Iluka Resources has finally landed an exit strategy for its underperforming West African mineral sand business, Sierra Rutile.
In line with plans, Iluka will spin-out the Sierra Rutile Holdings, an Iluka subsidiary, into its own Australia-listed mineral sands company, which will continue to maximize value from the Sierra Rutile Project and prioritize development of the Sembuhan project.
The Company’s Board said that a demerger would allow the company “focus its capital allocation priorities and management attention on its core Australian assets and development opportunities”. According to the Board, “The demerger will simplify Iluka’s structure and ensure management focus is on executing its attractive Australian-based growth opportunities.”
Meanwhile, the demerger remains subject to final Board, regulatory and shareholder approvals. If all goes to plan, the demerger is expected to be completed in 2022. All of the shares in Sierra Rutile will be distributed to Iluka shareholders in proportion to their existing shareholding in Iluka.
The demerger is intended to separate an underperforming asset from Iluka’s remaining three Australia-based assets. If Sierra Rutile continues to struggle, then those headwinds will be isolated to the new entity and no longer weigh on Iluka.
Iluka’s Managing Director, Tom O’Leary said the company’s strategic and capital allocation priorities are now focused on Australian operations and development projects, most notably the Eneabba Rare Earths Refinery Project.
On April 3, 2022, Iluka’s Board gave the green light to develop Australia’s first rare earths refinery. At full production, the plant could supply up to 9 per cent of global rare earth oxides.
Iluka acquired the Sierra Rutile Project in 2015 for US$330 million. The investment has fallen well-short of expectations following a substantial US$290m impairment in December 2019.
Iluka Managing Director Tom O’Leary said then that the company had underestimated the difficulties and complexity of operating in Sierra Leone.
Sierra Rutile Deposit
Challenges aside, Sierra Rutile hosts the world’s largest rutile deposit and comprises two operations at Lanti Dry and Gangama. Materials are processed at the company’s mineral separation plant and exported via a dedicated port facility.
Iluka delivered its 2021 full year results during February 2022 reporting season. Revenues for Sierra Rutile increased 4 per cent to $232.7 million or 15.8 per cent of Group revenues.
Sierra Rutile has struggled to lower costs, even at higher production levels. The $232.7m revenue figure translated to just $17.1 million in earnings, or 3.3 per cent of Group earnings.
One fancied local project is Iluka’s Eneabba rare earths operation in Western Australia, which achieved a significant milestone in early April after the Iluka board approved the construction of the Eneabba rare earths refinery.
Representing phase three in Eneabba’s development timeline, Iluka completed its feasibility study for the refinery, demonstrating the venture’s strong economics and significant growth potential.
Sierra Rutile will be established with a high-quality board and management team, led by Martin, who will become the new company’s inaugural chair, with current chief executive officer Theuns de Bruyn becoming Sierra Rutile’s managing director and Chief Executive Officer.
Sierra Rutile’s principal business activities will be the management and operation of its existing Area 1 mine, which encompasses two operations at Lanti and Gangama, along with a mineral separation plant, and a dedicated port facility.
Located 30 kilometres from Sierra Rutile, the Sembuhan project boasts being one of the largest and highest-quality known rutile deposits in the world and will be another key priority of the new company.
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