Arafura secures A$200M for Nolans rare earths project nearing build decision

Arafura Rare Earths (ASX: ARU) has secured a A$200-million ($180-million) investment from the Australian government’s National Reconstruction Fund Corp. to advance the A$2.8-billion capex Nolans rare earth project in the Northern Territory.

The unsecured convertible notes with a 15-year term include a 40% premium conversion price linked to future equity raises. There is no cash interest required for the first two years. The financing for the project 135 km north of Alice Springs comes in addition to Australia’s A$840 million investment package in Nolans last year and US$1 billion in debt from international lenders. The debt reduces the company’s equity risk and all the funding brings the project closer to a final investment decision expected by June.

The Nolans project has a 38-year mine life. It aims to produce 4,440 tonnes of neodymium-praseodymium oxide each year, according to a 2019 definitive feasibility study. This material is key for electric vehicle motors and wind turbines. Nolans would be Australia’s first ore-to-oxide rare earth facility if it begins production on schedule in 2027. It will position Australia as a non-China supplier in a market where the Asian giant controls 90% of output.

Canaccord Genuity analyst Reg Spencer called the funding a “key de-risking milestone.” It positions Nolans to attract more investor interest.

“It continues to plug the remaining funding gap for Nolans,” Spencer said in a Wednesday note. “The additional Australian government hybrid funding is a strong endorsement of the project and may be a catalyst for other groups to follow.”

Shares in Arafura Rare Earths closed 17% or A2¢ apiece higher on Wednesday in Sydney at A14¢ apiece. They’ve tested A11¢ and A28¢ over the past 12 months. The company has a market capitalization of A$318.8 million.

Fund the gap

Arafura now aims to attract the rest of the funding it needs by seeking investors for sizable stakes in the project.

“This commitment from the NRFC solidifies Nolans’ role as a critical asset for Australia and the global supply chain,” Arafura managing director Darryl Cuzzubbo said in a Wednesday release. “It’s a major step forward, reinforcing confidence in our strategy and enabling us to focus on finalizing equity funding and securing additional offtakes.”

Canaccord’s Spencer sees a strong chance of equity from metal off-takers and original equipment manufacturers. They would cover a quarter to a half of the A$900 million needed. Hancock Prospecting, a private Australian mining and agricultural company, owns a 9% stake.

Strategic asset

Toronto-based Adamas Intelligence projects neodymium-praseodymium demand to nearly double by 2032. The global energy transition to more EVs and renewables will drive this.

The investment commitment, part of Australia’s A$15-billion plan to fund resource projects and diversify the economy, follows major milestones. In July, the company secured over US$1 billion in debt from nine international lenders. It also signed binding offtake agreements with Hyundai, Kia, and Siemens Gamesa Renewable Energy.

Nolans’ projected cost profile ranks it in the global first quartile. Company documents cite credits from phosphoric acid by-products as the reason. The low cost and strong demand for neodymium-praseodymium boost the project’s case.