Monsters of Rock: Iluka boss shreds China for 'weaponising' rare earths supply and pricing

Iluka Resources boss Tom O’Leary says China’s control of the rare earths supply chain is being weaponised, as it seeks support for the troubled Eneabba refinery in WA
Bellevue Gold in commercial production, FY25 costs and production guidance due in July
Develop lobs scoping study on Pioneer Dome lithium project

Iluka Resources’ (ASX:ILU) managing director Tom O’Leary has launched an astonishing broadside at China’s control of the rare earths market, accusing the world’s dominant critical minerals player of brandishing its power over metals supply and pricing like a weapon.

The comments presented at Iluka’s AGM in Perth today come as the ASX 100 mineral sands miner looks to negotiate a lift in its loan under the Federal Government’s Critical Minerals Facility.

The low cost $1.25 billion finance package was approved in early 2022, bankrolling the company’s plan to build a new refinery at Eneabba to process rare earth metals from stockpiled monazite at its operations in WA’s Mid West.

Previously a useless by-product of mineral sands processing, the explosion in demand for magnet metals used in defence, aviation, EV and wind power applications along with consumer electronics have made Australia and specifically Iluka’s monazite resources a metaphorical gold mine.

But with Australia’s first rare earths refinery expected to be in operation from late 2026, Iluka’s capex has risen to $1.7-1.8bn, with O’Leary acknowledging it’s extremely unlikely the Commonwealth would advance all the funds needed to meet the additional capital requirement.

“But I can assure you that I have heard your perspective on the limits to which Iluka can go to invest shareholders’ funds in the Eneabba project, especially considering the risks inherent in the rare earths industry,” he said.

As those talks progress, O’Leary has delivered a stark warning to Australian policymakers on the importance of breaking China’s complete dominance of the supply chain, including its decision to ban the export of rare earths processing tech.

“And there are clear, ongoing efforts, including by Chinese state-owned entities, to extend their nation’s monopoly by controlling Australia’s rare earth deposits. From Western Australia to Western Victoria, this is taking place via a number of binding offtake agreements with various companies; and via ownership – as in the well documented case of Northern Minerals, among others,” he said.

“Further still, China’s influence over the global rare earths market is pervasive, including through pricing indices such as the Asian Metals Index.

“This is different from the cyclical pricing dynamics associated with markets for other critical minerals, such as the nascent lithium market, or markets for Iluka’s titanium and zircon products. It is also different from the impact of technological shifts, such as that evidenced by Indonesia’s emergent dominance in nickel.

“While China is a significant customer of all these commodities, they are all produced in material quantities in countries outside China.

For rare earth oxides, China accounts for approximately 90% of all production, and for the key heavy rare earths effectively 100%.

“It is this monopolistic production, combined with interference in pricing, that is resulting in market failure; and rare earths are among very few metals where China has demonstrated a preparedness to weaponise its control.”

Commentary on the development of western rare earths supply chains has lifted in recent weeks after Gina Rinehart took large stakes in both US-listed MP Materials and ASX-listed Lynas (ASX:LYC) , raising the prospect plans to merge the two biggest non-Chinese suppliers could be revived.

Meteoric Resources (ASX:MEI), owner of the highest grade ionic clay rare earth deposit at Caldeira in Brazil, also last week announced a non-binding MoU to supply rare earth oxides to TSX-listed Neo Performance Materials from 2027.

And now for your irregularly scheduled commercial production break

And now for gold… Bellevue Gold (ASX:BGL), which is looking at expanding its namesake gold mine in WA’s outback after announcing ‘commercial production’.

It’s used the benchmark of ‘positive free cash flow’ for three months to April 30 to justify that call, with FY25 production and cost guidance expecting in a maiden multi-year outlook to be released in July 2024.

Bellevue says it has operated its 1Mtpa plant at rates of between 1-1.2Mtpa, hitting the higher run rate across the month of February, with a scoping study now looking at the potential to expand that to 1.5Mtpa.

Meanwhile, Develop Global (ASX:DVP) has finished a scoping study on its Pioneer Dome lithium project, acquired in a takeover last year of Essential Metals.

The project will deliver 200,000tpa over a 7 year mine life at a 5.5% Li2O concentrate grade, with a $285 million capital bill to construct a mine and 1.2Mtpa concentrator with DMS and flotation capabilities.

