Arafura to build rare earths plant

Interviews

TRANSCRIPTION OF FINANCE NEWS NETWORK INTERVIEW WITH ARAFURA RESOURCES LIMITED (ASX:ARU) MANAGING DIRECTOR AND CEO, DR STEVE WARD

Joining me today from rare earths developer Arafura Resources (ASX:ARU) is Managing Director and CEO, Dr Steve Ward. Steve welcome to FNN. Could you start by introducing Arafura Resources?


Dr Steve Ward: Thank you. Arafura is a diverging rare earths producer and we aim to enter the rare earths industry via our flagship Nolans project, which is based on the Nolans resource located in the Northern Territory.

Okay, so how long have you been listed and what’s your market cap?

Dr Steve Ward: Arafura was listed in 2003 and our current market cap is approximately $250 million.

And who’s on the Board and what experience do they have in developing a project the size of Nolans?

Dr Steve Ward:We have a very good mix on our Board, a good blend of skills and experience. We have some of the original directors when the Company was floated. And more latterly, we’ve started a Board refresh programme to add the skills that we’ll require as we are rapidly moving from an emerging company to operator of large operations in Australia.

Now to your Nolans project in more detail. Where is it located and what is the size of the resource?

Dr Steve Ward: The resource is located at Nolans which is 130 kilometres north of Alice Springs. It’s about 10 kilometres due west of the major highway. Currently it’s 30 million tonnes JORC Resource, which would sustain just over twenty years production at 20,000 tonnes per annum and we’re doing some expansion drilling at the moment.

And how far is Nolans from road and rail?

Dr Steve Ward: From road, about 10 kilometres and from the main Alice Springs rail line which goes to Alice Springs, Darwin-Adelaide Railway is about 60 kilometres.

So what does it contain and in what quantities?

Dr Steve Ward: Nolans contains a range of rare earths, right through the full range of rare earths. It also contains - it’s a phosphate hosted deposit, so it contains phosphate, it contains calcium and it contains some uranium. So we’ll make four products – rare earths oxides, gypsum which is calcium sulphate, a solid phosphate for fertilizer and agricultural use and a uranium oxide product for export.

What will that translate to in annual production?

Dr Steve Ward: Annual production 20,000 tonnes of rare earth oxides which will be about 10% of the global market in 2015, when we will be in our first year of full production and we’ll be ramping up at that point in time.

And what is Arafura’s stake in the Nolans project?

Dr Steve Ward: We own one hundred percent of the Nolans project.

Thanks Steve, now you’re currently working towards a bankable feasibility study for Nolans. What do you expect the project to cost?

Dr Steve Ward: Well rare earth, making rare earths is quite a large undertaking. We believe it will take about $1 billion worth of capital to build both the mine and the rare earth processing complex. It will have cost about $250 million to get to the end of the bankable feasibility study, because it takes a long time to develop the technology and prove that technology. We’re almost there, we will complete our bankable feasibility study and have project financing in place by the end of 2012.

And how many years do you expect it will take to pay back the investment?

Dr Steve Ward: It will depend of course on the price of rare earths at the time, but within the first five years of operation.

Great, so when do you expect the bankable feasibility study to be ready?

Dr Steve Ward: Bankable feasibility study complete and project finance in place by the end of 2012.

And where will funding for the project come from?

Dr Steve Ward: We’re looking around the world and we think it will come from many different sources around the world. Traditional debt, traditional equity, maybe some sovereign debt and maybe some involvement with both customers and raw material suppliers.

Now you recently acquired an 800 hectare site for processing at Whyalla in South Australia. Why Whyalla when companies such as Lynas Corporation have opted for Malaysia?

Dr Steve Ward: Well, we looked around the world and we came to the conclusion that the really important thing was to have a great service site with lots of infrastructure. And it seemed to us that if we could find that in Australia we’d have a very simple business model. We’d have one set of accounts, one country, one set of regulations and Australia has very good regulations. And it’s seen by customers and other stakeholders as being a good place to be from a sovereign risk point of view, and also from a regulatory environment point of view. So we looked in Australia and after shortlisting sites, we chose Whyalla from our shortlist and it’s effectively a virgin brownfield site. It’s virgin because it’s not been used before for anything else, but it’s brownfield because it’s part of the current OneSteel complex, so it’s serviced with road, rail and all other infrastructural type things. So we’re very pleased with what we’ve got.

So how many people will the facility employ and what support did you receive from the South Australian Government?

Dr Steve Ward: During construction we’ll have over 1000 people working building facility and in operation we’ll directly employ about 300 people. And indirectly we’ll employ probably another 900 to 1200 people, so overall in Whyalla, somewhere between 1000 to 1500 people as a result of us being there. I am delighted to say the South Australian Government has granted us major project status, which helps us work our way efficiently through the regulatory processes.

So everything going to plan, when do you expect to be in production?

Dr Steve Ward: At this stage, the best estimate we can give is around about two years after project financing is in place. Obviously during the bankable feasibility study we will be looking at how we can complete construction as soon as practicable, because we want to come to market as soon as we can with our products.

Thanks Steve, now to long term rare earths prices which underpin your investment, they have run up very quickly over the last twelve to eighteen months. Where is demand coming from and what’s the situation with supply?

Dr Steve Ward:Rare earth products go into some very exciting applications. They go into new high technology consumer goods - iPods, flat screen TVs, they go into energy efficiency products such as new generation light globes, rechargeable batteries. And they go into clean green energy applications such as hybrid cars and wind generators - wind farm generation for power. All those are growing because of new technology. They’re all growing at two, three, four times or more GDP, so it’s a very good outlook in terms of demand. And supplies have actually diminished a little in China which currently produces 97% of the world’s rare earths, has cut its supplies a little bit because it’s had to close old polluting and illegal operations. So as the demand has been growing the supplies have reduced, so we’re getting a supply and demand gap and hence that’s driving prices up. The prices where will they go? Interestingly prices in 2010 in real terms only then returned to where they were in 1980, which was the era before China became the major supplier in the world market. China supplied from relatively low cost operations, some of which have proven to be unsustainable due to poor environmental performance and illegal nature. So you know, we think that prices will certainly stay higher than they were in pre-GFC and we could make arguments that they’ll stay well firm where they are, or may even go higher still.

You recently signed a Letter of Intent for up to 15% of production from Nolans to ThyssenKrupp of Germany. How important is this for
Arafura?


Dr Steve Ward:I think this marks a big vote of confidence in Arafura and our Nolans project. ThyssenKrupp are a large organisation based in
Germany but with a global reach and a very, very large organisation involved in a lot of technical type activities. For us the Letter of Intent covers commercial arrangements for 15% of our future output, it should be about 3,000 tonnes per annum. And also importantly ThyssenKrupp are helping us access project finance.

Finally Steve, where would you like to see Arafura Resources this time next year?

Dr Steve Ward: Well this time next year, our plan and this is where obviously I’m confident as well as I hope, that we will be very close to completing our bankable feasibility study and securing project finance.

Steve Ward, thank you and congratulations on the progress so far.


ENDS
 
 
 

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