December 2017

12 APAC / December 2017 , “There are five attributes that separate Arafura and the Nolans project from our competitors: 1. Nolans is more strongly endowed in NdPr than any advanced rare earths development project globally, and will derive 80-85% of revenue from this product; 2. The project is ideally located with respect to existing energy, transport, and water infrastructure in one of the world’s most secure jurisdictions for mining and minerals processing, Australia’s Northern Territory; 3. Low operating costs and product diversification (phosphoric acid) to help sustain the project through cyclical downturns in rare earth prices; 4. Support from a major international group in OCI, one of South Korea’s largest renewable energy and chemical companies; and 5. Recognition by the Australian and Northern Territory governments of the economic importance and strategic nature of the project via the awarding of Major Project status.” When discussing the industry as whole, Gavin reflects on some of the current challenges and outside influences that are affecting it. Also, he notes on the techniques that Arafura employ to stay ahead of emerging developments. “The rare earths industry is characterised by a highly- fragmented supply chain with most of the world’s mining, processing and refining capacity in China. Rare earth projects are capital intensive and the development lead time is necessarily lengthy, considering their complexity and the fact that each operation has its unique characteristics. “NdPr prices escalated during 2017 after being at their lowest levels in almost seven years. This was partly driven by the continued consolidation of the Chinese rare earths industry into six large state-owned enterprises (SOEs), including stepping up of environmental compliance measures and aggressively curtailing illegal or unsustainable operations, and partly by the increase in demand for NdFeB magnets for use in the burgeoning hybrid/electric (HEV/EV) automotive and clean energy sectors. Demand for NdFeB magnets, and therefore for NdPr, will continue to rise due to the mass electrification of the auto sector and the growth in clean energy across the world (requiring permanent magnet synchronous motors or generators). At the same time, an NdPr supply shortage is highly likely due to underinvestment in new or existing mining and processing capacity, and China’s recent track record of capping production quotas for sustainability reasons. Consequently, NdPr prices are forecast to climb further over the next several years, coinciding with our timetable to bring Nolans into production. “On the back of the above developments, we have noted increased investment interest in the rare earths sector and in NdPr-enriched projects, such as Nolans, during 2017. Arafura has taken advantage of this positive sentiment and raised over A$9 million in funds during this time, including new investment capital from the Asia and North America regions. “Here at Arafura, we place enormous value on intelligence acquired from information services, market experts, technology providers and active participants in most parts of the NdPr supply chain. To that end, Arafura subscribes to several independent information services (where cross-referencing can help support the company’s marketing and financing strategy), and maintains active and regular dialogue with a number of industry operatives in China, Japan, the EU, and the USA. “The company also participates, where sensible, in collaborative technical research and development initiatives where it considers outcomes could deliver a competitive advantage in areas such as processing and refining technology.” It’s no secret that behind every successful company, is a dedicated, passionate workforce. For Arafura, Gavin describes the culture as being one that is joined together by one common purpose. “Arafura’s culture is one that is founded in achieving a common purpose, and in our case, that’s delivering on our objective to become a key global producer of NdPr rare earths. Every decision that is made by our people affords consideration of its impact on the commercial prospects of the company and its stakeholders, and the timing of the impact. Innovation is certainly encouraged in our business, but again, is tempered by commercial considerations, timeliness, and the effect on the communities in which we seek to operate. “Resource development, and rare earths development in particular, is a long game, so it’s important that prospective employees demonstrate resilience, commitment and hunger for a challenge, whether that be technical or commercial, in their employment history.” Bringing the interview to a close, Gavin envisions what developments may occur within the industry and how Arafura will adapt around them. “The rare earths business has certainly seen its ups and downs over the past decade, and changes aplenty, but one thing’s for certain: China will continue to dominate the sector in both supply and, increasingly, demand. It seems inevitable that China will soon be a net importer of NdPr if you accept the high-tech policy ambitions that they articulated in their recent “Made in China 2025” industrial masterplan. I believe that the sector has entered a new golden phase that will be driven by society’s desire for responsible development, and lifestyle considerations that reduce our impact on the environment. Clean energy and the electrification of the transport sector are just two drivers of increased demand for NdPr in the medium term, and as in the past, we can only imagine what the future holds in the development of new uses for NdPr and other rare earths.” Looking ahead, Gavin reveals to us some of the plans that lie ahead for Arafura. “In 2017, we have achieved a great deal, and have every expectation that 2018 will be a defining year for us. That’s because all elements of our Nolans project – technical and economic feasibility, government approvals, and securing product sales agreements – are coming together to support our efforts to procure US$680 million in project financing. “Our aim is to position the company to capitalise on the anticipated sustained rise in NdPr prices by readying Nolans for final execution. By this time next year, we anticipate we will be close to a Final Investment Decision (FID) on the project.”

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