Arafura fills in the economic gaps as it still targets 2016 green light
When you consider what rare earth hopefuls have been through over the past four years, it’s perhaps amazing how many of them are still standing. Take this extract from a piece I wrote on June 13, 2011:
“One US sector expert says some Chinese magnet makers are offering quotes that expire after only 72 hours, although specifying the final price will be set on delivery. And you can see why. Dysprosium was worth $US410/kg in February, $US460/kg in March, $US900/kg in April and about $US1500/kg now. Terbium, which was $US900/kg in April, is now $US3000/kg.”
We don’t to be told how different is the situation today.
Among those still pushing ahead despite all the price plunges, the evaporation of investor interest in the rare earth sector, the struggles of Molycorp and Lynas (and having a rare earths mix not too dissimilar to those two), is Arafura Resources (ASX:ARU). CEO Gavin Lockyer has been out pushing the story, in New York last week, Guangzhou this week. He has made it clear that Arafura’s Nolans project in Australia’s Northern Territory is still economic notwithstanding the sobering realignment of rare earth prices.
We should know a good more within a few weeks. That’s when a comprehensive document, the “Nolans Development Report”, will be released outlining progress to date the project and will outline what still needs to be done to complete feasibility and execute. It should also confirm that there’s a circle around some page of the 2016 calendar for the green light.
In the meantime, the presentation fills in some of the remaining gaps and provides some more details.
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Not relevant to the economics, but interesting nonetheless, is an update on the shareholder spread. Australia remains the biggest share, with 45.1% held in that country. Europe is home to 26% of the shareholder stakes. The Europeans have long been keen investors in Australian mining stories, especially if they involve strategic or technology metals; on the other hand, Americans have not, and North America is home to just 2.5% of Arafura shares. China has 24.9%, but that represents East China Exploration’s stake.
It has been a while since Arafura updated its timeline, but this appears in the latest presentation. Feasibility is to be wrapped up by around September next year, off-take agreements by mid 2016, and permitting six months later. Detailed design will begin next year and wrap in early 2017, but construction will have begun some months before that. The all-important mining and commissioning will get under way in mid-2018. It sure has been a long and winding road, but clearly Arafura is feeling more confident of getting to the end of it.
By that time, too, we should be seeing some significant changes in rare earths pricing. Significantly upwards, is the fervent hope throughout the sector.
While Nolans has a high proportion of the cheaply priced lights (cerium particularly), its rare earths mix includes 20.6% neodymium, 5.93% praseodymium and 2.3% samarium. In terms of those prices, no one can rule out some interesting innovations. After all, eight years ago we had never heard of Twitter. And it is just two years since Toshiba Corp announced it had developed a powerful motor magnet that does not contain the rare earth, dysprosium, but, instead, holds the cheaper samarium. And China does not have a near-monopoly on samarium as it does with the heavy rare earths. (Lynas Corp has a proportion of samarium at Mt Weld similar to that at Nolans.)
Nolans has its resource at surface and is amenable to low-cost open cut mining. According to Arafura, the company’s cost-cutting means Nolans is economic with a net present value of A$2.045 billion and an internal rate of return of 21.4%.
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