While Iluka Resources (ASX: ILU) is best known for its mineral sands production, the market continues to ascribe insufficient value to the hidden strategic and financial assets embedded across its diversified portfolio.
Given the tenuous nature of the near-term mineral sands outlook, it’s the ASX200 miners’ rare earths projects - still in the early stages of development – that brokers are more interested in.
With the share price having shed 14% in the last month, the stock’s current market cap has fallen well under A$3 billion.
At face value, the company trades well below the implied value of its tangible holdings alone – $1 billion in mineral sands inventory, $1.3 billion in rare earths concentrate feedstock -potentially greater than $2 billion Net Present Value - and a $450 million equity stake in Deterra Royalties (ASX: DRR).
The market appears to be ascribing very little value to the core mineral sands business.
However, brokers are increasingly positive on the company’s rare earths strategic plans to vertically integrate the rare earths business.
Underpinning the company’s ambitions in the rare earths space is the development of Australia’s first fully integrated refinery of separated rare earth oxides at Iluka’s Eneabba refinery in WA - currently under construction.
On completion, the flagship Eneabba refinery is expected to be capable of producing separated light and heavy rare earth oxides, which is mean feat.
Adding positively to Eneabba refinery’s dynamics are some favourable economics underpinning the project.
A $1.65 billion non-recourse loan from the Australian Government means Iluka only has to put its hand in its pocket for a financial contribution of $414 million in cash, accompanied by $1.3 billion of rare earths feedstock.
What this investment structure effectively does is significantly de-risk Iluka’s exposure in the construction of this asset.
On completion in 2027, Eneabba will serve as a critical Western-aligned processing hub.
The significance of the Eneabba refinery won’t be lost on the broader market, especially with nations across the globe looking for ways to reduce reliance on Chinese-controlled supply chains.
Due to its high concentration of reserves, comprehensive processing capabilities, China dominates the rare earth supply chain and currently accounts for around 90% of global separation.
Other recent developments in the rare earths space also play favourably to Iluka’s strengths.
For example, the U.S. Department of Defence recently reached a deal with MP Materials that establishes a premium floor price (US$110/kg) for Western-produced Neodymium-praseodymium (NdPr) – a crucial rare earth that allows input in permanent magnets.
Operating the Mountain Pass rare earth mine and processing facility in California, MP Materials (NYSE: MP) is the only fully integrated rare earth materials producer in the Western Hemisphere with capabilities spanning the entire supply chain from mining to magnet manufacturing.
By all accounts, Iluka is well-placed to command a similar premium, especially as government interest in rare earth sovereignty increases.
Assuming Australia creates a domestic strategic reserve in rare earths – currently under consideration – it will further increase the potential for favourable offtake pricing and volume security.
Meantime, despite external headwinds, Iluka’s mineral sands business remains robust.
The commissioning of the high-grade, long-life Balranald mineral sands project in New South Wales in the second half of 2025 is expected to deliver a new wave of zircon, rutile and synthetic rutile supply.
With a potential mine life of up to 14 years, high-grade, output from the rutile-rich deposit is intended to supply feedstock to the company's Hamilton Mineral Sands Processing Plant.
According to Sean Sequeira, CIO of the Australian Eagle Asset Management, mineral sands inventory already on Iluka’s balance sheet (circa $1 billion) provides an additional buffer and monetisation lever, especially as commodity prices bottom.
He also expects the company’s position in Deterra Royalties to also generate cash flow and exposure to high-margin iron ore royalties without operational risk.
“The investment team views Iluka Resources as a rare mix of mispriced assets and asymmetric upside optionality,” he said.
“As commissioning of Balranald and Eneabba draws closer and pricing dynamics shift in favour of Western-aligned supply, we expect Iluka to re-rate – both on a sum-of-the-parts basis and through improving earnings visibility.”
While broker recommendations for Iluka Resources are mixed, with some firms like Goldman Sachs having a Buy rating and a target price of $7.70.
However, recent market conditions have caused volatility, leading to the recent withdrawal of guidance and a general "hold" consensus from some analyst groups.
Iluka's share price is up 2% today at $6.305.
Iluka's market cap is $2.7 billion; the share price is up 25% year to date.
This article does not constitute financial or product advice. You should consider independent advice before making financial decisions.
