Shares in Iluka Resources have fallen sharply after the company flagged potentially higher costs, an increased equity contribution and lower royalty payments with the federal backing.
Shares in Iluka Resources have fallen sharply after the company flagged the prospect of higher costs, an increased equity contribution and lower royalty payments in tandem with expanded federal government backing.
Iluka has secured an additional $400 million in federal government funding towards its Eneabba rare earths refinery, in Western Australia’s mid-west.
That is on top of the $1.25 billion loan agreed in 2022, when Iluka committed to develop the project.
The mineral sands miner will also contribute an additional $214 million in equity towards the project.
The extra funding will cover s blow out in the project’s capital cost from its initial price tag of $1.2 billion to a range of $1.7 billion to $1.8 billion.
In addition, both parties have established a $150 million cost overrun facility, in which both will contribute half each.
The Perth-based company also disclosed royalty payments it was due to receive may be cut by half if it is unable to lock-in feedstock sources beyond its own rare earths stockpile at Eneabba.
If that occurs, royalty payments to Iluka will be capped at $40 million pa for the first four years of refinery production compared to $81 million under the original funding deal.
The refinery is due to be commissioned in 2027.
Following the update, Illuka shares were trading down 11 per cent to $4.90 as of 11.17am WST.
“Critical minerals are the building blocks for a clean energy future and we are determined to seize this economic opportunity to support local businesses and local jobs," prime minister Anthony Albanese said.
“A strong resources sector means a healthy economy and good, well paid local jobs. We will back WA’s resources sector, through our plan for a future made in Australia and our production tax credits.”
Managing director and chief executive Tom O’Leary put a positive slant on the update.
“With the capital structure for Eneabba now confirmed, we remain focused on efficient construction of the refinery, and on realising the operational performance, pricing outcomes and longevity that will collectively drive returns from our rare earths business,” he said.
“I look forward to providing shareholders a broader update on these matters at Iluka’s full year results in February 2025.”
During Friday morning's conference call, the Iluka boss outlined the reason for the lengthy negotiation period with the federal government.
"It is a very significant loan as we've indicated," he said.
"And government obviously needs to go through a range of processes, analysis, evaluation and testing to assess whether it’s (refinery) regarded as appropriate in the context of their policy agenda.
“Ideally, it would have been more rapid. Nonetheless, we’ve reached what I think is an attractive outcome today.”
Insight into the lead up to production in 2027 was also provided.
“In terms of commissioning and first production… the commissioning actually commences before the overall mechanical completion,” Iluka head of rare earths Daniel McGrath said.
“The commissioning schedule is very long – and that’s recognising the fact that there are quite a lot of unit operations in the plan.
“None of them are particularly unique or at all a spoke, but there are quite a lot. So we actually start commissioning reasonably early in 2026 and we don’t complete wet commissioning until the very end of 2026.
“We’re expecting to be in production well and truly by 2027.”
Following Friday morning’s announcement, Shane Hartwig-led Northern Minerals – which has a strategic partnership with Iluka - confirmed it had agreed to supply xenotime concentrate from its Browns Range heavy rare earths project, located in the east Kimberley, to Eneabba.
“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,” Mr Hartwig 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.
“Northern Minerals is working hard to advance Browns Range towards a final investment decision in line with our target, subject to securing project funding, of achieving first production of xenotime concentrate in late 2027.”
This news lifted Northern’s shares up 5 per cent to 2.3 cents.
