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Arafura Resources shares timetable as it advances Nolans NdPr Project towards development

Snapshot

Demand for rare earths from Western nations could bode well for Arafura’s low-cost Nolans NdPr Project in the Northern Territory.

Arafura Resources Ltd - Project funding sources could include export credit agencies

Quick facts: Arafura Resources Ltd

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ASX:ARU
Market: ASX
Market Cap: $97.05 m
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  • Arafura’s Nolans Neodymium-Praseodymium (NdPr) Project has a 23-year mine life. 
  • The project’s reserve is 19.2 million tonnes at 3.0% total rare earth oxide and 13% phosphate with a 26.4% NdPr enrichment factor. 
  • The company’s Nolans DFS valued the NdPr project at A$729 million (US$498 million) earlier this year using a US$67-90 price range for a 17.43% IRR. 
  • NPV10 valuations of the project increase by A$130 million with each US$5-a-kilogram NdPr oxide price increase. 
  • NdPr oxide prices are forecast to increase next year as world demand for rare earths and critical minerals increases. 
  • Offtake and financing discussions for a Nolans mine in northern Australian are expected to continue into next year. 
  • A start to construction for the Northern Territory project is targeted for 2020, with commissioning in 2022. 

Arafura Resources has come a long way in 2018-19 (to bring) the Nolan’s NdPr project to the cusp of commercialisation.

Arafura Resources non-executive chairman Mark Southey

What does Arafura Resources do?

Arafura Resources Limited (ASX:ARU) (FRA:REB) (OTCMKTS:ARAFF) is an Australian exploration and development company focused on a flagship rare earths project Australia’s Northern Territory.

Perth and Darwin-based Arafura has completed a definitive feasibility study (DFS) for the Nolans Neodymium-Praseodymium (NdPr) Project.

The company is on the cusp of commercialisation with the project, as its chairman Mark Southey confirmed yesterday is exploring financing options which it hopes to secure next year.

Arafura’s board is keen to publicly-set a commitment date for the world-class northern Australian NdPr project by the end of March 2020.

The company is targeting a potential start to mining and exporting by late 2022.

Who leads Arafura Resources?

The company is led by managing director Gavin Lockyer, a chartered accountant with more than 20 years’ experience in the resources and finance industries.

Lockyer’s international banking experience includes postings at Deutsche Bank London, ANZ and Bankwest.

The corporate leader’s resources industry experience includes senior finance and treasury roles at major miners Newcrest Mining Limited (ASX:NCM) (FRA:NMA) (OTCMKTS:NCMGF) and Newmont Goldcorp Corp (NYSE:NEM) (FRA:NMM) (TSE:NGT) (SWX:NEM).

Lockyer is joined by chief financial officer Peter Sherrington on the company’s senior management team, with the pair being involved in the company’s recent financing discussions for Nolans project.

Sherrington is an accountant with more than 20 years’ experience in industry who has held senior finance positions with a number of publicly-listed companies.

Non-executive chairman Mark Southey has extensive global experience and held senior management positions at engineering, procurement and construction leader Worleyparsons Limited (ASX:WOR) (FRA:WF9) (OTCMKTS:WYGPY), technology leader ABB Ltd (SWX:ABBN) (NYSE:ABB) (FRA:ABJA) (STO:ABB) and Honeywell International Inc (NYSE:HON) (FRA:ALD) (LON:HON) (BMV:HON).

Southey is the principal of the Sydney and London strategic advisory firm Arethusa Advisory.

What are Arafura Resources’ next steps?

Arafura non-executive chairman Mark Southey told shareholders last week the next 12 months would involve the company taking the “remaining practical steps to facilitate construction and the subsequent production, as well as the commercial boxes that remain to be ticked.”

An immediate focus for the company is obtaining Native Title Agreement with indigenous landowners.

Southey said Arafura was hoping to complete native title negotiations by the end of 2019.

The company is also planning to turn memorandums of understanding with potential customers into binding production-take contracts or offtake agreements over the coming year and book up most of its expected NdPr and phosphoric acid production.

Arafura’s key goal for financial year 2020 is to finance its northern Australian project, with Southey saying that the company’s senior management was employing a financing strategy with multiple options that it hoped to further advance in 2020.

These involve export credit agencies and the Australian Government’s Northern Australia Infrastructure Fund administered by the Northern Territory Government.

Arafura is targeting a 2020 start to construction at the NT project, with a view to commissioning the project in 2022.

