Arafura’s Nolans optimisation to reduce risk, improve offtake and financing
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Arafura continues to optimise its Nolans rare earths project and its execution strategy in parallel with offtake and project funding activities.
The company stated in an announcement to the ASX on Wednesday that feedback from contracting, offtake and financing partners along with the increasingly positive outlook for neodymium-praseodymium (NdPr) pricing and traction being gained in offtake discussions has led it to modify the execution strategy, changing to a traditional detailed front-end engineering and design (FEED) model.
Under the new strategy, contracts for the engineering and procurement will be split from construction while detailed FEED will be completed by the engineering contractor to about 60-70 per cent of design completion prior to tendering of construction.
Arafura (ASX:ARU) added that the engineering contract will be carried on rates to a target cost and that tendering of other contracts will be undertaken in parallel with FEED.
The new strategy is expected to result in a more competitive tendering process and reduce contingency and risk while delivering a higher level of cost certainty that is expected to improve the confidence of potential project financiers.
This change is expected to increase the project delivery schedule by about eight months and result in some project expenditure incurred prior to a final investment decision (FID).
However, it will also enable the company to advance offtake and financing discussions by reducing execution risk and allowing for construction tenders to be received prior to FID.
“The Nolans Project is shovel-ready and we are continuing to look at ways to optimise its delivery whilst the required funding is put in place,” managing director Gavin Lockyer said.
“Arafura’s ore to oxide model is a differentiator from other companies that are only proposing to produce concentrates or intermediate products for processing elsewhere, and the feedback we’ve received from both customers and financiers indicates strong support for that approach and for the shift to the more traditional FEED model for the project.”
As part of the optimisation review, the company has also decided to defer the production of cerium from the Nolans product mix until after commissioning of the processing plant is complete and production has ramped up to full capacity.
It noted that cerium production had limited value to the project due to low current spot prices along with uncertainty over potential future oversupply, which places further downward pressure on cerium prices.
Deferring cerium production will allow Arafura to focus on the production of on-specification NdPr oxide, which is higher value and represents 95 per cent of project revenue.
However, the cerium hydroxide processing circuit will still be included in the initial development of the Nolans plant as it improves the recovery of NdPr.
Arafura is working on a project update with revised capital and operating expenditure estimates based on its new strategy as well as the updated ore reserve and mining inventory.
This article was developed in collaboration with Arafura Resources, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.