Iluka Resources’ rare earth refinery is a product of long term thinking

Three decades ago, somebody decided to hoard a worthless pile of sand. Now it’s a billion-dollar stockpile that will help wean Australia off Chinese rare earths.

Every day for the past 29 years, Geoff Dyer has watched beige to black “monazite” sands being poured into a big hole at Eneabba in Western Australia.

A price crash in the early 1990s had cruelled a lucrative trade in selling the mineral to French customers, who had previously extracted the rare earth elements in monazite to make fluorescent lights, magnets and glass.

Iluka veteran Geoff Dyer in the monazite pit at Eneabba in Western Australia. Trevor Collens

The monazite was almost worthless by the time Dyer turned up for his first shift at Eneabba in October 1994, and he recalls being instructed to store the byproduct in a pit.

“We didn’t have a market for it, didn’t know what to do with it, we just knew it had value,” he recalls.

“So it was [put] into the pit. ‘Let’s store it there for a rainy day because somewhere in the future, it will have a purpose’. And that purpose is now coming back tenfold.”

Mining companies often cite “the time value of money” when explaining why it’s better to sell something today for a dollar, rather than two dollars tomorrow.

But at Eneabba – a tiny town in the sand plains three hours drive north of Perth – the time value of monazite has proved to be altogether different for Dyer’s employer, Iluka Resources.

Fluorescent lights no longer dominate demand for rare earths; these days it’s all about the magnets that help power electric vehicles, wind turbines and fighter jets.

The modern rare earths boom has given Eneabba’s monazite stockpile a market value exceeding $1 billion.

Its value is even greater for governments in Canberra and Washington, for whom the Eneabba stockpile is the sort of fast-to-market project that could supply defence forces with the critical minerals that are currently dominated by China.

Federal taxpayers have taken the extraordinary step of lending $1.25 billion to Iluka to help it build a refinery that will turn Eneabba’s monazite into separated rare earth oxides, and help wean Australia and its defence allies off Chinese supply.

In a world dominated by short attention spans and short-term politics, the 48-year journey to Australia’s first rare earths refinery is more than just another example of the recent political trend for domestic processing of Australian minerals.

It’s a salutary reminder that sometimes it’s worth taking the long view of value.

The site of Iluka’s planned rare earth mineral refinery. “To see a future that the town can now build on – and the broader midwest and Australia – on the back of rare earths, is exciting,” says Dyer.

Four truckloads of monazite are poured into the Eneabba pit each day, gradually filling the 300-metre by 400-metre void like coins dropping into a moneybox.

“The first time you see the monazite pit, it can be underwhelming to a degree, but it has so much value, like, it is sand with a bright future and attitude,” says Dyer with palpable excitement in his voice.

Dyer is Iluka’s manager of rehabilitation for the mid-west region, and his excitement is focused on the refinery that is under construction a proverbial stone’s throw away from the monazite pit.

Bulk earthworks have started, and the refinery is expected to be commissioned before Christmas 2025. The project has revived an industrial hub that had witnessed only rehabilitation work in the decade since Iluka ceased mining mineral sands at Eneabba in 2013.

The monazite being poured into the pit over the past decade has largely come from Iluka’s mineral sands operations south of Perth.

“It is like a rebirthing because Iluka is typically [a producer of] mineral sands, whereas this is a rare earths refinery. It might be the cousin of mineral sands, but it is a whole new ball game,” says Dyer.

“To see a future that the town can now build on – and the broader midwest and Australia – on the back of rare earths is exciting.”

Valuable rare earth elements like neodymium, terbium, dysprosium and praseodymium are contained in the monazite that is spewed out as a byproduct when Iluka makes its flagship products, zircon and rutile.

The blurry line that separates mineral sands producers and rare earths miners is similar to that which separates coking coal miners from their unfashionable friends in thermal coal.

Their products are different, but usually found together.

Success usually has many fathers, but Iluka hasn’t been able to identify the prescient person who decided sometime around 1993 to start hoarding the monazite that now underpins the company’s bold leap from low-profile mineral sands producer to rare earths rock star.

Dyer recalls monazite hoarding being under way in 1994 when he joined Eneabba’s then owner Renison Goldfields Corporation (RGC).

