Down Under REE report: Arafura two years from production

Steve Ward does not mince words when it comes to REE: there are probably about 200 rare earths projects that have emerged around the world in the past few years, he says, but 190 of those will not make it because of economic or technical reasons – and those that are feasible are 15 years away. The managing director of Arafura Resources (ASX:ARU) has made this point several times, the latest in a magazine interview just out, and an observation with which not too many RareMetalBlog readers may disagree.

Arafura has, he says, done the “hard yards”. Fourteen years is now the duration it has been working on the Nolans project in the Northern Territory of Australia. The plan is to have the project financing in place by the end of this year, start building in 2012 and begin producing in 2013.

He makes another point that is still not appreciated out in the wider investment world (and RareMetalBlog readers are not included in that crowd). He says Arafura is now very much a specialty chemical company which also owns a mine. This is a point that many, many people still do not grasp. I speak to well-informed investors who know all there is to know about gold, base metals and the rest, but – unless they are in a REE investment – are always surprised when it is explained how different the whole process is from production of most metals.

Arafura has tended to be overshadowed by its Australian contemporaries, Lynas Corp (ASX:LYC) and Alkane Resources (ASX:ALK), in terms of media attention in Australia. And for those outside Australia as well, here are the basic facts.

Arafura was formed in 1997, became a publicly listed company in 2003 and has developed its own technology for the Nolans project. Phase 1 annual production is targeting 20,000 tonnes of rare earth oxides along with phosphate, uranium and gypsum. It has a market capitalisation of around $A500 million against Lynas’ $A4.26 billion and Molycorp’s $US5.1 billion. It is building a processing centre at Whyalla, South Australia, a major steelmaking town. The company is now in the process of de-risking what it calls its novel technology.

The mosr recent presentation makes the point that Arafura is the only new producer (in terms of short to medium term) that still has significant rare earth oxides available for sale. Notwithstanding that a major shareholder is East China Mineral Exploration and Development Bureau, the company is focusing on end markets and customers outside China.

Ward makes the point in his latest interview that Arafura did not want to go into the marketplace too early; it didn’t want to be tied to financing by off-take partners.

Meanwhile, two other Australian players are gearing up for action.

Avonlea Minerals (ASX:AVL) has begun mapping its Hoarusib project in Namibia where it is exploring for both REE and base metals.

And Datamotion Asia Pacific (ASX:DMN) is about to begin drilling its Mt Barrett project in Western Australia. This REE target lies northeast of Lynas’ Mt Weld.

In its latest presentation, DMN breaks down how it sees present production of REE. This is the company’s own work compiling estimated 2010 global production figures (in tonnes) and may conflict with other sources:

China

Baotou                                 55,000

Ionic Clay regions               35,500

Sichuan                               10,000

Recycling                              3,500

Other

Russia                                 4,000

India                                   3,200

US recycling                       4,500