face. 457 Mr Bonham submitted that in this call Mr Robb "sought to paint the revisions as prompted by things of which Iluka had only recently become, and could only recently have become aware". Mr Robb gave this evidence: … there's a very clear, in my mind anyway, sequence of statements from central bankers that were really all on or around this time and they were cited by me in our board meeting that followed 6 July. And they represented a significant turning point in global economies, is my recollection, and I would like to put them in the chronology, if time permits. Because I have them in my mind. … In this week, I mentioned there were specific macro-economic changes that only happened in this period, this week, if you like. This was a coming together - what's the word - crystallising of a number of pieces of information. We had actual sales results for the second quarter, we did not have them before, and the trends obviously through until that period and therefore June half-year results we had, which we did not have before. We had the economic and market data and I spoke just then about the macro-economic shift that happened at this time, in this week in fact. We had the feedback from the marketing team. That was obviously active around this time, around the end of one half and the start of another. And we also had our completion of the F6+6 process which, as indicated in Ms Stratton's email of 20 June, led to a review meeting on Friday, 6 July. So there was by Friday, 6 July and by 6 July only, when those things came together. And they are all relevant, all of them. 458 Mr Robb continued: So on 21 June, Ben Bernanke, chairman of the Federal Open Market Committee, said… the FOMC was seeing a bleaker picture than at its previous meeting, which was two months prior - a bleaker picture. Then on 27 June, if memory serves me correctly, Mervyn King, chairman of the Bank of England, said that he had no idea what was going to happen in the Euro area. On reading that at that time, that's 5 quite an extraordinary statement for a central banker to make, given one of their key roles is maintaining market confidence and so on. And he said he had no idea. That's 27 June. On 2 July, so in the week that we're talking about prior to the meeting, 2 July, there's another data point, and the Institute of Supply Management releases its PMI, purchasing management index, and that is below 50 for the first time since July 2009. That was unexpected. My understanding, they and them, that a reading below signals contraction. It's not a slowing of growth, that's actual contraction in that statistic, what it indicates, factory output and other things in the US. So that's 2 July. That's another important new piece of information as to how severe that change was in that quarter. Then on 5 July, Mario Draghi, president of 15 the European Bank, he said that there was now a - I think from memory he said something like a slowdown across the whole Euro area, but he said there is now a slowdown across the whole Euro area - now, 5 July. Including countries that had not experienced the slowdown before. That's another negative that emerges in this week. And then, finally, on 5 July there was - what else happened, something else -oh, the Chinese Government, your point earlier, the Chinese Government unexpectedly, surprisingly, reduced interest rates. Now, people had not seen that coming, is my recollection, because that was a sign that rather than trying to cool the economy, the Chinese Government was reversing course, worried about growth impacts - I think some of the commentary was around that they had overdone it, but they lowered interest rates on 5 July, unexpectedly, to stimulate the Chinese economy. In my affidavit and in the decision-making we came to on Friday, they were all very relevant macro-economic developments that were affecting all the major economies and they were breaking news. 459 This exchange then occurred: With the exception of the Chinese Government's 5 July announcement directed at trying to revive the Chinese economy, all of those other announcements that you have just listed were consistent in theme with the messaging that you had been getting from the sales and marketing team throughout the first half of 2012, weren't they?---No, they were not. They were a turning point. As I say, if you look at the language in them, Ben Bernanke says, "We are now seeing a bleaker picture." Mervyn King says he's got no idea of what was going to happen in the second half - a very unusual statement for a central banker. And Mario Draghi says, "We are now seeing a slowing." So no, I don't accept that they were part of an expected trend. They were new information. 460 Mr Robb's references to the information he provided to the board about recent economic developments are correct. His contemporaneous handwritten notes for the board meeting on 7 July 2012 say: (1) "Sales volume forecast then [May 2012] (1/3: 2/3 1H:2H) assumed progressive recovery in [Q2] and maintenance of the trajectory through [Q3] and [Q4]…"; (2) "Now have evidence those (reasonable at the time) assumptions have been overtaken by global economic deterioration & more pessimistic outlooks we are more pessimistic also"; (3) "results of F6+6 … lead us to a view we now have an obligation to again update the [market]…"; (4) "Merv King, Governor of [Bank of England], 'no idea what is going to happen in the euro area'"; (5) "Mario Draghi, [European Central Bank] President said a few weeks ago that 'the worst is over'… [but] said last week 'we are now seeing a weakening of growth in the whole of the euro area, including countries that had not experienced it before'"; (6) "China's central bank ... somewhat unexpected, lowering its main interest rates last week (perhaps suggesting increasing concern about state of China's economy + unwillingness to role [sic] out more dramatic stimulus after the leadership transition later this year)"; (7) "US FOMC (Chairman Ben Bernanke) '…bleaker picture of the US economy than it had at its last gathering two months ago [June 20 meeting]'"; (8) "June PMI/ISM readings fell by 1.7 points in manufacturing, 1.9 points in non-manufacturing global output falling US being sucked into malaise affecting euro zone & China"; and (9) "US Institute for Supply [Management] (ISM) fell below breakeven level of 50 for first time since July 2009 US factory activity ". 461 In summary, the contemporaneous documentary evidence, and supporting oral evidence, is to the effect that: (1) relevant personnel within Iluka were aware of all of the issues that Mr Bonham has identified as relevant to Iluka's likely sales position in 2012 and continuously took those issues into account; (2) relevant personnel within Iluka (Mr Cobb and Mr Robb in particular) considered that the sales guidance provided involved achievable stretch targets for 2012 on the basis that, as a general proposition and for the reasons they gave: (a) the zircon market was undergoing a soft period but would rebound in the second half of 2012; and (b) the TiO2 market was buoyant; (3) because the zircon market had not rebounded to the extent anticipated in Q2 of 2012 but there were signs of it doing so, Iluka revised its sales guidance down for zircon on 8 May 2012. Both Mr Cobb and Mr Robb considered this revised zircon sales guidance to be reasonable and the best available at the time. At that time there was also evidence that the TiO2 market would continue strongly and the statements from Iluka's customers to the contrary was in the context of negotiations about price for supply in the second half of 2012 and inconsistent with other evidence and the customers' own public statements; (4) there continued to be signs of a recovery in zircon demand in China up to the board meeting on 20 June 2012. At the same time Iluka was negotiating supplies of TiO2 products for the second half of 2012; (5) global economic conditions deteriorated sharply through the second half of June and early July 2012 with a series of statements about macro-economic conditions indicating a continued precipitous decline. At the same time: (a) the signs of the zircon market rebounding had not eventuated into increased sales; and (b) the negotiation process for TiO2 sales in the second half of 2012 were becoming increasingly difficult with no advancements achieved beyond the position as at 20 June 2012; (6) after reviewing the draft F6+6 forecast on 29 June 2012 Mr Cobb considered that it was unlikely that Iluka could or would meet the 8 May 2012 sales guidance, but (it is clear) did not then have the information necessary to estimate the sales that were achievable for the rest of 2012; (7) at the same time the leadership team meeting for the draft F6+6 forecast was scheduled for 6 July 2012. No doubt because of the views he then held, Mr Cobb arranged to be available for that meeting despite being on leave; (8) the information necessary for the leadership team to consider the revised range of achievable sales for 2012 had to be completed before the meeting on 6 July 2012 could take place. There is evidence that the meeting had to be deferred for a few hours to enable the information to be finalised; (9) the leadership team met in the afternoon of 6 July 2012 and decided on the need for revised guidance and the substance of that guidance which should be considered by the board at a meeting which had already been arranged for 7 July 2012 (a Saturday) in anticipation of the leadership team's consideration of the up to date information including the draft F6+6 information; and (10) the board then met on 7 July 2012 and accepted the views of the leadership team leading to the revised guidance issued on 9 July 2012. 462 I also infer that at the meeting of the leadership team on 6 July 2012 and of the board on 7 July 2012 a final decision was made not to materially reduce prices to secure volume. 463 The reactions of analysts does not demonstrate "how little they had appreciated the extent to which Iluka had been experiencing the effects of the various factors in zircon and TiO2". This assumes that the factors identified by Mr Bonham (in the main, substitution and thrifting effects in both markets) were the cause of a permanent and major change in the demand for Iluka's products and that: (a) Iluka knew or should have known about the substantial extent of substitution and thrifting effects in reducing overall demand in both markets by 12 April 2012, but (b) analysts and the markets did not and could not know about the substantial extent of substitution and thrifting effects in reducing overall demand in both markets by 12 April 2012 as they had not been disclosed by Iluka. 464 As discussed, I do not accept this analysis as: (a) Iluka did not know about substitution and thrifting at all times, and took it into consideration in its assessments to the extent possible, (b) the evidence is that analysts and others such as TZMI also knew about substitution and thrifting at all times, also took it into consideration in its assessments to the extent possible, (c) Iluka and, it would seem, TZMI and most analysts considered that the demand for Iluka's products would grow in any event given increased urbanisation, (d) the contemporaneous evidence does not suggest that the reason for the revised sales guidance on 8 May 2012 or 9 July 2012 were the result of an unexpected effect of substitution and thrifting decreasing the demand for Iluka's products, (e) rather, the contemporaneous evidence supports the inference that the revised sales guidance on 8 May 2012 or 9 July 2012 were the result of unexpected economic conditions, the first on 8 May 2012 being the failure for demand for zircon to increase as expected after Chinese New Year given poor economic conditions in China continuing longer than had been anticipated and the second on 9 July 2012 being the sudden material deterioration in global economic conditions which meant that zircon demand had and would continue to be low and TiO2 demand had become low. 465 Further, the analysts' reports in respect of Iluka's 9 July 2012 notice are consistent with these inferences rather than Mr Bonham's case theory: (1) the Royal Bank of Scotland in its 9 July 2012 report referred to "ongoing weakness in both Zircon and TiO2 markets significantly worse than we expected"; (2) the Royal Bank of Canada (RBC) Capital Markets in its 9 July 2012 report referred to the "magnitude of sales volumes downgrades this year, based on the sharp deterioration of its market" and said "[a]s the CEO stated, this sector went from 'full steam to full stop' within 8 weeks and it is the weakness in the pigment market that surprised us the most and is most concerning. Pigment producers are slowing output as macro economics deteriorate" (I note that the "full steam to full stop" statement by Mr Robb related to the pigment market, not the zircon market, but the relevant point is RBC Capital Markets, in effect, agreed with Mr Robb about the surprising deterioration in the pigment market); (3) Morgan Stanley in its 9 July 2012 report said "[r]educed sales guidance for zircon was expected. However significant reductions for Rutile and Synthetic Rutile were unexpected"; (4) JP Morgan in its 9 July 2012 report said "Iluka's revised guidance highlights the significant lack of visibility in the mineral sands market with the largest producer of zircon completely changing its view within a matter of weeks"; (5) Deutsche Bank in its 9 July 2012 report said the "biggest surprise came from the severity of the 2012 sales guidance downgrades in both key markets", "[g]iven both the zircon and titanium markets are relatively small, the supply/damand [sic] balance can be very quickly tipped in either direction", and "[f]ollowing record price rises in early 2012, demand has since fallen due to deteriorating macro conditions which has put pressure on volumes and pricing in the near term" but "we remain positive on the fundamentals of the mineral sands sector given there is a lack of new supply"; (6) Credit Suisse in its 9 July 2012 report said: (a) "[s]ales guidance downgrade #2 for Iluka was scorched earth. Devastating collapse in all sales lead by zircon … The sales collapse is akin to what happened in 1H09 and [Iluka] is following a similar tactic of holding the price steady and taking the hit to sales"; (b) "… the mineral sands industry with high prices and short-dated contracts has now proven itself to be exceedingly volatile, prone to savage destocking cycles. The question now is how much of the downturn is cyclical versus structural (permanent)"; (c) "[t]he 2009 sales collapse has returned for Iluka. Given that we are in the depth of the trough, it is unclear whether there will be a repeat of the restocking rebound of 2H09, but [Iluka] seems doubtful, with the global economic troubles grinding inexorably onwards"; (d) "[w]hat originally looked to be a sparkling year of tremendous profits is now looking ordinary"; (e) "[i]n our opinion, a decline this sharp must have a cyclical destocking element to it. Whether there is also an underlying structural decline is uncertain, but we suspect there is a component"; and (f) "Iluka's CEO made it quite clear he thinks we are seeing a cyclical retraction and demand will inevitably return. Ultimately we agree, but with the proviso that demand won't come back as hard as it did following the 2009 down-turn. The China property engine is faltering and Europe has stalled. Also, there are some structural issues that will damage demand long-term"; and (7) Merrill Lynch in its 9 July 2012 report said: (a) "Iluka delivered guidance update (Mk II) ahead of the June QPR - due on Thursday - with pretty chunky lowering of sales expectations. Pretty hard to sugar coat this one"; (b) "[i]n the words of the CEO, Dave Robb, 'Simply put the latest downgrade reflects the fact that Iluka is considerably more pessimistic about global economies and their respective future trajectories i.e. global output is falling, US is being sucked into Euro weakness, which is getting worse, China's malaise is expected to last until after leadership transition (absent any more stimulus).'"; and (c) "[t]he current situation was highlighted as part structural and part cyclical … 'this industry doesn't have a dimmer switch ie it is either full on, or full off.'". 466 None of these analysts suggested that: (a) global economic conditions were other than as Mr Robb had identified, (b) Mr Robb was wrong in characterising the sharp downturn as a result of suddenly deteriorating economic global economic conditions and volatility in the markets, or (c) Iluka had missed that the drastic downturn was all or mostly result of a permanent decrease in demand due to substitution and thrifting (Credit Suisse merely suspected a permanent structural component but said this was unknown). These reports are all consistent with Iluka's evidence.

5.1 Mr Robb 467 Mr Robb gave evidence. To the extent not discussed above, Mr Robb's affidavit explained that he was the Managing Director and Chief Executive Officer of Iluka between 18 October 2006 and 2 September 2016. Mr Robb thus steered Iluka through the global financial crisis in 2009 and saw its sales and prices for its products dramatically increase after 2009. He worked in the natural resources industry for 40 years. 468 Mr Robb said: (1) as a result of its market leading position, he considered that Iluka's leadership team and senior management team comprised some of the most experienced and capable individuals in the mineral sands industry; (2) in his experience: (a) about two thirds of sales of Iluka's mineral sands products typically occurred during the second half of the calendar year; and (b) this increase in second half sales was principally due to timing issues arising from the interaction of events such as European and North American winter slowdowns, the Chinese New Year and European summer break, which typically delayed buying decisions and inventory restocking towards the latter half of the calendar year; (3) the mineral sands industry had a long "value chain" - that is, it comprised a number of discrete steps between the extraction of raw mineral and delivery of products containing that raw mineral to the end customer. Iluka was not involved in all aspects of the value chain (these included, for zircon, Iluka Miller Tile manufacturer Tile wholesaler Tile retailer End customer); (4) changes in any of the above steps could have cumulative effects along the value chain and result in sudden changes in demand for Iluka's products that could be difficult to anticipate; (5) the emergence of China as an important market for mineral sands producers worldwide also made it more challenging to anticipate demand for Iluka's products given the fragmented market in China, the lack of transparency of that market give that demand was driven by future price expectations and customers stockpiling products, and demand being vulnerable to government changes in policy; (6) customers could present biased or selective information to enhance their commercial position, and therefore information from customers was not necessarily reliable; (7) the move to shorter period sales contracts enabled Iluka to maximise profitability but also might lead to increased volatility in Iluka's sales volumes within a year or from year to year; and (8) given these factors it was Iluka's practice to include specific disclaimers in statements made to the market which conveyed these uncertainties and the difficulties in making forecasts, which should be taken as a guide only and which should not be relied upon as a predictor of future performance, which Mr Robb considered particularly important. 469 Mr Robb also said that: (1) while Mr Tate's business development team was working to devise and develop a comprehensive suite of lead indicators of demand, the work had indicated that the indicators identified often appeared contradictory and Mr Robb did not at the time consider any of those indicators collectively or individually to be decisive in seeking to forecast sales volumes; (2) Iluka principally took a "bottom up" approach to forecasting sales volumes for the purposes of preparing the budget - that is, Iluka developed its forecasts by first seeking to determine global sales volumes by reference to its projected sales to individual customers and then adjusting those projections to take appropriate account of the potential for "spot" sales; and (3) budgeted sale volumes were intended to include "stretch" which meant they were specific, measurable, achievable, realistic and timely targets that Iluka's management would have to work hard to achieve. 470 Mr Robb knew about the work within Iluka about substitution and thrifting which had started in mid-2011. By February 2012, he was aware that there were a series of unknown variables regarding substitution and thrifting. He directed continuing work in this regard as he considered the work to that time preliminary, still speculative and insufficiently definite. 471 Mr Robb said it was his usual practice to test the analysis and conclusions presented to him and to seek to understand the assumptions and processes underpinning Iluka's reforecasting processes with a view to satisfying himself that the projections were reasonable and achievable. 472 To the extent not already discussed above Mr Robb gave evidence about pigment production that: (1) "[m]ost pigment plants ran a blend of feedstocks from Iluka and other suppliers which they determined best met their needs in a blend, and that also obviously they were looking to optimise the cost of that feedstock as well as the technical attributes of it. So a pigment buyer was - a feedstock buyer was looking to optimise … within a range of parameters, not just it has to be rutile or it has to be synthetic rutile"; (2) "… once an operating team and the technical boffins in a plant get used to a particular diet of feedstock, they - there's a degree of inertia about changing away from that. They have to qualify the product. It's quite a complex process"; (3) "[r]utile is a higher grade than slag. It's a higher grade than synthetic rutile. They have different contaminants in them. They react slightly differently in pigment makers' plants. Some customers prefer synthetic rutile for its reactivity over rutile, for example. So it is now largely fungible, yes, I would agree, but each customer had its own particular needs and its own particular assessment of what feedstocks to put in"; (4) "… the working assumption was that pigment makers would be able to pass on their cost increases to their customers, paint makers, and in turn paint makers would be able to pass them on to their paint retailers, for example. So it's somewhat artificial to say that as part of a negotiation, when Iluka is postulating a price, that the margin effect of that price ignores the ability of the customer to ... their own prices. We made a record profit in 2011 by doing exactly that. So it had happened, that cost pass-through had been possible, and we were testing, as part of these negotiations, their reaction to further price increases that were the initial part of a negotiation"; (5) "… if you were, in my understanding, as a paint maker to be contemplating shifting in large measure from chloride to sulphate pigment, then that was difficult and there were logistics issues associated with that and the sulphate pigment might come from a country that you might not regard as reliable. It was a complex decision"; and (6) "… a chloride plant is a chloride plant and runs chloride feedstocks. A sulphate plant is a sulphate plant and runs sulphate feedstocks, in the main … there's a lot of quality and other reliability of supply, there's a lot of technical aspects to a buying decision by pigment manufacturers … what paint makers were considering was innovation and trial". 473 Mr Robb gave evidence about zircon that: (1) it did not follow that if its zircon was the highest priced then Iluka would bear a disproportionately large portion of the reduction in global demand, as "the actual workings of the market are much more complex and the customer/supplier relationship is much more complex than" this; (2) "the F4+8 was the outcome of a disciplined and rigorous process, top-down, bottom-up, across the organisation, it looked at sales, it looked at costs, it looked at production, it looked at everything, to create the very best view of the business that we could. And we were highly motivated to get that as right as we could"; (3) he did not accept that there would be a long lag time for the effect of any change in Chinese government policy to take effect as the market was based on consumer confidence and "can turn on a dime"; and (4) in mid-May 2012 Iluka was not confronted with a choice of maintaining prices and losing volume or lowering prices and gaining volume as price reductions may or may not have been material to sales volumes. 474 Mr Robb also said: (1) "we said from time to time that we were not market-share oriented, for example, and obviously that suggests quite clearly that the volumes were subordinate, if you like, to the long run, medium/long run price factors that we had"; (2) Iluka "monitored lots of data. As I said earlier, the problem was it was often contradictory in nature"; (3) Iluka understood substitution and thrifting "would be an inevitable response to what had happened in terms of prices, that's what sensible buyers do. The extent to which they would be successful with it, how fast the transition would occur, what other impacts they would suffer in terms of product quality, that was an unknown, as was how much of it had already occurred"; (4) Mr Bonham's propositions assumed that the prices of substitutes "never goes up, that the person who provides them never takes the opportunity to move them closer to Iluka's pricing or anybody's pricing and improve their own profitability. I don't believe that's a realistic assumption that you can make, that the people who are selling competing products, that their price will be static. I don't think that's realistic at all"; and (5) otherwise, as to Mr Bonham's case theory that by 8 May 2012 it was improbable that Iluka would be able to achieve the sales guidance then provided "I understand that's your argument. I do not agree. It covered - as I recall it over the course of the three days, we have covered the fact that there were positive and negative data points throughout this period. We have covered, I believe, the fact that some of the assumptions that you have made around the ability of customers to 20 switch and so on are simply not correct, and I don't agree with your allegation. The world is always more complex in real time than it is in hindsight". 475 In his oral evidence Mr Robb was an impressive witness - clear, direct, cogent and knowledgeable. 476 I accept Mr Robb's evidence.

