Rare earths are firing on all cylinders right now, with mineral sands miner Iluka Resources (ASX:ILU)edging towards a decision on the development of Australia’s first domestic refinery.

The company’s Eneabba plant received green ticks from WA’s EPA in January alongside approval from the Commonwealth Department of Agriculture, Water and Environment, and it is now in communication with the Government to get support for the “Phase 3” development.

Iluka, which announced a big increase in profit after a turnaround in prices for its zircon and rutile mineral sands products in 2021, would feed the refinery with monazite stockpiles from Eneabba and the Wimmera project in Victoria.

But it will also look to take third party feed from other miners in a bid to develop a local supply chain for the rare elements viewed as crucial components of the shift to green energy.

It comes as Australia and the western world in general aims to develop an integrated supply chain for rare earths, key ingredients in magnets for electric vehicles and wind turbines.

Iluka says Eneabba is the highest grade rare earths operation globally, with almost 80% of the rare earths produced from monazite at Eneabba consisting of the high value products neodymium, praseodymium, dysprosium and terbium.

The company expects to complete a Phase 2 development that will allow it to produce a 90% monazite concentrate this half, but is waiting on discussions on “risk sharing” with the Aussie Government before making an FID on the on-shore refinery.

The Federal Government has put the development of domestic rare earths projects high on its list of priorities, with Hastings Technology Metals (ASX:HAS) securing a $140m NAIF loan for its Yangibana project in WA earlier this month.

Western economies like Australia have grown increasingly concerned by the concentration of the rare earths supply chain in China.

 

Iluka expects interest from government

Speaking to analysts after the release of Iluka’s full year results, Iluka boss Tom O’Leary said he was “encouraged” by talks but could not go into detail about what support it was requesting.

“The last couple of years we’ve been engaging with government because we thought there was strong alignment between our own commercial position and the Government’s critical minerals strategy and advanced manufacturing strategy,” he said.

“And we continue to be encouraged by our engagement with government.

“The essential nature of that alignment has only increased I think over the last couple of years, the imperative to diversify supply chains is stronger than ever.

“I look forward to updating you further when developments come in.”

A feasibility study will be completed this quarter.

Iluka’s mineral sands business saw a major turnaround in 2021, with zircon prices increasing from US$1291/t in Q4 2020 to US$1590/t in Q4 2021, ahead of another increase of US$220/t this quarter including freight.

As a result the company’s underlying EBITDA increased by 85% from $342 million in 2020 to $634m in 2021, with revenue up 57% from $947m to $1.48b and underlying NPAT rising 108% from $151m to $315m.

Helped by dividends from its stake in Deterra Royalties (ASX:DRR), which holds a royalty over the Mining Area C iron ore hub where BHP recently opened the US$3.6b South Flank mine, Iluka’s dividend rose 500% from 2c to 12c a share.

Net cash climbed from $50m at December 31 2020 to $295m at the end of 2021.

A turnaround in rutile prices and operating conditions in Sierra Leone have also prompted Iluka to dump plans to shut down its Sierra Rutile operations and pursue a potential demerger.

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