Arafura lands debt deal as Lynas says it sees only slight signs of rare earth market improvement
Rare earth prices are still sitting around five year lows, but a strong outlook has helped Arafura lock in debt deals worth more than $US1bn.
Gina Rinehart-backed Arafura Resources will need to raise almost $US800m to fund its Northern Territory rare earth project after landing conditional approvals for $US775m in commercial debt funding.
But the company will head into the equity markets as rare earth spot prices hover around five-year lows and as Lynas Rare Earths warns of a slow recovery in demand for rare earth oxides.
Lynas delivered its June quarter production report on Tuesday, saying it had slowed the ramp-up of its new cracking and leaching facility in Kalgoorlie in the face of stubbornly low prices for its suite of rare earth products.
The company produced only 1504 tonnes of neodymium and praseodymium oxide, its main revenue driver, down more than 19 per cent on the same period in 2023 after shipping troubles and the failure of equipment forced an extended outage at its Malaysian refinery.
Lynas said it booked sales receipts of $460.8m for the full financial year, down more than 43 per cent on the previous year after the savage price retreat for rare earth oxides in the face of slower than expected demand for electric vehicles and other products that use rare earth metals in high-intensity magnets.
Lynas chief executive Amanda Lacaze told analysts on Tuesday the company was keeping a close watch on inventory levels at Chinese manufacturers, but it did not expect to ramp up production to expanded levels of 10,500 tonnes of NdPr oxides until the market showed stronger signs of a recovery.
“There has been some destocking and as we see more of that occur, we will make decisions about how we dial up or dial down our production,” she said.
“Really we are managing all of our activities at present to ensure that we maximise margins and profitability in what continues to be a very challenging market.”
Spot prices for NdPr averaged about $US46 a kilogram in the June quarter, Lynas said, despite signs of a slight demand recovery in China.
Lynas does not disclose prices received for specific products, but said it received an average $A42.3 a kilogram across its basket of products for the quarter, down slightly on the $43.80 a kilogram in the March period.
But the pricing troubles for producers have not stopped Arafura from staking its claim to become Australia’s third major producer of rare earth products, with the company announcing it had closed negotiations for $US775m in senior debt funding from export credit agencies and commercial lenders.
That takes Arafura’s total lending facilities to more than $US1bn, including funds on offer from the federal government’s Northern Australia Infrastructure Facility and Export Finance Australia.
The company now needs to close equity packages worth almost $US793m to complete the funding arrangements for its Nolans rare earth project in Northern Territory.
Arafura is only capitalised at $439m on the Australian market, but managing director Darryl Cuzzubo told investors on Tuesday he was confident of support for the project, however, saying that negotiations with would-be offtake partners for the project have already begun over investments into the company and its project.
The company, which is 10 per cent owned by Mrs Rinehart’s Hancock Prospecting, has also begun talks with other major investors in the sector, he said, ahead of a move to launch an equity raising on the ASX for institutional and retail shareholders.
Mr Cuzzubo said the current dire state of rare earth pricing only underlines the case for Arafura’s project, which the company is forecasting will fall in the bottom quarter of the cost curve when built.
In addition to 4500 tonnes of NdPr oxide a year, and smaller quantities of heavy rare earth oxides, Nolans will also produce about 145,000 tonnes a year of phosphoric acid – a key ingredient in the manufacture of lithium ion phosphate batteries for electric vehicles, as well as in superphosphate fertilisers, livestock feeds and soaps, waxes, polishes and detergents.
While Arafura tips sales of the acid to generate about 11 per cent of the company’s revenue at Nolans, the byproduct credits will bring its average rare earth production costs to close to that of Chinese producers, the company said.
Mr Cuzzubo told investors the company hoped to be able to secure the required equity funding by the end of the year, allowing it to enter the rare earth market by 2028 – when rare earth demand and pricing is predicted to be far stronger than it is this year.
The Arafura boss said even many Chinese rare earth producers were losing money at current prices, and he expected Arafura to join the market as a key non-Chinese producer at a point when demand for non-Chinese sources of supply was growing rapidly.
Arafura shares were up 0.2c to 19.2c at 1530, with Lynas down 6c to $5.99.
