The federal government has announced a $1.25 billion loan for the development of Australia’s first integrated rare earth metals refinery in Western Australia.
The loan will support the construction of the third stage of the Perth-based Iluka Resources’ Eneabba Refinery Project, which will produce separated rare earth oxide products for permanent magnets used in electric vehicles, clean energy generation and defence, among others.
Approved on Monday, the loan comes out of the government’s $2 billion Critical Mineral Facility, run through Export Finance Australia. The loan facility is divided into $1,050 million non-recourse loan and $200 million for cost overrun if required. It also includes a risk sharing agreement between Iluka and the Commonwealth.
The refinery is being built in Eneabba, almost 280km north of Perth, where Iluka’s current stockpile of rare earth material is stored. This stockpile will be the feedstock for the plant and is expected to be expended after nine years.
Prime Minister Scott Morrison said this project would capitalise on the huge economic opportunity presented by the country’s mineral reserves.
“Australia has the best resource industry in the world and we have an unrivalled competitive-edge when it comes to being a reliable, sustainable provider of critical minerals and rare earths,” Mr Morrison said.
“Our support for this project will capitalise on our advantages, helping to strengthen Australia’s critical minerals supply chain while also creating huge job and economic opportunities for Australians for generations to come.
“Australia’s critical minerals are in demand because they are the key input for everything from mobile phones to fighter jets, not to mention the technologies of the future that haven’t even been realised yet.”
Under the terms, Iluka must also make a co-investment of $200 million, which is at a ratio of 1:3 compared to the initial loan received. The loan will be repaid at an interest rate 3 per cent higher than the bank bill swap bid rate.
Construction will begin in the second half of 2022 and is expected to be operational in 2025.
So far, the firm has invested $50 million to undertake phase one and two of the project and $20 million to conduct a feasibility study on phase three.
An Illuka-owned Special Purpose Entity known as RefineryCo will own and operate phase three of the plant. Iluka Resources managing director Tom O’Leary said that the federal loan was key to firm’s decision to begin work on phase three.
“Phase three is not an opportunity without risk for Iluka. The partnership we have agreed with the Australian government mitigates risk in a way that recognises the substantial contributions of both parties,” Mr O’Leary said.
“It also provides a strong platform for Eneabba’s success as a sustainable, secure and globally competitive source of separated rare earth oxides. This is consistent with Iluka’s disciplined approach to capital allocation and the development pathway we have been pursuing for some time, based on the alignment of commercial and policy objectives.”
Phase one entailed reclaiming and screening material stored at an old mining site in Enabba, while phase two began the separation of the reclaimed material into more concentrated streams. Namely, the products produced in phase three are praseodymium, dysprosium, neodymium and terbium.
Federal Treasurer Josh Frydenberg said the project would help secure Australia’s future manufacturing capability.
“Building a modern manufacturing sector and securing our sovereign capability is a key part of our plans for a stronger economy and a stronger future for Australia. Australia’s critical minerals sector and the job-creating industries that rely on it are being supercharged under the Morrison Government’s $2.5 billion Modern Manufacturing Strategy,” Mr Frydenberg said.
This marks the third loan made under the Critical Minerals Facility. The first two had a combined value of $239 million and were made in February 2022 to a Western Australian and a South Australian firm.
The government’s Critical Minerals Strategy was launched in 2019 and aims “to leverage global demand and develop a thriving and durable Australian critical minerals sector”.
ASX-listed Iluka’s headquarters is in Perth but the company also operates mining and processing plants in South Australia and Sierra Leone.
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