Earnings call transcript: Arafura Rare Earths Q4 2025: Strategic Moves Amid Rare Earth Demand Surge

Arafura Rare Earths Limited (market cap: $288.92M) held its Q4 2025 earnings call, highlighting strategic initiatives and operational updates as it navigates a complex market landscape. While specific earnings data were not provided, the company outlined significant efforts to secure funding and expand its rare earth production capabilities against a backdrop of growing demand and geopolitical challenges. The stock has shown significant volatility, dropping 10% over the past week despite impressive gains of 38.46% over the last six months. According to InvestingPro analysis, there are 10 key investment insights available for Arafura, including crucial metrics about its financial health and growth potential.

Key Takeaways

• Arafura is reducing its cash burn rate to $2 million per month, extending its cash runway into Q1 2026.
• The company is pursuing a €100 million equity investment from the German Raw Materials Fund.
• Arafura plans to increase heavy rare earth production by 30-40% through new recovery processes.
• The company is strategically positioned to capitalize on increasing rare earth demand outside China.

Company Performance

Arafura Rare Earths is positioning itself as a leader in the non-China rare earth supply chain. The company is capitalizing on its ability to process rare earths to oxide, which is crucial given the current geopolitical climate. With the majority of rare earth production controlled by China, Arafura’s focus on the Korean and European markets offers a competitive advantage. The company is also working on innovations to increase its production capacity, which could significantly enhance its market position.

Financial Highlights

• Current cash holdings: $27 million
• Cash burn rate: Reduced to $2 million per month
• Secured funding: $130 million from the National Reconstruction Fund
• Pursuing additional funding: €100 million equity investment from the German Raw Materials Fund

Outlook & Guidance

Arafura expects to make a Final Investment Decision (FID) by the end of 2024, which will be pivotal for its future growth. The company is continuing its equity-raising efforts and exploring potential joint ventures to further its strategic objectives. Additionally, Arafura is considering the application of AI technologies to optimize its operations, which could provide efficiencies and cost savings. Analyst consensus data from InvestingPro suggests cautious optimism about the company’s prospects, though they anticipate the company won’t be profitable this year. For deeper insights into Arafura’s financial health and growth potential, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

Executive Commentary

CEO Darryl Kosubo emphasized the strategic importance of developing an alternative rare earth supply chain, stating, "The economic and strategic imperative of an alternative rare earth supply chain has never been more apparent." He also highlighted the company’s funding strategy, saying, "We are deliberately pursuing multiple options to give us choice." These comments underscore Arafura’s proactive approach to navigating market challenges and securing its future growth.

Risks and Challenges

• Supply chain disruptions in electric vehicle production could impact demand for rare earths.
• China’s dominance in the rare earth market poses a significant competitive challenge.
• Potential delays in securing necessary funding could affect project timelines.
• Export restrictions and geopolitical tensions may create operational hurdles.

Arafura Rare Earths is navigating a complex landscape with strategic initiatives aimed at securing its position in the growing rare earth market. The company’s efforts to extend its cash runway, secure additional funding, and enhance production capabilities are crucial as it seeks to capitalize on increasing demand and mitigate geopolitical risks.

Full transcript - Arafura Resources Ltd (ARU) Q4 2025:

Conference Moderator: Thank you for standing by, and welcome to the Arafura Rare Earths Limited June twenty ’25 quarterly report investor call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question via the phone, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please enter it into the Ask a Question box and click Submit.

I would now like to hand the conference over to mister Darryl Kosubo, managing director and CEO. Please go ahead.

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Thanks, Melanie. Good morning, everyone, and thank you for making the time to join us today for our quarterly update. We do appreciate your interest in taking the time to dial in where we can share a little bit about what’s happening in our company, but also share a little bit about our perspective on what’s happening externally. For anyone that is new to these calls, my name is Darryl Subo, the managing director of Arafura Rarers. And, again, with me is Peter Sherrington, our CFO.

Similar to last quarterly, what we’d like to do is just firstly share with you key key external events that we think are shaping the rare earth sector both now and into the future. Secondly, talk through our progress towards securing funding and announcing FID. And thirdly, Peter’s going to unpack our recent announcement regarding the German raw materials fund. So let me start by just summarizing some of the key things that we see are shaping the external market. Now many of you would have invested in Arafura because you anticipated exactly what we are seeing playing out at the moment as the global manufacturing regions of The US, Korea, and the European Union get just a glimpse of the cost of not having a diversified rare earth supply chain, which is paramount to their security and economic future.

