Arafura to cut 1 billion in CAPEX Costs at its Nolans Project
Arafura Resources (ASX: ARU) is one of Australia’s fastest-growing rare earths developers having achieved exploration processes and fruitful partnerships to ensure long term growth. Indeed, Chris Tonkin, Arafura’s CEO and Director, on the occasion of the Technology Metals Summit (#TMS2013) in Toronto, announced before an audience of industry peers, analysts and consultants that Arafura does not need to raise or borrow funds to continue expanding its Nolans Rare Earths project, it has also managed to halve its projected CAPEX cost from about AUD$ 2 billion to AUD$ 1 billion. As Tonkin put it, “Arafura will not go into the night”. This is a significant achievement particularly in view of the fact that Australian infrastructure costs have increased substantially in the past few years – especially energy and construction. Arafura has taken on the rising costs by focusing on becoming more efficient. The centerpiece of the cost reduction plan is to move the site of the planned processing plant in Wyhalla, South Australia to northern Australia, much closer to the site of the mine.
This was no small decision. Arafura had chosen Whyalla, originally, because of the jurisdiction’s welcoming attitude and recognition from the state government of South Australia. Nevertheless, the combination of rising costs and lower rare earth prices prompted Arafura to take action to ensure long term success, revising the Nolans project’s configuration; namely, addressing the rapidly growing risks owing to rising transportation and logistics costs.
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The Nolans Bore probable ore reserves total 24 million tons grading 2.8% REO (672,000 tons of contained REO), along with 2.97 million tons of phosphorus oxide and 4,900 tons of uranium oxide. According to Arafura, these reserves can be mined using open-pit methods that help improve on overall costs and have an estimated lifespan of 22 years, using a maximum beneficiation turnout of 1.1 million tons per annum. Additional positives can be found in the fact that 21 million tons of the Nolans Bore inferred resources can be converted to ore reserves. Further drilling will be required for confirmation but Arafura’s 95% resource-to-reserve conversion rate marks a significant achievement, with Nolans Bore as one of the world’s only rare earths projects that has established an ore reserve.
In January, Arafura announced that it had added Lanthanum Oxide to its rare earths product portfolio, along with cerium oxide, didymium oxide, SEG (Sm+Eu+Gd) oxide and HREE oxide (including terbium and dysprosium). Having secured obtained concrete financial and geological assets, Arafura is set on its course to production and to becoming one of the main REE products suppliers in the world including significant quantities of heavy rare earths. All of these factors help validate the advanced stage of the Nolans Project and bring it one step closer toward commercialization.
This announcement adds to a long run of favorable developments for Arafura. Last October, the company received a AUD$ 22.5 million tax refund for research and development spending from the Australia Government, and, more recently, final approval from the Foreign Direct Investment Bureau for its East China Mineral Exploration shareholder investment purchase (valued at AUD$ 9.9 million). The East China Mineral Exploration strategic equity holding of 24.86% in Arafura is representative of an ongoing commitment through financial and strategic support. Such support has allowed Arafura to avoid having to dilute the share price while continuing to work on its own innovative rare earth extraction process.
Arafura has signed a letter of intent with important end users such as the major steel and industrial group ThyssenKrupp. Germany is still a very important manufacturing hub and there are a number of small to medium size firms involved in the development of miniaturization technologies and other applications for which rare earths are essential. It is clear that Arafura is committed to limiting shareholder dilution and deliver stable returns over the long term.