Arafura Resources pursues funding and offtake opportunities for Nolans NdPr Project

Arafura Resources Limited (ASX:ARU) is focused on advancing offtake agreements and financing for its Nolans neodymium-praseodymium (NdPr) project in the Northern Territory. In March Arafura upgraded reserves and mine life of the project, increasing ore reserves 54% to 29.5 million tonnes at 2.9% total rare earth oxides (TREO), 13% phosphorus pentoxide (P2O5) and 26.4% neodymium and praseodymium (NdPr) enrichment. The increase supports 33 years of production – an increase of 10 years on the definitive feasibility study (DFS) base case. While the company is prioritising project workstreams against cash conservation priorities in light of COVID-19, the pre-front end engineering and design (pre-FEED) activities are expected to be completed in the near term in preparation for the early contractor involvement (ECI) phase of project delivery. Offtake arrangements Simultaneously, the company is working towards sample product for customers and advancing term sheets with end-users for offtake. In March, Arafura entered a non-binding MoU with a Chinese downstream rare earth metal processor in relation to the conversion of NdPr oxide from Nolans to NdPr metal at its metal conversion operations in Thailand and Vietnam. The company is working towards negotiating and executing a formal toll conversion agreement with this supply chain partner in direct response to requests by European end-users for the delivery of NdPr metal via a non-Chinese supply chain. Arafura also has non-binding rare earth product offtake arrangements in place with several parties in Japan, Europe, South Korea, the USA and China, and for phosphoric acid product with parties in India. During April, the company discussed the delivery samples of the high purity NdPr oxide product from the rare earth separation pilot plant to existing Chinese magnet manufacturing partners JingCi Material Science and Baotou Tianhe Magnetics, as well as a Japanese magnet manufacturer, for pre-qualification and verification. Breaking the Chinese monopoly China exerts control over most of the global rare earth supply chain, which poses a threat in the denial of capital for new developments. Australia has been active in its policy response, establishing the Critical Minerals Strategy and Facilitation Office, expanding the Government’s Export Finance Australia (EFA) mandate via the Defence Export Facility, and promoting the Northern Australia Infrastructure Facility (NAIF)/EFA co-investment options. The Nolans Project is expected to supply around 5-10% of global demand for NdPr oxide and Arafura is confident that Australia and its strategic allies are taking steps to break the Chinese monopoly on rare earths, with multilateral engagement intensifying with Japan, EU member states and the USA. Arafura is focused on continued dialogue with Australian and other governments seeking to establish non-Chinese critical minerals supply chains and enable mine to motor supply chain solutions. Reliable supply chain Nolans is the only neodymium-praseodymium focused project in Australia with environmental approval for mining, extraction and separation, including for radioactive and other waste management from all processes and will provide customers a long-term reliable and sustainable supply from outside of China. The added benefits of a diversification in NdPr supply source include better traceability, supply certainty and more transparent pricing. Arafura is focused on engaging NdPr users who are not aligned with the ‘Made in China 2025 strategy’, including Japanese neodymium (NdFeB) magnet manufacturers, European and Korean automotive component makers, OEMs and wind turbine makers as well as US customers. Project funding strategy Arafura is looking to secure US$726 million to meet CAPEX requirements for the Nolans Project with potential sources of funding including equity, debt, JV and/or project selldown with a strategic investor. The project has already been identified as a key critical minerals project for potential financing support through the EFA and NAIF. 2020 focus The company has four key focus areas for the remainder of the year, including: Prioritising project workstreams against cash conservation priorities in light of COVID-19 and uncertain recovery of capital markets; Provision of sample product & advancing terms sheets with end-users for offtake; Escalate engagement with financiers and financial advisors for project financing; and Continued dialogue with Australian and other governments seeking to establish non-Chinese critical minerals supply chains.