Ground Breakers: Is rare earths developer Arafura about to buck history?

It has historically been easy to take a tumble when chasing rare earths elements. And Arafura plans to learn the lessons of the past as it saddles up in the NT.

Getting a rare earths project off the ground can be a wild ride, but Arafura is saddling up anyway. Picture: Getty Images

Rare earths is a sector littered with failure.

During the last boom in 2010-11, $15 billion was raised by 60 rare earths companies and about 100 projects across US, Australia, and Canada.

Of those, only two projects were built.

One came from Lynas (ASX:LYC), which needed another $2 billion to complete.

Even then the road for LYC was a tough one, partially due to China’s tight control over market pricing.

Current boss Amanda Lacaze was the driving force behind the revival of the company, which death-spiralled from multibillion-dollar high-flyer in 2011 to a valuation of just $3 million in 2015. It is now worth $6 billion.

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Hoping to emulate LYC’s hard-fought success (with less bumps along the way) is Arafura (ASX:ARU), which started kicking rocks at its Nolans tenements in the NT back in 1999.

The company established a singular focus on rare earths around 2008 and has been trying to get its monster neodymium-praseodymium (NdPr) project up and running ever since.

Over the past few years, the geopolitical and economic stars have been aligning for Arafura.

Buyers are increasingly looking for rare earths produced outside of dominant supplier China to feed to the nascent “net zero” thematic.

While pricing is down from 2022 highs, LYC told investors at its AGM last week that NdPr demand was up 45 per cent since 2019.

These high-value magnet light rare earths make up almost 30 per cent of each standard permanent magnet, a crucial part of electric vehicle motors and wind turbines.

To meet demand by 2032 the world needs the equivalent of 12 Nolans; the world’s only ore-to-oxide NdPr operation designed to pump out 4400tpa of NdPr per year for around 40 years.

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How much cash does Arafura need?

Nolans has a hefty price tag of $1.68 billion, which will be funded by a 50-50 mix of debt and equity.

The debt part ($800 million) is coming along nicely, with the company now pencilling in up to $1.5 billion of indicative funding from a mix of German, Korean, Canadian, and Australian export credit agencies (ECAs).

This doesn’t mean it will get the entire $1.5 billion via ECAs, which are quasi-government entities designed to support their respective domestic economies.

The Euler Hermes letter of support for up to $600 million is subject to a certain amount of offtake with German companies, for example, while the $150 million deal with KEXIM is linked to 1500tpa of binding offtake between ARU and carmakers Hyundai and Kia.

This funding also hinges on old-fashioned due diligence by these parties, which is well and truly under way. ARU is targeting financial contractual close by March 2024.

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Arafura is also progressing additional offtake negotiations, as well as funding activities to support the $800 million equity component.

Meanwhile, early works have already kicked off on site.

In October, ARU chairman Mark Southey said the company was “strongly positioned to move into full construction in the first half of 2024, pending the outcome of ongoing funding activities”.

“Rare earths processing is of course a complex and cost-intensive process,” he said.

“While this year has presented some challenges, we have the targets, plans and contingencies in place to achieve our goals.

“After two decades of development, we are now at the point of asset creation.”

This content first appeared on stockhead.com.au

At Stockhead, we tell it like it is. While Arafura is a Stockhead advertiser, it did not sponsor this article.

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Originally published as Ground Breakers: Is rare earths developer Arafura about to buck history?