Study shows Arafura has a long-life, low-cost rare earths project on its hands
Special Report: Arafura Resources’ Nolans project in the Northern Territory has proven just how competitive it will be with impressive economics emerging from the definitive feasibility study (DFS).
Nolans, a 90-minute drive north of Alice Springs, is set to be a very low-cost producer at just $US25.94 ($36.85) per kg of its cornerstone neodymium-praseodymium (NdPr) oxide product.
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 a net present value (NPV) of $729m and internal rate of return (IRR) of 17.43 per cent.
IRR and NPV are used to estimate the profitability of a potential operation. The higher the number, the more profitable it is.
Investors were pleased with the results, driving the share price up nearly 11 per cent to an intra-day high of 5.1c.
The Nolans project is highly leveraged to the NdPr price, with every $US5 per kg increase in NdPr oxide price adding another $130m to the NPV.
And the good news is that NdPr prices are set to rise due to the rapidly expanding clean energy, electric vehicle (EV) and robotics sectors.
NdPr is used in high-strength permanent magnets, an important part of hybrid and EV traction motors.
Demand for NdPr is forecast to outstrip supply within the next five years — possibly as early as 2020, according to Adamas Intelligence.
Last year China produced around 80 per cent of global NdPr supply and is estimated to account for 85 per cent of consumption.
But as a result of the Asian behemoth’s growing domestic needs, it is forecast to become a net importer of NdPr by 2022.
Arafura is one of only a few potential new suppliers currently in a position to meet this expected shortfall.
The Nolans project is expected to deliver Arafura EBITDA, or earnings before interest tax, depreciation and amortisation, of $377m each year.
And it is set to do that for at least 23 years based on current reserves, but it could be even longer with the potential to extend production to beyond 45 years.
Managing Director Gavin Lockyer said the results of the study highlight Nolans’ status as the next potential scale producer of NdPr outside China.
“The DFS confirms Nolans as an ultra-low-cost producer sitting in the industry’s lowest cost quartile,” he said.
“We are particularly pleased to note that forecast average annual production of NdPr of 4357 tonnes is 21 per cent higher than previously expected, positioning Nolans as the world’s most significant long-term NdPr development project in a premier mining jurisdiction.”
The cost to build the project is pegged at $US726m and Arafura expects to have that paid off within the first five years.
As part of the DFS, Arafura had been contemplating locating part of the project’s process plant overseas, but in early November the company announced that all processing would take place at the Nolans site.
Despite there being a higher cost associated with having its entire operation in Australia, Arafura sees the trade-off being regulatory and business certainty.
With environmental approvals already in hand, the company will now focus on the next phase of project development including finalising product off-take agreements, completing project financing and commencing construction.
Arafura has already secured two non-binding off-take deals for NdPr and its by-product phosphoric acid (used in the manufacture of agricultural fertilizers) and is currently negotiating additional agreements.
Commissioning of the Nolans project is slated for early to mid-2022.