Transformational partnership secures long tenor offtake for Rare Earths Concentrate, provides cornerstone capital and delivers an integrated Australian rare earths supply chain.

VHM Limited (ASX: VHM) (“VHM” or “the Company”) is pleased to announce it has entered into a long term strategic partnership with Iluka Resources Limited (ASX: ILU) (“Iluka”), comprising a binding offtake agreement and a A$40 million convertible note funding package for the fully-permitted Goschen Rare Earths and Mineral Sands Project in Victoria (“Goschen”) or (“Goschen Project”).

The strategic partnership provides VHM with a value accretive and low capital intensity development pathway for Goschen. VHM will provide secure rare earths concentrate (REC) to Iluka’s Eneabba Rare Earths Refinery (“Eneabba”) which will be Australia’s first operating rare earths oxide refinery. This is a major milestone for VHM that materially strengthens the development pathway for Goschen, underpins value creation for shareholders and advances Goschen towards Final Investment Decision (FID).

The partnership is aligned with the Australian Government’s Critical Minerals Strategy which supports sovereign, value-added rare earths mining and processing capability in Australia. VHM remains in discussions with export credit agencies, including Export Finance Australia (EFA), around a senior debt facility.

Key highlights:

  • Strategic positioning supporting processing of critical minerals in Australia
    Goschen’s REC, will provide heavy rare earths Dysprosium (Dy), Terbium (Tb) and Yttrium (Y) and light rare earths (NdPr) to feed Eneabba, delivering an end-to-end sovereign Australian supply chain. The partnership establishes VHM as a cornerstone supplier of critical rare earth materials at a time of acute global demand for secure rare earth supply.
  • Life of mine Rare Earths offtake secured
    A binding agreement for 100% of Goschen’s REC production provides bankable long term revenue certainty for the life of the current mining licence supplying (20 years and 5Mtpa).
  • Early-stage, flexible cornerstone funding support
    Iluka to provide up to A$40 million investment via a two-tranche convertible note1 with tranche one priced at a premium to market, provides flexible, development capital while demonstrating strong third-party validation of Goschen’s quality and strategic importance.
  • Material project de-risking and unlocking financing
    The combination of binding offtake and aligned funding materially reduces key project risks, enhancing credit attractiveness and significantly strengthening VHM’s position in ongoing discussions with export credit agencies and project financiers, accelerating the project towards Final Investment Decision (FID).

Offtake agreement is transformational for VHM

This offtake agreement delivers a step-change in VHM’s risk profile and value proposition:

  • Revenue certainty: Long term take-and-pay structure supports predictable cash flows and project bankability
  • Pricing pass through and upside sharing: Pricing mechanism is linked to Iluka’s realised rare earths pricing with payability structure that provides exposure to upside and contains downside protection and incorporates a pass-through of any government price support received
  • Funding momentum: Provides immediate development capital while catalysing broader funding sources (EFA and the US Export-Import Bank (“EXIM”) & commercial lenders)
  • Long term growth optionality: Iluka’s potential right of first refusal over future expansion of Goschen signals strategic partner commitment while preserving VHM’s potential development upside across Cannie and Nowie
  • Strategic positioning: The agreement sees value adding to critical minerals kept in Australia and establishes VHM as a critical domestic supplier of rare earths Together, these factors are expected to drive a lower cost of capital, improve financing terms and accelerate progression towards (FID). Please see Appendix A for further details of the Offtake Agreement.

Convertible notes funding structure

The A$40 million Iluka funding package is structured to optimise shareholder outcomes:

  • Tranche one convertible note of $10 million, at a 10% coupon with a 3-year maturity is priced at a 30% premium to the 15-day VWAP of VHM shares up to and including 1 July 2026, convertible into up to ~43 million shares (including assumed capitalised interest) , to support development activities and progression to FID, signaling strong valuation support
  • Tranche two convertible note of $30 million, at a 10% coupon with a 4-year maturity is priced at the same price as any equity raise for remaining project equity funding, thereby reducing the need for additional shareholder funding
  • Positions Iluka as a long term strategic investor, aligning interests across the life of the project This structure provides VHM with capital certainty while preserving upside for existing shareholders. Please see Appendix B for further details of the Convertible Notes

Read the full article here.