The modern-day Iluka was formed in 1998 when RGC merged with Westralian Sands Limited.

“I don’t know whether it was an individual or a team [that decided to hoard the monazite], but you would like to know who it was and throw them a few dollars now,” he joked, of the mystery.

Mark Bethwaite while leading RGC in the 1990s. “We certainly didn’t see Elon Musk coming down the track,” he says. Ben Rushton

Mark Bethwaite was managing director of RGC between 1993 and 1998 and therefore had ultimate responsibility for Eneabba around the time that monazite stockpiling began.

But Bethwaite was also unable to recall the exact origins of the monazite pit, and reluctant to take credit for it when approached by The Australian Financial Review.

“There was nothing exceptional to my mind about the monazite storage decision – we certainly didn’t see Elon Musk coming down the track,” he says, referring to the fact Musk’s company Tesla needs rare earths for the magnets that go into its electric vehicles.

“I, for one, am delighted if it can be the rebirth of mining or processing in that area.”

Sir Charles Court in 1972. He stoked development of nationally significant industries like the iron ore mines of the Pilbara.

If anyone should be credited with setting the wheels in motion toward an Australian rare earths refinery at Eneabba, perhaps it should be Sir Charles Court.

As WA premier in 1975, Court legislated a state agreement that gave Iluka’s antecedents permission to mine at Eneabba, but only on the grounds they “pursue actively and progressively a policy leading ultimately to the processing in Western Australia of heavy minerals to the maximum degree possible.”

The demand remains in the act of WA parliament that governs Iluka’s work at Eneabba.

Court is perhaps best known outside WA for his role in stoking development of nationally significant industries such as the iron ore mines of the Pilbara and the oil and gas fields of the North West Shelf.

”Perhaps no other Australian politician in the 20th century did so much to promote a major sector of the economy,” wrote historian Geoffrey Blainey, in a foreword to Ronda Jamieson’s 2011 biography of Court.

Construction of the refinery at Eneabba shapes as a little-known, but fast-emerging new chapter in Court’s political legacy, almost 16 years after his death in 2007.

“My father was a fierce advocate of adding value to our raw commodities,” says former WA premier Richard Court, the fourth of Sir Charles’ five children.

“The thinking was that raw commodity players are always price takers and not price setters, so revenues can be very cyclical.”

In the 1975 state agreement, Sir Charles required the Eneabba proponents to periodically report back to the government on their progress toward building a refinery.

While it has taken half a century for one to get into construction, it wasn’t for a lack of trying over the years.

The Iluka antecedent named in Court’s 1975 legislation – Allied Eneabba Limited – applied for permission to build a rare earths refinery at Eneabba in 1984.

But it got a lukewarm response from the WA government’s Environment Protection Authority.

The EPA was particularly concerned about the low-level radioactive elements in monazite – such as uranium and thorium – which would be left behind if the rare earths including neodymium, praseodymium, cerium were extracted.

The 1984 refinery proposal envisaged “shallow land burial” of radioactive materials into “two clay lined pits” at Eneabba.

In recommendations handed down in November 1985, the EPA said it believed the geology and hydrology at Eneabba was poorly understood.

What the EPA did know of the geology and hydrology at Eneabba did not give it confidence.

“The Environmental Protection Authority believes that thorium residue disposal at Eneabba would not be environmentally acceptable and recommends that it not be approved at that location,” said the EPA in the 1985 document.

The EPA was more open to the idea of radioactive material being stored at Narngulu, about 140 kilometres north of Eneabba and about 10 kilometres south of the mid-west’s major town, Geraldton.

But the proponent was opposed to the Narngulu idea, citing difficulties in managing multiple sites and potential community relations challenges linked to transporting the radioactive material by public roads.

A couple of years later, a rival proposal emerged for a refinery to process monazite about an hour south of Perth at Pinjarra.

The proponent for the Pinjarra plant was the French company that was the major buyer of Australian monazite until the price collapsed under huge Chinese volumes in the early 1990s; Rhone-Poulenc.

The WA EPA toppled that project too, over concerns about ammonium nitrate wastes.

Rhone-Poulenc revived the Pinjarra plan in 1995, seeking permission to build a rare earths processing plant close to its existing gallium processing plant at Pinjarra.

