Iluka Resources’ price midpoint for taxpayer-backed Eneabba rare earths project creeps up while profit dives

Iluka Resources has indicated it will stick its hand out for more government funding to complete construction of its Eneabba rare earths refinery project, which is now set to cost at least $500 million more than the original maximum estimate. The Tom O’Leary-led company tabled its 2023 full-year results on Wednesday, including a cost update to bring its Eneabba refinery 270km north of Perth online. “In December, we announced a revised capital cost estimate range of $1.5 to $1.8 billion,” Iluka said. “Front end engineering and design (FEED) work undertaken to date has narrowed the range to $1.7 to $1.8 billion, with the finalisation of FEED expected in Q1 2024.” In April 2022, Iluka made a final decision on the project at a forecast cost of between $1b and $1.2b. That same month Iluka got its hands on a $1.25b low-interest loan from the Federal Government to develop the plant, as Australia looks to break China’s stranglehold on the rare earths sector. The Eneabba project — Australia’s first rare earth’s refinery — will transform monazite waste stockpiles into valuable rare earths materials, which have wide applications across a variety of modern defence equipment. In December Iluka said Eneabba would be more expensive than the market consensus of “between $1.3b and $1.6b with an average of $1.5b”. Iluka also flagged a delay in first production at Eneabba from 2025 to 2026. Mr O’Leary told analysts on Wednesday the company was “in discussions” with the Government. “I’m not going to comment further other than to say we are working with government to deliver a pathway for the refinery,” he said. When quizzed by analysts if Iluka would offload its lucrative 20 per cent stake in iron ore royalty business Deterra Royalties to free up some cash for Eneabba, Mr O’Leary said it was an avenue “not contemplated seriously”. “We do have to remind folks that it (selling the Deterra stake) would be very expensive capital to deploy, we’d have capital gains tax ... it’d be extraordinarily expensive,” he said. The Eneabba woes comes amid declining profitability for Iluka as the prices for its core mineral sands products weaken. Demand for the company’s mineral sands is heavily linked to economic activity in China, which has been relatively subdued over the past year. “Zircon markets were characterised by cautious buying behaviour by customers, especially in China, where the economic recovery anticipated by many is yet to materialise,” Iluka said. “This is despite a number of policy initiatives aimed at stimulating demand in the Chinese housing sector.” During 2023 Iluka generated revenue of $1.24b, compared to $1.52b in the year prior, cascading through to a fall in net profit after tax from $589m to $343m. Iluka’s cash pile is also blowing away. The free cash flow from its mineral sands business shifted from $422m coming through the door to a loss of $69m in 2023, giving the miner $225m in the bank by December 31. However, the profit cut was lower than investors had anticipated. Shares in Iluka started the day down but rebounded strongly to finish nearly 6 per cent higher at $7.63. It shares have fallen 27 per cent over the past year.