iluka resources undervalued aus rare earths refinery

Iluka Resources ($ILU.AX / $ILKAY) — could this be truly undervalued?
Hey all, 24-M here,
I'm looking at Iluka Resources ($ILU.AX) and just want a second opinion before getting in.
Iluka is an Australian mineral sands company (zircon, titanium feedstocks) but they're also building Australia's first fully integrated rare earths refinery at Eneabba, expected to be ready by 2027. The Australian government is backing this with a $1.65B non-recourse loan under the Critical Minerals Facility. They already have decades of pre-stocked monazite feedstock at Eneabba, basically free raw material.
Why it might be mispriced:
The mineral sands market is in a slump (zircon and titanium feedstocks weak globally), dragging down the share price and hiding the rare earth potential.
Macquarie says the Eneabba (EP3) project alone has an NPV of about $1.7B, almost equal to the company's current market cap.
Morningstar rates it as 25% undervalued based on DCF analysis.
They'll be one of the few non-Asia producers capable of making separated heavy rare earth oxides — exactly the materials China restricted in their 2025 export controls.
The MP Materials precedent (US gov 10-yr price floor + 100% off-take) plus Lynas's recent JARE Japan off-take at $110/kg floor shows Western customers and governments are ready to pay a premium for non-China supply.
What I'm cautious about:
- Rare earth refineries are tough to build. Lynas's Kalgoorlie plant had years of delays and cost overruns. Iluka has no prior experience with REE refineries.
- NdPr prices dropped ~50% in 2024-25 before partial recovery — commodity swings are real.
- The "Western customers pay a premium" idea is mostly backed by governments, not large commercial buyers yet.
- Mineral sands could stay weak longer than expected, cutting into cash flows that support the rare earth shift.
- Already up YTD on broker hype — am I late?
I'm planning to hold this long-term and trim gains if it jumps 3-4x. I'm more interested in potential downsides than reasons to be bullish. I already see why I'd want to buy it. Just want to know what I'm missing. Thanks.