Iluka Resources product demand remains steady, although buyers are cautious.

About Iluka Resources Limited

Iluka Resources Limited (Iluka, ASX: ILU, or the Company) is the world’s largest producer of zircon and a major producer of high-grade titanium feedstocks, rutile and synthetic rutile. Iluka has also established a significant position in rare earth elements (rare earths). The Company’s products are used in a variety of applications including technology, construction, medical, lifestyle and industrial uses.

Iluka has projects and operations in Australia and a globally integrated marketing network. Headquartered in Perth, Iluka was formed following the merger of Westralian Sands and RGC Limited in 1998. It holds a 20% stake in Deterra Royalties, the largest ASX-listed resources focused royalty company.

December quarter 2023 production and sales

Iluka sold more physical product than it produced in the December 2023 quarter, based on the Company’s most recent quarterly review. One hundred and five thousand tonnes of zircon/rutile/synthetic rutile (Z/R/SR) were produced in the December quarter while sales were one hundred and thirty-four thousand tonnes of product.

Zircon and Zircon-In-Concentrate (ZIC) production volumes were up 13 percent for the 2023 financial year, which account for about 40 percent of revenue. Zircon sales volumes in the December quarter, including ZIC, were 53,000tonnes, up from 47,000 tonnes in the September quarter.

Zircon prices achieved in FY23 were up 6 percent on FY22, although buyers remain cautious, reflecting both broad based global economic uncertainty and general weakness in key markets. European demand was soft, coinciding with northern hemisphere winter factory closures. US industrial demand remained stable, with the overall US economy in expansion. Average forward prices for Zircon appear flat, however contracted volumes are up by more than 50 percent, probably based on customer re-stocking.

Synthetic Rutile and Rutile sales volumes were slightly higher in the December quarter but about 15 percent lower in FY23 compared to FY22.

Z/R/SR revenue at $1,143 million in FY23 is down about 9 percent compared with FY22 revenue and production cash costs at $616 million are up about 18 percent. Contract prices for SR in the first quarter of FY24 are expected to decrease by a low single digit percentage.

Eneabba Rare Earths Refinery

Commissioning of Iluka’s fully integrated rare earth refinery to produce rare earths has been re-scheduled to take place in 2026, one year later than the original timetable. The challenging project environment in Western Australia has seen the estimated capital cost of the refinery increase from A$1.5 billion to about A$1.8 billion over the past 12 months. Disappointingly, this capital expenditure estimate is more than 50 percent higher than the original cost estimate released at the time of the project’s Final investment Decision (FID).

Iluka has the balance sheet strength to absorb this capital expenditure blowout with net cash of A$372 million available at 30 September 2023. Project financing includes a $1.25 billion non-recourse loan from the Australian Government under the Critical Minerals Facility administered by Export Finance Australia. The non-recourse nature of the finance facility de-risks the project from a funding risk perspective. A more detailed project update will be provided at the end of March 2024.

The Future

The price of rare earths, zircon, and rutile are critical to Iluka’s future earnings estimates, as is the unit cash cost of production, which is rising because of higher fuel, labour and consumables costs. Z/R/SR prices appear reasonably stable at present and volume demand appears steady, although the global economic outlook is key to prices and future demand levels.

An important consideration in Iluka’s long-term value is the Eneabba Rare Earths refinery. It is only the third Rare Earths refinery outside China and the first for Australia, adding to its strategic long-term value for Iluka. Once commissioned the refinery will drive earnings growth for decades into the future. Further near-term clarity around completion costs and commissioning timing of the Eneabba project are likely to support higher share prices during 2024.

Full year results are due for release on 21 February 2024 and a detailed project update in late March 2024 should be well received by shareholders and the market.