Stars are aligning for Arafura with growing interest in rare earths
Special Report: Corporate and investor interest is starting to pick up in the rare earths sector at just the right time for emerging producer Arafura Resources.
One of the most noteworthy events of late is Wesfarmers’ out-of-the-blue $1.5 billion takeover bid for global rare earths heavyweight Lynas Corporation (ASX:LYC).
While Lynas has rejected Wesfarmers’ low-ball bid, it has piqued investor curiosity and prompted speculation there could be rising interest in the rare earths space.
Arafura’s(ASX:ARU) recent release of a definitive feasibility study that positions the company’s Nolans project in the Northern Territory as a low-cost producer has paved the way for the company to step-up its engagement with potential buyers and financiers.
The Nolans project will produce neodymium and praseodymium (NdPr), which are used to make ultra-strong rare earth permanent magnets for micro-motors in the electric components of cars, such as seats, mirrors, wipers, steering and braking.
These magnets are also used in the drivetrain of battery electric and hybrid electric vehicles, and this is the area of strongest forecast growth for the sector.
And the buyer interest is flowing for Arafura, particularly as end-users look to more responsibly source their rare earths.
Arafura said its recent engagement with potential customers at all points in the e-mobility supply chain in Europe, South Korea, China and Japan had been very encouraging.
The company has signed two non-binding offtake MoUs for its three rare earth products to date, which it aims to convert to contracts in the coming months.
Arafura is also making solid progress in marketing its other rare earth products, and its phosphoric acid by-product to fertiliser companies in India.
The World Bank said in 2017 that climate solutions such as solar, wind energy and electric vehicles will require more critical metals like neodymium.
The socially responsible mindset that is driving the uptake of electric vehicles is also driving increased emphasis on ensuring raw materials used in the manufacturing process are ethically sourced.
Right now, most rare earths are sourced from China where there are legacy and ongoing issues associated with unsafe, unethical and polluting work practices.
On top of that Lynas is facing backlash over its radioactive waste managementpractices in Malaysia.
This has prompted Arafura to listen to its future customers and refine its rare earths in Australia, a safe and stable jurisdiction with mature environmental regulations.
Nolans, a 90-minute drive north of Alice Springs, is set to be a very low-cost operator at just $US25.94 ($36.50) per kg of NdPr produced.
That operating cost is some 19 per cent lower than the next lowest non-Chinese NdPr project of comparable size at the same (or later) stage of development.
Nolans will also produce 21 per cent more NdPr than previously expected, with an average annual production of 4357 tonnes over its initial 23-year operational life.
These metrics mean the project will have annual earnings before interest, taxes, depreciation and amortisation (EBITDA) of $377m.
EBITDA provides an insight into the cash generating ability and operational efficiency of a potential operation. The higher the number, the more profitable it is likely to be.