Magnet rare earths demand is growing at just the right time for Arafura
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Special Report: The prospects are looking good for non-Chinese magnet-focused rare earth developers such as Arafura thanks to growing demand for EVs.
It is darkest before the dawn and that is certainly what equity research firm Stormcrow Capital believes is true of the rare earths market.
It noted that prices for rare earth oxides (REO) today were worse for the companies making them than they were in 2010, particularly for the more common ones such as lanthanum and cerium.
However, rising demand for new electric vehicles (EVs) are likely to benefit projects that have significant REOs such as neodymium (Nd) and praseodymium (Pr).
Stormcrow noted that while worldwide sales of new EVs slipped in 2019 compared to 2018, this sort of pause was precisely what should be anticipated as adoption of a new product occurs.
It pointed to examples like the replacement of black and white televisions by their colour counterparts and smartphones displacing simpler mobile phones.
In most cases, the new technology brought a clear advantage in performance over its predecessor but was burdened by a higher cost.
While mass adoption of EVs is likely to take longer than most others are anticipating, Stormcrow noted that the magnet sector still grew at a compound annual growth rate (CAGR) of 19 per cent in 2019 and forecast that it would grow at a CAGR of 11 per cent to 2025.
It added that by 2025, the demand for magnet REOs such NdPr would grow to the point that new sources of rare earths would be required beyond existing production.
This would likely push Nd and Pr prices substantially higher to US$77.50 and US$94.50 per kilogram respectively.
The news is certain to be welcomed by rare earths players, like Arafura Resources (ASX:ARU), whose project boasts a significant percentage of NdPr.
NdPr makes up 26.4 per cent of the total rare earths content of the company’s Nolans project in the Northern Territory but is expected to produce 85 per cent of the project’s revenues.
Nolans has an economic reserve of 19.2 million tonnes at 3 per cent total rare earths and is expected to produce 4,357 tonnes of NdPr oxide per annum for a minimum of 23 years.
In a definitive feasibility study that was released in February 2019, Arafura pegged Nolans as a very low-cost producer, with operating costs of just $US25.94 ($36.85) per kilogram of its cornerstone NdPr oxide product.
This also placed the project’s earnings before interest, taxes, depreciation and amortization (EBITDA) at $377 million per annum.
EBITDA is used to estimate the profitability of a proposed mining operation. The higher the number, the more profitable it is.
Just last week, Arafura’s pilot operations demonstrated its ability to produce value-added high-purity rare earth products from the Nolans project.
This capability is the exception rather than the rule amongst rare earth development companies.
The company successfully produced a refined liquor in which NdPr makes up more than 99.9 per cent of its contained rare earth elements (REE) and a separate refined liquor where mixed middle-heavy rare earths (SEG-HRE) comprises more than 99.5 per cent of the REE content.
These liquors are being processed to prepare final products – NdPr oxide and SEG-HRE carbonate – for assessment by potential customers in Arafura’s target jurisdictions which include Japan, China and the US.