Iluka spin-out sees growth

The mining royalties company being spun-out of Iluka Resources plans to cast a wide net for acquisition opportunities beyond its core iron ore asset.

Iluka released details today of the planned spin-out, which will be known as Deterra Royalties.

Deterra’s core asset is a 1.232 per cent royalty over the value of production from BHP’s Mining Area C operations in the Pilbara.

The royalty income flowing to Iluka in 2019 was $85.1 million.

Future royalties will depend on both production volumes and whether iron ore prices stay at buoyant levels.

Mining Area C includes the South Flank project, currently under construction.

When South Flank reaches full production in 2023, it will more than double the production volumes covered by the royalty to about 139 million tonnes per year.

Chief executive Julian Andrews said Deterra would focus on delivering high dividend payments to shareholders.

The business would also be looking for acquisition opportunities, largely in Australia.

“We will have a fairly broad growth mandate,” Mr Andrews told a media briefing today.

“We will consider investments across a range of commodities like energy, bulk, base metals, precious metals.”

He noted that gold projects were a major focus for royalties’ companies based overseas.

Deterra will be the first substantial royalties company listed on the ASX.

The business will have about $14 million of debt on its balance sheet and a $40 million debt facility to fund acquisitions.

Iluka shareholders will vote on the demerger at an extraordinary general meeting next month.

Current shareholders will be allocated shares in the new company while Iluka will hold a 20 per cent stake.

The demerger will allow Iluka to focus on its core mineral sands business.