On Thursday, Citi analysts downgraded Iluka Resources Ltd (ILU:AU) (OTC: ILKAF) stock from Buy to Neutral, adjusting the price target to AUD 5.60 from AUD 6.10. The downgrade follows Iluka’s December quarter performance, which fell short of expectations in terms of sales volumes and realized Zircon pricing. Additionally, the company’s production outlook for the calendar year 2025 was lower than anticipated, with higher associated costs.
Despite the less favorable outlook for 2025 and 2026, with earnings projections decreased by 38% and 24% respectively, there was a silver lining. Iluka guided to a calendar year 2024 EBIT excluding DRR (Discounted Revenue Received) of $330-$340 million, which was better than Citi analysts had initially expected. This guidance takes into account the impact of a weaker Australian dollar against the US dollar.
The revised Net Present Value (NPV) for Iluka is now down by 7% at AUD 5.70. The decrease in the target price to AUD 5.60 reflects the analysts’ updated valuation. Citi’s decision to downgrade the rating to Neutral from Buy is driven by concerns over the deteriorating Mineral Sands business and valuation uncertainties surrounding the Rare Earths Refinery. These factors, according to the analysts, complicate the investment case for Iluka Resources.
The Citi analysts elaborated on their stance, stating, "We’ve decreased our CY25/26 earnings 38%/24% on lower sales and higher costs (reflecting new CY25 outlook), marginally offset by a weaker AUDUSD." They also noted the impact of these changes on their valuation, leading to the lowered price target and rating downgrade.
Investors in Iluka Resources are now faced with a more cautious outlook from analysts, as the company navigates through its challenges in the Mineral Sands sector and works towards clarifying the potential of its Rare Earths Refinery.
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