Monazite was planned to be fed into the plant by Iluka’s two antecedents (RGC and Westralian Sands) and two other mineral sands producers of the time; BHP and Cable Sands. The latter is now owned by New York listed mineral sands producer Tronox.

The EPA noted “significant concern in the local community” about the Pinjarra refinery, yet gave its blessing to the project in 1996 with strict conditions.

But it never happened; Russian dumping of gallium triggered a price crash, and the gallium plant that was supposed to complement the rare earths refinery shut in 1997.

EPA approval for the Pinjarra rare earths refinery lapsed in September 2001 without the project being started.

Iluka boss Tom O’Leary speaking at the AFR Mining Summit in Perth in May 2023. “We could have just liquidated that [monazite] by exporting it to China. We didn’t. We’ve pledged it to the refinery.” Trevor Collens

There was rain around Perth on the morning of April 16, 2019, as Iluka shareholders filed into the city’s convention centre for their annual general meeting.

The observant members of the crowd had noticed something new in the quarterly report that Iluka had filed to the ASX the previous day; the company had made its first public utterance about studies into monetising a monazite stockpile at Eneabba.

A shareholder named Geoff Reid took the microphone and quizzed the Iluka management about whether they expected the Eneabba project could elicit the same environmental concerns voiced by the WA EPA in decades gone by.

“In the quarterly report just released, there is mention of an Eneabba project, which is a tailings project looking to capitalise on a monazite tailings stockpile,” said Reid, according to a Bloomberg transcript of the event.

“Now, my understanding from my very basic chemistry is that monazite is very difficult to process and is rich in thorium and uranium. My question to you all is: is it worth the trouble? The reputation risk? The health and safety dramas?”

Tom O’Leary had been Iluka managing director for almost three years at the time and was quietly hatching a strategy to push Iluka more toward rare earths, which inevitably meant exposure to the low-level radioactive materials that were contained in monazite.

“We have extraordinarily high standards in terms of the safety procedures we’ve taken in handling any of these products,” he said.

But O’Leary’s answer to Reid that day shows that, as of April 2019, Iluka was not spruiking the full-blown, billion-dollar rare earths refinery plan that it is developing today.

“What we are contemplating in relation to this monazite resource is really to ready it for export with a relatively low capital-intensive procedure and ship it out overseas, where it would be processed further,” he said.

“We’re not planning on, at this stage, processing it into a finished product.”

O’Leary is a lawyer by training and has a reputation among analysts for choosing his words more deliberately than most people choose their life partners.

In October 2019, O’Leary was still spruiking a fast, cheap and low-risk monetisation of the Eneabba monazite by selling it with a minimal amount of processing.

“With a minimal capital spend of less than $10 million, we aim to be exporting a monazite-rich concentrate within nine months,” he told analysts on October 31, 2019.

Over the next two years, Iluka would sell 106.8 tonnes of lightly processed Eneabba concentrate containing about 20 per cent monazite.

But sales were halted at the end of 2021 as Iluka’s strategy for the Eneabba stockpile started to evolve.

By April 2022, the $10 million plan had morphed into a $1.2 billion plan to build a full-scale domestic rare earths refinery of geopolitical significance, using up to $1.25 billion of loans from the federal taxpayer.

Industry chatter has often debated whether Iluka took the idea for a domestic refinery to Canberra, or whether an increasingly Sinophobic federal government tapped Iluka with a suggestion for a domestic refinery to be built beside the monazite stockpile it had started to monetise.

One person close to the process says they can’t discuss whether defence agencies were involved in the push for a federally funded, domestic rare earths refinery, saying they are limited by “all the reasons you can imagine”.

Another person close to the process says it was more a case of happenstance that Iluka’s corporate strategy started to focus more on rare earths around the same time the Morrison government was working up its first critical-minerals policy.

Iluka’s future in rare earths became clearer around 2018, as it started pushing ahead with feasibility studies into a big mineral sands growth project in Victoria’s Wimmera district, which contains high levels of rare earths.

The feasibility study looked at doing an intermediate level of processing in the Wimmera – cracking and leaching – to produce rare earths in a “carbonate” form.

China was the only realistic customer for rare earths in carbonate form in those days.

