lluka shares soar on WA rare earths refinery fundingPeter Ker Resources reporter Apr 4, 2022 – 9.08am
Taxpayers will lend $1.05 billion to build the first fully integrated rare earths separation facility on Australian soil, highlighting the growing appetite for governments to invest in critical minerals supply chains.Iluka Resources shares surged by 8 per cent at the opening of trading on Monday after it vowed to build a $1.2 billion refinery at Eneabba in Western Australia.
Iluka’s refinery will make oxides of neodymium, among other rare earth elements.
The decision was made after securing the $1.05 billion loan from the “critical minerals fund” that has been placed under the stewardship of the federal government’s Export Finance Australia.The loan comes after last week’s federal budget contained significant amounts of funding for resources industry infrastructure projects and as governments in nations such as the United States, Australia, Japan and Britain increasingly seek to secure supply chains in commodities that are dominated by Chinese or Russian production.
Close to 80 per cent of the world’s rare earths separation capacity is in China, with the notable exception being the Malaysian separation plant run by Australian company Lynas Corporation.
US President Joe Biden last week enacted a war time power – known as the Defence Production Act – to enable his government to fund development of the “strategic and critical minerals” needed to make batteries and other clean energy infrastructure.
Australian companies may qualify for funding under President Biden’s move as part of efforts to acknowledge the closer defence ties between Australia, the US and the United Kingdom.
More focus on ‘heavy’ rare earth elements
While Lynas ships Australian ore to Malaysia for processing, Iluka proposes to mine, process and separate rare earths at an integrated site near Eneabba, meaning the entire supply chain will be on Australian soil.
Of the 17 elements that fall under the banner of “rare earths”, the most valuable are neodymium (Nd) and praseodymium (Pr) which are used in the industrial magnets required for many defence industry applications such as drones, and the manufacturing of cars and clean energy infrastructure such as wind turbines.While Nd and Pr have been the flagship product of the rare earths industry over the past decade, governments and industry are also increasingly focused on “heavy” rare earth elements such as terbium (Tb) and dysprosium (Dy).
Iluka’s refinery will make oxides of Nd, Pr, Tb and Dy as well as other, lower value rare earth products.
Much of the feedstock for Iluka’s refinery has already been mined and stored near the proposed refinery site, and longer term the company expects to feed the mill from a large mineral endowment it has near Horsham in Victoria.
Construction to begin this year
Iluka said on Monday the refinery could be capable of taking feedstock from third parties too.The company said construction on the refinery would begin before the end of this year and first production was expected by 2025.Under the 16-year loan agreement with the government, a subsidiary of Iluka will pay interest rates of 3 per cent above the bank bill swap rate bid (BBSY), with the loan being non-recourse to Iluka. Iluka will inject $200 million of cash into the project on top of its existing spend on studies at Eneabba, and its received cashflows from the refinery will be no higher than $81 million in any given year until the debt is repaid.“Our final investment decision would not have been taken without the support of the Australian government,” said Iluka managing director Tom O’Leary.The US government is in talks with Lynas over building more rare earths refining capacity in North America, with the US government recently announced funding for American company MP Materials to build more refining capacity at its Californian mine.
The refinery will mark Iluka’s pivot into rare earths minerals, which are commonly found in the same geology as the company’s traditional mineral sands products such as zircon and ilmenite. The pivot into rare earths, strong profits in the traditional mineral sands business and divestment of a lucrative iron ore royalty into a new ASX company called Deterra Resources has helped drive a more than tripling in the price of Iluka shares over the past two years.The stock was fetching $3.42 in late March 2020 but surged to a record high of $12.44 in early trading on Monday.
Iluka’s market capitalisation is now above $5 billion.
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