5.2 Mr Cobb 477 Mr Cobb gave evidence. 478 To the extent not discussed above Mr Cobb's affidavits explained that: (1) "[a]lthough Iluka's 'market share' was a consideration in Iluka's budgeting and forecasting process … it was not the primary driver; with the main objective to maximise revenue and margin"; (2) "[d]espite the downturn in the zircon market in late 2011 and 2012, 2012 ended up being a very good year financially for Iluka, as Iluka was able to maintain good margins (driven by high prices for its products, including zircon) resulting in strong revenues. From memory, at that time, 2012 was the second most profitable year Iluka ever had, other than 2011"; (3) "… the Sales and Marketing team was responsible for the preparation of the draft sales budget which formed the foundation for the sales volumes ultimately included in the final budget provided to the Board … the draft sales budget was prepared based on the Sales and Marketing team's estimated sales for each individual product which, in turn, were based upon the regional Sales and Marketing Managers' views on the potential sales to each individual customer within their respective regions of responsibility in the budget year"; (4) "… the Sales and Marketing team adopted both a 'bottom-up' and 'top-down' approach when forecasting sales … The 'bottom-up' approach involved forecasting sales that Iluka would make to individual customers on a customer-by-customer basis … In preparing a sales budget using a 'bottom up' approach, it was necessary to make some allowance for sales to new customers or sales into new markets. In preparing Iluka's sales budgets, allowance was made for these factors through the use of 'planning customers' allocations … The 'top down' approach, on the other hand, involved forecasting sales that Iluka would make in the relevant year based on the forecast size of the global market for Iluka's zircon and TiO2 products, and Iluka's forecast share of those markets … Iluka's 'top down' analysis was used, primarily, to 'sense check' the budget forecasts that had been arrived at through the 'bottom up' process"; (5) between late 2009 and 2011, the zircon prices set by Iluka's competitors were generally below Iluka's and there were non-price factors influencing customers including that: (a) while zircon sand produced by upgrading zircon-concentrate produced in Kalimantan was, in most cases, high quality, there were issues with the reliability of supply, as well as variability in quality that made relying on the supply of upgraded Kalimantan zircon-concentrate less desirable than relying on a supply of zircon sand from Iluka; (b) a number of Iluka's competitors primarily produce standard-grade zircon. Opacifier made from standard grade zircon is, generally speaking, of poorer quality than opacifier made from high-grade zircon such as Iluka's; (c) there was an element of loyalty with many zircon customers whom Iluka had supported by fulfilling their tonnage requirements during the shortage of zircon supply in 2010 and early 2011, instead of selling product at higher prices on the spot market; (d) a change of zircon supply to a customer making opacifier for high quality end- use applications could potentially result in a change in the quality of the opacifier and the appearance of the end product; and (e) most of Iluka's competitors were predominately producers of TiO2 ilmenite who produced zircon as a by-product of these operations and did not have the short-term capacity to produce more zircon to meet increased market demand. (6) it was his view in February 2012 that the approach to sales guidance adopted by Iluka in materially reducing the budgeted sales volumes for zircon, and slightly reducing the budgeted sales volumes for its lower-grade rutile and synthetic rutile products, was the appropriate response given the state of, and medium-term outlook for Iluka's mineral sands markets having regard to his views that: (a) Iluka's revised zircon budget for 2012 appropriately took into account the slowdown in global zircon demand that was observed in late 2011 and early 2012; (b) although he was not anticipating zircon sales being as strong in 2012 as they were in 2011, he expected the level of zircon demand to rebound strongly, particularly in the second half of 2012 on the same trajectory as it had in 2009 following the global financial crisis, albeit from a higher base as: (i) typically, sales of Iluka's zircon products are heavily weighted toward the second half of the year; (ii) China's 12th Five Year Plan (which applied to the period of 2011 to 2015) targeted a material increase in China's urbanisation rate and GDP per capita between 2011 and 2015; and (iii) it would take time for Iluka's customers' existing inventories to clear, following which customers would be required to restock; (c) Iluka was well placed to take advantage of the expected turn around in zircon demand due to the fact that it had product stored in warehouses all around the world, particularly in China, Iluka's largest zircon market; (d) the effects of substitution and thrifting and supply of zircon from Kalimantan had been appropriately taken into account; and (e) Iluka's forecast for its higher-grade TiO2 products reflected the quantities that its major pigment producing customers had indicated they required from Iluka in 2012, as well as the expected strong performance of the high-grade TiO2 market in H2 2012; (7) by April 2012 Mr Cobb considered Iluka's sales guidance was achievable but was concerned that the zircon market had not commenced its recovery as early as he anticipated it would, but had no concluded view as Iluka was still in on-going negotiations with a number of its zircon customers with respect to their Q2 2012 requirements and he had not yet received formal feedback nor reforecast sales from the Iluka's regional sales and marketing managers ahead of the upcoming F4+8 reforecast; (8) the reforecast sales included in the final F4+8 reforecast sales submission reflected what he considered to be a reasonable forecast based on the information available to Iluka at the time as: (a) the revised sales figure for zircon was approximately 68kt lower than the figure included in the 2012 B2. The downward revision captured Iluka's negative budget variance to date of approximately 20kt (being the 19kt recorded in the March 2012 performance report and the 1kt expected variance recorded in the April 2012 day zero report), whilst providing a "buffer" of approximately 50kt to reflect the slower than expected recovery in the global zircon market; (b) the allocations made to Iluka's customers in the F4+8 reforecast were made based on the regional sales and marketing managers' discussions with those customers; (c) he maintained the view that a recovery in the zircon market would be seen in H2 2012, which was supported by external commentary he considered at the time; (d) he viewed the introduction of export taxes on Kalimantan concentrates from April 2012 as being likely to restrict exports from this source to China; (e) year to date sales of rutile and synthetic rutile were in-line with budget, other than a non-permanent negative variation in Iluka's natural rutile sales that was caused by shipment delays and he was of the view that the northern hemisphere paint season had begun and demand for pigment (and, by extension, TiO2 feedstocks) would improve quickly commencing Q2 2012; (9) the market commentary in Mr Robb's presentation on 16 May 2012 reflected the views Mr Cobb held at that time; (10) while by early June 2012 he began to suspect that it may be difficult for Iluka to achieve the sales results forecast during the F4+8 reforecasting process he could not reach any concluded view to that effect at that time (for the reasons referred to above); (11) by 30 June 2012, when he received the draft F6+6 forecast he agreed with those forecasts which indicated Iluka would not achieve its sales guidance but did not know where the "numbers would land"; and (12) he was then part of the 6 July 2012 meeting of the leadership team and the 7 July 2012 meeting of the board. 479 Mr Cobb gave this evidence about the zircon market: (1) "[h]istorically, demand for zircon was cyclical, so periods of soft demand were not unusual. This was especially true of the first quarter of each year due to Chinese New Year holidays and the Northern Hemisphere winter season"; (2) Mr Cobb always had regard to relevant macro-economic information in reviewing and finalising Iluka's sales budget and sales reforecasts, but it was not Iluka's practice to rely heavily upon the MFSS or any other "lead indicators"; and (3) there were a number of factors that influenced the level of Chinese zircon demand in any given year that are independent of residential property constructions in China, which included: (a) a significant proportion of Iluka's zircon was used in end-use applications that were entirely independent of the construction sector (including the majority of chemical applications); (b) major non-residential infrastructure projects were a key driver of demand for tiles and ceramic products in China, particularly high quality ceramic products that had high opacifier content (and therefore required more zircon to produce); (c) not all tiles manufactured in China were consumed in China; and (d) demand for zircon was impacted by inventory effects. 480 Mr Cobb gave this evidence about the TiO2 market: (1) "[a]lthough both rutile and synthetic rutile are high-grade TiO2 feedstock, during my time at Iluka, rutile and synthetic rutile were marketed and sold as separate products as they have differing value in use for Iluka's TiO2 customers"; (2) "[c]hloride pigment plants are run on a continuous basis and therefore continuity of supply, consistency, and quality of the feedstock are seen as critical components in their purchasing process"; (3) "Iluka had a track record of being a reliable source of HGO and was therefore a supplier to almost all chloride pigment plants around the globe"; (4) Iluka "used the TZMI conference in November of each year to conduct face-to-face pricing negotiations with our major TiO2 customers. Once a price was agreed for the relevant period (ie the first half), shipments for that period were formally documented in individual shipping contracts closer to the time of shipment"; (5) "[i]n Q2 of each year, discussions commenced between Iluka and its major pigment producing customers in relation to pricing in the second-half of the financial year … H2 pricing negotiations with the major pigment producing customers generally concluded in or around May and June of each year"; and (6) it was common for Iluka to sell more TiO2 in the second half of the year than it did in the first half. This was the case in all calendar years between 2005 and 2011. 481 Mr Cobb gave evidence about substitution and thrifting and alternative sources of products: (1) the Kalimantan operations involved the processing of low-grade zircon into high-grade zircon concentrate, much of which he understood to be mined illegally and smuggled out of Indonesia to be sold into China for upgrading into a final product; (2) there had been record high sales of zircon from Kalimantan in 2011 and thus the effect of this source was embedded in Iluka's 2011 sales figures; (3) in his view "the increase in efforts on the part of tile manufacturers to substitute or thrift in the use of zircon-based opacifier in 2011 was caused by a combination of the supply shortage that occurred in 2011 (including the rationing of supply by Iluka), as well as the materially higher price of zircon sand"; (4) "[a]lthough evidence of an increase in efforts to substitute or thrift zircon-based opacifier in the production of ceramics was evident in 2011, particularity in China, it was difficult to determine the extent to which the practices had impacted (and by extension, were likely to impact) overall demand for zircon" for a number of reasons: (a) Iluka had very little direct interaction with the manufacturers of tiles; (b) information regarding the level of zircon-based opacifier in the production of ceramic tiles was not readily available; (c) it was prudent to be sceptical of information that was communicated to Iluka by its customers, particularly where that information related to the level of demand for zircon or products produced from Iluka's zircon; (d) the information regarding the types of tiles that were produced in China was not available to Iluka; (e) it was not possible to specifically identify the extent to which substitution and thrifting was being caused by the supply shortage of zircon, and the extent to which it was being driven by the higher price of zircon sand or the general dip in economic activity in China; (f) during 2011, Iluka's zircon customers informed them there was a change in customer demand for finished tiles; away from traditional "glossy" white tiles toward dark-matte slated tiles which required less zircon to produce; and (g) a number of the substitutes that were developed, or were being developed, to replace zircon-based opacifier in the production of tiles still contained zircon (albeit at generally lower levels of zircon than zircon-based opacifier); (5) he considered Endeka, like the Chinese opacifier-producing customers Iluka had met with in late 2011, had "an agenda on substitution" around product pricing. That is, it was in Endeka's interest to exaggerate the impact of substitution and thrifting practices on zircon-based opacifier demand in order to secure more favourable pricing from Iluka; and (6) while Iluka had carried out a lot of work in relation to substitution and thrifting by May 2012 he considered the work reflected in Mr Masbate's email of 20 May 2012 was still a "work in progress" and, in any event, the proposed reduction in global demand for zircon by 61kt in 2011 and an additional 114kt in 2012 reflected the approach in Iluka's F4+8 forecast (which already included a reduction of approximately 115kt of zircon sales as compared to the level of sales actually achieved by Iluka in 2011). 482 To the extent not already discussed above Mr Cobb also gave evidence about the zircon market that: (1) "[i]n China it's very common and traditional for people to basically run down their inventories going into Chinese New Year so they're not carrying stocks and pay off all their invoices. There is an expectation there, and therefore unless demand was extraordinary and they needed to operate, they would wind down over Chinese New Year"; (2) "all of our customers had an absolute preference for zircon opacifier as the primary source for producing tiles as they were looking to partially substitute various other aluminas, white clay, etcetera, to try and hold their costs down"; (3) "[i]f you do substitution, obviously region by region the substitution could be different. There could be much higher substitution in a country that produces low-quality tiles than a country like Italy that was producing premium quality tiles. So when you looked at substitution specifically around tiles you would want to understand where that substitution occurred both in terms of geographically as well as quantitatively"; (4) "[m]y understanding of the drivers of ceramics in China was a combination of housing and infrastructure. This was a period when China was building multiple train stations, multiple airports and a lot of the high quality ceramics were going into actually those facilities. So infrastructure would be a better use for overall ceramic use than just housing. Housing is just a sector of infrastructure"; (5) floor space sold is one indicator for demand for tiles but he did not know how close the correlation was either in 2012 or now; and (6) he had no recollection of an estimated global zircon demand of 1,050kt for 2012 and was "sure that isn't the number that was used in the final corporate plan for the following year" and his 2012 demand estimate was 1,250kt or, as he put it, "[o]ptimistic 1,250, base 1,250, potential downside 1,200". 483 Mr Cobb also gave evidence about the TiO2 market that: (1) in descending order of quality, TiO2 feedstocks are rutile, synthetic rutile, HyTi, titanium slag and finally ilmenite; (2) all TiO2 customers used Iluka products together in the customer's own blend and only DuPont could use ilmenite without first putting it through a slag process; (3) "it's one thing looking at can the chlorinator deal with the feedstock. It's another thing trying to work out what to do with the waste products … DuPont was fortunate in that they had a long enough licence for injection so they injected this material back into the ground, commonly called today sequestration. They also had a plant in Mexico that had massive waste disposal grounds where they could actually bury the product"; (4) while chloride pigment plants could all use chloride slags the issue is not just that the plant can handle it, but "it's whether the back end of the plant had the ability to get rid of the waste products can handle it" and chloride slags produce a lesser yield than synthetic rutile; (5) "Huntsman had a specific problem relative to their peers in that they didn't have any long-term contracts, as we understood it, left or had very few long-term contracts and they were using far higher proportion of spot price rutile and SR than their competitors and therefore their margins were much thinner"; (6) "[m]y understanding is that the use of sulphate pigment over chloride pigment can be substituted in the majority, I wouldn't say 80 per cent but the majority of applications, especially those where you are putting on undercoats or low quality paint. For automotive paints, structures, it's chloride pigment because it's much more resilient to wear and it's harder"; and (7) "… the demand for pigment is very cyclical and they [customers] talk always about the paint season. Therefore building stocks in the first half of the year before the paint season commences is not unusual at all". 484 In oral evidence Mr Cobb was frank, thoughtful and persuasive. His knowledge of the relevant markets and the mineral sands industry was obvious. 485 I accept Mr Cobb's evidence.

5.3 Mr Green 486 Mr Green joined Iluka in 2006 and became General Manager, Finance and Risk, a position he held until 2016. Mr Green also acted in the role of Chief Financial Officer from June to October 2012. 487 Mr Green oversaw Iluka's budget processes. 488 During Mr Green's time at Iluka, it was typical for the annual budgets to include a degree of "stretch", albeit that this element was never quantified. 489 When Mr Green reviewed the forecast sales volumes for budget purposes his primary objective was to obtain an understanding of the process through which they had been compiled, in order to satisfy himself that a suitably diligent process had been followed by the sales and marketing team. A further objective of his review was to ensure that the forecast sales volumes did not exceed his understanding of "capacity constraints"; both the ability to export sufficient product from the various ports used by Iluka and the productive capacity of Iluka's processing plants and mining and concentrating equipment. 490 Mr Green said that at no point during his time at Iluka did he think or suspect that the figures used to forecast sales volumes were anything other than the best estimate that the sales and marketing team was able to make of likely future sales volumes. 491 Mr Green was not required for cross-examination. The parties agreed that Iluka would not make a submission that an adverse inference should be drawn from any failure to cross-examine any of Mr Green, Mr Rezos or Mr Osborn, on the basis that the applicants would not allege that they knew of relevant matters which were not known by Mr Robb, Mr Cobb, Mr Pizzey or Mr Tate. I draw no such adverse inference. 492 I accept Mr Green's evidence.

5.4 Mr Tate 493 Mr Tate has worked in the mining and natural resources industry for over two decades. 494 In his affidavit Mr Tate gave evidence that he considered that Iluka's process for preparing and reviewing its draft guidance during the relevant period was thorough and supported by underlying internal processes. A key reason for this view was that draft guidance was an output of Iluka's internal budgeting and reforecasting process, which was an extensive process. 495 In his oral evidence, and to the extent not otherwise discussed above, Mr Tate said: (1) he considered the work Iluka had done in identifying zircon demand indicators in China in late 2011 to be a "work in progress" as part of an effort to understand how the demand cycle might evolve as the period had both positive and negative indicators creating uncertainty, but he would not see that work as "an official concluded document" or a panacea for predicting demand cycles; (2) by late 2011 Iluka knew there would be a downturn in zircon demand from a very high base but not the extent of it or period over which it would exist; (3) Iluka looked at all data points it could globally and the 23 December 2011 lead indicators review was just one document that would have been considered; (4) he was aware of substitution and thrifting and that the effect of this had not been quantified but was subject to ongoing work and was recognised by the sales and marketing team as a risk; (5) the work on demand circulated on 5 December 2011 by Ms van Wyk was: … a piece of work done by analysts with a focus on potential inventory rigour around that expectation or the balance between optimistic, pessimistic and realistic over two years. It would not have been given the scrutiny. It would have been - and even the production numbers 10 there, they would be an assessment and subject to significant amount of variability. So this, again, is a piece of work which would not be of the level of detail and rigour to be an assessment of what we would seek as to demand. That would be an outcome of the more detailed work done by sales and marketing. But another piece of work looking at inventory. … We would have assessed it as part of a range between optimistic, pessimistic, use a central 15 point, this central point, whether it's - I wouldn't - I think to suggest that it was a likely case or assessed any further as opposed to a single point - it's not the purpose of what the work was done for. But, rather, looking at a range of outcomes. And that's all I can say. Like, you know, I don't accept what the realistic was done in respect of this because even the production numbers itself could be variable, it's just 20 a piece of work completed, that's all; and (6) substitution and thrifting of zircon in China was complex as "there are thousands of producers of tiles in China, different technologies, different views…". 496 I accept Mr Tate's evidence.

5.5 Mr Pizzey 497 Mr Pizzey has nearly 50 years' experience in the mining and natural resources industry, from working as a design engineer, through to being a director of a number of mining and resources companies. 498 In his affidavit Mr Pizzey explained that: (1) the practice of the board was to review the draft guidance and to ask management questions about it (with a view to "stress testing" the contents of the draft guidance). This review would occur alongside, and was informed by, its review of the budget or reforecast on which the guidance was based; (2) he never approved the release of guidance to the ASX unless - based on his review and discussions with management - he was satisfied that the guidance was accurate and reasonable; (3) the markets for zircon and TiO2 were relatively opaque and forecasting the market for commodities such as zircon and TiO2 is particularly difficult, so the board took the view that guidance about future production and sales numbers ought to include appropriate disclaimers and qualifications that made clear to the reader, among other things, that: (a) forward looking statements in the guidance were based on best estimates, expectations and assumptions, and were subject to a wide range of variables that Iluka could not easily predict and which Iluka could not control, including market conditions; and (b) forward looking statements in the guidance were not a guarantee or prediction of what would happen in the future; (4) he was aware in late 2011 that that zircon demand was starting to slow due to uncertain economic conditions (including in Europe) and measures adopted in China; (5) at the 21 December 2011 meeting, he and other members of the board sought to challenge and stress test management's view that forecast volumes were realistic and capable of being achieved in 2012 and the uncertainty informed the board's decision to carry over the 2012 budget for approval at the board meeting scheduled for February 2012; (6) the board asked management to continue to test the forecast annual production and sales volumes in the B1 submission to ensure the forecast annual production and sales volumes ultimately included in the 2012 budget took proper account of slowing demand for zircon and TiO2 as the forecast annual production and sales volumes did not seem conservative enough given Mr Robb's report to the board for November 2011; (7) at the 23 February 2012 meeting he and other members of the board reviewed, and discussed with management, the updates made to the 2012 budget, and he agreed with the downward revision of the forecast annual sales volumes based on the further information management provided. He recalled that around this time, the outlook for zircon demand in 2012 remained uncertain and, in particular, it was uncertain whether demand in China would rebound once Iluka's Chinese customers returned from Chinese New Year; (8) he recalled that around the time of the 12 April report, which he and other board members would have reviewed, economic conditions remained uncertain and volatile, and that his view (which he understood was shared by management) was that more data and analysis were needed to verify whether the production and sales forecasts in the 2012 budget remained achievable; (9) he recalled that having reviewed the draft 8 May 2012 updates his view was that revised sales forecast - including the significant 15% reduction to the zircon sales forecast - reflected a realistic assessment by management of the negative impact of then-prevailing economic conditions on Iluka's sales outlook for the remainder of 2012 and was satisfied that the in the "Key Physical and Financial Parameters Iluka 2012 - May Update" announcement released on 8 May 2012, the introduction on page 1, among other things, stressed that the information contained in the announcement was developed in the context of uncertain economic conditions globally; (10) at the time of the annual general meeting on 23 May 2012 nothing had occurred to change his view that the sales guidance set out in the 8 May 2012 updates was accurate and reasonable; (11) his general recollection of the board meeting on 20 June 2012 is that, at around this time, zircon sales were below the F4+8 reforecast due to soft zircon demand which was, in part, driven by substitution and thrifting practices in China and Europe and TiO2 sales were also slowing particularly in the pigment sector. The main driver for the lack of pigment demand was the economic uncertainty in Europe as well as substitution practices in China. Although the markets for zircon and TiO2 were soft, the managing director's report noted some positive indicators that suggested a possible market uptick in H2 2012. The board and management discussed the negotiations occurring with zircon and TiO2 customers in relation to potential sales in the second half of 2012. He was of the view that until the outcome of the negotiations with customers became clearer, it was not prudent for management, or the board, to revisit Iluka's market guidance. Having reviewed the minutes, he recalled that Iluka's management needed time to digest the information provided by Iluka's customers during these negotiations and to determine the impacts of the negotiations, if any, on Iluka's market guidance; and (12) in respect of the board meeting on 7 July 2012, he recalled that the significant downward revision of Iluka's expected sales volumes for 2012 was a major concern. He understood that this revision was the culmination of management having realised during the course of preparing the F6+6 reforecast that the assumed turnaround in demand in the second half of 2012 - which had underpinned Iluka's previous sales guidance for 2012 (as noted above) - was now unlikely to eventuate. 499 To the extent not discussed above Mr Pizzey gave evidence that, when he referred to "stress testing", the issue was the process - "[i]f we agreed that a process was followed and the senior management endorsed the numbers, then the numbers held to the extent that they didn't wish to change them in the meeting". Further, an "experienced board has gut feelings about what industry is doing in general and they question based on that gut feeling". 500 Mr Pizzey said he knew about thrifting as an issue from at least mid-2011. He was also aware of the sulphate pigment issue noting that here were discussions about "will quality of chlorides keep overcoming the somewhat cheaper sulphate process? So it's a trade-off between quality process, not just substituting chloride for sulphate or vice versa". 501 In respect of the zircon market Mr Pizzey said "it wouldn't be unusual for two quarters to have a catch-up when the previous two quarters were so low", which could involve "pipeline filling" (that is, building stock). 502 Overall the board process was that "… there would be questioning, there may even be tension in the room, but we would in the end agree - not in a black and white sense - but agree with management what the number should be. If they came with a range of numbers, it would be narrowed down; if they came with specifics, we would ask for justification; not in intimate detail but in sufficient detail to give the board enough confidence that that was the number. And yes, we would then make an announcement". 503 Mr Pizzey's oral evidence was forthright, clear and convincing. 504 I accept Mr Pizzey's evidence.