For diversified rare earth supply chain to be established with long term certainty, it’s critical that there is a functioning market rare earth price index where investors can be confident that pricing and returns will be driven by typical supply demand dynamics. And if you look at the supply demand dynamics for rare earths, they are exceptionally strong with demand doubling over the next decade with a pretty sparse pipeline to fill that demand. During this quarter, we’re starting to see the pieces come together for the creation and use of this functioning market price index. During the quarter, we also saw an indication of what is at stake by not having a diversified supply chain, where electric vehicle production lines have reportedly been shut down in Europe, US, and Japan. We are seeing electric vehicles worth an average of 47,000 US dollars not being produced because they do not have access to $70 worth of NDPR.

Consequently, we personally, we’ve witnessed a shift in the OEMs where they were looking at pricing and supply security to being predominantly focused on just securing supply. An example of this bearing out is that we’ve heard recently from one of the traders that we talked to that pricing for heavy rare earths has tripled in response to the current situation. Whilst China has recently started exporting rare earth magnets again, we understand that such agreements are typically only for three to six months. So in other words, the rare earth supply crisis still has a long way to play out. Further adding to this uncertainty of supply, we understand that China has recently released their production quotas, which they’ve done in the past, typically twice a year, but this time, they no longer have published what those production quotas are.

If I can just now shift to The US where there’s been substantial events of late, we’ve seen the US Department of Defense underpin the development of Mountain Pass in securing for The US an independent supply of rare earth magnets. This now only leaves Korea and Europe as the major manufacturing hubs that do not have an independent supplier of rare earths. And as you know, they have been the two markets that we have been primarily focused on. So these two markets, Korea and Europe, today are still essentially a 100% dependent on China’s supply. The US Department of Defense has also set a floor pricing of a $110 a kilo for NDPR, which is interestingly close to an incentive pricing of between 130 to a $160 a kilo that we would expect to see if we had a functioning market.

Just last week, we saw that Benchmark Minerals Intelligence established for the first time a non China controlled NDPR price index. Now if I just bring this this closer to to home, the Australian government, as you know, has played a key role in helping to establish a rare earth sector in Australia through funding support and production tax incentives to encourage downstream value add under the future made in Australia program. The Australian government also recently announced the concept of a strategic reserve, hence enabling them to play a global leadership role in creating a functioning diversified railroad sector by placing volumes associated with such a strategic reserve onto a non China controlled price index. This is exactly what is required to bring credibility and weight to such an index, and to encourage its use as the primary price index going forward. This is something that our marketing team foresaw and have made provisions for in our most recent contract negotiations.

When we last released our economic model, we included two scenarios. The first scenario is based upon a long term pricing that assumes China maintains a level of control over pricing, noting that it is expected from a number of forecasters that China can’t maintain supply for the fast increasing demand. We also included a second scenario, an upside scenario, that included long term incentive pricing that would be reflective of underlying supply demand fundamentals. In our view, what we positioned as an upside case is progressively becoming over time the more plausible scenario. Again, this all bodes very well to bringing on a Nolan’s project at exactly the right time.

And as we’ve said before, when you look across the globe, we are uniquely positioned as the most advanced construction ready rare earth project that processes to an oxide, hence being able to provide a one stop shop for a non China feed or magnet manufacturing. By also processing to an oxide, we don’t have the radiation challenges associated with our products, which projects that don’t process all the way to an oxide invariably have to contend with. Let me now talk a little bit about our progress towards a a fully funded solution and announcing fit. Whilst, you know, we continue activities around reducing project execution risk, reducing capital, improving our schedule, and we and we need to do these things because invariably, know, you come across capital pressures, etcetera, going forward. However, our primary focus remains upon securing equity as the final step required to calling FIT and moving into construction.

We’re very pleased to report that we continue to make good progress on by securing cornerstone investors of up to 60% of our required equity as well as progressing joint venture discussions. We are progressing both pathways in parallel as fast as we can. So one pathway is not waiting for the other or vice versa. We were very pleased to announce recently that we’ve entered the appraisal phase for equity investment from the German raw materials fund with Arafura seeking up to a €100,000,000, which is tied to additional supply from Knowledge. You might remember that our strategy around offtake, around the remaining offtake was to leave that open to pull in additional equity, and you can see how that strategy has played out in, with the German raw materials fund.

