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Arafura’s $840m win bodes well for Power Metals Resources FDR listing

15 March 2024 10:57
ARU

In a significant move towards bolstering Australia’s rare earths industry, the Commonwealth Government has pledged a substantial financial package of $840 million to support the development of Arafura Rare Earth Limited‘s (ASX:ARU) Nolans Project in Central Australia.

Financial support details

The $840 million funding package consisting of loans and grants, sees substantial contributions from the Critical Minerals Facility, NAIF, and Export Finance Australia‘s commercial account.

Specifically, it includes $495 million from the Critical Minerals Facility, $200 million through NAIF, $115 million from Export Finance Australia’s Commercial Account, along with an additional $30 million in grants.

The Nolans Project, located 125 kilometres north of Alice Springs, aims to become Australia’s first combined rare earths mine and refinery, producing essential minerals for magnets, electric vehicles, wind turbines, and defence applications.

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Figure 1: Arafura’s Nolan Project Site

Government and Rinehart join forces

Federal Resources Minister Madeleine King underscored the significance of government support for projects like Nolans, affirming, “Australia must utilise its minerals by processing them domestically to foster greater national productivity.”

In parallel Gina Rinehart, Australia’s wealthiest individual, has already made a significant investment of approximately $60 million in Arafura Rare Earths, contributing nearly half of the $121 million raised for a placement, aimed at expediting the Project’s development timeline.

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Figure 2: Australia’s mining magnate, Gina Rinehart

Echoing Minister King’s stance, Rinehart stressed the pivotal role of the Nolans Project in enhancing Australia’s manufacturing capabilities and reducing dependence on foreign processing facilities.

She stated, “For too long, our raw minerals have been processed overseas, but it’s time we prioritise domestic processing to maximise our national resources.”

Albanese government backing

The decision follows closely on the heels of the federal government’s announcement of a $230 million loan commitment for West Australian lithium developer Liontown Resources, a venture partly owned by Ms Rinehart.

The Albanese government noted Arafura’s role in helping to secure Australia’s position as a renewable energy superpower, highlighting its capacity to generate over 125 full-time positions during operation and create more than 200 jobs during construction. Thereby, fostering economic growth and innovation in the Northern Territory.

“This will create local jobs and economic opportunities, helping Australian and Territory companies and workers capture more value from the game-changing critical minerals deposits we have here,” Prime Minister Anthony Albanese said.

Industry financing challenges

In 2022, Australia ranked as the world’s third-largest rare earths producer, contributing 5 per cent of global output, vital for various emerging technologies; however, financing challenges stemming from abundant Chinese exports and sluggish electric vehicle demand have hindered the industry, leading to price declines.

Since 2021, Arafura’s mine and refinery has been actively seeking funding, employing tactics such as selling a 10 per cent stake to Rinehart’s Hancock Prospecting in 2022.

Arafura’s Managing Director and CEO Darryl Cuzzubbo, underscored the crucial role of government loans in advancing the Project, with expectations to secure a similar-sized loan package from international and commercial financiers.

Tim Buckley, Director of Clean Energy Finance, spotlighted the inadequacy of private finance for critical minerals, stressing the importance of government intervention to prevent Chinese and US production from overshadowing Australian efforts.

“We probably shouldn’t be relying on private billionaires to do the national interest,” he said.

He criticised the notion of relying solely on the free market, citing substantial subsidies by the American government, and highlighted the necessity of local mineral sources amid China’s dominance in global output.

“The idea that we’re just going to leave it to the free market is farcical when the American government started with a trillion dollars in subsidies on the table,” Buckley said.

Positive market response

The timing of the government’s financial support coincides well with the fundraising efforts of First Development Resources (FDR), a spin-out of Power Metals Resources (LON:POW).

First Development, poised to list on London’s AIM exchange, holds three copper-gold projects in Western Australia’s Paterson Province and a uranium and rare earth elements project in the Northern Territory, strategically located near Arafura’s Nolan Project.

The remarkable 76 per cent surge in Arafura’s shares, prompted by the government’s financial endorsement, highlights the prevailing investor optimism in the rare earths sector, further fuelling anticipation for First Development’s impending listing.

With all necessary documentation and approvals in place, First Developments CEO Tristan Pottas expressed confidence in the company’s readiness to commence exploration, noting the significant advantage of having Power Metals as a partner.

ARU’s Australian Security Exchange-listed share price is currently trading at $0.24 (11:00 am UTC+ 8 hours).

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