Hidden in the sands: Iluka’s rare earth revival
At face value, Iluka Resources (ASX:ILU) is best known as a mineral sands producer. However, the market continues to undervalue the hidden strategic and financial assets embedded across its diversified portfolio. With a current market capitalisation of over A$3 billion, Iluka trades below the implied value of its tangible holdings alone – ~A$1 billion in mineral sands inventory, ~A$1.3 billion in rare earths concentrate feedstock (potentially greater than A$2 billion Net Present Value (NPV)) and a A$450 million equity stake in Deterra Royalties (ASX:DRR) – therefore ascribing very little value to the core mineral sands business.
The real catalyst for re-rating lies in Iluka’s development of its vertically integrated rare earths business. The flagship Eneabba refinery – currently under construction – will be Australia’s first fully integrated rare earths processing facility, capable of producing separated light and heavy rare earth oxides. Backed by a A$1.65 billion non-recourse loan from the Australian Government, Iluka’s only financial contribution is A$414 million in cash – accompanied by A$1.3 billion rare earths feedstock. This structure means that Iluka bears very little risk in the construction of this asset. Slated to be operational by 2027, Eneabba will serve as a critical Western-aligned processing hub at a time when many countries are actively seeking to reduce reliance on Chinese-controlled supply chains.
Strategic tailwinds are also building. The U.S. Department of Defence recently struck a deal with MP Materials that effectively sets a premium floor price (US$110/kg) for Western-produced Neodymium-praseodymium (NdPr) – a crucial rare earth allow input in permanent magnets. Iluka is well-positioned to command a similar premium, especially as government interest in rare earth sovereignty increases. Australia is now considering the creation of a domestic strategic reserve in rare earths, further enhancing the potential for favourable offtake pricing and volume security.
Meanwhile, Iluka’s mineral sands business remains robust despite external headwinds. Commissioning of the high-grade, long-life Balranald mine in the second half of 2025 will deliver a new wave of zircon, rutile and synthetic rutile supply. Mineral sands inventory already on balance sheet (~A$1 billion) provides an additional buffer and monetisation lever, especially as commodity prices bottom. The company’s position in Deterra Royalties also continues to generate cashflow and exposure to high-margin iron ore royalties without operational risk.
The investment team views Iluka Resources as a rare mix of mispriced assets and asymmetric upside optionality. As commissioning of Balranald and Eneabba draws closer and pricing dynamics shift in favour of Western-aligned supply, we expect Iluka to re-rate – both on a sum-of-the-parts basis and through improving earnings visibility.
The Australian Eagle investment process involves recognising change and inflection in company operations and this resulted in Iluka moving from a short position to a long position.
Disclaimer:
The Montgomery Fund, Montgomery [Private] Fund, and the Australian Eagle Equities Fund own shares in Commonwealth Bank of Australia. This article was prepared 20 October 2025 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade this company, you should seek financial advice.
Sean Sequeira jointly established Australian Eagle Asset Management in 2004. Sean was appointed Australian Eagle’s Chief Investment Officer in 2016. In addition to stock selection and analysis, Sean is responsible for all aspects of the investment process. Sean is head of Australian Eagle’s portfolio risk committee and process integrity committee. He is also one of the three investment team members that make up the portfolio construction committee.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