5.6 Mr Osborn 505 Mr Osborn was a non-executive director of Iluka between 2010 and 2016. He has over 40 years' experience in the mining and natural resources industry. 506 Mr Osborn gave evidence in his affidavit that: (1) it was important for the board to receive updates about the zircon and TiO2 markets, because those markets were opaque and it was hard to make predictions about them. There were a number of reasons for this including that zircon and TiO2 products were sold in relatively small quantities, it was not always easy to work out the inventory levels held by Iluka's customers, and the ultimate consumption of products was not always visible to Iluka; (2) his practice and, to his observation, the practice of the other members of the board, was to question and test management on the views it presented at board meetings; (3) in reviewing guidance, the board's practice was to discuss the guidance in detail with management, including asking questions of management in order to "stress test" the guidance. For his part, a key focus in reviewing the guidance was to ensure that its contents were in line with the underlying documents and sources on which it had been based. In the case of guidance in respect of Iluka's expected production and sales volumes, this meant ensuring that the guidance was in line with the budget or reforecast on which it had been based; (4) he never approved the release of guidance to the ASX unless he believed that its contents were accurate and based on reasonable grounds; (5) the board's practice in reviewing annual budgets was to ask questions of management with a view to stress testing the assumptions and reasoning on which management had based the relevant budget; (6) he recalled that towards the end of 2011 the board was made aware of signs of slowing global zircon demand, but the precise extent and duration of this slowdown was uncertain at around this time. In particular, it was uncertain whether demand from Iluka's Chinese customers would bounce back following Chinese New Year in 2012. It was also uncertain what specific impact substitution and thrifting would have on demand; (7) around the time of the 23 February 2012 board meeting he recalled that there remained ongoing uncertainty as to the outlook for zircon demand in 2012. While zircon demand had continued to slow in the short time since the end of 2011, it was unclear how long this would last into 2012; (8) his recollection is that consistent with the board's general practice, the board undertook a detailed review and tested and questioned management's views (including with respect to the outlook for the zircon and TiO2 markets in 2012). During his time on the board, a key consideration for him, and, to his observation, other members of the Board, in reviewing an annual budget for approval was to ensure the budget was supported by thorough and logical analysis by management. His recollection is that he was confident in the processes undertaken by management and the board papers prepared by management which were supported by comprehensive and reliable data. One reason for this confidence was what he observed to be management's expertise, including that of Mr Cobb who was responsible for preparing the sales outlook in the 2012 budget; (9) he and, to his observation, other members of the board, were also conscious to ensure each annual budget contained appropriate "stretch"; that is, the budget set targets (including as to production and sales volumes) that - while realistic and achievable - would be reasonably challenging to achieve, and, therefore, would push management to improve Iluka's performance; (10) he approved the 23 February 2012 announcement on the basis that it was derived from the B2 budget, which he was confident was the result of logical and thorough analysis by management (including in relation to the outlook for zircon demand which remained, at this time, uncertain). In approving the announcement he placed importance upon the disclaimers included in the announcement. The disclaimers stated (among other things) that the information in the announcement should be treated as a guide only and was being provided in the context of uncertain global economic conditions and potential changes to supply and demand dynamics. In addition, the specific sales guidance for zircon stated (at page 2) that it was "dependent on global demand levels and phasing". Given the uncertain market conditions which existed at the time, he considered the disclaimers to be important because they provided context for, and explained the limitations on, the information included in the announcement, including the guidance on sales; (11) his recollection is that it was not the practice of the board to approve the quarterly production reports, which tended merely to summarise recent production data; (12) he recalled that around the time of the 12 April 2012 report while Iluka's results in the first three months of 2012 had been disappointing, nothing had occurred which (to his mind) called for revising the guidance that Iluka gave to the market on 23 February 2012. The following matters were relevant: (a) the sales outlook in the 2012 budget - on which Iluka's guidance was based - assumed that demand for zircon would be soft in the first two quarters of 2012 before turning around in the second half of the year. Iluka's results in the first three months of 2012 were consistent with this assumption (broadly speaking). In this regard, he was mindful that, unlike other commodities (such as iron ore), zircon and TiO2 did not ship in even quantities throughout the course of a year. For this reason, low sales in the early months of a year did not necessarily mean sales would be low overall in that year, since high volumes might end up being shipped in later months (therefore making up for the low sales in the early months); (b) around this time, market conditions remained uncertain given the prevailing economic developments (including, for example, in relation to China). Given this, his view around this time was that, while it was possible that market conditions might deteriorate to such an extent as to require a revision to previously issued guidance, it was far from definite that this would be the case. The practice of management was not to "jump at shadows" and revise guidance whenever there appeared to be negative economic signals (on the basis that doing so could, in and of itself, confuse the market). Instead, management's practice before revising Iluka's guidance was to wait for more data and then undertake further analysis. This ensured that any revisions to guidance reflected genuine economic trends, not short-term "blips" which did not, in the long run, impact previously issued guidance; and (c) this further analysis was often carried out in the context of Iluka's reforecasting process, the purpose of which was to update the relevant annual budget to take into account the actual results achieved in the year to date. The general practice was for reforecasting exercises to be undertaken at three month intervals (an "F3+9 reforecast" was prepared in or around April of each year based on the actual results for Q1, an "F6+6 reforecast" was prepared in or around July of each year based on the actual results for Q2, and an "F9+3 reforecast" was prepared in or around October of each year based on the actual results for Q3); (13) at the 7 May 2012 board meeting there was extensive discussion and that the members of the board questioned management about the analysis underlying the revised sales outlook and the wording of the announcements. He was confident management had carried out a detailed analysis in reaching its view that Iluka's sales outlook for 2012 should be revised. In this regard, while disappointed, he was not overly surprised by the need to revise Iluka's sales outlook and associated guidance following the further analysis of market conditions undertaken by management as part of the F4+8 reforecasting process. This is because, based on his experience in the mining sector, he was aware that demand for commodities could change reasonably quickly and that abrupt declines in sales outlooks could occur from time to time as the extent of economic trends became clearer; (14) he recalled that around the time of the 20 June 2012 board meeting zircon demand remained soft (including as a result of increased substitution and thrifting of opacifier in China) and there were also signs that TiO2 demand was starting to slow. At the same time, there were some indications that demand might improve in the second half of 2012. Iluka was also engaged in ongoing negotiations with customers in relation to potential sales in the second half of 2012. It was important for management to know the outcome of those negotiations before analysing whether Iluka's sales outlook for the rest of 2012 was required to be revised. Given this the view expressed by management to the board around this time was that there was no basis at that stage to revise Iluka's previous guidance. Further time and analysis were needed, including to learn, and take into account, the outcome of the continuing sales negotiations between Iluka and its customers. Management made clear to the board that management's ongoing review might result in a need to revise Iluka's previous guidance, and scheduling arrangements were to be put in place to allow the board to consider any required revisions at short notice; and (15) he attended the board meeting convened by management at short notice on 7 July 2012 to consider revisions to Iluka's guidance. 507 Mr Osborn was not required for cross-examination. 508 I accept Mr Osborn's evidence.

5.7 Mr Rezos 509 Mr Rezos was a non-executive director of Iluka from 2006 to 2016. 510 Mr Rezos said in his affidavit that: (1) the board meetings held during the relevant period were chaired by Mr Pizzey. These meetings typically ran for a long period of time (around 7 or 8 hours for the scheduled board meetings) and involved detailed discussions between the board and management about the matters under consideration (including whether anything from the meeting triggered Iluka's continuous disclosure obligations); (2) the board's role in the annual budgeting process was to review and ultimately approve each annual budget, if satisfied with the budget. The process involved two rounds, B1 and B2, with B2 updating B1 to take into account the full year results for the previous year (which were not finalised until early on in the budget year in question), and any significant intervening changes, such as a major change in exchange rates or shipping delays; (3) the board's practice in reviewing an annual budget was to discuss all aspects of the budget in detail (including the forecast annual sales and production volumes) and ask questions of management, with a view to satisfying itself that the budget was underpinned by careful and robust analysis on the part of management and the various teams involved in its preparation; (4) Iluka also prepared reforecasts on a three monthly basis - as described above; (5) the board discussed each reforecast in detail and asked questions of management in order to understand and test the analysis underpinning the reforecast. While the board reviewed the reforecasts, the reforecasts were not subject to formal approval by the board. This reflected that the purpose of the reforecasts was not to "reset" the budget (such as by approving further capital expenditure) but rather to provide an up-to-date assessment of how Iluka's performance was expected to track for the remainder of the year in question; (6) it was the board's general practice to discuss Iluka's continuous disclosure obligations at each board meeting and whether any of the information presented to the board triggered Iluka's obligation to notify the market of that information. To that end, continuous disclosure was a standing agenda item for all meetings of the board; (7) the information contained in guidance (including expected sales volumes) was based on information in the budgets and/or reforecasts depending on the timing of the guidance in question; (8) the board's general practice in reviewing guidance was to undertake a line-by-line review of the guidance and to ask management questions relating to the guidance. He never approved the release of guidance to the market unless satisfied that there was a reasonable basis for any forecasts included in the guidance (including any forecasts relating to Iluka's future sales and production volumes), the guidance included disclaimers and caveats to make clear the limitations involved in the forecasts being provided, and the guidance was clearly expressed and left little room for interpretation; (9) during his time on the board, management's practice (with which he agreed) was to carefully analyse emerging market trends (including any softening in demand) before deciding to revise Iluka's previous guidance in light of those trends. The reason for this was to ensure that there was a proper basis for revising the previous guidance, and in particular that those trends were genuine trends that could be expected, with a degree of certainty, to impact the previous guidance, rather than isolated market anomalies or hiccups. Based on his (significant) experience as a non-executive director, it was inappropriate to revise previous guidance based on incomplete or indefinite information, not least because this could result in the need for further revisions if the revision to the previous guidance turned out to be wrong; (10) he recalled that at the 21 December 2011 board meeting a focus of the discussions was whether sufficient allowance had been made in the forecast sales (and production) volumes for the expected softening of global zircon demand in 2012. In this regard, near the end of 2011 and leading up to this meeting, management had informed the board that there were signs that global zircon demand was starting to soften due to various factors including: anti-inflationary measures by the Chinese government, uncertain global economic conditions (especially due to the European debt crisis) and an increase in substitution and thrifting in the manufacture of ceramic products (in response to high zircon prices). His general recollection is that the members of the board were concerned to ensure that the forecast sales (and production) volumes ultimately included in the 2012 budget were reasonable and well-grounded which is a reason why the budget was held over for decision in February 2012 to give management more time to evaluate market conditions and to refine the 2012 sales forecast; (11) he generally recalled that at the board meeting on 22 February 2012 economic conditions - and the outlook for zircon demand in 2012 - remained uncertain around this time and he was confident that the B2 budget: (a) reflected management's then best estimate of the sales that Iluka would be able to achieve in 2012; and (b) was informed by detailed and rigorous analysis on the part of management that took into account all relevant information and data available to management around this time. He understood that management's analysis had involved discussions with Iluka's customers, monitoring Iluka's competitors, liaising with industry bodies (such as TZMI), informing itself about illegal mining activities in Indonesia and Vietnam (which had the potential to lessen demand for Iluka's zircon and TiO2 products), monitoring pricing activities through Iluka's local sales agents, and monitoring downstream producers of pigments and ceramics in an attempt to predict their future behaviour; (12) he did not consider the forecast sales volumes in B2 to be optimistic or unachievable. His recollection is that, if anything, he thought management had been typically conservative in revising the forecast sales volumes (especially in relation to zircon), given Iluka's sales were typically heavily weighted toward the second half of the year and thus it was likely that the slower sales experienced at the start of 2012 could be made up for later in 2012; (13) he was not surprised around April 2012 that, while zircon demand remained soft around this time, management's view was that market conditions had not worsened to such an extent (since the board approved the 2012 budget around six weeks earlier) that there was a need to revise the guidance that Iluka published to the ASX on 23 February 2012. Management's view (with which he recalls agreeing) was that - given the particular market uncertainties that confronted Iluka in 2012 - further data and analysis were required before a decision could be made on whether to revise previous guidance. Management's view was reflected in the decision to replace the usual F3+9 reforecast with an F4+8 reforecast which would update the 2012 budget in light of the actual results achieved by Iluka in the first four months of 2012; (14) he was not able to attend the board meeting on 7 May 2012 but was in email communication with and spoke to Mr Robb and was confident that the proposed revised zircon guidance (including as to Iluka's sales volumes for 2012) was reasonable and grounded in careful analysis undertaken by management with respect to the zircon sales achieved in the year to date and the then-current market outlook. In this regard, he recalls thinking that the revised zircon forecast sales volumes for 2012 erred on the conservative side and that there was a prospect that the final sales volumes for 2012 might end up being higher. On this basis he sought and obtained approval to purchase shares in Iluka which he did for a price of $67,700; (15) he does not particularly recall the board meeting on 20 June 2012 but generally took the view that it was inappropriate to revise guidance based on information that was incomplete or insufficiently definite; and (16) in respect of the board meeting on 7 July 2012, while it was disappointing to have to revise Iluka's previous guidance to such an extent, he understood that this was a reflection of the fact that the market conditions in which Iluka was operating in 2012 were more challenging than management had expected. Iluka's previous guidance (including the 8 May 2012 announcements) had assumed that global zircon demand would recover and be stronger in the second half of 2012 than in the first half. However, as further results came in and as management carried out further market analysis (as part of the preparation of the F6+6 reforecast), it had become apparent that Iluka's previous guidance could no longer be maintained. While these developments were unfortunate, he did not have any concerns that management or the board could or should have acted any earlier to revise the guidance. 511 Mr Rezos was not required for cross-examination. 512 I accept Mr Rezos's evidence.

5.8 Conclusions 513 I do not accept that the evidence of Mr Green, Mr Osborn and Mr Rezos "goes no higher than showing that they relied on the 'process' as they understood it to have been implemented by management". Their evidence is more extensive than Mr Bonham proposes. To the contrary, it is apparent that the board had a detailed understanding of the relevant markets, was kept informed by management of the dynamics of those markets, and was careful to ensure that any guidance Iluka provided to the market reflected those dynamics and the outcomes of detailed internal processes and was suitably qualified. They were also aware that: (a) zircon and TiO2 did not ship in even quantities throughout the course of a year with sales being heavily weighted to H2, (b) demand for zircon and TiO2 could change quickly (which is inconsistent with Mr Bonham's proposition that even if construction demand increased there would be a significant time lag between that and demand for Iluka's products), and (c) Iluka's continuous disclosure obligations were a part of every board meeting. 514 Their evidence (and that of Mr Pizzey) also supports inferences that: (a) the board members were careful to review any guidance on a line by line basis and considered the disclaimers to be important to the guidance, (b) the board members considered that guidance should not be based on incomplete or indefinite information or isolated market anomalies or hiccups, (c) the board would not have approved any budget or reforecast if not satisfied that it was achievable and well-founded, albeit involving a degree of "stretch", (d) the board was careful to ensure that from late 2011, with the global zircon market softening, sales guidance was reasonable and realistic, but had no concern about a weighting of sales to H2 of 2012 given the nature of the market, (e) results up to June 2012 were consistent with expectations of a slow first half for zircon demand, and (f) concern about the demand for TiO2 products did not commence until June 2012. 515 There is no evidence that any Iluka employee or board member considered that: (a) any sales guidance was likely unachievable before 30 June 2012 (when Mr Cobb agreed with the draft F6+6), or (b) with hindsight, Iluka could or should have concluded that any guidance was likely unachievable before 30 June 2012. 516 There is no evidence that any Iluka employee or board member considered that: (a) revised sales guidance could or should have been provided before 9 July 2012 or as to the substance of such guidance, (b) with hindsight, what revised sales guidance Iluka could or should have given before 9 July 2012. 517 There is no evidence that any Iluka employee or board member considered that: (a) management or the board unreasonably delayed in providing revises sales guidance at any time in 2012, or (b) with hindsight, at what earlier time or times Iluka should have given revised sales guidance. 518 To the contrary, those who previously worked for or were a member of the board of Iluka who gave evidence considered that, at the time and with hindsight: (a) management was careful to ensure the board was fully informed in a timely manner, and (b) all budget, forecasting and sales guidance was reasonable, achievable and well-grounded.

