Arafura’s Nolans project set to benefit from rising NdPr prices

Neodymium-praseodymium (NdPr) oxide prices continue to climb on strong demand from magnet manufacturers and low supplies of the rare earths.

To top it off, China’s draft rare earth management rules are expected to tighten controls over production and potentially cut exports while the recent coup in Myanmar, a major rare earths producer, could further impact supplies.

And that is good news for Arafura Resources (ASX:ARU), which owns the shovel-ready Nolans NdPr project in the Northern Territory.

Speaking to Stockhead, managing director Gavin Lockyer said that NdPr prices had ticked up over recent months to about $US71 ($91.73) a kilogram.

“This is fantastic because most analysts say that for a new project to get up and funded requires about $US65 a kg,” he noted.

“We don’t need that because our operating cost is significantly lower than the many other operations but it is good that you’ve got that third-party validation that $US65 is where most people need to be and the markets are currently at $US71.”

Arafura’s definitive feasibility study spelt out some robust economics – like a net present value (NPV) of $968m and internal rate of return (IRR) of 17.97 per cent – at a low operating cost of $US23.71/kg.

NPV and IRR are both measures of a project’s expected profitability.

The company noted in the Nolans DFS that every US$5/kg increase in the NdPr price adds A$130 million to the project’s NPV.

NdPr demand

Demand for NdPr is likely to remain high given the strong demand for magnets with many manufacturers starting to think about building production capacity outside of China to meet demand, improve diversity of supply and assure customers that they are not 100 per cent dependent on Chinese production.

In response to current demand, Lockyer said there were indications that Chinese magnet manufacturers might continue production through the week-long Chinese New Year holiday.

“You’ve got a pinch point happening at the moment where demand is growing, particularly out of Europe, which is very big on e-mobility as part of its COVID recovery, and supply is being squeezed,” he added.

“That’s really good for us because we’d expect that prices for the commodity will continue the way they’ve been traveling.”

Milestone ahead

For now, Arafura is focused on securing financing for Nolans, with negotiations appearing to be moving in the right direction.

The company is hopeful of securing discounted debt through the Northern Australia Infrastructure Facility or Export Finance Australia and believes that would aid in getting other pieces of the funding puzzle in place.

“If we are successful in securing finance from the government, that should act as a bit of a catalyst for us to go to offshore export credit agencies and banks for more debt funding,” Lockyer said.

“That could in turn lead to securing a sales contract that will lead to a significant re-rating in our stock which will then allow us to secure the equity component of our project financing.”

Raising the equity component looks less daunting following the share price run since September, with the stock tripling to 24c and the company’s market capitalisation rising to almost $300 million over that period.

Other work includes keeping the company’s engineering team by working on pre front-end engineering and design on areas that are not likely to change a great deal.

“If we’re successful in securing finance in the first part of this year, we will be looking to maybe start turning dirt in the last part of this year,” Lockyer concluded.

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.