EDITOR: | August 22nd, 2018 | 5 Comments

US Defense Law has market eyeing key raw material sources in Australia

| August 22, 2018 | 5 Comments
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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.

President Trump signing the ban

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.

Nolans project located in the Northern Territory

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.

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

Editor:

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>


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Comments

  • asrms

    “Who is now going to replace the US military’s 90% shortfall in the supply they were importing from China?” —- That is THE question for investors. Lynas is already there re., selling out its entire production capacity but that only accounts for the majority of Japanese NdPR present needs. Not only do American military needs now apparently have to be met, but also the rapidly increasing green revolution (electric cars are one part supposedly with a tipping point around 2020). So will it be Arafura, Alkane, Northern, Ucore, Commerce, Peak, Greenland, Avalon, Mkango or Rainbow and Medallion (who look to sell raw material), etc. etc? Obviously, a combination of these. Lot of hype now emerging on many of these companies but only a handful will arrive/survive and those will depend on offtake agreements for financing or some kind of strategic alliance like Lynas built with Japanese financiers all those seemingly years ago. This is what makes REE investing so interesting.

    August 24, 2018 - 10:05 AM

  • Matthew Bohlsen

    Excellent comment. Agree.

    August 24, 2018 - 10:33 AM

  • Sasarindo

    Great article. Do you know what page in the US Defense Law that specifically states that the US is prohibited from purchasing rare earth metals from China? It’s a 620-page report and it took me half an hour just to read through the table of contents. I must’ve missed it because I can’t find it. Also, following the passage of this law in the US, are there any near-term catalysts coming up for ARU?

    September 3, 2018 - 8:03 AM

  • james Fine

    Why would Lynas not be the US solution now and in the future?

    September 12, 2018 - 10:46 AM

    • Tracy Weslosky

      James – nice to see you commenting again. The fact is that there is only 1 LYNAS, and they must divvy their love between Japan and China and well, Malaysia….and with the French in the game: don’t think Amanda can handle the U.S.A. too —-. Its my understanding (correct me if I am wrong) that the Japanese helped LYNAS deal with some pretty challenging financial debt, and well, I am assuming that they will want the commitment for REEs to be heading their way. Now, of course the Japanese are the gateway to the U.S.A. for many of the technology products….so whom I would love an interview with on this matter is Mark Smith. Thanks for the catalyst for me to call Mark and Jim.

      September 14, 2018 - 11:39 AM

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