US Defense Law has market eyeing key raw material sources in Australia
Rare Earths are a collection of seventeen chemical elements. Two of the rare earths, neodymium and praseodymium, are the key raw materials in ultra-strong permanent magnets, which are essential to the electronics, technology and automotive industries. Arafura Resources Ltd. (ASX: ARU) is a company with a world class neodymium-praseodymium (NdPr) resource in the Northern Territory of Australia.
China currently accounts for more than 90% of the global supply of rare earths and they are relatively unchallenged in the market. That is until last week when a new US Defense law was passed now preventing the purchase of rare earth magnets from China. Some 90% of rare earths consumed by the US military are produced by China. World demand continues to grow and a shortfall of rare earths is predicted by 2020. This shortfall could come sooner after the US law was passed. Arafura is focused on producing a high purity NdPr oxide product for use by advanced magnet and magnet alloy customers, as its flagship product, at their Nolans project.
Arafura Resources intend, in the next few years, to become a long-term secure supplier of neodymium and praseodymium (NdPr) from their 100%-owned Nolans project. The project site is located 135 kilometers north along the Stuart Highway from the town of Alice Springs in the Northern Territory of Australia, and is expected to have a 30 year mine life. Arafura’s mineral tenure over the project site is secured by three granted exploration licenses (ELs). The project’s cornerstone asset is the Nolans Bore rare earths-phosphate deposit, one of the largest and most intensively explored deposits of its kind in the world. The deposit contains a compliant Mineral Resource of 56 million tonnes at an average grade of 2.6% total rare earth oxides (TREO) that extends to 215 meters below the surface. Two-thirds of the contained rare earths are in high confidence Measured and Indicated resources. Nolans could supply up to 10% of the world’s demand of neodymium and praseodymium when in full production (expected ~2020). The 2014 Feasibility Study resulted in an NPV of A$2 billion on an after tax basis at a 10% discount rate, an IRR of 21.4% on an after tax basis, an estimated OpEx of US$6.23/kg TREO, and a Cap Ex of US$ 680 m. NdPr accounts for 26.4% of Nolans rare earths composition by volume and 85% by value.
Arafura’s Exploration projects
The Aileron-Reynolds project north-west of Alice Springs represents Arafura’s key exploration focus in the Northern Territory. The project comprises eight exploration licenses (ELs) and covers an area of approximately 1,800 km 2. The primary emphasis of Arafura’s exploration at Aileron-Reynolds is on NdPr opportunities that are likely to deliver additional mill feed for the Nolans operation, or complement the development of the project.
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Arafura’s interests at Jervois covers about 280 km 2. The base and precious metals exploration and development rights are the subject of a joint venture between Rox Resources (51% and operator) and Arafura (49%). Arafura retains sole ownership of all other mineral rights on the tenement.
Arafura Resources Ltd. is headquartered in Perth, Australia; and has a market cap of AU$ 60 m.
The latest ban by the US Defense Department must have many rare earth mine projects feeling excited. Who is now going to replace the US military’s 90% shortfall in the supply they were importing from China? Nolans is one of the world’s largest and more advanced NdPr projects which could provide investors with a compelling investment in Arafura Resources.
Matthew Bohlsen holds a Graduate Diploma in Applied Finance and Investment (similar to CFA), and a Graduate Diploma in Financial Planning. He has 30 years ... <Read more about Matthew Bohlsen>