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Market: ASX
Sector: General Mining
Epic: ARU
News: Latest news
Web Site: Arafura Resources
Other Articles: 27-07-201029-06-201015-06-2010

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Arafura Resources

Arafura Resources

Arafura Resources (ASX:ARU) is an emerging rare earths producer that listed on the Australian Securities Exchange in 2003.

Arafura is currently developing its Nolans rare earths-phosphate-uranium project in Australia’s Northern Territory. The project is underpinned by a 30 million tonne resource that can sustain a 20-year mine life. Arafura has developed a processing flow sheet, demonstrated the recovery of rare earths, phosphoric acid and uranium at a pre-production scale pilot plant, and is making rapid progress in completing a bankable feasibility study. The Company is on track for first production from Nolans in 2013.

Arafura has an exploration and development program aimed at enhancing its position in the rare earths market.

CLICK HERE FOR FULL ANALYSIS OF ARAFURA RESOURCES
Thursday, July 30, 2009

Arafura Resources: Developing a rare earths project in the Northern Territory

by Jackie Steinitz company news image

News from Perth-based speciality metals explorer and developer Arafura Resources has been flowing thick and fast in recent months.

·    Last November the company announced a 63% increase in the resource at its flagship rare earths-phosphate-uranium project at Nolans Bore in the Northern Territory.

·    In February it signed a letter of intent with a Chinese partner, JEC, (Jiangsu Eastern China Non Ferrous Metals Investment Holding Co.Ltd) for the provision of technical and financial assistance in return for up to 25% of the equity in Arafura.  This investment, if all goes ahead, should be sufficient for Arafura to complete the Bankable Feasibility Study on Nolans later this year.

·    In March the company announced that it had developed a process at its pilot plant which will successfully produce a mixed rare earths carbonate, premium quality fertiliser grade phosphoric acid, and uranium. The carbonate meets all the statutory requirements to enable it to be transported and processed anywhere in the world so the company now has a marketable product.

·    In April Arafura signed a letter of intent with ECE (East China Exploration), the parent company of JEC, to further evaluate its Jervois iron-vanadium project in the Northern Territory, while at the end of May the company was able to announce that the Australian Foreign Investment Review Board had approved the Chinese investment.

Throughout it all the company has been able to ride the crest of a wave of information about the increasing importance of rare earths in new and green technologies and concerns about the Chinese dominance of supply.  Arafura’s share price has reacted positively to the newsflow, rising from a low of 22 cents last October to 67 cents today.


Background

Arafura was originally formed as a greenfields exploration company.  At the time that it listed on the ASX in 2003 it had exploration rights to several gold, base metal and/or rare earths projects in the Northern Territory, with a combined area of 12,000 square kilometres. It now owns has interests in five projects in the Territory and its focus has shifted increasingly towards the rare earths. The company’s principal aims are now to develop the Nolans deposit by 2013, to identify additional resources there, and to discover and identify other rare earth projects.  It intends to develop its non-REE projects as joint ventures.


Nolans Bore

Nolans Bore was first discovered in 1994 by PNC Exploration, then rediscovered 5 years later by Arafura.  It lies some 135km north north west of Alice Springs just 10km from the Stuart Highway, 5km from a gas pipeline and 60km from the Darwin/Port Pirie/Adelaide railway.  The mineralisation is hosted over an area of about 150 hectares and is exposed at the surface.  The latest resource upgrade, dated November 2008, which was based on drilling to a depth of 130metres, shows a total resource which is open at depth of 30.3 million tonnes, at a grade of 2.8% rare earth oxide (REO), 12.9% phosphorus pentoxide  (P2O5) and 0.44 lbs/tonne of uranium oxide (U3O8). This is equivalent to a world-class in situ resource of 848,000 tonnes of rare earths, 3.9 million tonnes of phosphorus pentoxide and 13.3 million pounds of uranium oxide.



The rare earth oxides at Nolans are considered advantageous as although the 15 rare earth elements always occur together they do so in varying proportions.  A recent analysis by Arafura has shown that Nolans has a favourable mix with a relatively high proportion of the higher value metals especially europium, which is used in plasma screens and energy efficient lighting, and neodymium, used in high strength magnets.  The Nolans resource is suitable for an open pit with a mine life of at least 30 years and there is scope to build on the resource base as the deposit remains open at depth. 

Arafura completed a Pre-Feasibility Study (PFS) on Nolans towards the end of 2007 then commenced a demonstration pilot plant program in Sydney at the Australian Nuclear Science and Technology Organisation (ANSTO) facility, beginning with a bulk sample of 200 tonnes.  It has been successful in developing a process flow-sheet which will allow an on-site plant to use heavy media separation and flotation to increase the concentration of REO from 3.1% to 6%+ and decrease waste by 35%.  This can then be trucked and transported by rail to a process plant where phosphoric acid, uranium and a rare earth carbonate can be produced, each at an 80% recovery rate.  The plant has also been successful in reducing acid consumption cutting annual cost estimates by A$50m since the PFS.
 
