Two-pronged strategy positions rare earth ‘power player’ Arafura for significant financing and offtake agreement opportunities
December 18 , 2013 — Tracy Weslosky, Publisher and Editor-in-Chief of InvestorIntel interviews Gavin Lockyer, Managing Director for Arafura Resources, Ltd, whom Tracy describes as “one of the leading power players in the rare earth industry”.
Arafura Resources (ASX: ARU), is an Australian company with a world-class Rare Earths project – the Nolans Project – located in Australia’s Northern Territory. Probable Reserves are listed at 672,000 tonnes of TREO – projected to support a 22 year mine life; potential to extend the life of mine is provided by Inferred Resources that total 511,000 tonnes of TREO. The Nolans Project is one of the world’s most advanced rare earths development projects, with a Base Case established and a Feasibility Study in progress. Management believes this project has the potential to supply 10% of the world’s rare earth demand. Construction is anticipated to commence during the 2015-16 timeframe.
Tracy asked Gavin to share some of the highlights from the company’s recent AGM (annual general meeting). Some of the biggest news at the meeting was the announcement of significantly-reduced CAPEX by the relocation of Intermediate Chemical Processing and Rare Earths Separation, as well as anticipated, significant CAPEX/OPEX savings brought about by removal of the hydrochloric acid pre-leach from the planned construction process.
To date, indicative savings of over A$400m in CAPEX (down to A$1,500m) and A$3.45/kg of TREO in OPEX (down to A$17.10/kg) have been realised by these configuration and process changes.
Next on tap, Tracy wanted Gavin to share with InvestorIntel readers Arafura’s 2014-15 planning efforts and the potential for additional cost reductions.
He replied that Arafura’s planning was “a two-pronged attack, with our commercial team focused on off-take, and securing/cementing those arrangements with potential customers, which of course comes alongside some kind of financing arrangement” on which the Company’s strategic partners are working with sovereign banks and/or debt providers to assist in the Company’s implementing of its strategic plans.
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Gavin continued that “The other prong to that attack is around our own technology breakthroughs,” by combining in-house simplification and streamlining, “and also through our Chinese partner, we are engaging with actual rare earth experts within China, to review our flow sheet and to try and drive our CAPEX and OPEX down much quicker than we have currently achieved.”
Tracy noted that “one of the hottest topics on the street this week” is the issue of how to acquire financing, noting that it looks as though Arafura has successfully done this, and in the process “has brought in some very powerful strategic partners.”
She wonders why Arafura felt they had a competitive advantage in this success. Gavin attributes as an important factor, “the good relationship Arafura has with its major shareholder, ECE (East China Mineral Exploration & Development Bureau), a state-owned enterprise based in Nanjing. They have introduced us to a range of people within China, in particular Shenghe Resources – a Shanghai-listed entity – who currently has around 4-5% of the Chinese quota.”
He describes Shenghe as an existing business, “who is well familiar with the whole rare earth food chain from mine site, all the way through to end customer”, a relationship Arafura hopes to build upon over the next 6-12 months.
In order to sketch the total picture in regards to Arafura’s activities, Tracy asks Gavin to give readers and listeners an overview of work at their flagship project at Nolans Bore.
“We’re one of the very few organizations outside of China which has a major Ore Reserve (Probable Reserves listed at 672,000 tonnes of TREO –see more here ), that effectively provides us with a 22 year life of mine (LOM)…” Having this length of production capability is especially important to end users having long-term growth projections for sales of their hybrid vehicle fleets, because need assurance of supply continuity. Management believes there will be a 10% growth per annum in that market.
Australia has minimal sovereign risk, with ideal geographic positioning to access key growth markets.
Disclaimer: Arafura Resources, Ltd. is an advertorial member of InvestorIntel.
An accomplished entrepreneur and corporate finance professional, Tracy Weslosky is the CEO for InvestorIntel Corp. and the VP of Business Development for Bellotti Capital Partners ... <Read more about Tracy Weslosky>