Then resources minister Keith Pitt in 2020. He reckons China’s dominance of the rare earths industry is a matter that Australia cannot be half-hearted about. Dominic Lorrimer

The Morrison government published its first critical-minerals strategy in March 2019, and over the next 12 months the government’s desire to foster non-Chinese sources of rare earths coincided with Iluka’s desire to monetise its Wimmera and Eneabba assets.

“It sort of organically came together [between Iluka and the Morrison government] to look at producing rare earth oxides,” says the source, in reference to the form of rare earths that will be produced by the Eneabba refinery.

The Department of Defence did not respond when asked by the Financial Review whether it had encouraged the Morrison government and Export Finance Australia to help fund a refinery at Eneabba.

Of the several instances in the past 48 years when someone prioritised long-term value at Eneabba over the pursuit of a quick buck, none are starker that the April 2022 decision to spend the best part of four years building a $1.2 billion refinery that was beyond Iluka’s existing skill set.

The short-term sacrifice made by Iluka in the name of the refinery crystallised during an investor call on the day Iluka announced the plan to build it.

Citi analyst Paul McTaggart was keen to clarify how many tonnes of the monazite concentrate would be sold in the three to four years that Iluka was waiting for the refinery to be built.

“Between now and starting up the refinery and taking Eneabba feed, you are going to continue to sell [the monazite] is that right? You are not going to hold back tonnes,” asked McTaggart.

The answer from O’Leary was unorthodox.

“We won’t be processing monazite and exporting that in the interim,” he said.

The decision means Iluka won’t generate revenue from the Eneabba monazite stockpile until 2026, when the refinery starts churning out higher value separated rare earth oxides.

If O’Leary is still chief executive of Iluka in 2026, it will be his tenth year in the job.

O’Leary elaborated on why Iluka was willing to take the long view of shareholder value creation, during a panel session at The Australian Financial Review Mining Summit in May.

“We could have just liquidated that [monazite] by exporting it to China. We didn’t,” he said on May 24. “We’ve pledged it to the refinery. It wasn’t just with a vision to process that [monazite], it was with a vision to having a piece of strategic infrastructure that would benefit Australia and its allies for many, many decades to come.”

Australian taxpayers don’t often write billion-dollar loans to profitable companies with multibillion-dollar market capitalisations.

Before lending $1.25 billion to Iluka in April 2022, Export Finance Australia (EFA) had never written more than $1.1 billion of total loans in any one of its 65 years in operation.

Even more extraordinary is that Iluka’s loan was not the biggest that year; a $1.33 billion loan to Telstra to help it acquire Digicel Pacific – the biggest telecommunications provider in the South Pacific – was EFA’s biggest yet.

Both loans reveal a lot about the Morrison government’s priorities at the time.

The government wanted Telstra to buy Digicel before a Chinese telco got its hands on the South Pacific network, while it wanted Iluka to build a non-Chinese supply of the rare earths needed for defence applications and decarbonisation.

Keith Pitt was federal resources minister at the time the taxpayer-funded loan was made to Iluka.

Pitt reckons China’s dominance of the rare earths industry is a matter that Australia cannot be half-hearted about.

“When you have one country [China] with a monopoly over the overwhelming majority of final product production, I don’t think that is in our national interest, and we should continue to act in Australia’s interests, not the interests of others,” he says.

Asked to put the Iluka loan into historical context, he says: “It is unique.” He adds: “For now.”

But O’Leary said in May he didn’t expect the federal taxpayer would make a habit of handing out billion-dollar loans to miners. “I think there’s going to be a limited ability for [Australian miners] to get much more like they’ve done with us,” he told The Australian Financial Review Mining Summit.

“People say, you know, we would like what Iluka had, and I hear that often.

“But the issue is we’ve been given a $1.25 billion, non-recourse loan for a circa $1.5 billion refinery. It sounds like an awful lot, but people forget that we have pledged to the government a $1.5 billion stockpile of [monazite] feedstock.

“That’s the equivalent of a lithium protagonist or project sponsor wanting a loan for a lithium refinery and [them saying to the] government, ‘We’ve already built a mine. We’ve already processed 10 years and we have 10 years of spodumene sitting on the pad, waiting to go through this refinery’.