6.1 Mr Murray (Mr Murphy and Dr Unni) 519 I am unable to accept Mr Murray's evidence. 520 Mr Murray was the author of an analyst's report (for J Capital, a subscription only analyst service for short sellers) about Iluka dated 28 March 2012. The main points in this report included that: (1) we see little or no improvement in the construction market in 2012 and expect the zircon market to further deteriorate in this year; (2) checks with importers and distributors of zircon in China indicate that most stopped purchasing zircon from Iluka in any significant quantity after October 2011; (3) we believe that Iluka is building up significant stocks at its warehouses in China, now around 50,000 to 70,000 tons, equivalent to 22-30% of 2011 sales and around three to five months of current sales; (4) Iluka inventories in Australia and China will be placing the company under increasing pressure to lower prices by the end of Q2 2012; (5) the growth in zircon imports in China is all at lower price points and not from Iluka and most was low quality zircon for blending; (6) it would appear that the inferior quality is acceptable in this down market; (7) our checks with zircon distributors indicate that sales of zircon are down between 20-50% year-on-year in the first quarter of 2012 in China; (8) China demand is dropping and consumers of zircon are substituting and thrifting. Marginal supply from small producers in Indonesia and Vietnam added another additional 100,000 tons in 2011 in a similar pattern to past price declines; and (9) Iluka will sell all of its rutile and synthetic rutile at higher contracted prices as the global supply of rutile is constrained. 521 There is one primary difference between the views of Iluka and those of Mr Murray at this time. Iluka accepted the market for zircon was soft and would remain so for 2012 Q1 and Q2 but considered that demand would rebound in 2012 Q3 and Q4. Mr Murray considered that the zircon market would further deteriorate in 2012 and thereafter due to a permanent structural change to the market in China from substitution and thrifting. It should be noted here - while Mr Murray was right that the market did deteriorate further by 9 July 2012, the evidence does not disclose what occurred after 2012. 522 Iluka challenged Mr Murray's expertise. That challenge must be accepted. 523 Mr Murray holds a Bachelor of Economics and Arts. In his oral evidence Mr Murray said he established J Capital in 2010 and started covering commodities and mining in December 2011. He described J Capital as an independent equities and macro-economic research company covering Chinese companies listed in the US and Hong Kong, and global companies reliant on China. Before December 2011, Mr Murray had no experience working in the commodities, resources or mining sectors other than as an investor. He had no experience in the mineral sands sector. 524 Between January and June 2012, he wrote or co-wrote eight reports of J Capital about Iluka. These reports were based on reading and investigations he undertook or caused to be undertaken between December 2011 and June 2012. 525 Mr Murray claimed expertise in the global market for mineral sands. He said he obtained this expertise from the time he spent in 2012 and 2013 becoming familiar with the markets in China and attending conferences in China and Hong Kong. One of those conferences related to zircon. He also met with people from Bitossi and Matrix and discussed zircon demand with them. He read reports by companies that were producing in those markets or producing products for those markets. He recalled reading all of Iluka's materials at that time in the public domain. He also read reports about Rio Tinto and their Richards Bay mines. He read about Sierra Rutile and about a range of companies, such as the companies producing things like rutile. 526 Most of Mr Murray's work at this time related to iron ore demand in China. He did a lot of market surveys, regular monthly market surveys, for about four or five years, of steel distributors throughout China. He also covered coking coal and copper and, for a little bit, cement and other commodities. He considered himself an expert in the Chinese demand for iron ore. He said he had also operated media and tech companies in China and covered (that is, analysed) those sorts of companies. He said there was a consistent theme to his work in China, where he lived for 20 years or so and frequently visited after December 2012, involving obtaining primary information from markets and then analysing the primary information. So for zircon he would "find who was an importer of Australian zircon, we would then call them or visit them to ask them about their demand for product, their current inventory and their outlook for the market. That sort of primary information in my opinion wasn't available to the market at the time". He would also "go to the end users of zircon opacifier, like tile manufacturers, and speak to them as well". In addition, he looked at Chinese customs data. Mr Murray clarified that when he said he had interviewed customers in China in 2012 he interviewed about 12 in total and the other 18 were interviewed by his staff. He told his staff what questions to ask. He also met with some tile producers, perhaps 15 from the 3,000 tile producers in China. 527 With the exception of one very small iron ore company, Mr Murray has never been involved in estimating future demand for a commodity by a resources company. He had worked inside multinational corporations and been involved in budgeting processes similar to Iluka's process. Mr Murray considered that there were some similarities in the demand drivers for zircon and iron ore, although the markets are different. The main demand is from the construction of housing, but he accepted that both commodities are used in construction other than housing. This evidence does not support the submission that Mr Murray's experience after 2012 in respect of iron ore contributes to his current expertise in respect of the zircon market - the argument is circular because it depends on Mr Murray's own opinion about some similarities in the demand drivers for zircon and iron ore. 528 Mr Murray agreed that he had no experience analysing commodities outside of China. He said he often built models making assumptions about demand outside of China but he did not do "primary research outside of China". He had spoken only to Bitossi in about November 2012 about Europe and South America. 529 This is a problem. Mr Murray's estimates of reasonable ranges for zircon demand in 2012 are based on global zircon demand. Mr Bonham's proposition that this was not a problem because Mr Murray adopted Endeka's views about global demand highlights the problem. Experts do not simply select the opinion of another person which suits their case. Mr Murray could not know one way or another whether Endeka's views were accurate or reliable. The associated proposition that this is not an issue as Iluka itself accepted Endeka's views does not assist. For one thing, that inference is not open. For another, the very purpose of expert evidence is not to assume an essential integer at the centre of the alleged field of expertise in the formation of an alleged expert opinion. 530 For the purpose of his evidence in this case Mr Murray examined the information available to Iluka, including its internal documents, along with publicly available information and the work he carried out in 2012. Mr Murray's work for this case included multiple revisions and changes in approach. This reinforces the conclusion I have reached that his evidence is not expert evidence in the sense required by s 79 of the Evidence Act 1979 (Cth) (that is, opinion evidence that is wholly or substantially based on specialised knowledge based on the person's training, study or experience) for admissibility of opinions. Alternatively, if admissible, Mr Murray's evidence lacks cogency. 531 The fact that Mr Murray was right that the zircon market continued to decline between April and July 2012 when Iluka expected zircon demand to increase or to show clear signs of increasing for the second half of 2012 before July 2012 does not mean that Mr Murray is an expert in the global demand for zircon. Nor does the fact that Mr Cobb in his email of 30 March 2012 referred to J Capital as having "some very savvy people on the ground". This cannot have been a reference to J Capital's view that they expected the "zircon market to further deteriorate in this year", because Mr Cobb disagreed with this view at that time. Mr Cobb could only have been referring to J Capital's estimates of the zircon sales and inventory of Iluka in China in Q1 2012. 532 The overall problem is that if I accept that Mr Murray became a form of ad hoc expert in respect of the demand in China for zircon in 2012, it is apparent that he did so, in large part, from talking to certain producers in China about 2012 zircon market conditions. That does not make him an expert in: (a) mid or long-term demand trends for zircon in China, (b) any structural effects of substituting and thrifting on the zircon market in China, (c) the reasons underlying the extent of demand for zircon in China in 2012, or (d) anything to do with the global demand for zircon. Yet all of these issues are central to the expert evidence he purports to give. 533 I do not doubt that Mr Murray was in 2012 (and is) an intelligent listener and reader and a resourceful investigator, capable of effectively gleaning relevant information about companies and markets for the purpose of J Capital's analysis and to prepare his evidence for this case. This does not make him a person with specialised knowledge about the companies and markets the subject of his analysis or his evidence. It makes him a better informed person insofar as the zircon market in China in 2012 is concerned than a person who had not heard and read the same information as Mr Murray and an intelligent commentator, but not an expert as required by s 79 of the Evidence Act. Mr Murray (not unreasonably) struggled with the concept of who was and was not an expert as required by s 79. He considered himself an expert in numerous diverse fields but, again, I would characterise Mr Murray as an intelligent and well-informed commentator in those fields rather than an expert. 534 The fact that Mr Murray applied a layperson's intelligence to his evidence, rather than specialised knowledge (or legal knowledge), is apparent throughout his evidence. He repeatedly drew inferences from Iluka's own documents, assuming along the way that they represented final or concluded views of their authors (known or unknown) and could be attributed to Iluka. The significant changes to his analysis through the development of his evidence reflect the lack of any framework of specialised knowledge within which the analysis was being undertaken. Mr Murray said he applied a "heuristic approach of a businessperson, forecasting with the available information". From the whole of his evidence I infer that Mr Murray read and drew inferences from Iluka's internal documents about what he considered a reasonable businessperson would have understood from those documents in the context of his otherwise available knowledge about China, the Chinese zircon market in 2012, and his knowledge of business generally. This does not involve the formation of opinions based on specialised knowledge. It involves conclusions of an intelligent layperson with knowledge of (even perhaps some expertise about) aspects of China and knowledge of some aspects of the Chinese zircon market in 2012. The problem is that even if Mr Murray holds some relevant expertise about aspects of China and aspects of the Chinese zircon market in 2012, it is impossible to unravel opinions based on that knowledge and opinions not based on that knowledge. 535 Iluka identified examples of this impermissible approach in Mr Murray's evidence: (1) Mr Murray said that it appears from Iluka's internal documents that Iluka considered that the MFSS is the best lead indicator of the recovery in zircon demand and that he agreed with this and that it was a reliable lead indicator for upturn in zircon demand. However: (a) Mr Murray has inferred from a single document that Iluka considered the MFSS data the best lead indicator when Mr Cobb's evidence was that although he always had regard to relevant macro-economic information in reviewing and finalising Iluka's sales budget and sales reforecasts, it was not Iluka's practice to rely heavily upon the MFSS or any other "lead indicators"; (b) accordingly, in drawing the inference Mr Murray is performing my task but by reference to part only of the evidence; and (c) it is not apparent how or why Mr Murray concluded that the MFSS data was the best lead indicator for downturn and upturn in zircon demand given that his focus on zircon was confined to the period December 2011 to June 2012; (2) Mr Murray said that on the basis of the China field trip in December 2011 Iluka should have revised sales forecasts for China in 2012 down by at least 32%. However: (a) the 32% appears to be the result of an (unexplained) arithmetic exercise applying the draft field trip report of a 40%-80% reduction in demand in China for zircon in ceramics by substitution and thrifting to the 80% proportion of Iluka's zircon sales into China being for ceramics; and (b) Mr Murray does not explain how his specialised knowledge leads him to conclude that the 32% reduction in sales of zircon on China was necessary to avoid the sales forecast being unreasonable; (3) Mr Murray said that Iluka's new forecast of global demand in April 2012 was 1,050kt and, on this basis, it was clear that "Iluka management were aware that the economic downturn was more severe than they had previously forecast and the task of achieving budget and sales guidance based on achievable market share had become unrealistic". However: (a) as discussed, it cannot be inferred that Iluka concluded in April 2012 that global zircon demand for that year would be 1,050kt. That figure appears in draft documents for discussion purposes along with other figures (such as 1,200kt). Mr Cobb, whose views were obviously crucial, considered global demand in 2012 would be 1,200kt to 1,250kt; (b) again, Mr Murray has drawn one inference from an internal Iluka document (Iluka concluded global demand for zircon in 2012 would be 1,050kt), which is my task, but has done so without regard to the whole of the evidence; (c) from that one inference, Mr Murray has then drawn anther inference (that Iluka management knew by April 2012 that the economic downturn was more severe than forecast) and yet a further inference (that that Iluka management knew by April 2012 that Iluka's zircon sales forecast had become unachievable) when: (i) none of these inferences involve the application of specialised knowledge; and (ii) all of these inferences are inconsistent with evidence of the former Iluka employees and board members; and (4) Mr Murray said that by April 2012 Iluka should have moved to a range-based forecast as the "uncertainty about zircon demand meant that a single number for zircon volumes was a risky format". However: (a) this is illogical - if the forecast given is within a reasonable range, then the forecast is reasonable; and (b) it is not apparent what specialised knowledge, if any, is being applied to this expression of opinion. 536 Further, it is apparent from his evidence that Mr Murray ultimately opined (in a joint report) that the reasonable range for Iluka's global zircon sales guidance between 12 April and 9 July 2012 was 231kt to 336kt. Before that he gave ranges of around 240kt to 296kt and 145kt to 302kt. 537 The fact that Mr Murray's lower end of the reasonable range changed by 86kt (or 37% to 59% of the lower estimates) indicates that his estimates are subject to a large margin of error. If the same percentages are applied to his lowest upper range of 296kt the range would extend to 405kt or 471kt. I am not suggesting these are reasonable upper ranges for zircon demand in 2012. I am suggesting that exercises by the one expert (assuming Mr Murray is an expert in global zircon demand) which can yield such different results are inherently unreliable. 538 If the components of Mr Murray's analysis are considered, this impression of inherent unreliability is reinforced. In his first analysis Mr Murray estimated a reduction in Iluka's sales in 2012 for substitution and thrifting of 122,430kt to 163,240kt. In the next version, this factor was said to lead in a reduction of sales of 123,480kt to 164,640kt. In the next version, this factor was said to lead in a reduction of sales of 32,500kt to 84,500kt. At the same time, the loss of market share factor went from 60,000kt, to 60,000kt, to 132,00kt, to 237,000kt. Revisions of this magnitude, no matter how cogent the explanation for the change, undermines the claim of expertise or, at the least, undermines confidence in the robustness of the analysis. 539 There is also a methodological problem with Mr Murray's approach to this point. Mr Murray has not applied specialised knowledge to ascertain global or China's zircon demand in 2012. Rather, he has taken Iluka's actual 2011 zircon sales then subtracted amounts from those sales for substitution and thrifting, economic downturn, and loss of market share. This is logically unsatisfactory. It assumes that each element in demand is independent from each other element. It also assumes substitution and thrifting impacts start from a notional zero, when it is clear that there was material substitution and thrifting in 2011. It also assumes one evenly distributed global economic downturn when this is not supported by the evidence. 540 To add to the problem, Mr Murray then adopted a new method of analysis altogether in the joint report. The joint report said: Murray estimates the impact of purported loss of market share to other lower‐cost competitors that Iluka would suffer arising from Iluka's pricing policy by considering two scenarios of Iluka's market share in 2012 falling to 22% ("pessimistic") and 32% ("optimistic") respectively, both lower than Iluka's market share of 35% in 2011. Murray applies the 22% market share to the 2012 global demand forecast of 1,050kt to calculate Iluka's expected low sales of 231kt tons (1,050kt0.22) under the "pessimistic" scenario. Similarly, Murray applies the 32% market share to the 2012 global demand forecast to calculate Iluka's expected high sales of 336kt tons (1,050kt0.32) under an "optimistic" scenario. The loss in market share is then calculated as the residual of Iluka zircon sales in 2011 less forecast sales less impact of the economic downturn less the impact of substitution. In Table 2 above the loss of market share is high, 65.85kt and low 145.85kt and calculated as line C = E‐F‐B‐A in Table 2 above [where Loss of Market Share (C) = 2011 Zircon Sales (E) - Forecast Range (F) - Economic downturn (B) - Substitution and thrifting (A)]. 541 On this basis, as Iluka put it, the figures for each of his three "factors" are not independently estimated and then combined (as previously), but merely reverse engineered from the total zircon sales forecast against Mr Murray's assessment of Iluka's expected market share. They do not represent any form of expert opinion about the impacts of substitution and thrifting or the economic downturn. 542 Further, this approach also assumes the 2012 global demand forecast of 1,050kt based on some of Iluka's internal documents (and Mr Murray investigating metadata associated with electronic copies of the documents to assist in surmising the date of creation and the author). The entirety of this approach involves a form of investigation of Iluka's internal documents and expression of conclusions based on the investigation, rather than the application of specialised knowledge to proven or assumed facts to express expert opinions. The problem is not that Mr Murray has drawn inferences from Iluka's internal documents. It is the nature of the inferences he has drawn, in effect, replacing any application of specialised knowledge with a (tendentious) set of inferences about Iluka's asserted beliefs at the time. 543 Mr Murray's "pessimistic" view of Iluka's market share in 2012 of 22% is also not derived from the application of any specialised knowledge. It is a figure Mr Murray has taken from an internal Iluka document about its estimated market share in 2009 during the global financial crisis. Mr Murray does not explain why Iluka ought to reasonably have foreseen in and from April 2012 that 2012 would impact Iluka's market share as it had been impacted in 2009. 544 Mr Murray's "optimistic" view of Iluka's global market share in 2012 of 32% is nothing more than the lower end of Iluka's internal estimates of its market share other than in 2009. 545 Mr Murray's ultimate approach to a reasonable forecast range for Iluka's sales of zircon in 2012 bears no resemblance to either what Iluka did or acting reasonably should have done in and from April 2012. There is no evidence from which it should be inferred that a reasonable company in Iluka's position as at April 2012 should have embarked on any exercise similar to that ultimately undertaken by Mr Murray. 546 Mr Murray's oral evidence confirmed these concerns. Examples relating to his evidence in this case include the following. 547 Mr Murray initially assumed his estimated 7%-10% decline in property sales in China applied globally, but did not refer to any economic data for regions outside of China at that time. 548 Mr Murray initially assumed his estimated impact of substitution and thrifting for zircon demand in China for 2012 applied globally. He changed this evidence after Mr Murphy, a zircon expert called by Iluka (previously with TZMI), identified that the market for zircon in China is different from the rest of the world (as the majority of tiles produced in China were unglazed porcelain tiles, whereas the majority of tiles produced in Europe were glazed ceramic tiles, and the substitution and thrifting techniques in use in China in 2012 were only able to be used on unglazed porcelain tiles). Mr Murray said he knew this but did not take it into account in his initial evidence. Mr Murray then adopted a figure of a 20% demand reduction Europe based on a draft internal Iluka document reviewing the information from Endeka. It is clear that Mr Murray has no specialised knowledge of substitution and thrifting of zircon in 2012 outside of China. It should be noted here that Iluka's sales of zircon to China represented only about 45% of its total zircon sales. 549 Mr Murray gave evidence in this exchange: Now, this forecast of 1,050 that features in appendix 2 you'd have to agree is derived exclusively from your view of Iluka's internal business records?---Yes. I think what I realised is that rather than working from the complete unknown, I feel it's better to work from what's known and what the company itself was talking about. So my conclusion was informed by my own research, but I'm using what they were looking at as a way to help us arrive at this understanding. 550 I do not consider this to involve any application of specialised knowledge. The various figures for global zircon demand in 2012 in Iluka's internal documents varied from 1,050kt to 1,200kt during the relevant period. For an expert in global zircon demand the reasonable range would not be a "complete unknown". Simply taking the lowest figure mentioned in Iluka's internal documents, not knowing who identified that figure or how they did so of it is represented their final views or not is an unsatisfactory reasoning process for an expert seeking to identify a reasonable forecast range for global demand for zircon in 2012. The same conclusion applies to Mr Murray's adoption of a 20% reduction in global demand from thrifting and substitution because that figure is mentioned in internal Iluka documents in the context of its analysis of Endeka's views. 551 The consequence of Mr Murray's approach of relying on his inferences from Iluka's internal documents is apparent in his treatment of lead indicators. He understood such a document to be referring to the OECD general CLI (Composite Leading Indicators) as he "was trying to match what Iluka was saying was the lead indicator and I believe from looking at this, that it was the OECD's general lead indicator". He then presented this information in his first report as relevant to an economic downturn in China when, in fact, that indicator does not include China. The OECD China CLI shows that while the index bottomed out in September 2011 it had recovered by January 2012. Mr Murray said he did not use the OECD China CLI because he considered that Iluka itself did not believe it was a good indicator of an upturn in zircon demand. It is sufficient to observe that an expert in global demand for zircon in 2012 would have reached their own opinions and ensured that a representative analysis of all lead indicators was provided if relevant including the fact (discounted by Mr Murray) that the PMI had also increased by January 2012. 552 The concurrent evidence between Mr Murray, Dr Unni (an economist) and Mr Murphy also exposed the weaknesses in Mr Murray's evidence. 553 Dr Unni holds a PhD in economics. He has taught corporate finance, investment analysis, market microstructure and other areas of finance at the undergraduate, MBA and PhD levels. He has published peer‐reviewed research papers and monographs on asset returns and derivatives. He was an impressive expert within his field of expertise (economic analysis) - knowledgeable, careful, balanced and clear. 554 Mr Murphy has been involved in the mineral sands industry for almost 30 years, initially as a stockbroking analyst responsible for the evaluation of mining companies and commodity market assessments, followed by a 17 year career as a global consultant focused on the mineral sands sector. He has a Master's degree in economic geology and has spent most of his career analysing commodity markets and industrial minerals, with most of his time spent solely on the analysis of titanium feedstocks and zircon. He joined TZMI in 1999 and spent 17 years at TZMI, including 5 years as the Managing Director between 2009 and 2013. 555 There was a clear difference between the nature and quality of the evidence of Mr Murray (on the one hand) and Dr Unni and Mr Murphy (on the other hand). I infer that the difference is a result of Dr Unni and Mr Murphy possessing genuine (albeit different) fields of expertise capable of satisfying s 79 of the Evidence Act and Mr Murray being a well-informed and intelligent non-expert in respect of the issues relevant to the present case. 556 Mr Murphy explained that the zircon market in China was opaque, saying: The nature of the industry is highly fragmented. There's a large number of players, a lot of whom are not very sophisticated. There's no real published information at a deeper level to be able to get into and analyse online 25 trends for both demand and excess supply. 557 This supports the conclusion that Iluka was right to be wary of ad hoc information from a handful of tile producers. 558 Mr Murphy said that TZMI had three Chinese-speaking local residents in China who covered zircon and TiO2, and one Mandarin speaking analyst in Perth who was predominantly focussed on zircon, as well as himself and other analysts in Perth. TZMI also had ship tracking software, trade software and market intelligence giving it a good idea of who was consuming the products and at what price. This supports the view that TZMI's contemporaneous views must be within the reasonable range of views available at the time. 559 It was apparent that Mr Murphy's understanding of the zircon industry, including in China, was far more detailed and nuanced than that of Mr Murray. Mr Murphy explained the importance of understanding that customers used the high-quality Iluka materials to produce opacifier and the lower-quality zircon from other producers to produce flour. Opacifier is milled very finely to below 5 microns and is used in ceramic glazes whereas flour is coarser, up to 40 microns, and is used in non-ceramic applications. While Mr Murray agreed with this, the information came from Mr Murphy, not Mr Murray. It indicates that Iluka was not in the same position as other suppliers in the zircon market and had a sound basis for its price over volume strategy. Mr Murphy's evidence also disclosed a greater sensitivity to the effect of uncertainties and the complexity of dynamics in the market than that of Mr Murray. 560 Mr Murphy gave evidence that: (1) the price of Iluka's product cannot be divorced from its quality, so characterising Iluka's products as the highest prices is an over-simplification; (2) Iluka was not alone in offering certain customers rebates in 2012, but identifying rebates was a "minefield" as they were given by different producers to different customers for different reasons; (3) the zircon demand in China for ceramics was only about 21% of the global demand so "the events that were taking place in China especially in ceramics, and the economic instances, of substitution and thrifting, were not prevalent in other markets in the world, and therefore the court is hearing evidence from China when it is 21 per cent of the world market and we have very little discussion or debate in the expert reports on the rest of the world, which is another 79 per cent"; (4) for a number of reasons Mr Murray's understanding of prices of zircon in the market at the time is flawed and he could not imagine Mr Murray's approach being reflective of the market approach and, indeed, Mr Murphy could categorically say that customers did not adopt Mr Murray's approach. Accordingly, he did not agree with Mr Murray's view that Iluka's zircon was higher priced than the Kalimantan zircon, nor that Iluka's market share could be predicted to fall as a result of Kalimantan zircon or other far smaller suppliers of lower quality zircon; (5) Indonesian zircon suppliers had already established supply into China at about 10,000 tonnes per month on average (the supply quantity being volatile) by July 2011. It was not a new or increased supply in 2012. The "reason there was quite a bit of zircon coming out of Kalimantan is because they were extensive gold mines in that area and there was almost like a pre-concentration in selected areas and they were utilising that for the supply", but it was not a large-scale or consistent source of supply, being produced by rudimentary artisanal methods; (6) the opaqueness of the market meant that there was a "high degree of brinkmanship in the industry, both outside and inside China" including a high degree of misinformation and exaggeration by market participants; and (7) at the time TZMI tried to analyse the China demand issue in 2012 but it was very complex due to destocking, inventory and other issues. Mr Murphy did not think that interviewing 20 to 30 people in the market could yield reliable information and TZMI had planned to interview 500 market participants employing an additional expert, but the answers were so variable that TZMI could not "do it right at the time". There was not enough evidence to enable any quantification of any permanent reduction in demand due to substitution at the time. 561 Mr Murphy also gave evidence in his report that I consider persuasive and supportive of Iluka's views. This evidence included the following: (1) "[t]he only practical way to determine Chinese use of zircon in ceramics was to attempt to trace zircon sand and opacifier distribution through the supply chain that was destined for ceramic applications. Given the structure of the Chinese zircon sand and milling supply chain, and the highly fragmented nature of ceramic end use markets, the task of tracing zircon volumes through the Chinese domestic market was a challenge"; (2) "[b]ased on the information that was available to market participants during the Relevant Period, it was clear that global demand for zircon sand in calendar year 2012 was going to be impacted by substitution and thrifting practices in the manufacture of ceramics. However, what was not clear was the extent of that impact and, in particular, how the impact of those practices on zircon demand interacted with, and could be separated from, the impact of other demand-side factors including the impact of macro- economic conditions that were affecting the ceramic tile industry at the time"; (3) "[h]aving dealt with zircon millers internationally since 2000, I personally had a long history of hearing accounts about the threats of substitution or thrifting of zircon use in ceramics at almost every stage of a zircon price cycle. In my experience, the major zircon millers were consistently negative on zircon intensity of use (intention was to achieve lower zircon sand purchase prices). I was therefore sceptical about the veracity of anecdotal accounts of new substitution/thrifting, and whether they were designed to simply illicit a price response from zircon sand producers"; and (4) "TZMI's demand side forecasts for zircon consumption at the end of 2011 and the end of Q1 2012 were not significantly influenced by anecdotal reports of substitution or thrifting of zircon use in ceramics - rather, it was noted that some substitution and thrifting was taking place. I felt there needed to be reliable evidence of the extent to which thrifting was pervasive or accelerating before introducing meaningful changes to zircon demand forecasts". 562 Dr Unni's evidence in respect of the relevance of macro-economic indicators and the weaknesses in the use Mr Murray made of them was telling. Dr Unni considered that Mr Murray's evidence was not supported by a sufficient economic basis. Dr Unni gave evidence that: (1) the same logic that makes an indicator a predictor of an upturn will also make it a predictor of a downturn and vice versa; (2) "one of the lessons we have learned about the use of economic lead indicators is that multiple indicators of economic activity always provide more reliable signals than individual indicators"; (3) "overall industrial activity is reflective of the economic factors that affect the housing sector, even though it does not literally count housing transactions"; (4) "an index of historical sales is an inherently backward looking index. And while the history of housing sales is certainly useful to examine when trying to anticipate what will happen to housing sales in the future, other indexes that lead the housing sector, indexes that lead economic activity that is relevant to housing, are useful in shaping our assessments of how demand trends will unfold in the future"; (5) the approach of the Chinese government in 2011 was to "seek to curb what it saw as inflation in the housing crisis by seeking to contract activity in the housing sector"; (6) he did not agree with the concept of a lag in time between any change in Chinese government policy and zircon demand as "it would be economically rational for purchasers of zircon to anticipate the economic consequences of the policy of liberalisation, which would be an increase in the demand for housing, and that is to seek to get ahead of that curve, as it were, by purchasing and accumulating inventory before inventories become more expensive"; (7) relatedly, if a "customer's inventories are high, it is more likely that they will choose a course where they are using that inventory rather than purchasing zircon in the marketplace. But whether that actually happens is a function of their expectations of the price of zircon going forward"; (8) the global financial crisis in 2009 is not comparable to the economic conditions in 2012. In particular: The key thing to understand was the distinction between 2009 and 2012 is that the housing sector is typically pro-cyclical, which means that as economic activity expands and personal incomes grow, households in the country have a growing demand for houses because they are more comfortable making the capital investments and have the means to purchase. Housing markets are generally very pro-cyclical. In 2009 when the global financial crisis struck and the western economies contracted and the Chinese economy slowed down, the growth of personal income, which is the fuel for housing demand, disappeared. In other words, there was a down cycle in the global economy and housing being pro-cyclical, fell with it, despite the efforts of the government to soften that decline. So what would determine the recovery of the housing sector would be the customary economic forces that bring economic activity back into the global economy, that cause the global economy once again to start expanding and creating the income for housing demand. What was different in 2012 is that although housing is typically pro-cyclical, we were observing a situation in which the housing sector had begun - the housing purchases had been under contract, even though the underlying economy was growing significantly stronger than it was during the global financial crisis. There was no worldwide economic slowdown that was causing a contraction in economic activity and that would persist and create the income effects to keep the housing sector down. So what was atypical in 2012 relative to 2009 was that housing was contracting despite economic growth, and that tells us what to look to to understand what are the likely prospects of a recovery in the sector. The reason it was contracting despite economic growth was because the government was following an anti-cyclical policy of trying to constrain the housing sector because of the perceived social benefits in reducing house prices. Under those circumstances, when the government ceases to apply that pressure to shrink the housing market, the economic forces that normally shape housing demand are already in place to increase housing demand, and one doesn't have to wait for underlying policies to resume growth; the economic drivers for housing demand were ..... So it is in this sense that the economic information available in the early part of 2012 would have indicated that the prospects for recovery were the speed and the extent, were primarily a function of how quickly the governmental policies in the Chinese housing market would be reversed and that the economic conditions necessary to effectuate the recovery were present; (9) that is: … the underlying economic reality of the situation is the housing sector, well recognised to be pro-cyclical, was in fact acting in an anti-cyclical way. The reason we know this is because we look to other indicators for overall economic activity and we recognise it through the PMI or the OECD CLI and the Chinese economy was in fact expanding at the time that the housing sector was contracting. That context provides valuable economic information about how we can expect housing sales to evolve going forward, which as Mr Murray says, and as I agree, is the central question here. The question is not what sales have been in the past but what the trend will be in the future, and to say that you can project the trend in housing sales in the future purely statistically on the basis of past sales, with no further information about the economic context in which housing sales have gone down and what factors might bring it back is, in my opinion, the wrong way to use this economic data, and the reason for using the three indicators is to provide us a richer understanding of the factors that will likely lead the recovery in the housing market; (10) Mr Murray has not presented an economic methodology that can reliably identify the degree to which Iluka's pricing policy in the relevant period affected its zircon sales to the channel of substitution and thrifting (undermining Mr Murray's thesis that Iluka's prices destroyed demand for its products); and (11) Mr Murray has not established that his reliance on a global demand of 1,050kt for zircon in 2012 is "the most reliable forecast of global demand at the time, or presented any analysis of whether there were other estimates of global demand available during the relevant period and so, what they looked like". 563 Dr Unni also made the point, with which I agree, that Mr Murray's approach failed to recognise the extent to which various factors were already embedded in actual global demand and Iluka's actual sales results for 2011. This included a material volume for substitution and thrifting and for imports to China of Kalimantan zircon which were known circumstances before 2012. Otherwise, Dr Unni's evidence about the repeated lack of economic justification for Mr Murray's conclusions is compelling. 564 The evidence of Dr Unni and Mr Murphy about the zircon market in 2012 was clear, detailed and persuasive. I accept their evidence. 565 I am not persuaded that Mr Murray's opinions are admissible under s 79 of the Evidence Act. If they are admissible, I am not persuaded that they should be given any real weight. 566 In Dasreef Pty Limited v Hawchar [2011] HCA 21; (2011) 243 CLR 588 the High Court said: [19] At the end of the voir dire the primary judge did not rule on the admissibility of Dr Basden's evidence. As a result, Mr Hawchar, as plaintiff, did not know what evidence led in support of his claim had been found by the primary judge to be admissible. And Dasreef, as defendant, did not know, before it decided what if any evidence it should call, what was the evidence that it had to meet. That result is unsatisfactory. As a general rule, trial judges confronted with an objection to admissibility of evidence should rule upon that objection as soon as possible. Often the ruling can and should be given immediately after the objection has been made and argued. If, for some pressing reason, that cannot be done, the ruling should ordinarily be given before the party who tenders the disputed evidence closes its case. That party will then know whether it must try to mend its hand, and opposite parties will know the evidence they must answer. [20] It is only for very good reason that a trial judge should defer ruling on the admissibility of evidence until judgment. This was not such a case. Yet the primary judge did defer ruling on the disputed evidence in this matter until judgment. And because that is what the primary judge did, the evidence of Dr Basden was used for purposes for which it was not admissible and for which it may be doubted that Mr Hawchar had sought to tender it. 567 In the present case I deferred ruling as to the admissibility of Mr Murray's evidence for these reasons: (1) the parties had not sought a preliminary hearing in respect of the admissibility of Mr Murray's evidence, thereby enabling me to consider the issue in advance of the hearing by reference to the whole of Mr Murray's written and oral evidence; (2) in particular, Iluka had not sought any such ruling before Mr Murray was involved in the preparation of a joint report with Mr Murphy and Dr Unni and a joint report with Mr Holzwarth and Mr Houston. In this regard, Mr Murray's last separate report was filed on 8 November 2020. The joint reports were not filed until 5 February 2021. Where a party proposes to assert that a posited expert witness is not an expert at all, the better course is to file an application seeking a ruling before any joint reports are prepared; (3) it could not be said that Iluka (or Mr Bonham) did not know the case it (or they) had to meet. All of the expert evidence, including the joint reports, were filed well in advance of the hearing; and (4) at the time I considered that for me to rule on the admissibility of Mr Murray's evidence on the bases asserted by Iluka during the course of the hearing would have involved a material disruption to the hearing timetable. 568 It seems to me that in such a case (that is, a challenge to expertise as opposed to aspects of expert evidence), the party challenging expertise should ordinarily take steps to enable the issue to be heard and determined in advance of the involvement of the witness in the preparation of joint reports or, at the least, in advance of the hearing. This will enable the circumstances identified in Dasreef to be avoided.

