Iluka has finalised a deal with the IFC whereby IFC will invest and aggregate US$60m and take a 10% stake in the Sierra Leone assets. This leads to a -1% decrease in the company’s annual earnings estimate and a slight downward revision in valuation, Citi calculates. Buy rating and $11 target maintained.
In research into the implications of China restricting US access to rare earths Citi notes Iluka produced monazite from its Western Australian operations up until 1995. The broker estimates the monazite stockpile would now be around 500,000t.
The challenges in monetising this stockpile involve removing thorium at an economic cost as well as the scale of the market outside of China. The broker values the monazite stocks at $165m but carries a -50% discount to reflect the time value of potential sales.
Target price is $11.00.Current Price is $9.66. Difference: $1.34 – (brackets indicate current price is over target). If ILU meets the Citi target it will return approximately 12% (excluding dividends, fees and charges – negative figures indicate an expected loss).