Why is this ASX 200 mining stock crashing 9% today?

Let's find out why this mining stock is being sold off by investors on Friday.

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Iluka Resources Limited (ASX: ILU) shares are ending the week in the red.

In morning trade, the ASX 200 mining stock is down 9% to a new 52-week low of $4.98.

Why is this ASX 200 mining stock crashing?

The mineral sands producer's shares are being sold off today after it released an update on its rare earths ambitions.

Rare earths are essential inputs to defence systems, electric and hybrid vehicles, robotics, renewable energy, consumer, industrial, and agricultural applications.

The company notes that global rare earth production is highly concentrated, which creates inherent risks.

It is hoping to change that with the Eneabba refinery in Western Australia, which it believes will be an important step in increasing the resilience of global rare earths supply chains. Commissioning of the refinery is expected in 2027.

What's the latest?

This morning, the ASX 200 mining stock announced a positive outcome to the funding discussions with the Australian Government. These discussions were in relation to additional financing support to deliver the Eneabba rare earths refinery.

The release notes that discussions have progressed positively and agreement has been reached on key indicative terms.

The Australian Government will contribute an additional $400 million, on terms consistent with the original $1.25 billion non-recourse loan. Whereas Iluka will contribute an additional $214 million cash equity.

Given that the company had net cash of $305 million at the end of the first half (down from $371 million), investors may believe that Iluka will need to raise funds in the near future to maintain a robust balance sheet. This could be putting some pressure on its shares today.

The additional government funding is subject to securing offtake agreements satisfactory to the Australian Government and delivering positive outcomes in line with the Community Benefits Principles under the Government's Future Made in Australia agenda.

Management advised that Iluka continues to engage actively with potential offtake counterparties and is focused on securing commercially-attractive supply agreements for the benefit of all stakeholders of the Eneabba refinery.

In response to the news, the ASX 200 mining stock's managing director, Tom O'Leary, said:

We expect the Eneabba refinery to deliver substantial, sustainable value over several decades – that is why Iluka is investing significant shareholder funds in this opportunity. This is a strategic infrastructure asset that puts Iluka and Australia at the forefront of global electrification, the creation of new and resilient critical minerals supply chains, and the establishment of a rare earths industry that is genuinely independent.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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