Hey all, 24-M here,
Im looking at Iluka Resources (ILU.AX) and am asking for a second opinion before sizing into it.
The setup as I see it:
Iluka is an Australian mineral sands company (zircon, titanium feedstocks) but they're also building Australia's first fully integrated rare earths refinery at Eneabba, scheduled to commission in 2027. The Australian government is backing the refinery with a A$1.65B non-recourse loan under the Critical Minerals Facility. The company has decades of pre-stockpiled monazite feedstock at Eneabba sitting essentially as banked free input material.
Why I think it might be mispriced:
The mineral sands business is in a cyclical trough (zircon and titanium feedstocks weak globally) this is depressing the share price and masking the rare earth optionality
Macquarie has assigned the Eneabba (EP3) project alone an NPV of ~A$1.7B, close to the entire current market cap of the company
Morningstar has it screening as 25% undervalued on their DCF
They will be one of the few non-Asia producers capable of seprated heavy rare earth oxides, exactly the materials China weaponized in their 2025 export controls
The MP Materials precedent (US gov 10-yr price floor + 100% offtake) plus Lynas's recent JARE Japan offtake at $110/kg floor suggests Western customers and governments are willing to pay a non-China premium
Why I'm hesitant / what I'm worried I'm missing:
- Rare earth refinery commissioning is genuinely hard. Lynas's Kalgoorlie plant had multi-year delays and cost overruns. Iluka has never run an REE refinery before.
- NdPr prices fell ~50% in 2024-25 before partial recovery,Commodity volatility is real.
- The "Western customers will pay a premium for non-China supply" thesis is mostly proven by governments so far, not at scale by commercial customers (yet).
- Mineral sands could stay weak longer than expected, eating into the cash flows that fund the rare earth transition.
- Already up YTD on broker enthusiasm — am I late?
I plan to hold the stock longterm and trim potential profits if it jumps up 3x-4x, im looking for arguments of a genuine bear cases more than reasons to be bullish, I can already see why I want to buy this. I want to know what I'm missing. Thanks.