Iluka commits to $1.2bn rare earths refinery

Iluka Resources plans to proceed with construction of Australia’s first fully-integrated rare earths refinery at Eneabba, with the federal government to provide most of the funding.

The project marks a major step toward development of a new industry in Australia and represents a substantial increase in downstream processing.

A bankable feasibility study released by Iluka estimated the refinery will cost between $1 billion and $1.2 billion to build.

It will process high-grade stockpiles at Eneabba, 240 kilometres north of Perth.

The stockpiles were built up when the rare earths were considered a low-value by-product of Iluka’s mineral sands operation.

It will also be capable of processing rare earths from third-party suppliers.

The end products will include neodymium, praseodymium, dysprosium and terbium, which are used in a range of technology, energy and defence applications.

The project has a complex, unusual funding arrangement.

Iluka will provide just $200 million in equity funding while the federal government will provide a $1.25 billion loan.

This includes $200 million for potential cost over-runs.

The loan is to a special-purpose project company and is non-recourse to Iluka.

Managing director Tom O'Leary said the refinery was the beginning of a new era for Iluka, effectively creating a second business alongside its mineral sands operations.

He added that the financial structure of the project and the government backing meant Iluka could proceed with the project without putting its mineral sands operations or balance sheet at risk.

Prime Minister Scott Morrison said today’s announcement represented a decisive step forward in production and processing of rare earths in Australia.

“Our support for this project will capitalise on our advantages, helping to strengthen Australia’s critical minerals supply chain while also creating huge job and economic opportunities for Australians for generations to come,” he said.

The government loan reinforces a push by western countries to diversify supply of rare earths away from China.

The Eneabba rare earths refinery project will have a construction workforce of 300 people and an operational workforce of 270 people.

Construction is scheduled to commence in in the second half of this year, with first production expected in 2025.

The refinery will be owned and developed by a special purpose subsidiary, RefineryCo.

Iluka will contribute $200 million of equity to this entity, along with its Eneabba minerals stockpile, which it has valued at $1.27 billion.

In return, Iluka will be paid annual royalties up to $81 million (to a total of $900 million) along with normal dividends.

The Eneabba stockpile includes rare earth bearing minerals monazite and xenotime.

Iluka has already invested in a ‘phase 1’ screening plant and is currently building a ‘phase 2’ concentrating plant, with a combined cost of $50 million.

The refinery comprises phase 3 of the project and will undertake roasting, leaching, purification, solvent extraction and product finishing.

The refinery will be fed initially from the Eneabba stockpile.

Potential future sources of feedstock include Iluka’s Wimmera deposit in Victoria and third parties.

Mr O’Leary said there were no obligations but he was very confident that over time Iluka would enter into arrangements with third parties.

He also flagged the possibility of investing in further processing, such as rare earths metallisation.

Mr O’Leary said the high-grade Eneabba stockpile provided an enviable foundation of the project.

He said Iluka was confident in the demand outlook for rare earths, especially in permanent magnets that are used in wind farms and electric vehicles.

He described Eneabba as a good location, with access to water and gas, along with renewable energy in future.

The refinery will be built on a ‘brownfields’ site with minimal environmental impact.

Mr O’Leary said Iluka was currently engaged in discussions with EPCM contractors.

Iluka’s shares were trading 4.8 per cent higher at $12.08 at midday Perth time, after jumping as high as $12.50 earlier in the day.

The stock has been a very strong performer over the past two years, having fallen as low as $3.50 per share in early 2020 during the COVID sell-off.

Today’s announcement adds to a string of federal government loans and grants to companies aspiring to develop rare earths and ‘critical minerals’ projects.

Two weeks ago, the government announced $243 million of grants to three ‘critical minerals’ projects, led by Pure Battery Technologies, Australian Vanadium and Arafura Resources.

It has also announced smaller grants to the likes of Lynas Rare Earths, Core Lithium and US chemicals giant Albemarle and loans to aspiring critical minerals manufacturers EcoGraf ($US35 million) and Renascor Resources ($185 million).

Lynas is proceeding with construction of its circa-$500 million rare earths plant at Kalgoorlie, which will undertake intermediate processing for supply to its refinery in Malaysia.

Another WA company aspiring to build a rare earths processing plant is Hastings Technology Metals, which recently put a price tag of $658 million on its Yangibana project.

Hastings has already secured a government loan through the Northern Australia Infrastructure Facility.