The Arafura ‘magnet advantage’ and the worldwide demand for these rare earths
July 9, 2014 — Tracy Weslosky, Editor-in-Chief and Publisher of InvestorIntel speaks to Gavin Lockyer, Managing Director at Arafura Resources (‘Arafura’, ASX: ARU) about some of the highlights from the Guangzhou Rare Earths Conference as well as Arafura’s achievements this year. Gavin said the Conference, which was held in the final week of June, was “well attended by 95% of the market, which are the Chinese producers and the insight I gained from that was the optimism, they were showing in the rare earths space, which is very encouraging.” Perhaps, most interesting is Gavin’s observation that “they are certainly keen to see other non-Chinese producers up and running”. Indeed, they are encouraged by this development because it helps to ease some of the pressure they are facing from the market. Gavin is encouraged by the interest in magnets and the magnet industry and “the growth that they’re all predicting.” Arafura’s numbers, adds Gavin, are all based on a 10% year on year growth rate in the magnet sector.
Tracy suggests that magnets are generating increasing demand worldwide, which means that the mining companies producing the rare earth elements used to make the magnets are going to offer good value to shareholders. Gavin confirms that the Chinese magnet producers, attending the Conference, showed a lot of interest in Arafura’s Nolans Project, which is not surprising given its (20%) neodymium and (6%) praseodymium content, which are the two main materials used to make rare earth magnets. Gavin says that some 26% of Arafura’s resources are targeting the lucrative and growing magnet market. Such a market for Arafura includes China, which, given its current dominant position in the rare earths and magnet sectors, is a very welcome and surprising prospect. Meanwhile, Arafura is set to complete the crucial benchmarks leading to production. The first in the pipeline is the Feasibility Study, which should be ready in September 2015 “if not sooner’, says Gavin. Chinese partners have been helping Arafura to find ways to optimize the flow sheet in order to speed up the process leading to production.
Arafura is unique in the rare earths sector. Gavin points out that Arafura’s uniqueness stems from the composition of its resource, which as stated above, features 26% magnet feed materials (at the very top end of rare earth development projects anywhere in the world), accounting by themselves “about 77% or thereabouts of our total revenues and we would like to position ourselves in the marketplace as the next magnet producer.” These revenues, and indeed Arafura’s recent financial evaluation of Nolans (NPV $2 billion, IRR 21%), are based on a very conservative forward pricing model by the company that assigns zero growth to the current prices of all the rare earths, with the exception of the magnet feed rare earths neodymium and praseodymium. As for the next six months, Arafura is getting ready to issue a ‘development update document’ (not to be confused with feasibility study), which will further explain recent changes to the project as well as the projected CAPEX and OPEX, which make Nolans a very competitive project even in the face of Chinese producers, “which according to our Intel, probably puts us right in the middle of the cost curve in terms of producers inside and outside of China.”
Disclaimer: Arafura is an advertorial member of InvestorIntel.
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Adrian Nixon is a Senior Editor at InvestorIntel. He began his career as a scientist and is a Chartered Chemist and Member of the Royal ... <Read more about Adrian Nixon>