What Happened to Iluka Resources (ASX:ILU) After Shares Dropped 15%

Iluka Hit by the Worst Mix Higher Capex, Lower Prices, Rising Debt

Iluka Resources (ASX:ILU) saw a sharp sell off of around 15%, which is a meaningful move for a business with a market capitalisation of roughly A$2.78 billion. The reaction suggests investors were uneasy about the near term earnings setup and the balance sheet trajectory.

Operationally, the quarter was not weak on volumes. Iluka sold 161 kilotonnes in Q4 versus 64 kilotonnes in Q3, a clear step up in product shipped. The problem was pricing. Realised prices softened materially, particularly in zircon, which kept revenue under pressure even as volumes expanded.

At the same time, Iluka is spending heavily on growth, with capital directed toward projects like the Eneabba rare earths refinery and Balranald. That investment program is strategically important, but it is also pushing net debt meaningfully higher.

Put simply, the market is looking at a mix of softer prices, higher spending, and rising net debt, and that combination was enough to shake confidence in the short term.

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The quarterly breakdown

Iluka’s mineral sands segment generated A$276 million in revenue for the quarter. Zircon, rutile and synthetic rutile contributed A$260 million, while ilmenite contributed around A$17 million.

For the full year FY25, mineral sands revenue came in at A$976 million, down 13% versus FY24. Within that, zircon, rutile and synthetic rutile revenue was A$908 million, also down 13%.

The clearest pressure point is pricing. Unit revenue across zircon, rutile and synthetic rutile sold in FY25 was A$1,913 per tonne, down 12.9% versus FY24. So even if shipments improve quarter to quarter, a lower price per tonne puts a ceiling on revenue and makes margin recovery harder.

While the quarterly update did not spell out EBITDA or net profit in this segment, the unit economics still tell a story. Cost of production was A$589 million, and unit cash production cost was A$1,054 per tonne, down almost 18%. That is an important improvement because it shows Iluka is lowering its cost base. If pricing stabilises and eventually improves, that cost reduction can translate into stronger profitability.

The bigger debate for investors is capital allocation. Total capex was A$862 million, up from A$434 million last year. A major driver is the Eneabba rare earths refinery, which is a significant step in expanding Iluka’s position further down the value chain, with an estimated project cost now around A$1.7 billion.

In the short term, it is understandable why the market is cautious, because higher spending can pressure cash flow and the balance sheet while pricing remains soft. But it is also worth asking what Iluka is building toward. The combination of lower unit costs, a potential recovery in mineral sands pricing over time, and investment into rare earths could improve the longer term earnings profile if execution stays on track.

Iluka’s Problem Is Not Throughput, It’s Price and Balance Sheet Trajectory

The takeaway for here is that several negatives hit at the same time, and the market treated it as a risk off moment. But these look more like short term pressures than structural problems with Iluka’s business model.

Investors likely de rated the stock because Iluka now appears more exposed to the commodity cycle at a time when that cycle is still soft. You have weaker pricing, elevated capex, and a higher net debt profile all showing up together, which can make the risk feel amplified even if the long term strategy has not changed.

After a 15% drop, and with price targets from analysts around A$7.20, it may be a better time to do the work on ILU. If the long term tailwinds are still intact and execution holds, periods like this can be where the risk reward starts to look more interesting.