The company shared an indicative production timeline for the project with its shareholders in a presentation at its annual general meeting last week, highlighting it hoped to start early works construction in the December 2020 financial quarter.

Arafura’s hopes to accelerate its engineering strategies next year as part of a strategy to be aligned with forecasted NdPr price increases from 2020.

Mining at the project could start in December 2021 while commissioning of a process plant could begin in the June 2022 quarter, with first ore-to-plant and shipments in the December 2022 quarter.

What is Arafura Resources’ Nolans business case?

A business case for Arafura’s lead asset the Nolans NdPr Project was documented in a February 2019 definitive feasibility study (DFS).

The project north of Alice Springs is near the Territory’s gas pipeline, on a main highway to Darwin port that also meets a railway-to-port.

Nolans has four mineral leases and is primarily an NdPr oxide project.

A base case for its development modelled in the DFS put the project value at A$729 million (US$498 million), using an after-tax net present value (NPV10) calculated at a 10% discount.

A price range of US$67-90 (A$99-133) over the life of the mine was used in the base case.

The NdPr oxide price was around US$45 at the time of the study and was sitting at more than US$50 by mid-year 2019.

Arafura’s DFS reporting has highlighted Nolans project is highly leveraged to NdPr prices with each US$5 per kilogram increase in the NdPr oxide price increasing the project’s NPV10 by A$130 million.

The Nolans DFS base case put the after-tax internal rate of return at 17.473%, with Arafura reporting the IRR could decline to 15% with a US$76 a kilogram incentive price or 10% with a US$59 a kilo price.

Last week Arafura reported a project capital expenditure of US$726 million (A$1.1 million) for Nolans would make the company a low-cost producer with NdPr costs of just US$25.94 a kilogram.

In its original study, the company’s Nolans operating cost was A$36.85 a kilo after an A$11.55 MGA credit was added in.

At its peak, 650 people would work on the project during the construction phase, with about 280 workers during steady-state production.

Nolans is a 23-year project in Arafura’s study, paying back its investment at the five-year mark on an after-tax basis.

The company’s DFS modelled a technically strong and cost-competitive project that would generate an average of A$377 million (US$256 million) EBITDA each year over its long mine life.

A significantly-sized Nolans reserve of 19.2 million tonnes grades 3.0% total rare earth oxide (TREO) and 13% phosphate was used in the study and had a 26.4% NdPr enrichment factor.

Nolans has a sizeable, low-risk mineral resource that could potentially supply a significant proportion of world NdPr demand.

Currently, China supplies about 80% of world NdPr markets and uses up about 85% of international supply.

China is keen to retain NdPr in-country while Western markets are looking internally for alternative Tier 1 suppliers, making Arafura’s project attractive in the current hunt for critical minerals.

The company’s low-cost project is competitively-placed on NdPr cost curves, drawing international attention.

What other assets does Arafura Resources hold?

Arafura has a 60% interest in the Bonya tungsten and Jervois vanadium projects in the Northern Territory held in a joint venture with Thor Mining PLC (ASX:THR) which owns the remaining 40%.

Thor has unveiled strong tungsten and copper results this financial year from drilling at Bonya.

Arafura has been seeking project-level investors to advance Jervois through resource development and subsequent feasibility work.

The company had A$5.4 million cash at the end of June 2019 and raised A$23.2 million in July 2019 to support its efforts at Nolans and its other projects.

Arafura planned to spend A$3.4 million in the September 2019 financial quarter, budgeting A$2.4 million for exploration and evaluation.

Inflection points

  • Progress of project and debt financing discussions in the 2020 financial year
  • Continued product offtake discussions with potential users downstream in 2019 and 2020
  • Progress of regulatory approvals, including Native Title agreement with indigenous landowners
  • Availability of construction and commissioning staff
  • Evolution of critical minerals supply markets in Western nations
  • Continued effect of US-China trade conflicts on world markets

Arafura Resources shareholders re-elected non-executive directors Quansheng Zhang and Chris Tonkin to the company board yesterday at its annual general meeting.

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Full interview: Arafura Resources seeks to extend mine life beyond 23 years...

Arafura Resources Limited (ASX:ARU) managing director Gavin Lockyer updates Proactive on the start of new drilling and metallurgical programs to extend the company’s 100%-owned, Nolans Neodymium-Praseodymium (NdPr) Project in the Northern Territory, beyond the 23 years envisaged in its...

on 1/10/19

8 min read