6.2 Mr Rochester (Mr Murphy and Dr Unni) 569 Iluka sought to make similar submissions about the position of Mr Rochester. Iluka accepted that Mr Rochester had been involved with the TiO2 industry, in roles with a global perspective, for nearly 40 years. Mr Rochester had been involved in the supply of titanium ores to Huntsman Tioxide's factories throughout the world including being "directly involved in a two-man negotiation team for the purchase of titanium ores" and being "directly responsible for … ore supply strategy". Further, Mr Rochester established Tisands in 2005 to provide consultancy services to the TiO2 sector and continues to provide consultancy services to the sector. 570 Iluka submitted that: It may be accepted that the above experience provided Mr Rochester with some specialised knowledge of the TiO2 and pigment industries. However, his experience is from the customer's perspective, as a purchaser of TiO2 feedstocks on behalf of Huntsman Tioxide. This is very different to the position occupied by Iluka management in making forecasts; estimating future demand from all of its customers and the impact of micro and macro-economic factors upon future demand. On that basis, Mr Rochester's experience does not equip him to step into the shoes of Iluka and perform the budgeting and sales forecasting exercise that is at issue in this case. On that basis, his evidence as to the only "reasonably based" forecast for TiO2 in 2012 is inadmissible. (Emphasis in original). 571 I do not accept this submission. Mr Rochester would have had to possess a detailed understanding of the TiO2 market as a whole in order to perform his functions for Huntsman and for his later consultancy services. 572 Iluka's other objections to Mr Rochester's evidence (that, like Mr Murray, he has misused Iluka's internal documents) are better considered as part of an overall assessment of his evidence. 573 As Iluka noted, Mr Rochester initially posited a reasonable sales forecast range for Iluka as follows: (1) rutile: at 12 April 2012 ~197kt; at 8 May 2012 ~185kt; at 23 May 2012 ~175 kt; and at 16 June 2012 ~163k; and (2) synthetic rutile: at 12 April 2012 ~250k; at 8 May 2012 242k; at 23 May 2012230kt; and at 16 June 2012 ~210kt. 574 Mr Rochester modified his reasonable forecast as follows: (1) rutile: at 12 April 2012 ~188kt; at 8 May 2012 ~185kt; at 23 May 2012 ~175 kt; and at 16 June 2012 ~163k; and (2) synthetic rutile: at 12 April 2012 ~255k; at 8 May 2012 ~242k; at 23 May 2012 ~230kt; and at 16 June 2012 ~205kt. 575 I do not consider these modifications to expose any underlying issue of concern with Mr Rochester's opinions. 576 In his report in chief Mr Rochester concluded that Iluka did not have a reasonable basis for its TiO2 sales forecast as at 12 April 2012 until 9 July 2012. In the joint report with Mr Murphy and Dr Unni Mr Rochester said "by mid May (if not earlier) Iluka must have known they could not meet their market guidance". In oral evidence Mr Rochester said that there was an argument Iluka's sales guidance for TiO2 products was unreasonable from January 2012 (despite Iluka having only provided sales guidance on 23 February 2012), but it was certainly unreasonable by May 2012, specifically by 8 May 2012. Mr Rochester's observation that "it" was a "moving feast" was a reference to the state of the TiO2 market not his evidence. Subsequently, however, Mr Rochester reverted to the view expressed in his report that Iluka's guidance was unreasonable by 12 April 2012. His explanation for this was that when he had referred to 8 May 2012 the context was a discussion about May 2012. 577 I am not persuaded by this explanation. Mr Rochester's reversion to the 12 April 2012 date does not seem to be based on any cogent process of reasoning. 578 The fact that Mr Rochester accepted that reasonable minds could differ about reasonable sales forecast sales of rutile and synthetic rutile in 2012 given the nature and number of different demand side variables in play is also important. Mr Rochester had his own firm opinions about a reasonable sales forecast range for those products in 2012 on the basis that any sales forecasts outside his ranges, by definition, would be unreasonable. Yet in his oral evidence Mr Rochester agreed that reasonable minds could differ about reasonable sales forecast sales of rutile and synthetic rutile in 2012. The problem is that it is not apparent why Iluka's sales guidance, at any time, was outside of the range of potential reasonableness. 579 If this is not the case, there were other matters which I consider undermined the cogency of Mr Rochester's evidence. 580 Based on his dealings with Iluka while at Huntsman, Mr Rochester held strong negative views about Iluka. The negative views he held were serious and not of the kind that could be put to one side by an expert giving objective and impartial evidence based on expertise. Mr Rochester considered that in and around 2011/2012 Iluka had provided misleading information to its customers about sales volumes and prices to enable it to engage in price gouging. Mr Rochester said in his reply report in response to an internal Iluka note about its "equitable feedstock pricing" now not working: I believe this is the crux of this dispute. Iluka and the pigment producers had agreed upon a pricing policy which Iluka reneged upon by price gouging. It should have been anticipated that the pigment producers would take action to cut purchases to try and remain profitable. (Emphasis in original). 581 Mr Rochester's perception is telling. This is not a dispute between Iluka and pigment producers. It is a shareholder's class action. Yet Mr Rochester's view is that Iluka reaped what it sowed by gouging pigment producers, which it could do by its market dominance, and thereby destroyed its own market in 2012. 582 Mr Rochester's adverse views about Iluka's actions in 2012 may well explain aspects of his evidence that were unsatisfactory. 583 Mr Rochester gave oral evidence in a concurrent session with Mr Murphy and Dr Unni, referred to above. 584 Mr Murphy said about his expertise in the TiO2 market that: … our publications were a very small tip of our iceberg when it came to our business. The bulk of our business was private consulting, which we did across the industry, um, we were pervasive in the industry and that included substantial M&A activity, being exposed to confidential information about 35 both pigment and feedstock companies over many years, which we had in the background, to assist us in determining the market dynamics. And that was - I would say that was an important source of information as public documentation. 585 Mr Murphy explained the complexity of feedstock issues, noting that some producers had flexibility with their plant like DuPont but others "liked to baseload on certain feedstock and stuck to that formula". The ability to blend depended on a range of factors such as TiO2 content, the purity level, and the "the waste disposal regulations for the country or the district in which those plants existed" which, "besides price and the technical specifications of the actual manufacturing facility, it dictated the type of feedstock that some plants opted to have used". 586 This reinforces the evidence of Mr Robb and Mr Cobb that TiO2 feedstock variations in response to price were by no means as straightforward as Mr Bonham's case would suggest. 587 Mr Murphy also explained that in the TiO2 market there were "take or pay" contracts where a customer had to take the contracted tonnage and pay for it, even if on a deferred basis, whether they wanted the product or not. The market was also in transition in 2011 to 2012 due to the move to shorter-term, 6 month, contracts. Iluka had been the "biggest beneficiary in the short term from the fact that most of their SR and rutile contracts had expired, and they were able to aggressively increase their prices at that point in a very tight feedstock market". In other words, the risk that Mr Bonham's case perceived in Iluka not being locked into longer-term contracts had operated as an opportunity for Iluka before 2012 to increase its prices particularly for its high-grade feedstock. Mr Rochester did not disagree with this analysis. 588 Mr Murphy also explained that while TiO2 suppliers were increasing prices, those price increases were being passed on by paint manufacturers. TZMI collaborated with another research organisation in this regard that the industry was robust in terms of margins and buoyancy in 2011 with softening in Q4 2011. Pigment producers also would re-stock and build inventory in response to perceived future price increases or shortages in supply which was occurring in 2012. 589 Mr Murphy noted further that care was needed to distinguish between the market for feedstock and the market for pigment, as these were different markets. The market for feedstock remained strong and supply tight for feedstocks in the first quarter of 2012. The market for pigment had significant overcapacity by that time. Iluka functioned in the feedstock market only. 590 Mr Murphy said that it was not the case that deferral or reductions of sales of feedstocks indicated reduced chloride pigment production or a shift in the feedstock mix, as the producer could be destocking feedstock, which was a normal practice. 591 Mr Murphy confirmed that the issues with sulphate pigments from China included quality and applications for which that pigment was appropriate for use. He did not accept that sulphate pigments were interchangeable with chloride pigments. This exchange occurred: MR ARMSTRONG: Alright. Her Honour has heard reference to sulphate pigments being interchangeable with chloride pigments for something like 80 per cent of paint applications; do you disagree with that? MR MURPHY: Yes, I don't believe I observed that occurring in the marketplace at this point in time, during the relevant period, and I can give you reasons for why that was. … It's well-known, and Mr Rochester pointed out in his report and we concurred in the joint report, that there was a large increase, significant increase in export of pigment from China, and in 2011 I believe, it was about 2,240,000-odd tonnes, it was up 40 per cent or about 220,000 tonnes on the previous year, which was - that's out of the market of, say, 5.5 million tonnes. Of that - and those exports, Mr Armstrong, were widely dispersed across the world. To the US market, only 35,000 tonnes of that pigment went into the US market which is a very strong market for paint coatings … that 35,000 tonnes, and there 20 was about 870,000 tonnes of pigment that went into the paint coatings in the US market, to give you the relativity. In fact, those exports of Chinese pigment, which is sulphate, is about 2 per cent of the total production of pigment in the USA and besides, let me give you an example of why that is the case … To be able to make that base paint exactly the same every time, you require high-quality pigment, and the Chinese were not in the position because they didn't have the consistency to require that, and what the Western producers did, particularly in America, was a lot of the big players like Tronox or DuPont, they had dedicated production lines to paint, and they used to produce what's called a slurry feed. It was cost-effective, because you didn't have to package and dry the pigment into powder, which is what the Chinese did, and ... they had dedicated production lines, they churned out the same quality ... to the paint manufacturing facility and was able to be drawn down as required by the paint manufacturer. That guaranteed the quality you need, so that when you and I went to Bunnings with our little swatch, you could be guaranteed that base can of paint was then tinted to that same colour every time. And the paint companies couldn't risk their reputation of not being able to do that and, therefore, they were certainly not enamoured with using a lot of Chinese pigment at that point in time for the reasons just described. And it was well-known, because of the price increases at the time, paint companies were using, as leverage, the threat to use Chinese pigment without necessarily following through in a great way. I will concede that there would have been some reducing in quality in paint, but low-quality under ... it was well-known that the Chinese quality at the time was not good enough… 592 Mr Murphy's points were that the two kinds of pigment were not interchangeable and that any inferred increase in sulphate pigments over time also assumed that the Chinese sources improved their quality. TZMI were actively involved the time with producers of sulphate pigments in China with the objective of improving the quality. The western sulphate pigment producers, who produced quality pigments, were not going to increase capacity. No-one considered that to be likely at the time. The assumption was improvement in the quality of sulphate pigments from China. 593 These points are all consistent with the substance of Iluka's considerations at the time. 594 Mr Murphy was also of the view that the CEFIC data with which Iluka was provided was not in fact data at all, but information about the data by Iluka's customers. The information was about relative values without the start or end point leading to a lot of "inconsistency in the interpretation of the information". Mr Murphy said: … we are getting a relative measure and not the actual tonnes. If we had the actual tonnes, a lot of the debate and confusion would be removed. We are not getting the actual CEFIC data. We are getting the commentary or some pronouncements of ... the data, which I believe could be misleading because they are comparing the destocking phase, which everyone acknowledges, to the restocking phase the previous year… The TiO2 pigment companies were the ones receiving the actual data. What was being portrayed to Iluka were some pronouncements about the actual data, they weren't given the actual data, that's what I'm saying. 595 Mr Murphy considered that while pigment manufacturers were destocking feedstock in Q4 of 2011 the information from the manufacturers indicated this ending. Also, "it's important to realise that destocking doesn't mean to say there wasn't any demand, it just means they weren't buying new pigment for manufacture". This involves a "grey area as well when it comes to demand assessments". Mr Murphy rejected the notion that manufacturers at this time would have adopted a "just in time" supply policy given the perceived tightness of supply of feedstocks. TZMI considered that feedstocks, including chloride slag, would remain tight until 2013. Mr Murphy considered that a public statement by Tronox (the second largest chloride slag producer in the world) after Q1 in 2012 supported this, that "what won't change anytime soon is the combination of pigment producers operating near full capacity and global titanium ore demand at or exceeding supply." Mr Murphy said: That's says that to me, to anyone who understands the market, that is a tight market and he's making that statement in early May when they released their quarterly results. So, for me, that was a signal, amongst other things in the market, that the market was still tight for high-grade ore, because that's what Tronox produced, Mr Armstrong, was high-grade chloride feedstock. 596 Mr Rochester did not disagree saying only that Rio Tinto "were continually increasing production and bringing substantial quantities on board". Mr Murphy noted that this was a result of Rio Tinto's inability to supply ilmenite from Madagascar which was well-known, and: … To me, it all still spelt tight supply, because they couldn't get enough of the new product to their customers, as had been promised under contract, and they were trying to replace that with chloride slag from South Africa which may have otherwise, if they could have ramped up production ..... and that's the way I saw it. But I still contend that we saw high slag markets right up to the second quarter of 2012. 597 Mr Murphy was not surprised that DuPont had an adequate slag supply as it was being supplied by Rio Tinto from Richards Bay Minerals in South Africa, "which didn't have a ramp-up problem" as with the mine in Madagascar. 598 Mr Murphy made other points in his report which I consider persuasive and supportive of the evidence of the Iluka personnel including that: (1) "… there was a range of viewpoints amongst market participants during 1H 2012 about the state of the industry, that enabled differing conclusions to be reached about the direction that both the pigment and feedstock markets could have taken during 2012. In particular, there was a degree of uncertainty amongst market participants themselves during 1H 2012, and mixed industry sentiment on the market conditions during the period between January to June 2012"; and (2) "[t]he potential for feedstock interchangeability was highly variable and was typically considered on case-by-case basis … The issue of waste disposal, both availability and cost of waste storage, was also a key criterion in feedstock choice and was often the result of environmental and other regulations in a particular country, with which pigment producers were required to comply … it was normally easier to switch from chloride slag to either SR or rutile, than from SR or rutile to chloride slag, at many plants". 599 Dr Unni said that he considered Mr Rochester's analysis economically insufficient to justify his conclusions about the reasonable range of forecast sales for Iluka's TiO2 products. Dr Unni noted that the contemporaneous analysts' reports were consistent with Iluka's views. Those analysts had the capacity and incentive to want to seek to value Iluka's potential outcomes accurately. Those reports disclose "analysts discussing economic factors that are unfolding in the marketplace and their assessments in the light of those economic factors". Mr Rochester's conclusions were also inconsistent with the demonstrated trend of H2 sales always exceeding H1 sales for total TiO2 feedstocks. 600 Mr Rochester agreed that it is "usual for pigment producers to plan and contract for virtually all of their feedstock requirements for any given year by the end of the preceding year". They needed to do so to continue running their plants at a constant capacity which required supply to be locked-in. This continued after the move to shorter-term contracts. They did so by notifying Iluka in around November of the current year of their annual feedstock requirements for the following year. As there were few supplier and producers in this market, the participants had long-term relationships which required clarity about a producer's feedstock requirements for the following year. Prices would be negotiated from November and from May/June. 601 Mr Rochester said that his conclusions about Iluka's forecast sales having become unreasonable by 8 May 2012 was a result of the fact that, by then, it was apparent pigment producers were "carrying very large quantities of surplus stocks, and therefore it was impossible for them to be buying more than they had bought in the first half". He drew this inference of producers carrying large quantities of surplus stocks from a variety of sources including Iluka's internal records and TZMI reports. He agreed, however, that this conclusion was not justified by seasonality as he had originally posited. 602 The subsequent cross-examination of Mr Rochester about the various sources which he considered supported his view that by 12 April 2012 Iluka could not reasonably have believed that 2012 H2 sales of TiO2 feedstocks would exceed H1 sales exposed a marked tendency on his part to selection of parts of documents suiting his thesis and omission of other parts and documents which did not suit his thesis. 603 Amongst other things Mr Rochester did not give weight in forming his opinions to evidence that: (a) in November 2011 the position was that all pigment producers had informed Iluka they saw demand improving in H2 of 2012, (b) negotiations for 2012 H2 volumes and prices would be occurring in May/June 2012, (c) any comparison with 2011 had to recognise that it was a record year for Iluka as a feedstock supplier and pigment producers, (d) TZMI considered as at February 2012 that TiO2 feedstocks remained tight, (e) the CEFIC data is confusing, and (f) the pigment producers had publicly announced their record year in 2011 and their outstanding Q1 results in 2012, along with expectations for increased sales volumes in 2012 compared to 2011. Instead Mr Rochester gave weight to the negative private statements of pigment producers to Iluka (identified above). 604 Mr Rochester said that "a pigment company will always try and put as optimistic a view on the market as they can, because anything else is inviting price collapse". However, these statements were public and subject to legal accuracy requirements. The statements the producers were making to Iluka were private and in the context of price negotiations. In these circumstances more weight should be given to the pigment producers' public than private statements. Mr Rochester also accepted that it was reasonable for these producers to be optimistic when they made these statements in April and up to 18 May 2012 (Tronox). If that is so, it must follow that it was reasonable for Iluka to consider that sales in H2 2012 would exceed sales projected for H1. Mr Rochester considered that by the end of May "there were clear signs that the pigment market had collapsed in April". That cannot be reconciled with his evidence about Iluka's forecast sales for TiO2 products being unreasonable from either 12 April or 8 May 2012. 605 Mr Rochester conceded that the public statements of the pigment producers in April and May 2012 about the strength of the market expected for the rest of 2012 "would have been of some importance" to Iluka. I consider this concession too late and too begrudging. Iluka was entitled to give these public statements significant weight. Mr Rochester should have given these statements real weight in his assessments but did not do so. They support Iluka's evidence that the pigment feedstock market appeared to be strong until June/July 2012. 606 Mr Rochester also accepted that Kronos was atypical in that it chose to reduce price to take market share at times of lower demand rather than to cut production and relinquish share rather than drive all prices down. As a result, Mr Murphy expected Kronos to hold a high level of inventory so it could maintain its aggressive sales strategy. The other pigment producers did not publish their inventory levels. Kronos said it had high inventory as a result of strong production from 2011 which continued in the first quarter of 2012 resulting in higher inventory levels in advance of the spring paint season. 607 Mr Rochester also accepted that predicting the end of a period of destocking was difficult and reasonable minds could differ about it. This too is important because the pigment producers themselves appear to have anticipated that they were approaching the end of destocking so that feedstock demand would increase in H2 2012. Mr Murphy made this point as follows: Mr Rochester is right, that you can have extended destocking cycles, but I think the point that is important is that at the time of the results announcements ... of the pigment producers themselves talked about destocking either coming to an end or decelerating. I would suggest they would have been in a position to know that, more so than TZMI hearing it from third parties, for example. 608 Dr Unni said that Mr Rochester's views of a decline in sales from 2011 Q3 onwards were not in accordance with sales data which showed sales increasing again in 2012 Q1. 609 Overall, I was not persuaded that Mr Rochester's opinions should be accepted. I infer that his evidence was materially influenced by his adverse views about Iluka's conduct in 2011/2012 price negotiations which Mr Rochester considered deceptive and an abuse of market power by Iluka. Mr Rochester plainly considered that Iluka got what it deserved when the demand for is TiO2 feedstocks did not increase by June 2012 as it had anticipated.

