One ASX 200 mining stock to buy at 'a significant discount' right now

A leading wealth manager sees significant upside potential for this ASX 200 miner.

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There's a lesser-known S&P/ASX 200 Index (ASX: XJO) mining stock that could offer investors some significant gains in the months ahead.

The stock in question is rare earths miner Iluka Resources Ltd (ASX: ILU).

Iluka, if you're not familiar, produces zircon and high-grade titanium dioxide feedstocks (rutile and synthetic rutile).

The ASX 200 mining stock is currently developing Australia's first fully integrated rare earths refinery at Eneabba, located in Western Australia, preparing to become a global supplier of separated rare earth oxides.

The Eneabba Refinery, due for commissioning in late 2025, was among 52 mining projects featured in the Federal Government's Australian Critical Minerals Prospectus, published in February.

Like most Western nations, Australia is concerned over China's dominance of the rare earths market.

That's because you'll find rare earths used across advanced electronics, including for military applications. They're also crucial in the world's shift towards electrification, used to produce strong magnets.

Why Auburn Capital rates the ASX 200 mining stock a buy

According to Auburn Capital's head of wealth management Jabin Hallihan (courtesy of The Bull), Iluka "is set to become a material supplier of separated rare earth oxides".

Hallihan has a buy recommendation on the ASX 200 mining stock.

"Supported by a robust balance sheet and strategic expansion, ILU is resilient. In our view, ILU is trading at a significant discount to fair value," he said.

What's been happening with Iluka Resources?

The Iluka share price has dropped 30% over the past 12 months, pressured by falling profits.

This has also seen the miner's dividends take a hit. Though management did still declare two fully franked dividends for a fully-year payout of 7 cents per share. At the recent Iluka share price of $7.68, that equates to a fully franked yield of 0.91%.

However, this year has ushered in a turnaround for Iluka, with shares up 16% so far in 2024.

For the quarter ending 31 March (Q1 2024), the ASX 200 mining stock reported that it continues to experience "steady interest in its zircon sand offering, with sales contracts for zircon sand in Q2 currently exceeding Q1 sand volumes".

The company noted that over the quarter the weighted average zircon sand price fell by around 2% from last quarter, with prices for the current quarter up "modestly" since then.

Management also pointed to continuing "indications of a recovery in the titanium pigment … with evidence of volume and price growth in the sector".

In Q1 2024, the ASX 200 mining stock reported mineral sands revenue of $268 million, up 4.4% year on year.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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 Scott Phillips.

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