ILU -10.04%: Fell today after updating the market on its Eneabba rare earths project which included:
- An additional $400m debt contribution from the government via the Critical Mineral Facility Loan, taking the loan to $1.65b with ILU to contribute an additional $214m cash, bringing its total equity contribution to $414m.
- A new cost overrun facility of $150m, funded 50/50 by the Government & ILU
- Cost of capital seems to be on the same terms appear as the original facility (i.e. interest rate at BBSW +3%)
The additional $214m cash equity contribution from ILU creates a bit of a headache, with ILU sitting on new cash of $154m at June 30. They did not cover (in the announcement at least) where the balance would come from. This brings into focus their funding ability for a project that was set to cost $1.2bn and is now more like $1.8bn with further risk on the upside given the complexity of the project.
Further, the price for rare earths, which are very important in electrification have been under intense pressure from China who control the market globally. The Australian Government and others are very keen to rid the market of the strangle hold and invest in domestic refining capacity. For that reason, we think this project is of critical importance for Australia, and is a long-term bet, however ILU now find themselves developing a very complex project, with greater government involvement, in an environment where prices for output are very low, creating a complex mix.
In terms of price forecasts, ILU have some bullish assumptions underpinning their feasibility and this is creating further question markets about the project’s viability in the current backdrop. In truth, we’ve come off today’s announcement & call with some confusion around the project and how ILU will juggle it. For now, we need to understand what this means for ILU more generally before making a call on our position.
MM needs more time to assess today’s update, making us neutral for now.
Add To Hit List