6.3 Conclusions 610 For the reasons given above I do not accept the opinions of Mr Murray or Mr Rochester. 611 It was submitted for Mr Bonham that Mr Murphy and Dr Unni had not given any opinion as to a reasonable sales forecast for zircon or TiO2 products in 2012. This is correct. It is not a basis for criticism of either witness. The evidence of Mr Murphy and Dr Unni supports the inference that Iluka's approach to the issue of sales in 2012 was reasonable having regard to the information available from time to time.

7. WERE REPRESENTATIONS MADE? 612 Iluka denies that the alleged representations were made. 613 Despite the characterisation of the April forecast representation (that Iluka expected to achieve in FY 2012 zircon sales of 450kt, rutile sales of 225kt, synthetic rutile sales of 310kt, and saleable ilmenite sales of 350kt) being express in Mr Bonham's submissions, it is apparent from the 3FASOC and the circumstances that the April forecast representation must be implied rather than express. This is because the representation depends on a combination of: (a) the 23 February 2012 announcement, and (b) the 12 April 2012 report. 614 Mr Bonham pleaded that the 12 April 2012 report impliedly makes the April forecast representation as a result of Iluka not updating or qualifying the express representations made in the 23 February 2012 announcement. Accordingly, it is necessary to start with the 23 February 2012 announcement.

7.1 23 February 2012 announcement 615 It is apparent that the 23 February 2012 announcement does not expressly state anything more than that Iluka expected to achieve in FY 2012 zircon sales of 450kt, rutile sales of 225kt, synthetic rutile sales of 310kt, and saleable ilmenite sales of 350kt. 616 The 23 February 2012 announcement said it is an "indicative guide". It said it supplements an earlier document disclosed in November 2011 (the 2012-2014 guidance document). It noted that the 2012-2014 guidance document was prepared before the finalisation of Iluka's 2012 budget. It referred to "current difficulties in forecasting global economic conditions" with the consequence that "three year average outcomes may vary significantly [I infer from the 2012-2014 guidance document] depending on, initially, 2012 outcomes and then the path of global economic performance through 2013 and 2014". It noted that the information in the 23 February 2012 announcement and the 2012-2014 guidance document is derived from budget or corporate plan information, prepared in the context of "uncertain economic conditions globally; potential changes to supply and demand dynamics; and potential modification to the company's own plans (subject to change and variation)", so that such information "should be treated as a guide only". 617 The 23 February 2012 announcement said that "Iluka does not undertake to update this information regularly in part or whole, but can be expected to comment on any material variations". It said the information is to "assist sophisticated investors with the modelling of the company, but should not be relied upon as a predictor of future performance". 618 The table provided guidance as to production quantities. It is apparent that the guidance in respect of all quantities, other than synthetic rutile, had decreased materially from 2011 to 2012. The only reference to sales quantities are in the commentary column. Those references would have been understood by any reasonable reader as subject to the same qualifications as the guidance about production quantities. 619 As to zircon, the announcement referred to Iluka's decision to reduce production "in light of potentially lower short term demand". It said that "forecast 2012 sales volumes, dependent on global demand levels and phasing, could be ~10% lower than production". 620 As to rutile, it said that sales "are expected to be in line with production in 2012". 621 As to synthetic rutile, it said sales "in 2012 are expected to be in line with production". 622 As to ilmenite, it said nothing about sales. 623 The first page of the announcement included a disclaimer about "forward looking statements" that they are: (a) not guarantees or predictions of future performance, and (b) involve known and unknown risks, uncertainties and other factors, many of which are beyond the company's control, and which may cause actual results to differ from those expressed in the statements (including, amongst other things, market conditions). 624 The disclaimer said that while Iluka prepared the information "based on its current knowledge and understanding and in good faith", "there are risks and uncertainties involved which could cause results to differ from projections", and Iluka "shall not be liable for the correctness and/or accuracy of the information nor any differences between the information provided and actual outcomes, and furthermore reserves the right to change its projections from time to time", but "does not undertake to update the projections provided in this document on a regular basis". 625 What would be the effect of the 23 February 2012 announcement on ordinary and reasonable members of the class to whom it was directed (which included existing and potential shareholders in Iluka, such as Mr Bonham)? 626 The announcement must be read as a whole including the disclaimer about forward looking statements. The disclaimer is not in fine print or at the end of the document. It is in clear print on the first page of the document. Attention is drawn to it by the blue heading. It does not have the appearance of a pro-forma disclaimer. It is said to relate specifically to the forward looking statements in the announcement. On that basis, the ordinary and reasonable members of the class to whom the announcement was directed would give the disclaimer the same attention as the balance of the announcement. 627 Bromwich J summarised the position with respect to disclaimers in Australian Competition and Consumer Commission v GlaxoSmithKline Consumer Healthcare Australia Pty Ltd [2019] FCA 676; (2019) 371 ALR 396 at [33] in these terms: (1) There may be occasions upon which the effect of otherwise misleading or deceptive conduct may be neutralised by an appropriate disclaimer: Abundant Earth Pty Ltd v R & C Products Pty Ltd [[1985] FCA 40;] (1985) 7 FCR 233 at 239. (2) A person engaging in misleading or deceptive conduct cannot readily or easily use the device of a disclaimer to evade responsibility, unless that disclaimer erases the proscribed effect: Benlist Pty Ltd v Olivetti Australia Pty Ltd [[1990] FCA 288;] (1990) ATPR 41-043; (1990) ASC 55-997. (3) A disclaimer having the effect of dispelling otherwise misleading or deceptive effects of conduct may be a rare occurrence given the onus that is ordinarily on the person making the otherwise contravening representation to establish that the disclaimer it relies upon creates an overall effect that is benign: Hutchence v South Seas Bubble Co Pty Ltd (1986) 64 ALR 330 at 338. (4) Disclaimers or qualifications must be taken into account in evaluating the conduct as a whole: Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 238 CLR 304 at [25]. (5) Carelessness on the part of consumers in how they treat or view a representation, including any disclaimers or additional information, may be relevant: Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; 250 CLR 640 at [49]. (6) It may be relevant to consider whether or not an advertisement or other representation or conduct has the capacity to lead a consumer into error because it selects some words for emphasis and relegates the balance, including any disclaimer or other information, to relative obscurity: TPG Internet at [51]. (7) A disclaimer must be very clear when there is a substantial disparity between the primary representation and the true position: National Exchange Pty Ltd v Australian Securities and Investments Commission [2004] FCAFC 90; 49 ACSR 369 at [55]. In National Exchange, shareholders had been offered $2 per share when the current share price was $1.93. But they were only told in a different and less prominent location that payment would be made by 15 annual instalments making the offer worth less in current value than $2 and also less in current value than $1.93. Without the qualifying context the primary representation was false because the shareholder was not being offered $2 in value per share at the time the offer was made, and was in fact being offered less than the current share price. (8) A disclaimer that is static may bear more weight than one that is evanescent. In a printed format, even an asterisk that indicates the presence of additional information, if it is sufficiently prominent and the qualifying text is sufficiently proximate, may be effective to draw attention to an explanation of, or qualification upon, a statement made in advertising: George Weston Foods Ltd v Goodman Fielder Ltd [2000] FCA 1632; 49 IPR 553 at [46]. 628 The distinction which Iluka drew between a statement of present expectation and a statement of future expectation, in the circumstances of the present case, is illusory. The announcement contains statements. They are statements containing guidance by Iluka about its present expectations for future production and sales. The statements thus make a representation about a "future matter". The "future matter" is Iluka's expectations of sales volumes in 2012, after 23 February 2012. The fact that Iluka's expectations existed only as at 23 February 2012 does not mean that those statements were not representations as to future matters. 629 Insofar as the guidance with respect to future sales is concerned, the guidance is given in the context of statements that: (a) there are current difficulties in forecasting global economic conditions, (b) given uncertain economic conditions globally; potential changes to supply and demand dynamics; and potential modification to the company's own plans, the statements are guidance about Iluka's expectations, (c) average outcomes over the next three years may vary significantly from the guidance depending on 2012 outcomes and global economic performance through 2013 and 2014, (d) the guidance was to assist sophisticated investors with modelling but should not be relied upon as a predictor of future performance, (e) for specified reasons, the statements are not guarantees or predictions of future performance, and (f) actual results may differ materially from the statements. 630 Further, the commentary as to zircon is not that Iluka expected sales of 450kt. It is that "forecast 2012 sales volumes, dependent on global demand levels and phasing, could be ~10% lower than production". While that arithmetically yields a forecast 2012 sales volume of 450kt, Iluka was not saying that it expected that 2012 sales volumes would be 450kt. It was saying that its guidance as at 23 February 2012 was for sales volumes of 450kt in 2012, but that this guidance was subject to all of the qualifications noted, including that the average outcomes over the next three years may vary significantly from the guidance depending on, amongst other things, 2012 outcomes. 631 In other words, any ordinary and reasonable reader of the 23 February 2012 announcement must have appreciated that the guidance as to sales volumes was not a prediction or expectation in the sense of the outcome being expected by Iluka to be more likely than not. The announcement was identifying that no such prediction or expectation could be provided. The announcement was saying that the guidance reflected Iluka's then present state of mind, that state of mind including that it could not provide a prediction or expectation for 2012 that Iluka considered more probable than not for its performance in that year. 632 The fact that Iluka said for rutile and synthetic rutile that sales are expected to be in line with production also could not be read by the ordinary and reasonable reader out of their surrounding context. The surrounding context disclosed that Iluka was saying that the guidance reflected Iluka's then present state of mind, that state of mind including that it could not provide a prediction or expectation for 2012 that Iluka considered more probable than not for its performance in that year. 633 The fact that the announcement also said that it was "provided to assist sophisticated investors with the modelling of the company, but should not be relied upon as a predictor of future performance" cannot be disregarded. This statement is not in fine print or at the back of the announcement. It is immediately before the table containing the production guidance and the commentary. In the context of the numerous qualifications surrounding it, this statement is warning the reader that if they are not a sophisticated investor capable of modelling then the information is not directed to them. This would mean that the ordinary and reasonable reader would treat the announcement with a greater degree of caution than might otherwise be the case. 634 In Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640 at [45] French CJ, Crennan, Bell and Keane JJ said that the "dominant message" of the statement was of crucial importance. In the present case the dominant message of the 23 February 2012 announcement was the difficulty in forecasting global economic conditions and that sales would depend on global conditions. The dominant message was not that Iluka considered that its forecasts for sales were able to be relied upon as an expectation that could reasonably be expected to be accurate and fulfilled. The dominant message was that Iluka considered it appropriate to provide sophisticated investor with the best guidance it could at the time about sales it then expected, recognising that global economic circumstances made reliable predictions difficult. 635 Nor are the observations in TPT Patrol Pty Ltd as trustee for Amies Superannuation Fund v Myer Holdings Limited [2019] FCA 1747; (2019) 140 ACSR 38 at [1153] that "a reasonable person would not regard a standard form disclaimer as gutting the opinion or forecast of meaningful content" and "the prospect that the printed disclaimers could effectively negate the representations or relieve Myer from its obligation to have reasonable grounds is problematic to say the least" apt. In TPT Patrol the principal representation was made during a presentation. The disclaimers in the printed material were pro-forma. They did not refer to the specific issues which made forecasting difficult. They were not made in a context in which Myer had identified the difficulty in predicting the global economic position and that sales depended on global economic performance. It is not apparent that the disclaimers were so prominent a part of the documents as the disclaimers in Iluka's 23 February 2012 announcement. Nor is it apparent that Myer's announcement itself was said to be directed to sophisticated investors for modelling purposes. 636 Having regard to these matters, I do not accept that Iluka could have made the April forecast representation by reason of the 23 February 2012 announcement. The 23 February 2012 announcement did not represent simply that Iluka expected to achieve in FY 2012 zircon sales of 450kt, rutile sales of 225kt, synthetic rutile sales of 310kt, and saleable ilmenite sales of 350kt. 637 If it is necessary to try to identify what Iluka represented by the announcement to ordinary and reasonable members of the class of actual or potential shareholders who were not sophisticated investors capable of modelling, I would say that it represented that, for a number of identified reasons including uncertain economic conditions globally, Iluka's guidance could not be a reliable (in the sense of more probable than not) predictor of future performance, but doing the best it could in the circumstances Iluka was operating on the basis of future sales for the 2012 year of zircon sales of 450kt, rutile sales of 225kt, synthetic rutile sales of 310kt. Further, this guidance was provided on the basis that three year average outcomes over the next three years including 2012 may vary significantly from this depending on 2012 outcomes (that is, actual outcomes) and the path of global economic performance through 2013 and 2014. The announcement provides no information and makes no representation about sales of ilmenite in 2012. 638 It is also important to recognise that Iluka expressly said in the announcement that it did not provide pricing forecasts. That is, Iluka was not making any representation that sales volumes would achieve any particular price. Accordingly, Iluka was not making any representation about its future profitability in 2012. This would have reinforced the fact that the announcement was to assist sophisticated investors with their modelling, as those investors could be expected to have some capacity to relate sales volumes and sales prices as a potential indicator of future profitability. 639 Iluka also said in the announcement that it "does not undertake to update this information regularly in part or whole, but can be expected to comment on any material variations". In context, given the substantial uncertainty which Iluka identified about its guidance, this could mean only that Iluka could be expected to comment about any circumstance of which it became aware of a sufficient degree of certainty to make the information it had provided materially more unreliable. 640 On this basis, I do not accept that "the 23 February [2012] announcement was, was expected to be received as, and was understood within Iluka to have been received as a forecast as to the company's likely sales volumes during 2012". The problem with this submission is the word "likely". Iluka was saying something about sales volumes in 2012, but I am unable to accept that it was saying that it was providing its forecast of likely sales volumes for 2012. For the reasons given, it could not have been saying it believed that Iluka was likely, in the sense of more likely than not, to achieve the sales volumes referred to in the announcement. Nor was Iluka giving guidance as to "future net cash flows". It did not did so because it gave no information at all about prices of the materials to be sold. 641 The fact that Iluka monitored the views of analysts to ascertain the impact of Iluka's announcements on their opinions cannot transform the announcement Iluka in fact made, with all of its nuances and complexity, into the simple representation proposed on behalf of Mr Bonham. If an effect of the 23 February 2012 announcement was to prompt an analysts' consensus as to Iluka's FY12 earnings in the range $1-1.3b - up from $542m in FY11 - that is not an effect for which Iluka could be legally responsible. Iluka made no such representation in the 23 February 2012 announcement.

