Iluka Resources weighs up rare earths refinery

Iluka Resources is weighing a full-blown move into rare earths production, according to managing director Tom O’Leary.

Iluka MD Tom O'Leary

Iluka Resources is weighing a full-blown move into rare earths production, according to managing director Tom O’Leary, who says the company is “actively exploring” plans to produce refined rare earth products in Australia.

Iluka is only months away from shipping the first concentrate from its rare earths operation at Eneabba in WA, where the company is turning waste from a mothballed mineral sands mine into a rare earth concentrate to be sold to offshore refineries.

But the mineral sands major says it is now considering expanding beyond selling concentrate into full-scale refining of the concentrate into higher-value products.

Such a move could make Iluka only the second non-Chinese supplier of refined rare earth materials, alongside fellow ASX-listed miner Lynas.

Mr O’Leary said the company had already won considerable support for the idea from the state and federal government, both keen to capitalise on Australia’s role in producing the strategic commodities.

Mr O’Leary told a Goldman Sachs mineral sands investor forum on Wednesday Iluka’s Eneabba tailings project now represented the “highest grade operational rare earth deposit globally”, flagging a swift move into the second phase of development of the project — the production of a far higher-grade concentrate — after shipments begin later this year.

But the Iluka boss also flagged a potential move to build a full-blown refinery in Australia, either alone or with a more experienced partner.

“Iluka recognises the unique position afforded by the Eneabba deposit,” he said.

“Encouraged by discussions with government policymakers, we are actively exploring the possibility of producing refined rare earth oxide products in Australia.”

Any move to refine rare earth concentrates in Australia would require a two-stage process: the construction of an intermediary cracking and leaching facility, similar to the $500m plant Lynas will build on the outskirts of Kalgoorlie, and then a full-blown refinery to produce rare earth metals.

Iluka has previously outlined plans to build a rare earths cracking facility at its early-stage Wimmera mineral sands project, but that project is years away from any investment decision.

But Lynas has already flagged opening up its Kalgoorlie plant to other Australian rare earth miners, and Mr O’Leary hinted he could be open to a deal with a more experienced partner.

“We’re not so arrogant as to think we have all the answers — far from it. We are very much prepared to collaborate with others to achieve the best outcome, both from a capital development perspective and a speed to market perspective,” he told analysts.

Interest is rising in Australia as a potential supplier of rare earths materials amid ongoing tensions between the US and its allies and China, which has long dominated supply of the group of 17 metals — key ingredients in the manufacture of high-­performance magnets, missile systems and other hi-tech equipment — and Lynas remains the only major producer of refined products outside of China.

And even Iluka’s early foray into the sector, through concentrate sales from Eneabba, has the potential to deliver a meaningful contribution to the company’s earnings.

Iluka has a two-year offtake deal with an unnamed buyer for the first stake of its Eneabba project, which cost about $10m to build. Mr O’Leary told analysts the company expected to see its investment paid back within six months of April’s start of operations at the project, implying before-tax earnings of about $20m a year for even the lower grade concentrate.

Although Iluka is still completing feasibility studies on Eneabba’s second phase, it is believed to be hoping for a similar payback period for the $20m-$40m of additional capital needed to produce a concentrate grading about 80 per cent.

Iluka shares closed up 22c to $8.16 on Wednesday.