The Iluka Resources Limited (ASX: ILU) share price is up 5% after the resources business announced its plans for a royalty demerger.
Iluka describes itself as a global leader in the mineral sands industry.
What’s going on?
Iluka has released a large demerger booklet and presentation about the proposed demerger of Deterra Royalties from Iluka.
It will be listed onto the ASX. Deterra will be the largest independent royalty company listed on the ASX, with its royalty over ‘Mining Area C’ in Western Australia’s Pilbara region as its cornerstone asset (which is operated by BHP Group Ltd (ASX: BHP)).
An independent expert (from Deloitte) has concluded that the demerger is in the best interests of shareholders. Iluka’s Chairman, Greg Martin said that the Iluka directors have unanimously recommended to shareholders to approve the proposal.
Iluka shareholders will receive 1 share of Deterra Royalties for each Iluka share they own. Iluka will keep 20% of Deterra Royalties as a long term investment.
Why?
There are a few key reasons for the demerger according to Iluka. It will allow each business to focus on their plans and growth ideas, with greater flexibility. It will give shareholders a clearer choice. Each business will have the ability to adopt the appropriate capital structure.
After the demerger, Iluka will have $89 million of net cash. It will pay 40% of its free cashflow as a dividend and it will focus on expanding mines, extending the life and finding new sites. Iluka believes there is a favourable industry supply and demand outlook.
I’m not an expert on commodities, so I’m not sure if either business will be a good buy. It’s best to buy them when the commodity price is low. That’s not the case with iron ore right now. I prefer the idea of ASX dividend shares and ASX growth shares that can deliver consistent growth like Pushpay Holdings Ltd (ASX: PPH).