“There aren’t such examples anywhere on the planet. So the Iluka story is quite unique to our circumstances, I think, and there shouldn’t be an expectation on federal government to repeat that.”

Environment regulators have taken a far more constructive attitude toward Iluka’s modern proposal for a rare earths refinery at Eneabba than the one they dissed in the mid-1980s.

As Iluka’s forefathers discovered in the mid-1980s, political support and commodity price tailwinds aren’t enough to get a rare earths refinery over the line.

Support from the environmental bureaucracy is also required.

Environment regulators at both state and federal level have taken a far more constructive attitude toward Iluka’s modern proposal for a rare earths refinery at Eneabba than the one they dissed in the mid-1980s.

Instead of the 1984 proposal for shallow, clay-based storage of radioactive materials at Eneabba, Iluka’s new proposal envisages tailings being stored in facilities with two layers of high-density polyethylene liners above a clay base.

Leakage detection systems will sound the alarm if the double layer of liner is ever breached.

The “poorly understood” geology and hydrology at Eneabba in 1984 is now the subject of huge amounts of scientific analysis.

WA EPA chairman Professor Matthew Tonts ruled in January 2022 that the refinery proposal could be approved without an extended examination process.

“The EPA is of the view that the potential impacts of the proposal can be adequately managed through the implementation of the proposal in accordance with the referral documentation, and the proponent’s management and mitigation measures,” he wrote.

”The EPA considers that the likely environmental effects of the proposal are not so significant as to warrant formal assessment, due to the proposal being within the existing brownfield Eneabba mine site with limited environmentally sensitive receptors.”

The federal environment department also saw no reason to make the refinery proposal a “controlled action”, which would have triggered a longer and more detailed assessment process.

Senior environment department mandarin Tanya Stacpoole noted the refinery wastes would contain elevated levels of uranium and thorium, but said they were “unlikely to leak to groundwater”.

”It is unlikely that natural or physical resources, including water resources, would be contaminated in a significant manner by chemicals or radionuclides that would be handled in the proposed action,” she said in the ruling that waived through the refinery.

As for locals near Eneabba, their local government representatives in the Shire of Carnamah are more focused on luring refinery workers to live in the local towns, rather than worrying about radioactivity.

George Lloyd was RGC’s corporate development boss in 1994 when monazite stockpiling at Eneabba began, though he can’t remember participating in any decision to start hoarding monazite.

Lloyd is now trying to get a new mineral sands and rare earths project into production near the Victorian town of Donald, through the ASX-listed company he chairs, Astron Corporation.

Lloyd says the emergence of new refineries like Eneabba and the one that US taxpayers are helping Lynas to build in Texas are a boost for small aspirants like Astron.

“I think it is very significant, the Iluka refinery is clearly planned to take not only Iluka’s feedstock, but feedstock from other producers,” he says.

“It means that the market for the sort of products we will be producing at the Donald project is much wider, so it provides greater choice in terms of working out offtake arrangements.

“It is a very, very strong demonstration of the federal government’s interest in developing critical minerals in Australia, so I just think it is all very positive.”

The same will be true for the swath of rare earths juniors now flocking to the ASX; names such as VHM Limited, WA1 Resources, Heavy Rare Earths Limited, Hastings Technology Metals and Australian Rare Earths Limited.

Northern Minerals has already struck an early-stage agreement to process its ore at Eneabba.

In a reminder of the geopolitics at play, federal Treasurer Jim Chalmers blocked attempts by Chinese investors to grow their shareholding in Northern Minerals this year.

O’Leary reckons “greater possibilities await”, if Australia is willing to continue taking a long-term view of strategic value.

He wants Australia to think about the step that comes after the Eneabba refinery, and build a factory that turns Eneabba’s separated rare earths oxides into metals, alloys and maybe even magnets.

“Metallising and eventually magnetising rare earths are achievable objectives,” he said in an opinion article published by The Australian Financial Review.

“As Iluka’s history and the early 1990s decision to stockpile rare earths at Eneabba demonstrate, choices made today will have a long tail of option creation and consequences.

“With the right policy settings, Australia’s aspirations for economic diversification and industrial advancement as the world decarbonises can be realised.”

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