The company has completed a DFS (definite feasibility study) and the project is effectively at the starting blocks pending the expected spike in the NdPr (neodymium and praseodymium) price.
Patersons has initiated coverage on Arafura with a speculative buy rating and an 8 cents per share valuation.
Following is an extract from Patersons’ research note on Arafura:
The project has a recently completed DFS which sees annual NdPr production of 4,357tpa, at a low cost of US$25.94/kg after P2O5 credits (c8% revenue).
Production is targeted for 2022, with the company actively seeking offtake partners and funding.
The project does have a large capital expenditure requirement of over $A1bn, but given the level of interest globally in securing non-Chinese reliable offtake to feed into the expected increasing demand relating to the burgeoning EV market, we feel this minnow has the potential to grow very quickly.
The project has significant catalysts in the current year, including the expected granting of a Mining Lease, and finalisation of Offtake and Project Financing.
When the NdPr dam bursts, and users scramble for supply, ARU is in the box seat. Industry experts such as Roskill and Adamus are forecasting very significant price increases over the next 10-15 years reflecting the demand brought on by increasing production of EV vehicles. Whilst the NdPr price seems determined to track lower in the short term, supply shortfall will inevitably to drive the price sharply higher in the medium term. With LYC currently the only non-Chinese producer of end product in meaningful volume, and the long lead time to development and capital intensive nature of developing a fully integrated processing facility, companies with advanced projects such as ARU’s 100% owned Nolans is well placed to benefit.
The high value funding requirement likely to be resolved. The Nolans project has a development cost over just over $A1bn, which looks problematic given the current ARU market capitalisation of only $39m. However, the recent interest of WES into LYC highlights the interest the market has on the EV space, and we feel the size and quality of ARU’s project should see a funding solution.
Market thematics point to significant price rises. There is a clear deficit looming in the NdPr market, meaning it’s not if a price rise is to happen but when. There are very few companies in a position to bring on any meaningful production in time to meet the EV driven exploding demand. ARU represents a unique opportunity for a low cost entry into a credentialed project with long mine life, meaningful NdPr production on a global scale and low AISC.