News: ILU UPDATE 1-Australia backs Iluka rare earths plant in critical minerals drive

(Adds dateline, detail, share price move)

MELBOURNE, May 11 (Reuters) - Australia has backed a new rare earths processing plant planned by mineral sands producer Iluka Resources (ILU) , saying it is in line with a government effort to build supply of critical minerals, the company said on Tuesday.

The letter, signed by two ministers, comes in the wake of a threat of supply disruptions from China that has pushed the likes of Australia and the United States to ramp up their own capabilities in recent years.

Iluka expects to complete a feasibility study by early 2022 for the plant in Eneabba in the state of Western Australia, where it now produces concentrate that contains rare earths.

"The Morrison government is focused on growing Australia's critical minerals sector, capturing more value from our resources by moving into downstream processing, and diversifying global supply chains," the government said in its letter.

"This includes supporting Australian projects with broader benefits across the industry," Trade Minister Dan Tehan and Resources Minister Keith Pitt said in the letter to the Australian stock exchange.

The federal government would consider options for further project support, it said, adding that the company had sought a non-recourse loan from credit agency Export Finance Australia.

Shares in Iluka fell 1.1%, in line with a lower Australian share market.

Lynas Rare Earths (LYC) , the world's largest producer of rare earths outside China, is building a plant in Kalgoorlie, which is also in Western Australia.

China is the world's largest producer of rare earth metals and magnets that find use in a wide range of gadgets and some weapons systems.