Arafura Rare Earths Limited

ASX:ARU

Arafura Rare Earths Limited

ASX:ARU
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$0.325 (+4.8%)
Last close price
#106
Rank
5
Held by
20
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Reports (2) My Report Forum Investors
Forum Topics ARU ARU Financial Investment Decision (FID)
Scot1963
Added a month ago

Arafura are working towards an investment "Go" decision for construction of a rare earths processing plant to oxide quality, North of Alice Springs. Whilst most projects get to a substantial and significant level of backing ARU have sought full funding commitments to back their plans. Currently they have about $1b of funding mostly conditional commitments for plant construction, and have contracted about 66% of the plant output, offtake, to suppliers. They are targeting around 80% offtake agreements with approx $134m still to be finalised.

The FID is targeted towards end of 1st qtr this year, having been delayed since mid last year whilst they progressed funding and offtake. Most recently they have purchased the mining camp required to house construction employees, finalised a local community royalty for access agreement negotiated for the last 2 years, and have signed an agreement with a specialist company to re-examine and review alternative and newly developed processing technologies. These might be considered as buying signals in a sales context I suppose.

Construction is likely to take 24 to 30 months from FID.

Dear brains trust, my question doesn't relate to the actual decision. I do believe having come this far they are likely to progress the decision to construct. My contemplation is around the idea that I would be investing into a project that would not see income for 3 years. Will there be enough growth across that time to justify parking my finite resources there. Will the outcome in 5 years be to the positive level I would wish (10% compound growth pa over the 5 years). The broader context is China's dominance of processing and the Wests realisations regarding sovereign risk. (Replace rare earths with oil and fuel perhaps!)

I am aware the questions above are probably significantly naive for the more active and experienced investors, but as a strictly amateur (my day job is in the technical space) investor working towards building a home deposit for my kids in the future I'm weighing this opportunity up against other seemingly more short term options. Of course I know there are no guarantees in anything. I would be interested in others views regarding both this ARU case and other similar situations others may have experienced. Writing this down is of course also an assist of itself.

Held in RL and SM.

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Clio
Added a month ago

@Scot1963 - I also hold ARU in RL and SM (bought IRL about 8 months ago) but my investment horizon is more in the 5 - 8 year range. I’m reasonably confident the RE/CM play will come to pass - I can't see any future when the demand for their product will not be there - but when is more a case of how fast can they build the processing plant and get production rolling?

I also hold LYC and have for years, and that’s still delivering both with ongoing business growth and expanding production and sales, and by comparison, I judge that ARU has a good plan and is executing well to this point. One additional plus with ARU is that with the actual location of the processing plant, which has excellent access (as these things go) by both road and rail, they are setting up to potentially act as processor for other RE mines. That’s been a part of their long-term plan from early on.

Possibly of more help to you in making your decision on whether ARU can grow sufficiently within your investment term, is that I also hold ATR (RE/minerals sands project in Donald, Vic) and have for 4 years. ATR is at a similar stage to ARU - together, they are the 2 Australian RE developments the US-Australian development alliance for REs has backed, with ATR being a JV with US company Energy Fuels. My most recent notes for ATR say expect at least 3 years before production is achieved. That’s production, not revenue, although one would hope for that!

But my point in mentioning ATR is that, as I said, I’ve held it for 4 years, and am currently sitting on 140% SP gain. So on that basis, it’s entirely possible ARU might grow that much and even more over the next four years. But as to whether it will…who can tell?

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Scot1963
Added a month ago

Thanks @Clio. Certainly feel better I'm not alone on this type of strategy. China has managed to work to scupper most other projects in this space, so I expect with sovereign backing ARU will go the distance to production. Despite moments of doubt I should keep the faith!

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Clio
Added a month ago

@Scot1963 - one last somewhat comforting point regarding ARU. Gina (via Hancock Prospecting) holds a 15+% stake, and if memory serves, she's been closely involved with the project from early days and even stepped in to keep them rolling at one point, which I read as meaning she's personally deeply committed to seeing ARU come to fruition.

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