Iluka To De-Merge Mineral Sands Assets To Focus On Rare Earths

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Iluka To De-Merge Mineral Sands Assets To Focus On Rare Earths Operations

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  • Iluka shareholders will receive one share in Sierra Rutile for every Iluka share held as at 28 July 2022
  • Both will be independent ASX-listed Companies - Sierra Rutile Holdings Limited and Iluka Resources Limited
  • Sierra Rutile shares will commence trading from 5 August
  • De-merger tax relief ensures no adverse shareholder taxation outcomes arise from the de-merger transaction
  • Iluka’s primary focus becomes the development of Australia’s first fully integrated rare earths refinery
  • Rare earth metals and alloys are critical inputs for electric vehicles and sustainable energy solutions    
  • Finished goods refinery production is expected to commence in 2025

Iluka Resources Limited (Iluka or the Company) is headquartered in Perth and has a 70-year operating history of mining and value-adding processing operations conducted in Australia, Sierra Leone and Sri Lanka. The Company specialises in mineral sands exploration, with expertise that covers processing, marketing and rehabilitation. Iluka is the world’s largest producer of zircon and high-grade titanium dioxide-derived rutile and synthetic rutile.

Iluka also has an emerging portfolio in rare earth elements. Rare earths are essential elements of an electrified global economy and are considered as critical inputs in the production of electric motors. Iluka’s Eneabba stockpile is the world’s highest grade operational rare earths deposit. The Company holds a 20% stake in Deterra Royalties, the largest ASX-listed resources focussed royalty company.

Proposed De-merger of Sierra Rutile Holdings Limited

Iluka is set to become an Australian-based critical minerals company with an exclusive focus on its core mineral sands and rare earths operations in Western Australia. This will occur following the planned de-merger of its Sierra Leone mineral sands assets in West Africa. On completion of the transaction, existing Iluka shareholders will own shares in two independent ASX-listed Companies – Sierra Rutile Holdings Limited and Iluka Resources Limited.

The de-merger is subject to regulatory and shareholder approvals. Iluka directors have unanimously recommended that shareholders vote in favour of the transaction and the Independent Expert has already concluded that the de-merger is in the best interests of Iluka shareholders. A shareholder meeting has been convened for 22 July to vote on the de-merger proposal. If the de-merger proceeds, shareholders will be entitled to receive one share in Sierra Rutile for every Iluka share held as at 28 July 2022. It is anticipated that the distribution of shares in Sierra Rutile to Iluka shareholders will qualify for de-merger tax relief. This means that there will be no adverse tax consequences of the de-merger for Iluka shareholders. This outcome is subject to a formal tax ruling being issued by the Australian Taxation Office, post de-merger implementation.

Sierra Rutile shares will be issued to eligible shareholders on 4 August and normal trading of Sierra Rutile shares will commence from 5 August.

Small Shareholder Sale Facility

Iluka shareholders who hold 2,000 Iluka shares or less may elect to have the Sierra Rutile shares to which they are entitled, sold on the ASX by a Sale Agent appointed by the board. Shareholders seeking to avail themselves of the Sale Facility should complete and return the appropriate form to the Iluka share registry before 25 July. Proceeds will be distributed free of brokerage and stamp duty. The facility operates on an opt-in basis for small shareholders which means that small shareholders who do not participate in the Sale Facility will receive Sierra Rutile shares under the de-merger.

The Sale Facility only applies to Sierra Rutile shares and Iluka shares cannot be sold under the sale facility.

Iluka post De-merger

Post de-merger Iluka will be an international critical minerals Company producing zircon, high grade titanium feedstocks (rutile and synthetic rutile) and rare earths. It will also address the depleting supply of mineral sands in Australia by advancing with the development of technically challenging opportunities at its mine sites, including the Wimmera mine.

 The Company’s primary focus is the development of Australia’s first fully integrated rare earths refinery. The refinery will produce rare earth metals and alloys that are critical inputs for application across various technologies including electric vehicles, sustainable energy, and advanced electronics, as well as medical and defence applications.

The refinery represents a significant downstream, value-adding infrastructure asset, comprising roasting, leaching, purification, solvent extraction, and product finishing. Construction of the refinery will commence in the second half of 2022. Initial production of metal oxides is expected in 2025.

Iluka will commence ASX trading ex-Demerger Entitlement on 27 July. At this time, Iluka will continue to distribute 100 percent of dividends received from Deterra Royalties and a minimum of 40 percent of free cash flow from its mineral sands business not required for investing or balance sheet activity. The Company’s dividend will be determined by the Iluka board at its discretion, however, it will continue to distribute maximum franking credits available.

Iluka’s rare earths exposure on a world scale ensures that it is set to make a meaningful contribution to the sustainable supply of rare earths from 2025, at a time of increasing demand and tight supply of finished product.

Louis Mosmann

Louis Mosmann is a Private Wealth Client and Research Assistant at KOSEC- Kodari Securities. Louis covers macroeconomic events, global markets and ASX300 company announcements, allowing clients to make more informed investment decisions. Email Louis at l.mosmann@kosec.com.au.

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