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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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Musk’s Empire



A plane arrives in China. On board, one of the world’s richest men. He’s come to convince authorities that he should be allowed to set up a brand new factory.

He is Elon Musk.

And this is his first trip to China in three years.

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Amazon employees walk out to protest office policies



Staff at warehousing giant Amazon have walked off the job to protest the company’s return-to-office program

Over 1,900 Amazon employees pledged to protest globally over proposed changes to the company’s climate policy, layoffs and a return-to-office mandate.

The activist group behind the rally is known as Amazon Employees for Climate Justice (AECJ), who are seeking a greater voice for employees.

“Our goal is to change Amazon’s cost/benefit analysis on making harmful, unilateral decisions that are having an outsized impact on people of color, women, LGBTQ people, people with disabilities, and other vulnerable people,” organisers said.

Over 100 people gathered at the heart of Amazon’s Seattle headquarters on Wednesday. The company said it had not witnessed any other demonstrations.

AECJ said the walkout comes after Amazon made moves “in the wrong direction”.

The company recently has recently overturned a desire to make all Amazon shipments net zero for carbon emissions by 2030.

The company maintains a pledge on climate change.

Amazon spokesperson Brad Glasser told Reuters the company is pursuing a strategy to cut carbon emissions.

“For companies like ours who consume a lot of power, and have very substantial transportation, packaging, and physical building assets, it’ll take time to accomplish.”

AECJ protesters also sought support for the 27,000 staff, who had lost their jobs in recent months —around 9 per cent of Amazon’s global workforce.

The company has also mandated a return-to-office program.

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The Great Resignation vs. The Great Burnout



As employees recover from the height of the pandemic, the Great Resignation has come to light

The pandemic saw the term ‘the great resignation’ coined as thousands of people resigned from their jobs across the U.S. in 2021 and 2022.

Karin Reed, the author of ‘Suddenly Hybrid said the great resignation was a period of employees taking control of their future.

“A lot of people realised in their current environment they were not happy with what they were doing with their job. They chose to vote with their feet and go elsewhere,

In other parts of the world, a spike in resignations was not reported.

However, a higher degree of workers began reporting post-Covid burnout, as they made a return to the office.

“There’s been a blurring of the lines. You have work that’s not confined by a physical space.

“Instead of closing the computer and walk away, our computer is in the next room.”

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