Iluka Resources (ASX:ILU) is a leading producer of mineral sands, specifically high grade zircon and titanium dioxide rutile, and has a burgeoning rare earth elements business. At the time Sandon Capital first purchased shares, the company also owned a royalty over BHP’s Mining Area C iron ore operation (the MAC Royalty).

The Opportunity

Iluka’s share price had been on a downward trajectory since the peak of the previous mineral sands cycle in late 2011/early 2012. Despite the MAC Royalty being a significant and growing part of ILU’s value, the share price was being driven down by pessimistic views on mineral sands at the time.
Board and broker consensus was that the MAC Royalty was worth $600m and appropriately reflected in the ILU share price. This was well below the value that Sandon Capital ascribed to the MAC Royalty.

Sandon Capital saw the potential to unlock significant value in ILU by demerging the MAC Royalty. At the time, Sandon Capital considered the royalty the best asset in the Australian mining sector with its stream of cash flows, no capital investment requirement, and BHP as the counterparty.

Sandon Capital believed it could influence the ILU Board to demerge the MAC Royalty thereby allowing it to be valued independently from ILU’s volatile mineral sands earnings.


June 2016




Through its analysis, Sandon Capital discovered BHP’s application to the Western Australian government for the development of South Flank, a key project covered by the MAC Royalty.  Sandon Capital believed this would more than double the royalty payments though this would never be properly reflected while housed within ILU, a cyclical and capital-intensive mining company.

After approaching the Board privately without success, in November 2016, Sandon Capital published a unique analysis showing the MAC Royalty’s value along with a white paper to aid understanding of the royalty. Sandon Capital then worked patiently and persistently to convince other shareholders, sell-side analysts and finally ILU Board and management of the merits of the demerger. A consensus finally emerged in favour of a demerger.

DRR was demerged and listed in October 2020 with DRR shares offered to existing ILU holders, including Sandon Capital.  ILU remains a 20% owner of DRR.


Over three years, Sandon Capital patiently and persistently campaigned for the MAC Royalty demerger. This involved correspondence with the Board and management, and extensive discussions with other shareholders and sell-side analysts. Eventually a consensus formed in favour and the MAC Royalty was demerged from ILU into a new entity, Deterra Royalties Ltd (ASX:DRR) in October 2020.


Sandon Capital has sold its Iluka and Deterra shares.

Current View

Sandon Capital sold its Iluka and Deterra shares.

ILU is now a focused mineral sands producer with a number of exciting growth opportunities in the mineral sands and rare earths markets.

DRR’s market capitalisation is >$2bn, almost four times the consensus value ascribed to the MAC Royalty in 2016. As BHP’s expansion at South Flank was larger than expected, Sandon Capital values the MAC Royalty today at >$3bn.

Related Reads

Past performance is not indicative of future performance. The content of these case studies constitutes the views and opinions of Sandon Capital. They have been prepared without taking into account the objectives, financial situation or needs of any particular individual. The case studies do not constitute advice.

Research Paper

Investment Thesis

Sandon Capital’s unique analysis highlighting the value of the MAC Royalty.


Whitepaper for shareholders

Sandon Capital published a white paper for other ILU shareholders to explain the value of the MAC royalty in more detail.

Wholesale Investors

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