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Iluka (ASX:ILU) share price surged higher on a potential $1bn+ valuation uplift

Key to unlocking potential Iluka share price

The Iluka Resources Limited (ASX: ILU) share price is outperforming its peers on Wednesday on talk that that it could unlock $1 billion in extra value.

The Iluka share price surged 4.7% to $6.91 when the S&P/ASX 200 Index (Index:^AXJO) struggled to finish in the black.

The rally in the mineral sands miner also eclipsing other ASX miners. The Rio Tinto Limited (ASX: RIO) share price fell 0.6% to $120.74, Lynas Rare Earths Ltd (ASX: LYC) share price dipped 0.2% to $4.37 and OZ Minerals Limited (ASX: OZL) share price increased 1.2% to $20.46.

Unlocking value in the Iluka share price

The rally in the ILU share price coincided with a note by Goldman Sachs, which quantified the possible upside if Iluka moved ahead to build a processing plant.

The miner recently confirmed that it was looking at constructing a rare earth refinery at Eneabba in Western Australia.

The move downstream will allow Iluka to capture more of the value chain, which should give a boost to its revenue and profit margins.

Target price upgrade on the ILU share price

“Notwithstanding the permitting and technical challenges, our analysis shows that if ILU were to expand into downstream refining of monazite into a rare earth oxides, this could increase the value of the Eneabba &Wimmera projects to c. A$1.2bn,” said Goldman Sachs.

That equates to a $2.70 a share uplift to the Iluka share price and the broker has upgraded its 2025 earnings per share (EPS) forecast on the stock by 45%.

This in turn prompted Goldman to up its price target on the Iluka share price by 22% to $7.20 a share.

Growing bigger

Iluka is the world’s largest producer of zircon with a around a 30% share of the market. It’s also a significant producer of high-grade titanium dioxide (TiO2) feedstock.

The miner now has the potential to be a significant producer of rare earths as it plans to increase sales of rare earths to 9,000 tonnes a year from the second half of 2021. This will be done via the ramp-up of the Eneabba Phase 2 project,

The development of the Wimmera project could then take Iluka to 15,000 tonnes a year, or around 10% of the global market share, by 2025 or 2026.

Other reasons to buy the Iluka share price

This isn’t the only reason why Goldman is urging investors to buy the ASX stock today. It believes Iluka’s zircon and TiO2 sales will bounce by 20% this year with improving global demand for ceramics and pigment.

The broker also believes that there will be a supply deficit of zircon this year due to falling global supply.

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Motley Fool contributor Brendon Lau owns shares of Iluka Resources Ltd., Lynas Limited, OZ Minerals Limited, and Rio Tinto Ltd. Connect with me on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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