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Post Market Wrap | Iluka Commits To Construction Of Australia’s First Integrated Rare Earths Refinery



This Post Market Wrap is presented by KOSEC – Kodari Securities

  • Refined products essential for use in electric vehicles, sustainable energy and medical applications. 
  • Financing model includes $1.27B Federal Government non-recourse loan facility.
  • Iluka entitled to retain up to $81M in annual royalties payable from refinery cash flows.
  • Construction scheduled to commence H2 2022, production of alloys from 2025.
  • Debt free and $295M cash supports strong growth outlook and fully franked dividends.
  • Iluka well positioned to meet rising global demand for critical minerals used in clean energy industry.

Iluka Resources Limited (Iluka or the Company) specialises in mineral sands exploration, with expertise that covers processing, marketing and rehabilitation. Iluka is the world’s largest producer of zircon and high-grade titanium dioxide-derived rutile and synthetic rutile.

Iluka also has an emerging portfolio in rare earth elements. Rare earths are essential elements of an electrified global economy and are considered as critical inputs in the production of electric motors. Iluka’s Eneabba stockpile is the world’s highest grade operational rare earths deposit. The Company holds a 20% stake in Deterra Royalties, the largest ASX-listed resources focussed royalty company.

Green light for Rare Earths Refinery 

Iluka will proceed with the construction and commissioning of Australia’s first fully integrated rare earths refinery. The refinery represents a significant downstream, value-adding infrastructure asset, comprising roasting, leaching, purification, solvent extraction, and product finishing. The Final Investment Decision follows completion of the feasibility study that confirms the significant economic value of the project. The refinery will produce separated rare earth oxides including neodymium, praseodymium, dysprosium and terbium. These rare earth metals and alloys are critical inputs that have application across various technologies including electric vehicles, sustainable energy, and advanced electronics, as well as medical and defence applications.   

The refinery will build on the existing screening and concentrating plant currently in operation and will employ 300 people in the construction phase and 270 people in the operational phase. Construction of the refinery will commence in the second half of 2022. Initial production of metal oxides is expected in 2025. 

Financing Arrangements

The Australian Government has agreed to co-fund the refinery with a non-recourse Critical Minerals Facility Loan for $1.27 billion, at an interest margin of 3 percent above the 90-day bank bill swap rate. The loan comprises a $1050 million, 16-year debt facility, plus a $200 million cost overrun facility and $20 million for plant. Repayments commence from completion of the refinery in 2025, with repayments scheduled over 12 years. Under the financing arrangements, Iluka is entitled to annual royalty payments of up to $81 million from refinery cash flows, ranking in equal priority to scheduled loan repayments. The royalty payments are capped at $900 million. The non-recourse funding arrangement and the annual royalties of up to $81 million from project cash flows payable to Iluka, substantially de-risk the financing of this milestone project.   

Image: File

Looking Ahead

Iluka have cleverly structured the refinery project funding facility such that the mineral sands business will not be impacted, leaving free cash flow to fund growth capital expenditure and fully franked shareholder dividends. Operating cash flow generated in the December 2021 financial year was $528 million. After providing for tax, capital expenditure, shareholder dividends and the return of JobKeeper payments, free cash flow was a strong $300 million.    

At December 2021, Iluka was debt-free with $295 million cash. This strong net cash position and steadily growing free cash flow, supports the payment of fully franked dividends which in the 2021 financial year totalled 24 cents. The final fully franked dividend of 12 cents per share will be paid on 7 April. 

The substantial sales growth forecast for passenger electric vehicles from 6 percent to 40 percent of global passenger vehicle sales by 2030, representing about 34 million vehicles annually, ensures consistent demand for Iluka’s rare earth metals and alloys.    

 This rising global demand for the Company’s critical minerals together with its strong shareholder return bias of rewarding shareholders with fully franked dividends as cash flows become available, should ensure a positive outcome for shareholders over the medium to long term. 

This Post Market Wrap is presented by Kodari Securities, written by Michael Kodari, CEO at KOSEC.

