Mineral sands miner Iluka will spend $1.2 billion to produce rare earth minerals essential for electric vehicles and wind turbines after a $1.05 billion loan from a federal fund designed to help wean the west off a reliance on China for critical minerals.

Construction will require about 300 workers and operating the plant will need 270 people who will drive in and out from Perth to a camp at Eneabba township.

The share prices of Iluka and rare earth producer Lynas both achieved all-time peaks as soaring demand from the energy transition and strategic concerns magnified by the Russian invasion of Ukraine cause investors to target the sector.

On Monday Iluka announced it would build a rare earth oxide refinery at its Eneabba operation north of Perth backed by the federal government’s $2 billion Critical Minerals Facility established in September 2021.

The investment will move Iluka up the value chain from concentrating ore to the more complex business of separating rare earth oxides that are the input for metal production.

Iluka chief executive Tom O’Leary said the company had spent several years studying how to diversify into rare earths from its existing mineral sands extraction sites at Eneabba and Wimmera in Victoria.

The refinery will first process a stockpile of processing byproduct Iluka has stored at Eneabba since the 1990s to extract minerals containing neodymium and praseodymium (NdPr) that are used in permanent magnets for electric motors and generators. It could also accept feedstock from Iluka’s other operations or third parties.

US rare earth producer MP Materials told investors last week that every electric vehicle needed two to three kilograms of NdPr and wind turbines used about 150 kilograms for each megawatt of capacity.

MP, which before Iluka’s announcement described itself and Australia’s Lynas as the only sources of NdPr outside China guaranteed to come online, warned that miners with no experience in rare earth separation could find the technology difficult to master.