Arafura Resources steams ahead at Nolans rare earth project with FEED activities set to start

Arafura Resources Ltd (ASX:ARU) is steaming ahead with its Nolans Neodymium and Praseodymium (NdPr) Oxide Project in the Northern Territory with a planned $45 million fundraise to fund front end engineering and design (FEED) activities. The company is targeting the commencement of FEED activities in the second half of 2021. A final investment decision is expected by the second half of 2022, when the NdPr market is poised to enter a deficit, thanks to underinvestment in the rare earth oxides supply chain, while first production is targeted in late 2024.  The Nolans Project is set to be Australia’s first vertically integrated source of separated rare earths oxides and the world’s second-largest scale non-Chinese source of rare earths.  Arafura is targeting for its Nolans Project – a shovel-ready world-class NdPr project - to supply 5-10% of the global demand for NdPr oxide.  The company’s single-site processing provides traceable product and waste management certainty, which is aligned with customers’ environmental, social and governance (ESG) expectations.   NdPr is the key input for high-performance neodymium permanent magnets (NdFeB)  and is central to many clean energy applications including EVs and wind turbines.  Strongly supported placement In July 2021, Arafura Resources completed tranche-1 of a $40 million placement after raising A$21,074,054 before costs to institutional and sophisticated investors. Tranche-2 is subject to shareholder approval. The company issued 175,617,114 new shares as part of its plan to fund FEED activities at its Nolans Project. This two-tranche placement will be followed by a share purchase plan (SPP) to raise up to $5 million. Shovel-ready project ARU managing director Gavin Lockyer said: “The Nolans Project is the only new shovel-ready NdPr oxide project in Australia capable of delivering advanced materials into the critical minerals supply chain. “Nolans has the potential to diversify rare earth supply chains whilst seeding new industry in Australia, one of the world’s safest and most secure jurisdictions.” Nolans development Funds procured through the latest equity raise will support the development of its flagship rare earths asset. The Nolans Project has an estimated 38-year mine life and is described by Arafura as a world-class rare earths play. Nolans has an estimated $1.4 billion net present value, with life of mine cash costs calculated at US$24.76 per kilogram. NdPr demand Demand for NdPr oxide is predicted to spike over the next decade, doubling from 47,000 tonnes in 2020 to 98,000 tonnes in 2030, according to data from researcher CRU. Accelerated demand for the material will likely follow growth in the electric vehicle and renewable energy markets, especially wind turbines, which have a very strong structural demand outlook. The automotive sector is forecast to consume nearly 50% of NdFeB supply. The supply gap is growing at a cumulative annual growth rate (CAGR) of 8% with a 2030 forecast, assuming around 34 million EVs. Market analysts are forecasting a supply gap that represents 109% of global supply today and is in excess of 11 Nolans Projects and NdFeB magnets will move to the best value in use. The emerging supply gap has extra significance for companies not aligned with the China 2025 strategy. China’s import of rare earth ore surged 174% in March 2021 while the average import price rose 23.1%. Chinese inventories are down by around 60% since mid-2020 as EV demand growth continues to accelerate. Offtake strategy The company’s offtake engagement is advanced with end-users seeking supply security with a sustainable NdPr producer. It noted that NdPr oxide prices have increased and inventories have materially tightened since the fourth quarter of 2020, which in turn has increased the momentum with customer engagement. Arafura is in discussions with nine parties for over 120% of planned production and is targeting to secure 85% as binding offtake. Volumes allocated to China may be reduced where offtake is secured in other jurisdictions. With the assistance of European advisors, Arafura continues to advance its rare earth product offtake arrangements with parties in Europe, Japan, South Korea, the USA and China, and for phosphoric acid product with parties in India. The current indicative sales opportunities by jurisdiction are represented below: Global government initiatives Arafura also notes the environmental initiatives of governments around the world. The Australian Government has launched the Resources Technology and Critical Minerals Processing road map which shows how businesses can capitalise on Australia’s access to resources, which will be needed to manufacture many new technologies. Further, most countries are targeting net-zero emissions with the European Union launching initiatives for a low carbon economy. South Korea is to restore production and create downstream processing while Japan is moving quickly along this path. ESG commitment Arafura Resources has also applied for membership of the UN Global Compact and Initiative for Responsible Mining Assurance (IRMA). The company is adopting a series of standards, targets and aspirations, culminating in the release of an up-to-date sustainability report on its Nolans Project. A mineral lease application has been submitted for the future installation of a solar farm to offset gas usage and reduce greenhouse gas emissions as part of the program to align Arafura with the Paris Agreement targeting net zero emissions by 2050. A comprehensive up-to-date sustainability report is being prepared. Managing director Gavin Lockyer said: “This first step represents our commitment to an unending journey of striving to leave the world a better place than before we started.” The Nolans Project is a 'mine to oxide' project located on a single site in a jurisdiction with a strong regulatory framework and where all potential environmental issues are required to be fully investigated, managed and costed into all planning. However, global external governance provides a further layer of oversight across the full range of activities and issues recognised by the company’s customers and international stakeholders. UN Global Compact aims to accelerate and scale the collective global impact of business through its Ten Principles in the areas of human rights, labour, the environment and anti-corruption and to take action on the issues embodied in the 17 UN Sustainable Development Goals (SDGs). As a member of the UN Global Compact, the company would be required to complete detailed reporting against the governing principles and UN SDGs. Arafura is committed to the ongoing development and operation of Nolans with the aim of achieving net-zero carbon emissions by 2050. As part of this commitment, Arafura has completed an independent greenhouse gas emissions audit of the proposed operation and is working with external consultants to develop greenhouse gas emission reduction strategies and goals toward reaching net zero by 2050. An important first step in this carbon reduction journey has been made through the application for an ancillary mineral lease (MLA 32722) close to the process plant site for the construction of a substantial solar farm to offset power production from natural gas. Further planning and design of this green power facility, and other similar measures, will be outlined in the greenhouse gas emissions reduction study that is currently underway. This study will also set interim targets on Arafura’s journey toward net-zero carbon emissions. Working with Futureproof Consulting, a specialist sustainability consultant, the Company is currently in the process of developing an up-to-date sustainability report. This comprehensive report will provide detailed communication on material ESG issues identified above along with considered actions plans, targets and aspirations across short, medium and long-term timeframes.