"Michael Kodari is one of the world's most consistent, top performing investor. A philanthropist and one of the prominent experts of the financial markets, he has been referred to as ‘the brightest 21st century entrepreneur in wealth management' by CNBC Asia and featured on Forbes. Featured on TV as the "Money Expert", on the weekly Sunday program "Elevator Pitch", he is recognised internationally by governments as he was the guest of honour for the event "Inside China's Future", chosen by the Chinese government from the funds management industry, attended by industry leaders, when they arrived in Sydney Australia, on April 2014. Michael and George Soros were the only two financiers in the world invited and chosen by the Chinese government to provide advice, and their expertise on Chinese government asset allocation offshore. With a strong background in funds management and stockbroking, Michael has worked with some of the most successful investors and consulted to leading financial institutions. He was the youngest person ever to appear on the expert panel for Fox, Sky News Business Channel at the age of 25 where he demonstrated his skillset across a 3 year period forming the most consistent track record and getting all his predictions right over that period. Michael writes for key financial publications, is regularly interviewed by various media and conducts conferences around the world."

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Peloton partners with Lululemon as stock surges



Peloton’s stock prices experienced a remarkable surge as the company unveiled an exciting collaboration with popular athletic apparel brand, Lululemon.

This strategic partnership is set to bring a fusion of digital fitness content and stylish workout apparel to fitness enthusiasts worldwide.

The partnership aims to leverage Peloton’s extensive library of on-demand and live fitness classes with Lululemon’s renowned activewear. Subscribers to Peloton’s digital fitness platform will soon have access to exclusive Lululemon workout collections, making it easier than ever for fitness enthusiasts to look and feel their best during their workouts.

Investors have responded positively to this news, driving Peloton’s stock prices to new heights. The synergy between the two companies is expected to create a win-win situation. Peloton can tap into Lululemon’s massive fan base, while Lululemon can expand its presence in the rapidly growing digital fitness market.

The partnership also includes collaborative marketing efforts, with joint promotions and events that will undoubtedly generate buzz and excitement among fitness enthusiasts. This move is seen as a bold step by both companies to stay competitive in the evolving fitness landscape.

As the fitness industry continues to evolve and adapt to changing consumer preferences, partnerships like this one highlight the importance of innovation and collaboration. Peloton and Lululemon’s joint venture promises to provide consumers with not only top-notch fitness content but also the trendiest workout attire.

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Kraken to launch US stock trading, expanding offerings



Cryptocurrency exchange Kraken is set to broaden its services by enabling users to trade US-listed stocks, according to reports from Bloomberg News.

This move marks a significant expansion for the platform, allowing customers to diversify their investment portfolios beyond cryptocurrencies.

Kraken’s foray into traditional stock trading will provide its users with access to a wide range of US-listed equities, including well-known companies from various industries. By offering this additional asset class, Kraken aims to cater to the growing demand for a holistic investment experience that combines both traditional and digital assets.

The move is seen as a strategic response to the evolving landscape of financial markets, where traditional and cryptocurrency investments are becoming increasingly intertwined. Kraken intends to streamline the trading process for its users, enabling them to manage both their cryptocurrency and stock portfolios within a single platform.

Kraken’s entry into the US stock market could potentially introduce new opportunities and challenges for the exchange, as it will need to navigate the regulatory requirements associated with stock trading. However, the exchange’s established track record and commitment to compliance should help ease this transition.

This development aligns with Kraken’s ongoing efforts to position itself as a comprehensive financial services provider, offering a wide array of investment options to its global user base.

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Does remote work hamper diversity efforts?



UK finance executives express concerns that remote work is hindering diversity initiatives, signaling potential setbacks in the industry’s push for inclusivity.

As businesses continue to adapt to the changing work landscape brought on by the COVID-19 pandemic, remote work has become a staple for many industries, including finance. While it has provided flexibility and continuity during uncertain times, some financial leaders are now questioning its impact on diversity and inclusion within their organizations.

In a recent survey of UK finance executives, a substantial portion voiced apprehensions about the ramifications of prolonged remote work. They argue that the lack of physical presence in the office can exacerbate disparities, making it harder to foster an inclusive work environment.

One of the primary concerns raised by these executives is the potential for remote work to perpetuate existing inequalities. They believe that employees from underrepresented groups may face more significant challenges in terms of career progression and networking when they are not physically present in the workplace. This could lead to a stagnation in efforts to diversify leadership teams and foster equal opportunities.

Furthermore, the executives highlight the difficulties in monitoring and addressing issues related to diversity when employees are dispersed geographically. Ensuring equitable access to resources, mentorship, and career development opportunities becomes a more complex task.

Despite these concerns, it’s important to note that remote work has also opened doors for talent from different locations and backgrounds, potentially contributing positively to diversity efforts. Striking a balance between the advantages of remote work and the imperative to promote diversity remains a pressing challenge for finance organizations.

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