Mineral sands miner says lucrative BHP iron ore royalty spin-off a 'liberation'
Mineral sands miner Iluka is pushing ahead with plans to demerge a lucrative iron ore royalty asset that has been a steady source of cash flow.
The company seeks to demerge its lucrative interest in Mining Area C in Western Australia’s Pilbara region into a separately listed entity named Deterra Royalties.
Iluka’s involvement in the tenements dates back to 1966 when its subsidiary then known as Consolidated Gold Fields Australia was part of a joint venture at Mount Goldsworthy - the first Pilbara iron ore mine.
Since production from the Mining Area C tenements began in 2003, the royalty has contributed $929 million in revenue to Iluka and more is set to come with BHP’s South Flank development, which is expected to boost annual iron ore production within the MAC royalty area by about 80 million wet metric tonnes from 2023.
The project is more than 76 per cent complete.
Iluka chairman Greg Martin is urging shareholders to back the proposal, saying it is “the best means to deliver value” from the historically significant evolution of the Mining Area C province.
“The separation of these two businesses into two separate ASX listed companies has potential to unlock shareholder value over time,” Mr Martin said on Thursday.
The board and management of each company would be empowered to focus on their distinct growth strategies, capital structures and financial policies, and shareholders would have the choice of being exposed to one or both of the entities, he said.
Under the planned demerger, Iluka will retain an interest of 20 per cent in Deterra - up from 15 per cent flagged earlier this year - as a long-term investment.
Iluka’s shares were up more than 2.5 per cent to $10.03 in morning trade.
Citi analysts said the miner’s current share price appropriately reflected its risk/reward profile, noting its Sierra Leone-based subsidiary had added some geographical risk to its portfolio and operating performance remained a challenge.
If the demerger proceeds, eligible Iluka shareholders will be entitled to receive one Deterra share for each Iluka share they hold.
Citi believes Deterra will trade in a range of $3.80-$4.25 on listing.
Shareholders will vote on the proposal at an online extraordinary general meeting on October 16.