Special Report: Arafura could benefit from the growing deployment of new EV models that is driven in part by the EU’s tough CO2 emissions targets.
The European Union’s mandatory CO2 emissions targets in 2020 and the harsh fines associated with them are playing a key role in pushing European automakers to launch a new fleet of electric vehicle (EV) models.
Under the regulations, at least 95 per cent of new passenger vehicles manufactured in 2020 are required to produce emissions of not more than 95 grams per kilometre (g/km) of CO2. This will increase to 100 per cent compliance next year.
Failure to do so will draw a penalty of €95 ($154) for each g/km exceeded.
Given that the European Environment Agency has estimated average CO2 emissions from new passenger cars registered in 2018 at 120.4g/km, it is not surprising that PA Consulting Group predicts European car manufacturers could face fines of up to €14.5bn.
The emissions regulation and the incentives given for zero and low-emission cars have combined to drive European car manufacturers to deploy more EVs of various types (hybrid, plug-in hybrid and battery).
Read: EV growth set to get out of first gear this decade and drive battery metals demand forward
This growth in EV deployment and adoption will also drive demand for critical minerals such as neodymium and praseodymium (NdPr), which are used for the manufacture of ultra-strong rare earth permanent magnets that are essential components of electric motors.
Higher NdPr demand will be music to Arafura Resources’ (ASX:ARU) ears.
NdPr makes up a little more than a quarter 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, which has an economic reserve of 19.2 million tonnes at 3 per cent total rare earths, is expected to produce 4,357 tonnes of NdPr oxide per annum and has robust economics with a net present value (NPV) of $729m and internal rate of return (IRR) of 17.43 per cent.
The higher the IRR and NPV, the more profitable the proposed mining operation is estimated to be.
Arafura already has two non-binding agreements with Chinese magnet manufacturers Tianhe Magnetics and JingCi Material Science for the potential offtake of NdPr oxide from the project.
Earlier this month, it expanded its relationship with Talaxis, a wholly owned subsidiary of major Hong-Kong based commodities trader Noble Group, to drive development of the Nolans project.
Talaxis will help introduce potential strategic partners to finance development of the project and target key markets and counterparties for the company’s product mix.
It is a key supporter of critical minerals supply chains and sees its investment in Arafura as strengthening its commitment to decarbonisation and sustainability.
> Now read: Australia reckons it can become an ‘international powerhouse’ in critical minerals