Iluka Resources shares smashed despite more funding to bring Eneabba rare earths refinery online

Mineral sands miner Iluka Resources has secured an extra $400 million in taxpayer cash to deliver its ambitious $1.8 billion rare earths refinery just north-east of Jurien Bay. The breakthrough follows almost a year of Iluka and the Federal Government being locked in tense negotiations over who would foot the bill to cover a massive cost blow out that emerged not long after construction of the Eneabba refinery started. But the mining major’s shares were down 10 per cent on Friday, with investors digesting the prospect of Iluka having to dig into its own liquidity reserves and new customer restrictions being placed on the refinery’s output. Iluka gave the green light to the then-$1.2b Eneabba refinery in early 2022 with the help of a $1.25b non-recourse loan administered by Export Finance Australia. At the time, Iluka agreed to back the works — which will convert its stockpiles of monazite waste into highly sought-after elements used in high-end technology for clean energy and defence — with $200m. But it quickly became apparent that more funds would be needed as a high inflationary environment and a shortage of skilled labour drove up the projected price tag, and late last year pushed the budget out to between $1.7b and $1.8b. Iluka on Friday said the Government would tip in an extra $400m under the original terms of the loan while the company itself would add another $215m. The additional portion of the loan has the same repayment terms as the original $1.25b, but comes with a clause for Iluka to sell the refinery’s output to international customers deemed “satisfactory” to the government. This effectively bars Iluka selling Eneabba’s rare earths product to China. Resources Minister Madeleine King on Friday stopped short of explicitly banning China from Iluka’s offtake, but said Australia “needs to compete”. “What this is about is competing. China, at the moment, does dominate the rare earths refining processes of the world,” she said. “It’s right for us to seek to compete, that’s just a natural way of the world. “People need to understand that the China’s ahead of the game. They’ve invested in critical minerals and rare earths and solar panels and the green technologies for 30 years.” Iluka managing director Tom O’Leary welcomed the support and said the refinery — the first of its kind in Australia — would deliver “substantial, sustainable value over several decades”. “This is a strategic infrastructure asset that puts Iluka and Australia at the forefront of global electrification, the creation of new and resilient critical minerals supply chains, and the establishment of a rare earths industry that is genuinely independent,” Mr O’Leary said. “Iluka’s partnership with the Australian Government encompasses key contributions from both parties, an appropriate sharing of risk and the alignment of commercial and policy objectives. “With the capital structure for Eneabba now confirmed, we remain focused on efficient construction of the refinery . . . . I look forward to providing shareholders a broader update on these matters at Iluka’s full year results in February 2025.” The refinery is viewed as a major stepping stone in Australia’s ability to position itself as a global leader in the supply of rare earths, a market that is currently dominated by China. Mr O’Leary in August implied the Government would need to provide further funding for Eneabba, 270km north of Perth, or else the development would grind to a halt. “I’ve also been clear that Iluka requires an appropriate risk-sharing partnership with the Australian government in order to continue the refinery development,” he said at the time. Iluka might have to draw on an existing $800m debt facility for the $215m it needs as part of the updated deal. The repayments on the Government loan comprise of the bank bill swap rate, currently 4.43 per cent, plus another 3 per cent of interest. Iluka had net cash of just over $154m by the end of the 2024 financial year, down from almost $343m a year earlier amid a weak mineral sands price environment. The company’s core business is mining mineral sands. Mr O’Leary ruled out Iluka selling its 20 per cent stake in Deterra Royalties, worth about $415m, because a sale would come with a “very expensive” capital gains liability. “A sale of the Deterra shares, or any (part) of them to raise capital, would incur 30 per cent of the proceeds as capital gains tax,” he said. Iluka’s market value is now less than Deterra’s, which was spun out of Iluka in 2020 and holds a lucrative royalty over BHP’s massive Mining Area C iron ore operation in Western Australia’s Pilbara region. The Eneabba refinery is set to be operational during 2027 and will also use feedstock from Northern Minerals’ Browns Range project near the WA-NT border. First production at the Eneabba refinery was originally earmarked for 2025. Northern Minerals chief Shane Hartwig welcomed the “positive outcome” of the Eneabba stalemate. “Aligned with Iluka’s declaration that the refinery will be strategic infrastructure asset, Northern Minerals believes in the strategic and financial value of an Australia-based, reliable and long-life supply chain of some of the key rare earths required for a cleaner and greener world,“ he said. “It is why Northern Minerals entered into a strategic partnership with Iluka in 2022, which will see heavy rare earths concentrate containing dysprosium and terbium transported from Browns Range to Iluka’s Eneabba refinery for processing.” But Northern Minerals’ tightly-held share register barely budged on the news for most of the day, before a late afternoon surge sent its stock up 9 per cent. Prime Minister Anthony Albanese on Friday was in WA and said the Government’s financial backing of Iluka’s refinery is an “investment in Australia’s future”. “One of the things that we’re seeing happen around the world in areas like rare earths and critical minerals, there’s first mover advantage,” he said. “We want to unashamedly get Australia moving down the track of what industries will look like in one, two, three decades, and make sure that we set Australia up. “It will be Australia’s first integrated rare earths refinery, supporting 900 jobs during construction and an additional 250 jobs when operational . . . this project will unlock processing of Australian deposits of light and heavy rare earths.” Ms King, who joined the Prime Minister at the Friday press conference, said the funding deal was part of Australia “taking responsibility to lead on critical minerals globally”. “Not only are critical minerals and rare earths key to the energy transition, they are essential to the defence industry and our national security,” she said. “We stand at an important moment in time where the world wants what we have and we just happen to have the most advanced mining sector in the world.” China supplies about 85 per cent of rare earths oxides globally, including 100 per cent of all heavy rare earths. Rare earths are a basket of 17 mineral elements needed in large quantities to manufacture wind turbines, electric vehicles, medical equipment like MRI machines, and many pieces of modern weaponry — such as precision guided missiles.