Funding Milestone Achieved but Nolans Project Faces Investor and Market Risks Ahead

Funding Breakthrough with NRFC

Arafura Rare Earths Limited (ASX: ARU) marked a significant milestone in its development of the Nolans Project with a A$200 million investment commitment from the National Reconstruction Fund Corporation (NRFC), announced in January 2025. This cornerstone funding, structured as convertible notes with a 15-year tenor and conversion premium, not only reduces Arafura's equity burden but also signals strong government-backed support for Australia's critical minerals sector.

Managing Director Darryl Cuzzubbo highlighted the strategic importance of this commitment, noting it as a catalyst expected to attract further cornerstone investors. The company remains engaged with multiple potential investors to complete its equity funding strategy, aiming to secure the full capital required to advance Nolans to a final investment decision (FID) by the end of the first half of calendar year 2025.

Engineering and Project Progress

Throughout the December 2024 quarter, Arafura's integrated project management team intensified efforts on detailed engineering design, focusing on derisking plant start-up and optimising capital expenditure. Key activities included advancing the hydrometallurgical plant design, refining power station solutions, and progressing non-process infrastructure such as the Residue Storage Facility and bulk earthworks critical to the construction timeline.

While no on-site construction occurred during the quarter, environmental monitoring and site security were maintained. The company is also progressing operational readiness, including safety case development and commissioning strategies, positioning Nolans as one of the most advanced rare earths ore-to-oxide projects globally.

Sustainability and Global Recognition

Arafura released its third sustainability report during the quarter, underscoring its commitment to environmental and social governance aligned with its Eight Elements of Sustainability framework. The Nolans Project was recognised internationally as a Materials Security Partnership (MSP) initiative, reflecting its role in securing a diversified and ESG-compliant rare earths supply chain. The MSP includes 14 countries and the European Union, emphasizing the geopolitical importance of projects like Nolans in global critical minerals security.

Market Context and Offtake Strategy

The rare earths market remains dynamic, with NdPr oxide prices at US$54.60/kg at quarter-end, influenced by Chinese production quotas and inventory strategies. Arafura continues to engage with potential offtakers, having secured binding agreements covering 58% of its target volume. The company prioritises strategic partnerships that can provide both offtake and investment support, critical for underpinning project funding and long-term viability.

Financial Position and Outlook

As of 31 December 2024, Arafura held cash reserves of A$45 million, with disciplined expenditure reducing quarterly cash outflows. The company forecasts sufficient funding into Q3 2025 while continuing to execute its equity strategy. The appointment of Tommie van der Walt as Chief Projects Officer brings seasoned project delivery expertise, further strengthening the team as Nolans approaches FID.

Looking ahead, Arafura's progress hinges on securing remaining equity partners and finalising project financing documentation. The company remains vigilant on market conditions and regulatory approvals, including environmental licensing, to maintain its development schedule.