After 25 years, Arafura’s rare earths project is set to have its day in Northern Territory sun

Given Arafura has been plugging away at Nolans for 25 years, credit must go to the company for persevering through many cycles.

Despite a depressed market for rare earths, 2024 has been a productive year for Arafura.

At the start of the year, Arafura promoted non-executive director Darryl Cuzzubbo to managing director. The former BHP project-builder replaced long-time MD Gavin Lockyer.

Then came a series of funding announcements for the US$1.22 billion Nolans project, the first being a US$533 million debt finance package from the federal government’s Export Finance Australia and Northern Australia Infrastructure Facility.

That was followed up in May by US$300 million of debt from Export Development in Canada and in July by up to US$150 million of debt from the Export-Import Bank of Korea and up to US$115 million from German export credit agency Euler Hermes.

All up, Arafura has secured more than US$1 billion in debt, exceeding its own target of US$775 million.

The next step for Arafura is equity funding.

“We expect to get the funding in the first half of next year and then immediately move into construction,” Cuzzubbo told the Noosa Mining Investor Conference yesterday.

Arafura is working on a 50:50 debt to equity split which means it will need to raise a significant amount of capital, though it is backed by 10% shareholder Hancock Prospecting.

“We want to get more than 50% of the equity from cornerstone investors, whether that’s our existing major shareholder, offtake parties, government seeded funds, both here and overseas, as well as private equity,” Cuzzubbo said.

“As soon as we’ve secured that, we will then go to the public market for the for the rest.”

UBS, Canaccord Genuity and Barrenjoey have been appointed to assist.

“That is to make sure that we’ve got the global reach that we need, and we’ve already been meeting with investors in North America and through Europe,” Cuzzubbo said.

Arafura has secured offtake agreements with Hyundai, Kia and Siemens Gamesa but its lenders require 80% of product under offtake at the time of debt drawdown.

Cuzzubbo said the company was in talks with potential customers that could achieve double that target but was focusing on partners prepared to contribute equity.

Nolans

The fully permitted Nolans project is expected to produce 4440 tonnes of neodymium and praseodymium (NdPr) per annum over 38 years, as well as 144,393t of phosphoric acid as a by-product, which puts operating costs in the first quartile.

“We’re near existing infrastructure, so that lowers capex and lowers project execution risk,” Cuzzubbo said.

“We sit adjacent to the Stuart Highway and the railway line that runs from Darwin to Adelaide. The gas pipeline runs through our tenement. We’ve got access to water, and we’re about 135km north of Alice Springs, which obviously has an airport and a number of services.”

Arafura has already spent more than US$40 million on early project works.

“That’s camp facilities for 250 people, 10km of roadways that access the site and water infrastructure, so that enables us to move straight into main construction activities once we’ve got FID,” Cuzzubbo said.

Arafura’s studies used NdPr prices of US$133-163/kg. Current prices are US50-60/kg.

Cuzzubbo pointed out that there was expected to be a supply gap from 2028 – the same year Nolans should start production – which should drive a recovery in prices.

Rare earths depressed…for now

“I think rare earths have been treated harshly by investors in recent times, mainly because they seem to be bandied in the same bucket as lithium, which is suffering from the negative EV narrative,” Canaccord head of research Reg Spencer told the same conference yesterday.

“But you can’t deny that rare earths have been in what would otherwise be described as a bear market for almost two years now, and a lot of that has been driven more so by increases in domestic Chinese production quotas, rather than slowing demand.”

Spencer noted that Chinese prices had rallied 20% off recent lows due to supply side issues domestically and in Myanmar.

“In the meantime, in the longer term, the high capital costs and technical challenges facing greenfield development still haven’t changed and we think that the supply-demand balance for rare earths is far more favourable than that of lithium,” he said.

He suggested rare earths could be a Trump trade opportunity.

“If there is a re-ignition of US-China trade tensions, there could be a retaliation by the Chinese by weaponising their control of the rare earth market,” Spencer said.

“So yes, we do have a favourable outlook for rare earths into next year.”