Australia has pledged an additional A$400 million ($257.20 million) loan to Iluka Resources to support the progress of its rare earths refinery development in Western Australia. This additional funding is intended to support the critical minerals project amid a significant cost escalation that has exceeded earlier projections. The federal government’s latest loan builds on the A$1.25 billion provided to Iluka in 2022, bringing total government support for the refinery to A$1.65 billion.

The Eneabba refinery, set to become Australia’s first fully integrated rare earths processing facility, has seen its estimated development cost rise sharply. Initially projected at A$1.2 billion, the cost is now expected to fall between A$1.7 billion ($1.09 billion) and A$1.8 billion. In light of this, Iluka is required to contribute an additional A$214 million in cash equity, adding to the A$200 million it had already committed in cash equity and stockpiles for the project.

Iluka faces mounting financial pressure as it adjusts to the increased costs. As of June 30, the company reported net cash reserves of A$154.2 million, which is less than half the amount it held a year earlier. The news of the additional funding and the project’s cost escalation had a significant impact on Iluka’s stock. Shares of the miner dropped by as much as 15%, reaching A$4.660, their lowest level since October 2020. This sharp decline made Iluka the biggest loser in the ASX200 benchmark index on the day of the announcement, as reported by several media reports.

The Eneabba refinery is a cornerstone of Australia’s strategy to diversify its supply chain for critical minerals, including rare earths. These materials are essential for producing advanced technologies such as electric vehicles, wind turbines, and electronic devices. By developing new domestic sources of these materials, the government aims to reduce reliance on China, the dominant global producer, and strengthen Australia’s role in the critical minerals market.

Iluka has stated that the additional A$400 million in funding will only be accessible after the full drawdown of the initial A$1.45 billion provided by the government. Moreover, the disbursement of the new funds is contingent on the company securing offtake agreements for the refinery’s output, ensuring a viable market for the rare earths produced at Eneabba.

While the rising costs present challenges, the Eneabba refinery marks a significant step toward boosting Australia’s capabilities in rare earths production. By establishing a fully integrated facility, the project is poised to support global supply chain resilience and meet the growing demand for critical minerals in a rapidly advancing technological landscape.