ASX-listed Iluka Resources has entered into a binding loan term sheet and a full-form offtake agreement with ASX-listed Lindian Resources for the long-term supply of rare earth concentrate from Lindian’s Kangankunde project, in Malawi.

Under the terms of the agreement, Lindian will supply Iluka with 6 000 t/y of rare earth concentrate for about 15 years, totalling about 90 000 t.

This material will be complementary feedstock for Iluka’s Eneabba rare earths refinery, in Australia, and will represent about 10% of Eneabba’s capacity.

In a media release, Iluka says Eneabba will be Australia’s first fully integrated rare earths refinery and will produce separated light and heavy rare earth oxides.

The refinery, which is under construction and scheduled for commissioning in 2027, is being built through a strategic partnership between Iluka and the Australian government.

To support Lindian’s development of Kangankunde, Iluka has entered into a $20-million loan facility agreement with a five-year term at an interest rate of secured overnight financing rate plus 11% a year, with interest capitalised for two years during construction.

The loan will be made available subject to Iluka completing due diligence, Kangankunde being fully funded and after other construction funding has been spent.

“Our agreement with Lindian is a further step toward delivering on the significant industry-building opportunities presented by Iluka’s development of the Eneabba rare earths refinery,” says Iluka MD Tom O’Leary.

Against a backdrop of heightened emphasis on diversifying the supply of rare earths globally, this is an example of Iluka catalysing a new mine into production as its Australian refining customer, he says.

“This is part of our focus on securing complementary Australian and international feedstocks for Eneabba, both from within Iluka’s own portfolio and from third-party suppliers like Lindian.”

O’Leary notes that construction of the refinery is progressing well, with concrete works advancing and equipment now arriving on site. In parallel, he notes that the company is in active discussions with several other potential feedstock suppliers.

He says the Kangankunde deposit has the potential to support a large, low-cost and simple mining operation.

“I am delighted that our discussions have culminated in a binding agreement, including the potential to further expand feedstock supply in the future. Iluka looks forward to Lindian bringing Kangankunde into production and the positive contribution our cooperation will make to a sustainable rare earths industry.”

In a separate media release, Lindian confirms that rare earth monazite concentrate from Kangankunde will feed the fully integrated Eneabba rare earths refinery facility in Western Australia.

The company notes that the import of rare earths concentrate into Western Australia will boost global rare earths supply chain resilience, feeding into a fully integrated rare earth refinery for the production of separated rare earths.

As previously announced, Lindian says it has attracted strong interest globally for funding in view of Kangankunde’s financial viability at both forecast prices and at the low current spot prices for neodymium and praseodymium (NdPr).

The company says it has considered the various proposals and terms and is proceeding with the $20-million term loan binding term sheet with Iluka as part of an overall product and funding package.

While Kangankunde’s operating costs are expected to be in the lowest cost quartile globally – $2.92/kg of rare earth oxide (REO) – and viable at low spot prices, Lindian says the offtake agreement will have added floor price protection well above the project’s operating cost, providing commodity price risk mitigation.

In addition, if Iluka obtains any price support from a government agency that is not included in the realised NdPr price – for example, a payment that underwrites a guaranteed floor price or similar – it notes that the value of that price support shall be included in the realised NdPr price used in the offtake agreement price mechanism to the extent it applies to REOs produced from Kangankunde.

Moreover, Lindian says the drawdown under the term loan facility is subject to completion by Iluka of its confirmatory due diligence, full-form documentation, the project being fully funded, expenditure of required equity and customary conditions precedent for a facility of this kind.

Lindian notes that it has engaged Behre Dolbear Australia as the independent technical expert and law firms Hamilton Locke and Herbert Smith Freehills as local and international legal counsels, respectively, for legal due diligence and documentation.

Lindian is continuing the evaluation of its Phase 2 expansion study at its Kangankunde

project, with the objective of achieving a substantial increase in production beyond the 15 300 t/y of concentrate targeted in Phase 1.

The Phase 2 expansion will involve a right of first refusal (ROFR) mechanism for Iluka to provide project funding and procure additional offtake volumes.

If Iluka provides an offer for debt funding for at least 50% of the Phase 2 expansion costs, Iluka’s ROFR over 80% of Phase 2 expansion applies up to a maximum of 25 000 dry metric tonnes a year of additional concentrate for 15 years, providing a strong foundation for growth as part of the strategic partnership.

“We are delighted to have entered a long-term strategic partnership with Iluka, encompassing both cornerstone project funding and product offtake on binding terms.

“This is a pivotal milestone for Lindian and is a major step towards accelerating the development of [the] globally significant Kangankunde project,” says Lindian executive chairperson Robert Martin.

He notes that the floor price protection, no financial ratio covenants and offtake-linked terms are fit-for-purpose for the company, ensuring the long-term interests of shareholders are enhanced.

Martin adds that the funding and offtake agreements represent a major derisking milestone for Stage 1 of the Kangankunde project, providing increased confidence for the company’s stakeholders by showing a clear pathway to production.

He says the larger Stage 2 production expansion has also been significantly derisked, with Iluka having an ROFR for up to an extra 25 000 t/y of product if it makes an offer to fund 50% of the capital cost.

“I would like to thank the Lindian team for their hard work and for the professionalism they have shown to bring this transformational agreement together. We now look forward to updating our shareholders on additional well-progressed developments as we continue to accelerate the project timelines at Kangankunde.”