Arafura Rare Earths (ASX:ARU) used its quarterly investor call to highlight improving rare earth pricing conditions, ongoing geopolitical risks tied to China’s dominance of supply, and progress toward finalizing the last portion of funding required to reach a final investment decision (FID) for its Nolans Project.
Geopolitics and pricing: China export controls and a push for ex-China price discovery
Managing Director and CEO Darryl Cuzzubbo said rare earth market conditions remain “dynamic,” but argued several fundamentals continue to shape the sector. He pointed to China’s export control constraints introduced last April, saying they remain in place and give China the ability to “control with precision who does and does not get access to rare earths.” He added that while a 12-month truce between the U.S. and China reduced speculation after further export constraints introduced in October, “nothing has structurally changed” regarding non-China supply.
On pricing, Cuzzubbo said NdPr pricing recently moved through the $100 per kilogram level on the Asian Metal Index, representing an increase of more than 80% over the last 12 months. He also noted that an ex-China pricing benchmark referenced by the company has been “consistently higher” than Asian Metal Index pricing, citing a recent spread of about $10 per kilogram. He linked that shift to the U.S. government’s introduction of a $110 per kilogram floor price in connection with Mountain Pass and to supply disruptions after Mountain Pass feed stopped going to China for processing.
Cuzzubbo also said a recent event in which China stopped exporting “dual-use rare earths” to Japan highlighted China’s willingness to use export controls, and that China could prioritize domestic demand over exports if a structural NdPr deficit emerges, which he said several forecasters expect in the medium term.
The CEO said customers are increasingly acknowledging the need to move away from Asian Metal Index pricing, which he described as a mechanism that has prevented development of a “rest of world” supply chain. He noted that S&P is looking to introduce an ex-China rare earth pricing index, and he referenced Australian government initiatives including the US-Australia Critical Minerals Framework and the Critical Minerals Strategic Reserve as potential support for alternative pricing mechanisms. He said independent forecasts for a functioning market index are in the $140-$160 per kilogram range, reflecting supply scarcity and strategic value.
Funding and FID: “90% funding locked in,” remaining equity and offtake pricing in focus
Cuzzubbo said the company has made significant progress with cornerstone investors, with due diligence and documentation described as advanced for EFA, the National Reconstruction Fund, and the German Raw Materials Fund for an initial EUR 50 million. He added that a potential second EUR 50 million from the German Raw Materials Fund would be subject to a separate decision after the company secures an additional 500 tonnes of offtake.
While the process has taken longer than expected, Cuzzubbo said Arafura is one of the first projects moving through newly established government-backed processes and described the company as being at or near the front of the queue for those funding mechanisms.
He said the company is seeking two outcomes: securing remaining equity “as fast as possible” to call FID and move into construction, while also negotiating the most favorable pricing terms possible for remaining offtakes. Cuzzubbo emphasized that while FID would be a major catalyst, the company’s value for the next decade would be heavily influenced by the seven-year contract pricing terms being negotiated now. With multiple funding pathways available, he framed the remaining task as optimizing offtake and equity terms rather than questioning whether FID will be achieved.
Cuzzubbo said the company is targeting the end of the quarter to finalize the necessary agreements, with shareholder approval expected in the next quarter and FID after that, while noting timing uncertainty driven by third parties and the company’s willingness to take additional time if pricing terms are not acceptable.
CFO details: $1.6 billion total funding requirement and improved cash position
CFO Peter Sherrington outlined the Nolans funding bridge, describing a total funding requirement of $1.6 billion. He said this includes construction capital costs, working capital, financing costs during ramp up, and an equity-backed component of the cost overrun account. In addition, Arafura has $280 million in completion support facilities, which are undrawn under the base case but lift total funding sources to $1.9 billion.
Sherrington said conditional approval has been announced for up to $100 million of equity investment by EFA, and he indicated that the cornerstone sources described by management would leave about $134 million outstanding. He said the company is pursuing multiple pathways to close out the remaining equity requirement.
On the debt side, Sherrington said that excluding ING, all credit approvals are current, and that EDC refreshed its credit approval during the December quarter. He said ING has provided a letter of support and is working to finalize its credit approval in conjunction with contractual close of the debt facilities and FID.
Sherrington also described the company’s October capital raising, stating that Arafura completed an Australian AUD 475 million two-tranche placement, followed by a share purchase plan (SPP). He said the company ended the period with AUD 570 million in cash, up from AUD 90 million the prior quarter, and said the strengthened balance sheet positions the company to move into execution once strategic equity is secured.
Project readiness: Hatch appointed; owner’s team build-out and procurement preparation
Chief Project Officer Tommie van der Walt said the appointment of Hatch late last year was a major milestone for the Nolans Project, describing Hatch as bringing significant engineering and execution experience, including for hydrometallurgical processing infrastructure. He said Hatch’s earlier involvement in engineering and design allows it to transition immediately into execution planning.
Van der Walt said Hatch will report into Arafura’s owner’s team under the direction of Ed Matthews, the Nolans Project Director, who he said has more than 30 years of experience delivering major projects and capital programs across Australia, Asia, and Africa. He added that the company is recruiting other critical owner’s team roles, with some personnel expected to commence in coming months.
He said Arafura has invested over the past six months in establishing procurement processes and supplier relationships, and that after FID the company plans to launch a competitive procurement process intended to deliver the best commercial outcome without compromising supply certainty, quality, or schedule.
Shareholder Q&A: takeover preparedness, dilution concerns, and timing uncertainty
During Q&A, Cuzzubbo addressed a question about potential opportunistic takeover bids, saying the board has a defense strategy in place, retains a defense advisor, and has conducted mock scenarios at board subcommittee level. He also said the company targeted “longer-only investors” in recent capital raisings and reiterated that FID is viewed as a major catalyst.
On shareholder concerns about delays and whether the company should call FID immediately, Cuzzubbo said the company could do so but does not believe it would be prudent without securing the remaining equity and optimizing offtake terms, given the long-term importance of pricing. He also said the company has “maximized out on debt” to minimize dilution.
Management said it expects to finalize agreements by the end of March as its best guidance, with a shareholder vote in Q2 that could enable FID, while emphasizing uncertainty based on negotiations and external factors.
About Arafura Rare Earths (ASX:ARU)
Arafura Rare Earths Limited explores for and develops mineral properties in Australia. It focuses on the production of rare earth products, such as neodymium-praseodymium and mixed middle-heavy rare earths oxides. The company holds 100% interests in the Nolans project, a rare earths-phosphate-uranium-thorium deposit that supplies neodymium and praseodymium products; and the Aileron-Reynolds project comprising six granted exploration licences covering an area of approximately 1,240 kilometer square located in Northern Territory, Australia.