7.2 12 April 2012 report 642 The 12 April 2012 report did not say that Iluka expected to achieve in FY 2012 zircon sales of 450kt, rutile sales of 225kt, synthetic rutile sales of 310kt, and saleable ilmenite sales of 350kt. 643 The 12 April 2012 report is a March quarterly production report. It identified: (a) lower production of zircon, rutile and synthetic rutile than in the first quarter of 2011, (b) total first quarter mineral sands sales revenue lower than the first quarter of 2011, (c) that lower sales revenue reflected the slow start to zircon sales in 2012 and delayed shipment of titanium dioxide products, (d) Iluka expected the first two quarters of 2012 would see soft demand for zircon for a number of reasons, (e) as anticipated, first quarter zircon sales figures were low for a number of reasons, (f) as stated previously, "it will take some time for a clear view on overall 2012 zircon demand and the phasing of that demand to emerge", and (g) Iluka continued to experience strong demand for its high grade titanium dioxide. 644 Accordingly, the 12 April 2012 report reinforced that it was not possible to provide reliable guidance to zircon sales in 2012. While demand was soft as expected and sales were slow, Iluka was saying it would still take time for a clear view about zircon demand in 2012 to emerge. 645 In this context, by the 12 April 2012 report, Iluka did not make the April forecast representation. 646 If it is necessary to try to identify what implied representation Iluka made in the circumstances, including the 23 February 2012 announcement, it could be no more than that insofar as it had become aware of any circumstance of a sufficient degree of certainty to make the information it had provided in the 23 February 2012 announcement materially more unreliable than it had been at the time it was made, that circumstance was the subject of comment in the 12 April 2012 report. Such circumstances included the soft market, the slow start to zircon sales in 2012, and the fact that it would still take time for a clear view on overall 2012 zircon demand and the phasing of that demand to emerge.

7.3 8 May 2012 updates 647 The 8 May 2012 updates did not say that Iluka expected to achieve in FY 2012 zircon sales of 400kt, rutile sales of 225kt, and synthetic rutile sales of 310kt. 648 The updates cannot be read in isolation from one another or from the 23 February 2012 announcement. 649 The first 8 May 2012 update advised a number of changes to the 23 February 2012 announcement. This means that the ordinary and reasonable reader was immediately directed to the 23 February 2012 announcement to understand the 8 May 2012 update. 650 The first 8 May 2012 update said that: (a) Iluka has stated on several occasions that it expected a soft quarter or two of zircon demand for specified reasons, and (b) Iluka has also stated previously that it expected it would take some time for a clear view on overall 2012 zircon demand and the phasing of that demand to emerge. It said that zircon sales were low in the first quarter but improved in April. It said that the "global economic outlook therefore remains far from clear" for specified reasons. It said that, accordingly, Iluka had decided to reduce zircon production from 500kt to 430kt. It then said: (1) Iluka now forecasts its zircon sales for the full year to be ~400 thousand tonnes compared with the previously forecast ~450 thousand tonnes; (2) there is no change to guidance for titanium dioxide production and sales from that issued at the beginning of the year, with market conditions and sales forecasts in line with expectations; and (3) overall, Iluka expects its zircon/rutile/synthetic rutile sales volumes to be approximately one third/two thirds weighted between the first half and second half of 2012. 651 Given that the first 8 May 2012 update said that: (a) it changes the 23 February 2012 announcement, (b) the "global economic outlook therefore remains far from clear", and (c) there is no change to guidance for titanium dioxide production and sales from that issued at the beginning of the year, it would not have been possible (given the lack of information provided about the unchanged level of titanium dioxide sales) or reasonable to read the first 8 May 2012 update separate from the 23 February 2012 announcement or the second 8 May 2012 update. It follows that the "forecast", "guidance" and "expectation" would all be read and understood in the context of the 23 February 2012 announcement and the second 8 May 2012 update. In that context, all of the conclusions reached above about the 23 February 2012 announcement apply equally to the first and second 8 May 2012 updates. 652 Accordingly, the first 8 May 2012 update did not make the May forecast representation. Nor, for the reasons given, did the second 8 May 2012 update. 653 In summary, by the updates, while Iluka forecast zircon sales to be 400kt and made no change to its guidance for titanium dioxide sales (225kt and 310kt for rutile and synthetic rutile respectively), it was not representing simply that Iluka expected its 2012 sales to be 400kt of zircon, 225kt for rutile and 310kt for synthetic rutile. It was again saying that in the circumstances its guidance could not be a reliable (in the sense of more likely than not) predictor of future performance, but doing the best it could, Iluka was operating on the basis of future sales for the 2012 year of 400kt of zircon, 225kt for rutile and 310kt for synthetic rutile. Further, this guidance was provided on the basis that three year average outcomes over the next three years including 2012 may vary significantly from this depending on 2012 outcomes (that is, actual outcomes) and the path of global economic performance through 2013 and 2014. The same context qualifies its stated expectation that Iluka expects its zircon/rutile/synthetic rutile sales volumes to be approximately one third/two thirds weighted between the first half and second half of 2012. 654 Further, for investors who were not sophisticated and were not capable of conducting modelling of Iluka's performance, the first and second updates said nothing about Iluka's profitability for 2012 as the updates did not mention prices.

7.4 Mr Bonham's evidence 655 As noted, Mr Bonham read only the two 8 May 2012 updates. Before reading those documents he read a number of documents issued by Stock Doctor which has no connection with Iluka. From those documents he formed an impression that Stock Doctor considered Iluka to be trading at a discount, and that "its recent performance had been below expectations due to short-term market weakness", with an expectation that zircon demand would recover in the second half of 2012. 656 Mr Bonham focused on the first 8 May 2012 update. Despite it being necessary to infer that he read the first paragraph ("Iluka … today advises a number of changes to its 2012 Key Physical and Financial Parameters document, issued on 23 February 2012"), he did not then read the 23 February 2012 announcement. Mr Bonham understood that the first 8 May 2012 update confirmed what he had read in Stock Doctor "that there was an expected recovery for [Iluka] and that it had just been delayed" and Iluka "was in control of what it was doing and its overall expectations for the year were unaffected by the continued softness in its markets". 657 As to the statements in the first 8 May 2012 update that the global economic outlook "remained far from clear" and that there were "contra-indicators" to the signs of improvement in its Chinese and US markets, Mr Bonham said "where a company provides relatively specific forecasts despite market uncertainty, I always assume that they have a reasonable basis for doing so and have appropriately taken those uncertainties into account". 658 Mr Bonham only scanned the second 8 May 2012 update. He said that he "was not in a position to interpret the information in detail and did not think it necessary to do so given the information provided by the company in the accompanying announcement, and because [he] was also relying on Stock Doctor for more technical analysis". He read the statement that the second 8 May 2012 update as according with his "treatment of the second announcement as a quantitative document for analysts which [he] was not in a position to usefully interpret". He has no recollection of reading the disclaimers about forward-looking statements but said he probably did so and was aware that "all forecasts involve risks and unknown factors and that they are not a guarantee of future performance". However, he assumed that "when such forecasts are provided to the market that they are reasonably based in rational and realistic analysis of the best information available to the company and take into account market and other uncertainties". 659 Given that he did not read the 23 February 2012 announcement or the 12 April 2012 report Mr Bonham's evidence provides no support to the making of any representation by those documents including the April forecast representation. As to the May forecast representation, Mr Bonham gives no evidence that he formed a state of mind consistent with that representation. To the contrary, he considered the quantitative information was not something he could interpret. This must be correct given that Iluka gave no price information. In fact, from his evidence no inference would be drawn that Mr Bonham in any way thought about the quantitative information (that is, the substance of the May forecast representation) one way or another before deciding to buy shares in Iluka. 660 Further, to the extent he considered the 8 May 2012 updates it is apparent he did so for the purpose only of assessing the Stock Doctor information that Iluka was under-valued and was expected to recover in the second half of 2012. It is not apparent how a reasonable person in Mr Bonham's positon could have reached the view that the 8 May 2012 updates confirmed Stock Doctor's conclusions. To the contrary, Iluka was saying that the expected softening for the first two quarters had occurred and that Iluka expected that would take some time for a clear view on overall 2012 zircon demand and the phasing of that demand to emerge given the global economic outlook remained far from clear. 661 Accordingly: (1) it cannot be inferred that Mr Bonham formed any erroneous conclusion about Iluka based on the 8 May 2012 updates; (2) if he did, any such erroneous conclusion did not concern the substance of the May forecast representation; (3) the effect of the 8 May 2012 updates on ordinary and reasonable members of the class of actual or potential shareholders would not have been a state of mind consistent with the May forecast representation; (4) Mr Bonham did not take reasonable care for his own interests by failing to understand that Iluka's statement that the second 8 May 2012 update contained information to assist sophisticated investors with the modelling of the company, but should not be relied upon as a predictor of future performance, necessarily applied also to the information in the first 8 May 2012 update because the first 8 May 2012 update was obviously a commentary on the second 8 May 2012 update (see the first sentence of the first 8 May 2012 update and the fact that it is impossible to know what guidance Iluka was providing about titanium dioxide production and sales without looking at the second 8 May 2012 update); (5) Mr Bonham also did not take reasonable care for his own interests by failing to understand that Iluka's statement about sophisticated investors (which he was not) did not mean that Iluka was saying he could instead rely on the advice of Stock Doctor. Rather Iluka was saying that the 8 May 2012 updates were not directed to an investor such as Mr Bonham at all; and (6) Mr Bonham did not take reasonable care for his own interests by failing to refer to the 23 February 2012 announcement, including its disclaimers, and the disclaimers in the second 8 May 2012 update. 662 For these reasons Mr Bonham's evidence provides no support to the proposition that the April or May forecast representations were made either to Mr Bonham as an individual or to any ordinary and reasonable member of the class to whom the alleged representations were directed.

7.5 Conclusions 663 Neither the alleged April forecast representation nor the alleged May forecast representation, as pleaded and the subject of the hearing, were made by Iluka. 664 In any event, Mr Bonham did not rely on the alleged April forecast representation nor the alleged May forecast representation. He relied on Stock Doctor. 665 The implied representations that Iluka: (a) did not know information which created a material risk that the April forecast representation and the May forecast representation were no longer reliable, (b) was still able to provide reliable forecasts of future revenue when it made the April forecast representation and the May forecast representation, and (c) had a reasonable basis for providing point estimates of sales for mineral sands products (rather than a broad range going forward), not said to have been relied upon by Mr Bonham, also were not made. 666 To the contrary, Iluka informed the market that: (a) there were material risks that its sales guidance would not be achieved in 2012, (b) there were a number of reasons why it had to qualify its sales guidance for 2012 meaning it could not be relied on as a predictor of future performance, and (c) its sales guidance was the best guidance it could provide at the time but was subject to all of the qualifications in its 23 February 2012 announcement as maintained and repeated thereafter. 667 It follows that Mr Bonham's misleading and deceptive conduct case (and the class action as a whole on this basis) must fail.

8.1 Rejecting some of Iluka's propositions 668 I do not accept Iluka's submission that the statements on which Mr Bonham relied involve statements only as to present circumstances. They are statements as to future expectations. As such, they are representations relating to future matters, and thereby subject to the statutory presumption of lack of reasonable grounds unless Iluka adduces evidence to the contrary. 669 I also do not accept Iluka's proposition that the issue whether Iluka had reasonable grounds for the making of the April forecast representation and the May forecast representation (be they characterised as statements of present or future expectation) is to be answered by posing the question "did Iluka apply a reasonable process, taking into account relevant information, to arrive at the conclusions that it did, having regard to its statements to the market about the limitations on its ability to make an accurate estimate?". This question exposes only part of the relevant issue, which is the existence or not of reasonable grounds for making the assumed representations. The issue is ultimately one of substance, not merely process. 670 As a matter of substance, a statement made as a result of a reasonable process, may be one made without reasonable grounds. Equally, as a matter of substance, a statement made as a result of an unreasonable process, may be one made with reasonable grounds. However, I accept that the character of the process by which a statement has been formulated as reasonable or not will be relevant to the drawing of inferences about the character of the statement as reasonable or not, but it is not determinative of that issue. In short, if the evidence establishes that a reasonable process has been implemented by well-qualified, informed and experienced people who must be inferred to have been doing their best at the time to provide accurate information, then there needs to be something in the evidence before it would be concluded that those people had all reached conclusions lacking reasonable grounds. 671 TPT Patrol is not authority to the contrary. Beach J said at [1322], that "[t]he question whether there were reasonable grounds for the making of a profit forecast is to be resolved by looking at whether the relevant director had made a genuine assessment as to the appropriateness of the forecast. If such a genuine assessment had been made, there would be reasonable grounds to support the making of the forecast". The genuineness of the assessment ultimately involves a question of substance. So much is apparent from the surrounding observations Beach J made as follows: 1320 In determining whether a person held reasonable grounds for a representation of opinion, the relevant inquiry is into whether the facts possessed by him were capable of supporting the opinion that he held. 1321 A person will have had reasonable grounds for making a representation with respect to a future matter if there are facts which are sufficient to induce that state of mind in a reasonable person. 672 The judgment of Gleeson J in Crowley v Worley Limited [2020] FCA 1522 also does not support Iluka in this regard. While her Honour was satisfied that the budget process on which Worley relied for its NPAT forecast was reasonable, and accepted that this was relevant to the reasonableness of the forecast, Gleeson J was also satisfied at [648] that the evidence did not establish that "particular integers or portions of the FY14 budget were overstated or understated so as to be unreasonable or unjustifiable". In other words, her Honour considered that, on the evidence, the substance of the FY14 budget was reasonable. 673 Iluka otherwise submitted that "on its budgeting and reforecasting processes but that those processes were detailed and rigorous and involved a careful consideration of all relevant demand side factors. There was, in short, a genuine assessment of the appropriateness of the sales forecasts. And that is what is relied on to establish reasonable grounds". That is a submission concerning both substance and process. It reflects a legitimate approach to the issue of the existence or not of reasonable grounds for the making of a statement. 674 Nor are the observations in Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 at [33] or Forrest v Australian Securities and Investments Commission [2012] HCA 39; (2012) 247 CLR 486 at [102] on point. Those observations, that a statement of opinion may or may not imply that the maker of the statement has reasonable grounds for the opinion, are relevant to statements of presently held opinions and do not take account of the statutory deeming provisions that operate when a person makes a representation about a future matter. 675 Iluka also submitted that "the Court should not draw any inferences adverse to Iluka where the Applicant contends an interpretation of business records which is inconsistent with evidence from Iluka's witnesses" because the proceeding was commenced on the last day of the six year limitation period after the release of the 12 April 2012 report and was not prosecuted in haste. As a result, Iluka's witnesses were recalling events from nine years ago. Iluka cited in support Bishopsgate Insurance Australia Ltd (in liq) v Deloitte Hoskins & Sells [1999] 3 VR 863 and Tamaya Resources Limited (in Liq) v Deloitte Touche Tohmatsu (a Firm), in the matter of Tamaya Resources Limited (in Liq) [2015] FCA 1098. 676 Bishopgate concerned dismissal for want of prosecution. Tamaya concerned an application to amend pleadings. Iluka did not identify any authority identifying that, at the level of principle, delay in an applicant's commencement and prosecution of proceedings may justify or support the drawing of inferences in favour of the respondent. Rather, courts accept that the consequences of delay may affect the capacity of one or other party to adduce evidence either at all or of a particular kind and that may be relevant to an assessment of the inferences appropriate to be drawn in the particular circumstances of any case, given that all evidence is to be weighed according to the capacity of a party to prove or contradict the fact in issue: Blatch v Archer (1774) 1 Cowp 63 at 65. 677 There is no basis in the present case for an inference that the capacity of Iluka to call evidence (other than from Mr Hugo) was adversely affected by the passage of time. Iluka called the relevant witnesses, particularly Mr Cobb and Mr Robb. While they had to refresh their memories from documents, I do not doubt the accuracy of their evidence.