That generates $666m in free cash with a $373m pre-tax NPV and 34% pre-tax IRR at Bloomberg consensus spodumene concentrate pricing of US$1393/t — the average across the forecast life of mine.

But that capex bill could come down to $35-40m if Develop can find a third party processor to toll treat its ore or pay a mine gate fee for its material. Bill Beament-led DVP says a decision to go with a full concentrate operation for the small spodumene deposit – which would be mined via underground methods – would depend on prices rising above US$1500/t for 6% Li2O spodumene.

If prices did hit that level LOM revenue would rise from $2.17b to $2.34b (FCF $823m), with a further lift to US$2000/t enabling a bump in projected revenue to $3.12b and near doubling of free cash to $1.56b.

While Chris Ellison’s Mineral Resources (ASX:MIN) initially supported Develop’s Pioneer Dome acquisition, having scuttled an attempt by IGO (ASX:IGO) and Chinese JV partner Tianqi Lithium to acquire the project, it recently liquidated its entire stake in Develop leading to questions over whether the lithium major plans to incorporate Pioneer Dome into its supply chain.

Plans to retool a nearby nickel concentrator to process lithium are also up in the air, with Poseidon Nickel (ASX:POS) saying MinRes has attempted to negotiate the terms of the deal.

Beament, DVP’s MD, said studies on both of its develop options would run alongside approvals processes over the next six months, and said the fact its spodumene offtake remained open was of benefit as US carmakers chase battery raw materials which are compliant with the Inflation Reduction Act.

“If we adopt a toll treatment or mine gate sale approach, our capital cost will be no more than $40m and the time to first production and revenue will be extremely short by any comparable measure,” he said.

“There is also very limited availability of JORC-classified Spodumene resources in Australia which are not already covered by offtake contracts. Such resources qualify for substantial government subsidies, including from the US, further underpinning the financial merit of Pioneer Dome.

“As a result of this study, we now have a host of development and funding options to consider.”

Pioneer Dome, located north of a caesium mine briefly operated by Essential Metals under its previous guise of Pioneer Resources, contains 11.2Mt of ore at a grade of 1.2% Li2O and 57ppm tantalum pentoxide.

8.6Mt at 1.23% Li2O sits in the higher indicated category, with the rest of the resource inferred, meaning it requires more drilling before it can be placed in an ore reserve.

With most lithium operations having issues with recoveries on delivery, DVP says it has taken a more conservative approach, dropping assumed recoveries from 74% to 66% and lowering its final product grade from 5.7% Li2O to 5.5%.

Bright day for resources

Meanwhile, ressie stocks have powered a big lift in the materials index, up 1.37% at 4pm AEST shortly before market close.

Liontown Resources (ASX:LTR) shares rose near 3% after sell side analysts took a trip to its near production Kathleen Valley mine.

Jarden analysts Jon Bishop, Adam Bennett and Ben Lyons upped their price target from 91c to $1.03 after the visit, though still had the stock underweight, in a report that gave hope Liontown’s second mover status could help it avoid the processing flaws that have dogged new lithium mines.

“Very simplistically, we believe LTR are providing themselves the very best chance to be the ‘poster child’ of hard rock lithium processing,” they said.

“What we are keen to see is if the operation can not only ramp up to 3mtpa thru-put over the targeted 12-15 month timeframe but, more importantly, whether 6% grade and 78% recoveries are achieveable,” they said.

“Precedence tells us otherwise, highlighting Greenbushes’ CGPs average c63% by our calculations and Pilgangoora is trending to 70% and aiming for mid-70s near term. Whilst Mt Holland – the newest spodumene mine – has thus endured a high cost and a moderated ramp up.” Jarden remains underweight on Liontown given its shares are currently trading at $1.28. Its analysts say even if Liontown’s projections are taken at face value and spod prices rise from US$1200/t to US$1400/t, their valuation on LTR would only rise to $1.40.

Evolution Mining (ASX:EVN) was also higher alongside a number of other gold stocks, though Jarden’s mining boffins downgraded the already underweight stock from a PT $3.16 to $3.02 as they assume a plateau in gold production will emerge at the troubled Red Lake mine in Canada, reducing their long term forecast for the asset from 170,000ozpa to 150,000ozpa.

A 4% reduction in Jarden’s calculated NPV at EVN is dominated by a 21% slash at Red Lake.