AFR TODAY:Taxpayer funds fear in Iluka refinery blowout - Peter...

AFR TODAY:

Taxpayer funds fear in Iluka refinery blowout - Peter Ker

The cost of building Australia’s first rare earths refinery could be up to 80 per cent higher than originally thought, leaving open the possibility that taxpayers could have to lend more than the $1.25 billion pledged so far.

Iluka Resources revealed on Friday that Western Australia’s Eneabba refinery was now expected to cost somewhere between $1.5 billion and $1.8 billion and would produce its first separated rare earth oxides in 2026 rather than 2025.The cost of the project was originally forecast to be between $1 billion and $1.2 billion when Iluka took a final investment decision in April 2022.

The company blamed the ‘‘challenging project environment in Western Australia’’ for the cost and schedule blowouts – a reference to the labour shortages, inflationary pressures and supply chain challenges that have plagued the industry in WA over the past five years.

The blowouts were widely expected by analysts, but Iluka’s revelation raises the prospect that federal taxpayers may need to put more money into the project.The federal government’s Export Finance Australia agreed in April 2022 to lend $1.05 billion to the refinery project as part of efforts to break China’s stranglehold on the rare earths required for defence and decarbonisation applications.

EFA’s loan came with an extra $200 million ‘‘cost overrun facility if required’’.The April 2022 announcement said the taxpayer loan contained ‘‘risk-sharing mechanisms’’ in case the refinery ever faced ‘‘technical, operating or market-based challenges’’.

Iluka chief financial officer Adele Stratton said in August the loan agreement with EFA did not explicitly state which party would bear the responsibility of covering a cost blowout.‘‘If there is any potential cost overrun, the facility is actually silent in that regard so, you know, that would be something that we’d discuss if that eventuates,’’ she told analysts during an earnings call on August 24.

A spokesman for federal Resources Minister Madeleine King said EFA would hold talks with Iluka over the blowouts. ‘‘The government remains committed to supporting the Australian critical minerals sector and is providing support of a $1.25 billion financing package to Iluka for their Eneabba project,’’ he said.

‘‘Export Finance Australia, which manages the loan to Iluka for the government under the Critical Minerals Facility, will work with Iluka to discuss how Iluka can address the cost increase and next steps, like it would with any borrower.’’Iluka had $372 million of net cash at September 30.

___________________________________

Ash here.

This is only an early hiccup in managing a complex government/private partnership to create a Western REE supply chain. There will be more difficulties.

The project is seething with uncompensated risk. Who bears it - government or ILU??

ASsh