8.2 Iluka otherwise acted on reasonable grounds 678 If the alleged representations were made, I do not accept Mr Bonham's case that Iluka did not have reasonable grounds for making those representations at the relevant times. 679 The evidence has not exposed any issue which Iluka failed to consider in formulating its public statements between February and July 2012. It has not exposed any lack of a genuine assessment of the relevance of the issue having regard to the circumstances as they existed at the time. It has not exposed any material from which it should be inferred that Iluka was unreasonably ignoring information that did not suit it. Rather, the evidence has exposed that the relevant Iluka personnel were highly experienced in the markets in which Iluka operated, and were careful, diligent, and continuously exerted themselves to ensure that the information Iluka gave to the market was accurate and timely. 680 This is not mere evidence of a "process". As noted, it may be accepted that a robust process is capable of yielding an unreasonable outcome. Iluka's evidence, however, goes well beyond that of a mere robust process (although the evidence does establish that its processes were robust). 681 Mr Bonham's proposition that "what is remarkable about Iluka's defence is that, despite having had every opportunity to establish, as a positive proposition, that it had reasonable grounds for its extant sales guidance(s), it made a deliberate forensic choice not to do so" is inaccurate. It is apparent that Iluka's evidence was not confined to its budgetary and re-forecasting processes. The evidence from the Iluka personnel, in particular Mr Cobb and Mr Robb, engaged in detail with the substance of Iluka's budget and re-forecasting, as well as the terms to its public statements said to underpin Mr Bonham's case. Iluka did not have to call an expert to opine as to a reasonable forecast for its sales in 2012 of zircon and TiO2 products. The expert evidence it did call undermined the evidence for and case theory of Mr Bonham, whilst also reinforcing the reasonableness of the views expressed by the Iluka witnesses. 682 Iluka called the key witnesses, in particular, Mr Cobb and Mr Robb. The idea that there were "awkward anomalies" in Iluka's documents, such as the estimate of global zircon demand of 1,050kt, and that Iluka deliberately avoided calling any witness to explain those documents is untenable. There were numerous people within Iluka involved in many different aspects of the business. Insofar as sales forecasts are concerned, it was Mr Cobb's responsibility to make the relevant assessments based on all information and to present it to Mr Robb and Mr Robb's responsibility to review that and present the relevant views to the board. The evidence of Mr Cobb and Mr Robb was clear, cogent and persuasive. It was irreconcilable with Mr Bonham's case. At all times they considered Iluka's sales guidance had reasonable grounds and, indeed, was as accurate as possible. When they consider that the sales guidance had to be revised, they ensured that the revisions made were also as accurate as possible. When they reached the view that market conditions were too volatile to permit anything other than sales guidance based on a wide range, they ensured that the sales guidance reflected this view. 683 It is not to the point that Mr Bonham (or Mr Murray or Mr Rochester) pointed to snippets of documents which might or might not have suggested others within Iluka might have been less optimistic than Mr Cobb or Mr Robb about one or other issue relevant to the formulation of the sales guidance, be it substitution and thrifting, market conditions, or the position of customers. It is apparent that Mr Cobb and Mr Robb were aware of a vast range of information. The evidence is they weighed the information carefully. It is apparent that both reached genuine assessments based on applying expertise and experience in the relevant markets to the available information. It is impossible to conclude that the views that they held were unreasonable. The evidence of both Mr Cobb and Mr Robb was clear - they both considered Iluka's sales forecasts to be reasonable at all times before the end of June 2012. 684 The evidence does not support an inference that Mr Cobb or Mr Robb held any view that Iluka most likely would not achieve its sales guidance (assuming it held its prices) before 30 June 2012. Mr Cobb suspected it may be difficult for Iluka to do so in early to mid-June 2012 (again, if it held its prices) but had good reasons at that time not to have reached any concluded view to that effect. Mr Cobb also saw distinct signs of improvements in both markets by the time of the 20 June 2012 meeting of the board. 685 I do not consider that Iluka's actions between early June and 9 July 2012 were unreasonable. Signs of improvement in China were appearing. Iluka management genuinely believed that a turnaround in zircon demand was emerging up to 20 June 2012. They also genuinely believed that Iluka would be able to negotiate deals for its TiO2 products enabling it to meet its sales guidance given that the negotiations were ongoing. There is no basis upon which it would be inferred that Mr Cobb and Mr Robb were both being unreasonably optimistic. 686 The notion that infuses the case theory for Mr Bonham, of Iluka management being virtually wilfully blind to the effects of substitution and thrifting on demand for its products, is untenable. For zircon products, the focus on China involves distortion and inaccurate over-simplification. For TiO2 products, Mr Bonham's case involves inaccurate over-simplification and exaggeration. 687 There is ample evidence of Iluka making significant efforts to identify and understand the effects of substitution and thrifting on demand for its zircon products in China. The fact that Iluka management considered the issue to be complex and the effects to be difficult to quantify does not support an inference of unreasonableness, let alone wilful blindness. The evidence indicates Iluka was right - the issue was complex and the effect was difficult to quantify given the nature of the zircon market in China and the fact that the impact had partly been absorbed in 2011. The evidence does not suggest that the views of Mr Cobb or Mr Robb about the overall effects of substitution and thrifting on demand for Iluka's products were wrong or unreasonable. 688 Mr Bonham's case also posits that Iluka's approach, of documents remaining in draft for discussion purposes and apparently never being finalised, was itself unreasonable. The criticism is misplaced. Iluka's leadership team had substantial experience and expertise in the markets in which Iluka operated. It was rational and appropriate for information to be presented to and considered by the leadership team. It was also rational and appropriate for Iluka to want to ensure that the information it possessed was accurate and reliable. I do not infer that Iluka was seeking to delay or defer the sharing of bad news about its markets in 2012. That is irreconcilable with the evidence of Iluka's witnesses which I accept. It also depends on a partial and selective view of the contemporaneous documentary record. 689 The fact that Iluka's sales guidance involved a heavy weighting to the second half of 2012 (or, as Mr Bonham emphasised, that Iluka would need to achieve record results in that period to achieve the weighting) does not mean that the overall sales guidance was unreasonable. If, as Iluka anticipated, demand would rebound in the second half of 2012 after a period of destocking in both markets, then a heavy weighting to the second half of 2012 makes sense. Iluka's markets had been growing strongly from 2009. The view of Mr Robb, in particular, that the drive to urbanisation would see demand continue to grow and, in effect, swamp the impacts of substitution and thrifting, was not a result of blind optimism. It was a carefully considered conclusion based on years of experience in the industry. It is not apparent from the evidence that Mr Robb's views in this regard turned out to be wrong. 690 Further, the views of Mr Robb and Mr Cobb that the rebound in demand would be strong in the second half of 2012 also were not a result of blind optimism. They knew the market was seasonal and cyclical. They knew that periods of decreased demand occurred. They were familiar with the intricacies and longer-term patterns of the market. Having heard and seen them give evidence, it is difficult to infer that in 2012 either was unknowingly involved in the publication to the market of sales guidance which lacked reasonable grounds. Characterising their views at the time (that Iluka's sales guidance was not only reasonable, but the best guidance that could be given in the circumstances) as merely "subjective" fails to confront reality. 691 The evidence proves that at the relevant times: (a) the Iluka witnesses were all highly experienced in the industry, (b) the key Iluka personnel for sales guidance, Mr Cobb and Mr Robb, were well-informed about all relevant issues, including substitution and thrifting, (c) the views that Mr Cobb and Mr Robb held that it was difficult to quantify the impact of substitution and thrifting were well-founded, (d) Mr Cobb and Mr Robb were careful and considered in their approaches, (e) Mr Cobb and Mr Robb were aware of and had taken into account all issues of relevance, (f) Mr Cobb and Mr Robb had the objective of being as accurate as possible in respect of the sales guidance provided by Iluka to the market, (g) Mr Cobb and Mr Robb considered that the sales guidance provided by Iluka to the market was not only reasonable, but the best guidance that could be given in the circumstances, and (h) Mr Cobb and Mr Robb considered that Iluka's revised sales guidance was also timely and not only reasonable, but the best guidance that could be given in the circumstances. 692 In these circumstances, to characterise Mr Robb and Mr Cobb's views as lacking reasonable grounds (which would be necessary given that it must be inferred that Iluka acted on the basis of their views) is difficult. They did not fail to notice an issue which they reasonably should have noticed. They did not fail to consider information concerning any relevant issue. They had no reason to risk their reputations as long-term participants in the industry for any perceived short-term gain in Iluka's share price. There is no suggestion they were reluctant to give the board the information it needed to make well-informed decisions. There is no evidence of either Mr Robb or Mr Cobb being historically over-optimistic about sales forecasts. There is no evidence of any kind of systemic flaw or tendency to yield unachievable sales targets in Iluka's budget and forecasting processes. 693 It is easy, with hindsight, to say that Mr Robb and Mr Cobb should have realised that: (a) substitution and thrifting would make their views about 2012 sales unreasonable, or (b) global economic conditions would make their views about 2012 sales unreasonable. However, as to the former, it is not apparent on the evidence that substitution and thrifting had any material impact that Iluka had not anticipated. As to the latter, rather than global economic conditions improving through 2012 as anticipated, they deteriorated sharply in June and early July 2012. Iluka was not alone in its anticipation of a strong second half of 2012. It was shared by all key industry participants. 694 The fact that Mr Bonham can point to documents indicating more pessimistic views (such as Endeka) earlier than Iluka adopted a pessimistic view, does not cause me to infer that Iluka lacked reasonable grounds for its sales guidance during the relevant period. Iluka operated in global markets. Its products involved two distinct global markets. The regions comprising its markets were disparate and complex. It could not reasonably take the view of any customer trying to achieve lower prices as representative of any segment of the market. It had to be sceptical about information given to it by customers given the evidence that the industry was characterised by brinkmanship and misinformation rather than transparency. 695 Iluka's approach leading up to and at the meeting of the board on 20 June 2012 was not unreasonable. It appreciated that it was reaching a critical decision point. Given very recent indicators of a turnaround in the zircon market and the ongoing negotiations for sales in the TiO2 market, Iluka's view that it had not yet reached that point was carefully weighed and made. The steps it took to ensure a decision could be made quickly if required were prudent. But it was not unreasonable as at 20 June 2012 for it to consider that the turnaround in zircon demand was beginning or that it could secure sales for its TiO2 products for the second half of 2012. 696 I do not accept that the evidence supports an inference that Iluka adopted an approach of "if in doubt, let it stand". That proposition is not consistent with the contemporaneous evidence or the evidence of the Iluka witnesses. The proposition also confuses the relevant issue. The fact that one or other employee of Iluka might have doubted that it would achieve its sales guidance before 30 June 2012 (noting that even that inference is not available on the evidence) does not mean that, at that time, Iluka did not have reasonable grounds to maintain the guidance. This proposition ignores the terms of the guidance. It also ignores common sense - Iluka had to consider the terms of any revised guidance carefully. It did so over a few days which was not unreasonable in the circumstances given the information it needed to decide on the revised terms of the guidance that should be given. 697 Nor do I accept that Iluka's evidence established only that Iluka's officers subjectively considered that Iluka's extant guidance was achievable. The evidence did establish this, but it did more. It explained why the officers held the views they did. Their reasoning processes did not depend on unreasonable assumptions or unreasonably ignore relevant information. 698 In these circumstances I consider that the evidence establishes that Iluka had reasonable grounds for the making of the alleged representations (if made) at all relevant times. Iluka's actions to revise its guidance as it did through the first half of 2012 were reasonable and timely. The fact that, with hindsight, Iluka was wrong about the timing or the fact of a rebound in demand in the second half of 2012 does not establish that it lacked reasonable grounds for the alleged representations. 699 In so concluding I have not asked whether no reasonable entity in the position of Iluka could have come to the views it did. I did not understand Iluka to be suggesting that I should adopt any such approach. I accept that the issue in the present case is simply one of the existence or not of reasonable grounds for the alleged representations. I also consider that it is possible that Mr Bonham could have failed to prove that a reasonably-based forecast of Iluka's expected sales for each of its products in FY 2012 was in the order of and no more than approximately 231kt to 336kt of zircon, 188kt of rutile, and 255kt of synthetic rutile (based on the evidence of Mr Murray and Mr Rochester), yet succeeded in the case that Iluka did not have reasonable grounds for the asserted misrepresentations and/or contravened its disclosure requirements. Contrary to Iluka's submissions, the latter contentions do not wholly depend on the former.

CONTINUOUS DISCLOSURE 700 Mr Bonham's claims must be rejected because I do not accept the propositions, based on the evidence of Mr Murray and Mr Rochester, that a reasonably-based forecast of Iluka's expected sales for each of its products in FY 2012 was in the order of and no more than approximately 231kt to 336kt of zircon, 188kt of rutile, and 255kt of synthetic rutile. Nor do I accept that Iluka did not have reasonable grounds to make the April forecast representation and May forecast representation. It follows that Iluka could not have been aware of the alleged contrary information alleged to have been subject to an obligation of disclosure. That is, I do not accept that at any relevant time Iluka knew that it: (a) did not have reasonable grounds to make the April forecast representation and May forecast representation, (b) had information which created a material risk that the April forecast representation and the May forecast representation were no longer reliable, (c) was no longer able to provide reliable forecasts of future revenue, or (d) did not have a reasonable basis for providing point estimates of sales for mineral sands products rather than a broad range going forward. 701 This said, I do not accept a number of Iluka's submissions about the continuous disclosure requirements. In particular, I do not accept that the requirements "only require an opinion to be disclosed if the opinion is actually held by the directors or if the opinion is held by someone else and should have become known to the directors". 702 The continuous disclosure obligations in s 674(2) of the Corporations Act (as then in force) applied to "information" that is not generally available and that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of securities of the entity. Further: (a) ASX Listing Rule 3.1 provided that once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity's securities, the entity must immediately tell ASX that information, and (b) in Chapter 19 of the Listing Rules, r 19.12 provided that an entity becomes aware of information if, and as soon as, an officer of the entity has, or ought reasonably to have, come into possession of the information in the course of the performance of their duties as an officer of that entity. 703 On this basis, unaffected by authority, it is not difficult to conclude that if an officer possesses information from which the officer ought reasonably have drawn a particular conclusion, the entity has become "aware" of the information represented by that conclusion. It was not necessary for the definition of "aware" to make that explicit (as occurred by subsequent amendment to the definition in 2013). Accordingly, if I had concluded that at any relevant time Iluka had become aware of information in the form of a conclusion that, acting reasonably, it ought to have formed which required disclosure, then I would have accepted that Iluka contravened its continuous disclosure requirements. Further, in that regard, I would have considered that Iluka could become so "aware" either by its directors or an officer (as defined in s 9 of the Corporations Act) possessing information for which they reasonably ought to have formed the conclusion requiring disclosure. The issue does not arise in the present case because on the facts, assuming Mr Cobb is an officer of Iluka (which Iluka denied), I do not infer that Iluka ought reasonably to have drawn any conclusions it did not draw. 704 I do not accept that authority requires a contrary conclusion. 705 Jubilee Mines NL v Riley [2009] WASCA 62; (2009) 40 WAR 299 is authority only for the proposition that the information an entity has or ought to have had "cannot be construed as extending to information arising from business decisions which Jubilee had not made - such as the decision to undertake exploratory drilling": at [90]. That concept, of business decisions not made, is not the same as the formation of an opinion or conclusion reasonably required to have been made in the ordinary course of an existing business. In Jubilee Mines the entity was not in the business of nickel mining. As such, the capacity it had to decide to enter the business of nickel mining was not information of which it ought to have been aware. If the entity had been in the business of nickel mining, the reasoning in the case would have been inapplicable. 706 Grant-Taylor v Babcock & Brown Limited (In Liquidation) [2015] FCA 149; (2015) 322 ALR 723 depended on the fact that no-one within the entity, at the relevant time, believed it to be insolvent despite it later being apparent that it was insolvent. The obiter dicta at [156]-[158] needs to be understood in this context. The board of the entity had considered the relevant issue, insolvency, and concluded that the entity was not insolvent. This was wrong, but it was not a case of a failure to form an opinion at all. The obiter dicta at [156]-[158], to the effect that an opinion not formed but which reasonably should have been formed does not come into the possession of the entity, is conceptually unsatisfactory. This is because it is accepted that an entity does possess an opinion actually held. If that is so, and an entity possesses information from which it reasonably ought to have formed an opinion but did not, it cannot be said that the entity is not in possession of information (the opinion) it ought reasonably to possess. 707 Grant-Taylor v Babcock & Brown Limited (In Liquidation) [2016] FCAFC 60; (2016) 245 FCR 402, which dismissed the appeal, did not depend on the obiter dicta. 708 TPT Patrol involved a case of actual not constructive awareness of the lack of reasonable grounds for an NPAT forecast: [1135], [1174]. On this basis the observations at [1174] that officers are not required to form an opinion based upon information they know or ought to know of is also obiter dicta. 709 I am unable to accept the obiter dicta identified above. An opinion or conclusion is nothing more than a state of mind. Knowledge is also a state of mind. The relevant issue is not the difference between one state of mind and another. The relevant issue is information. Information exists outside of a person's state of mind. If the information does or ought reasonably to have induced a particular state of mind in the entity (via its directors or officers) then that state of mind itself is information that the entity has or ought reasonably to have had. Either way, the disclosure obligation is engaged if the information is not generally available and that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of securities of the entity. 710 The contrary approach, in my view, is inconsistent with the language of the legislation and its purpose, to "to enhance the integrity and efficiency of capital markets by requiring timely disclosure of price or market sensitive information": Grant Taylor at [92]. 711 As I have said, however, the continuous disclosure case fails on its facts.

CAUSATION AND LOSS 712 As discussed above, I do not accept that Mr Bonham relied on the alleged representations, assuming they were made. Accordingly, even if Mr Bonham had proved any statutory contraventions (which he has not), he has not proved loss caused by the contraventions. Mr Bonham's wife, his co-trustee (who the evidence indicates had a power of effective veto over any share purchase), must be inferred not to have relied on anything said or done by Iluka. In those circumstances, Mr Bonham's case would have failed on causation of loss even if he had established a statutory contravention. 713 Otherwise, causation and loss for the purpose of other class members were sought to be established based on the evidence of Mr Houston, an economist, constituting an event study. Mr Houston's evidence assumed that the opinions of Mr Murray and Mr Rochester should be accepted. I have not accepted those opinions. I have not accepted that Iluka contravened any statutory obligation. Accordingly, questions of causation and loss as analysed by Mr Houston do not arise. 714 If these questions did arise, it would be necessary to give detailed consideration to the evidence of not only Mr Houston, but also Mr Holzwarth, an economist. The complexity of the issues about causation and loss to which their evidence gives rise is not amenable to generalised overview. The only general observations which can be made are as follows. 715 Mr Houston's evidence does not adequately confront the fact that the level of short selling in Iluka shares was among the top five or ten most heavily shorted stocks included in the ASX 100 index. The inference which must be drawn is that J Capital was not alone in considering that Iluka's shares were over-priced in the first half of 2012. It is reasonable to infer that these market participants took a less optimistic view than others about the macro-economic and other factors affecting Iluka's sales volumes in 2012. While short-selling also necessarily involves a market participant taking a contrary view, the relevant point here is that Mr Bonham's case depends on Iluka's sales guidance having been unreasonable. The fact that Iluka's shares were subject to a high rate of short-selling at the relevant time, indicates that the market held a range of views about Iluka's sales forecasts. The fact of such a high level of short-selling indicates that the market participants holding those opposing views were acting rationally because the volatility then in the market made either position reasonable. That one position (short) was proven to be correct in the first half of 2012 does not prove the contrary position (long) was unreasonable. Nor does it prove that Iluka knew or reasonably should have known information which the market did not. To the contrary, the high level of short-selling in the market of Iluka shares tends to undermine the notion that the information Mr Bonham contended ought to have been disclosed to the market but was not, in fact, was not known to the market. It also tends to suggest that the first step in Mr Houston's analysis, estimating the market's actual expectations of Iluka's sales in 2012, is fraught with difficulty. 716 Mr Houston considered the reports of equity analysts (which focus on share price) as the best available proxy for the market's actual expectations of Iluka's sales in 2012. However, it is not apparent that the subset of analysts' reports used by Mr Houston, nine from the 23 provided by Mr Bonham's lawyers, is a representative sample. Without evidence supporting an inference that the sample is representative, the exercise Mr Houston has undertaken cannot prove anything. This is so whether or not it is also concluded, based on the academic literature, that reports of equity analysts have an inherent and substantial systemic bias towards long positions. 717 These confounding factors may explain an apparent anomaly in the results of Mr Houston's analysis which Iluka described as follows: Mr Houston identified that on 8 May 2012 the average of the subset of analysts relied upon reduced their expected 2012 zircon sales by 35 kt, to which Mr Houston attributed an abnormal price reaction of $2.20, while on 9 July 2012 the average of the subset of analysts relied upon reduced their expected 2012 zircon sales by 105kt, to which Mr Houston attributed a share price movement of $0.86. These resulted in a "multiplier" of $0.063 per kt for 8 May 2012, but just $0.08 per kt for 9 July 2012. (Footnotes omitted). 718 I do not consider this apparent anomaly adequately explained by any proposition advanced by Mr Houston or Mr Bonham. 719 I also found two fundamental aspects of Mr Holzwarth's evidence persuasive, in particular that: (1) the analysts' reports are not "a good proxy for the market overall. Their expectation as a group are too high, as you can see with the target prices, and particularly given there is such a high level of short selling, which is reflected in the share price but not reflected in their estimates"; and (2) there is evidence of the awareness in the market of issues of substitution and thrifting including sell-side analysts preparing reports for subscribers who are also part of the market (not confined to J Capital). This evidence was consistent with the opinions of Dr Unni, which I also accept. 720 On this basis I am not persuaded that Mr Houston's evidence provides a reliable foundation for assessing the effect of the alleged statutory contraventions (if they existed) on Iluka's share price (that is, that the alleged contravening conduct caused an inflation of Iluka's share price).

LIMITATION PERIOD ISSUES 721 Iluka's limitation period defence is incapable of any generalised assessment. I do not consider this to be an appropriate case in which to provide views about the limitation issues on an assumed basis that my primary conclusions are wrong. Amongst other things, the then docket judge ordered on 8 July 2020 that the date that the amendments effected by the Further Amended Statement of Claim take effect is to be determined at trial. On 22 December 2020 the then docket judge ordered that the date that the amendments effected by the Second Further Amended Statement of Claim take effect is also to be determined at trial. Whether those amendments should be ordered to take effect from the date of commencement of the proceeding or the date of amendment involves an evaluative assessment of the nature of the amendments and of the interests of justice. I do not consider that exercise can be undertaken appropriately on a hypothetical basis.

COMMON QUESTIONS 722 The common questions no longer reflect the case as pressed for Mr Bonham. I consider that the parties should confer having regard to these reasons for judgment and file agreed amended common questions with proposed answers reflecting these reasons for judgment.

ORDERS 723 I consider that the application should be dismissed, but propose to give the parties an opportunity to confer about the further orders that should be made including as to the appropriate common questions and as to costs. I certify that the preceding seven hundred and twenty-three (723) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jagot.