The company have recently updated several financial analyses based on the updated resource and recent price assumptions. Capital costs for the project are estimated to be A$600m.



Meanwhile the NPV in Arafura’s ‘conservative’ case, which assumes February 2009 prices for all commodities and peak costs from 2008, is A$1.6bn after tax and capital payback at a 10% discount rate 



Under these price assumptions rare earths would account for about 60-65% of total revenue, phosphoric acid just under 20%, calcium chloride a further 13% and uranium 5%.

Arafura could have a significant competitive advantage over other rare earth projects, as in addition to the bias towards higher value rare earths it also benefits from significant by-products which are projected to generate revenues of over A$100m per year and will help to reduce Arafura’s exposure to rare earth price volatility.   Moreover the medium to long term prospects for each of the commodities in the Nolans may be favourable.

Demand for the rare earths has been growing rapidly in recent years as the number of uses for these metals seems to be increasing exponentially, particularly in new and green technologies such as hybrid cars, electronics, energy efficient lighting,  superalloys, cell phones, high strength magnets and plasma screens (see Arafura’s website for more details). Supply on the other hand has been constrained.  Although the rare earths are about as abundant as copper and zinc in the earth’s crust they are rarely found in viable concentrations so there are only a limited number of mines. China currently accounts for about 95% of global production and 60% of consumption.  Moreover China is tightening its grip, imposing more stringent export quotas.   Supply is likely to increase in future as new mines outside China come onstream, but with demand growth continuing apace prices are likely to remain robust.

Phosphates enjoyed strong price growth in Australia, at least until the middle of 2008, on the back of rising demand for fertilisers, domestic supply constraints and the lack of availability of imports.  While prices fell in line with many other commodities towards the end of the year they now show some signs of recovery and are expected to recover further long term as demand resumes.   At present Australia imports around 500,000 tonnes of phosphoric acid per year, so Nolans will have geographical advantage.

Meanwhile calcium chloride, which has the ability to draw in moisture, resist evaporation and release heat in a chemical reaction, is used in a number of industries and applications including road construction and maintenance (especially de-icing and dust control), oil field drilling and agriculture.  Demand from China is likely to grow as the road network increases.

Arafura has several options to market its uranium product.  Annual production should be enough to supply two small reactors so Arafura could either look to supply a utility directly or if could partner an established producer which would provide Arafura with direct access to an existing supply chain and the benefits of leveraging the partner’s reputation.


Other projects

In total Arafura now holds exploration rights over 4,800km2 of land in Northern Territory with another 550 km2 under application.  These interests include:

·    Aileron-Reynolds Range: Arafura’s cornerstone land package, which includes Nolans Bore, where the focus is on exploration for apatite-hosted rare earths, similar to Nolans.
·    Jervois: where Arafura recently signed a letter of intent with East China Exploration (ECE) whereby ECE will sole fund A$8m in exploration in return for 51% interest in the project.  Work to date by Arafura has focused on iron-vanadium, but there is potential for base metal discoveries.

·    Mt Porter: where Arafura obtained environmental approval for open-cut mining in 2007 from the Australian Government;

·    Hammer Hill: a nickel and copper exploration project in a JV with Mithril Resources and BHP Billiton in which Arafura’s partners can earn up to 70%.

·    Frances Creek: in a JV with Territory Resources where Arafura holds the gold rights.


Arafura’s Future Plans

Discussions with the region’s traditional owners at Nolans and the Central Land Council are continuing and Arafura believes that it is close to having an agreement that is amenable to both parties. Meanwhile design review work on the processing plant, currently being undertaken by Bateman should be complete by September.  After this Arafura will be able to finalise the optimal site selection for the plant and then complete the Bankable Feasibility Study in 2010 while working in parallel on marketing negotiations, further metallurgical work, the environmental studies and project financing.  Financing will be key, particularly in view of the current difficulties in access to debt and the size of capital requirement relative to Arafura’s current market capitalisation. 

However CEO Alistair Stephens believes that the financial climate should be easier by the time that Arafura needs to raise significant amounts of capital and that JEC are a very strategic partner.  Collaborative marketing arrangements will also be key in view of the unusual product mix with three primary products; rare earths, phosphates and uranium.  The product mix, which ultimately will be very beneficial for Arafura’s revenues, has meant that development may have taken longer than for a more standard mine.  Nonetheless, if all goes well with the BFS and other studies, then the eighteen month construction period is likely to begin in the latter half of 2011 so Arafura could be in production by early 2013.  

Meanwhile the company is also is discussions about divesting its gold projects to another group, it is seeking a final agreement with ECE about the Jervois project and it is actively looking for other rare earth projects.

Arafura held A$5.4m in cash at the end of March 2009.

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