Arafura announces major progress in de-risking Nolans Project’s path to production
Arafura Resources (‘Arafura’, ASX: ARU) is one of Australia’s fastest-growing rare earths developers. It has achieved exploration successes, concluding fruitful partnerships to ensure long term growth at the Nolans Rare Earths Project. The Nolans Rare Earths Project presents a world-class rare earths resource grading 2.6% rare earth oxides (“REO”) with measured and indicated resources able to sustain at least a 25 year mine life according to Arafura’s recently published ‘Nolans Development Report’ (NDR), highlighting the advanced stage of the Nolans Project. The Document’ (not to be confused with feasibility Study) explains recent changes to the process and flow-sheet as well as the projected CAPEX and OPEX, which make Nolans a very competitive project even in the face of Chinese producers, which places Arafura’s Nolans Project in the middle of the cost curve in terms of producers inside and outside of China. The NDR has confirmed that Nolans presents some of the highest neodymium (“Nd”) content of any rare earths resource currently being considered for development anywhere in the world.
Chinese magnet producers are very interested in Arafura’s Nolan Project, which is not surprising given its (20%) neodymium and praseodymium content (Nd and Pr separately or NdPr Oxide), two of the main materials used to make magnets. Given China’s dominant position in the rare earths sector, is a very welcome and surprising prospect. Arafura’s uniqueness stems from the composition of its resource, which as stated above, features 25-26% magnet feed materials, accounting by themselves to some 70-77% of its potential revenues. Arafura may well position itself as a major magnet producer in its own right. The growth in demand growth for NdPr Oxide is expected to lead to supply shortages in the next decade, prompting a faster price appreciation than other rare earths.
One of the most important aspects of the report addresses the extent to which Arafura has worked with Chinese experts to accelerate the path to production and de-risk the Project. Arafura The East China Mineral Exploration and Development Bureau (ECE) has helped Arafura achieve project optimization thanks to a careful and review of capital and operating costs, which will maximize the savings achieved thanks to an ambitious cost cutting plan. ECE holds a strategic equity holding of 24.86% in Arafura, enabling Arafura to avoid having to dilute the share price while continuing to work on its own innovative rare earth extraction process. Arafura’s report says that much of the work for the Nolans Project’s Definitive Feasibility Study (“DFS”) has been completed thanks to ECE’s cooperation, which will continue until the final version, expected to be ready in the second half of 2015. The Nolans Project could launch production in early 2019, provided Arafura secures other offtake agreements in order to fulfill all project funding needs. The Company will likely seek a development partner to be announced over the next 18-24 months, noting that the NDR will serve as a marketing document to achieve these goals.
There have been some concerns over the status of Australian-Chinese relations and their potential deterioration. While, military and international diplomatic cooperation has suffered over Prime Minister Tony Abbott’s stance against China’s ally Russia, economic cooperation is actually flourishing. Australia appears ready to sign a free trade agreement with China, a deal expected to be signed before the end of 2014 according to news reports. There is speculation that the deal could be finalized during the G20 meeting in Brisbane in November, even as Prime Minister Tony Abbott and Chinese President Xi Jinping are expected to meet earlier at the Forum of Asia-Pacific Economic Cooperation in Beijing. Xi, himself, will address the Australian Parliament during his G20 visit. “The Australian” reports that after nearly a decade of negotiations, there is sufficient political will on both sides to finally conclude a free trade agreement even if the final stages of any trade negotiation are always the hardest. Australia is keen to conclude the deal as any hesitation would play into the hands of Australia’s main competitor, New Zealand over agricultural products and services. China wants an improved investment access and tariff reductions on household items such as electronics. China also wants access to Australia’s vast mineral resources. The economic stakes are such that neither China nor Australia will let international differences spoil important trade and economic ties.