Critical minerals explorer VHM ASX:VHM has entered into a strategic partnership with Iluka Resources ASX:ILU to provide a value-accretive and low-capital intensity development pathway for the Goschen rare earths and mineral sands project in Victoria.

The deal comprises a binding life-of-mine offtake agreement and a $40 million, two-tranche convertible note funding package offering existing shareholders bankable long-term revenue certainty and preserving upside.

Tranche 1 of the convertible note will total $10m at a 10% coupon with a three-year maturity to support Goschen development activities and progression to final investment decision.

It will be priced at a 30% premium to the 15-day volume weighted average price of VHM shares, convertible into a maximum 43 million shares (including assumed capitalised interest).

Tranche 2 will total $30m at a 10% coupon with a four-year maturity, and will be set at the same price as any future raisings for remaining project equity, reducing the need for additional shareholder funding.

Rare Earths Offtake

Under the terms of the new agreement, VHM will provide approximately 8,320 tonnes per annum of rare earths concentrate over 18 years to Iluka’s Eneabba rare earths refinery in Western Australia.

Eneabba is in its final construction phase, and will be an Australian-first when it is commissioned next year.

The concentrate will contain dysprosium, terbium, yttrium, and light rare earths neodymium-praseodymium for approximately 4,900tpa of contained rare earth oxides.

Offtake pricing will be linked to Iluka’s realised rare earths pricing with a payability structure that provides exposure to upside, contains downside protection, and incorporates a pass-through of any government price support received.

Iluka will retain first right of refusal over any rare earth material from VHM’s early-stage Nowie and Cannie projects and future expansion of Goschen’s production.

Fully Funded Development

VHM chief executive officer Andrew King called the partnership a “transformational milestone that materially advances the development of the Goschen project”.

“The combination of long-term demand certainty, downstream access and financing support significantly derisks our asset and reinforces the role that Goschen and Eneabba can play in building a sovereign, value-add rare earths processing capability and supply chain in Australia,” he said.

Iluka managing director Tom O’Leary said the agreement with VHM marked another step for the company’s rare earths business following recent milestones including an inaugural offtake agreement for rare earth oxides produced at Eneabba and awarding of the final contract to complete the refinery’s construction.

“Our agreement reflects Iluka’s focus on securing suitable, advanced third party feedstocks for Eneabba, in addition to progressing those in our own portfolio in parallel, reinforcing the longevity and flexibility of the rare earths business we are building.”