This announcement is significant in that it demonstrates the importance of our project to German and European manufacturing sectors, but also I wanna point out that we are one of the first two projects being able to progress into due diligence since the formation of the fund. Just as we’ve been at the front of the queue for the National Reconstruction Fund, we’ve been at the front of the queue for the German raw materials fund. And the reason why I announced that, the reason why I point that out is our progress has been slower than we would have liked and slower than what we have had expected. We’re doing everything we can to progress this as fast as possible, and I think it it says something when despite the size of our project, the complexity of the project, we’re at the front of the queue with these newly established funds. As reported last time, we continue to have a clear line of sight securing 60% of our equity with Cornerstone Investors, which is the higher end of our 50 to 60% target range as previously communicated.

We are pursuing the higher end because, one, we can. We’ve got clear line of sight of achieving that 60%, Plus, it remains prudent given uncertainties in the market, particularly with respect to ongoing trade negotiations. The only thing I would say is as different trade deals are done with The US, the market volatility as we see it is starting to settle. We are acutely mindful that it’s very important to you, our shareholders, to provide visibility of progress, and we will announce what we can, knowing that decisions to announce need to be agreed upon with other related parties, and we may not always be able to do so, but this does not mean progress isn’t being made. At this point, we expect that our timeline is likely to be mostly driven by the due diligence that will be conducted by KfW on behalf of the German raw materials fund, as well as locking in the additional offtake volumes.

In other in other words, we expect that the the components that make up the the 60% of our cornerstone investment to be completed prior to the German raw materials fund making their decision. Whilst the German raw materials fund can’t and won’t commit to a timeline, our and and that’s because, you know, they don’t know what they’re going to find in due diligence. They don’t know what questions or follow-up questions that are going to be asked. Our view is that this is likely to take towards the end of this calendar year. With that said, we’re supporting them as much as we can to expedite their process as much as we possibly can.

I’m now going to hand over to Peter Sherrington to unpack for you a little bit more about the general materials funding and what Peter and his team are doing to secure the additional offtake related to that fund. Thanks, Peter.

Peter Sherrington, CFO, Arafura Rare Earths Limited: Thanks, Daryl. Daryl’s already discussed the the changing landscape and action by Western governments that are looking to address the the need to develop diversified value chains. And and specifically around rare earths, this the the need to reduce the dominance of China in the rare earth and and magnet value chain. The Department of Defense underwriting a floor price for MP materials of a $110 per kilo of NDPR has been a really highly visible example of government talk being turned into some pretty decisive action. Arafura is seeing similar conviction with government agencies in other jurisdictions it’s engaged with for offtake and and debt facilities and also with equity facilities that are state backed.

In September, the German federal government actually announced the allocation of €1,000,000,000 to the German raw materials fund. Was fortunate enough at the time to be in Frankfurt when the fund was announced. We in in last year, and and we met with KFW at that time to gain a better understanding of the process and mandate for the German raw materials fund. So KFW will administer the fund on behalf of the Interministerial Council, which consists of representatives from the Federal Ministry of Economic Affairs and Climate Action and the Federal Ministry of Finance. The German federal election unfortunately caused some delays in the commencement of the German raw material funds activities, and approval of projects to advance through to DD was was deferred until the outcome from that election was known.

As Daryl mentioned, Arifura is one of two companies selected to advance to appraisal or DD phase. Once government was formed in the IMC meeting or the Inter Ministerial Council meetings were were recommenced. We’ve we’ve applied for a total equity investment of €100,000,000. Half of this amount will be linked to our existing offtake agreement with Siemens Gamesa Renewable Energy. Arafura will seek additional equity through the supply of a further 500 tonnes per annum to the German market.

So we’re already partway through the the commitment on offtake and working to expand that out to to secure the total investment of euro 100 millions. The commencement of DD by the German raw materials fund combined with the the 200,000,000 Australian dollars or US a $130,000,000 investment from the National Reconstruction Fund, which was announced in January, demonstrates Arifurra is delivering on its strategy to leverage the strategic nature of NDPR to secure the cornerstone and strategic investment required to deliver on our equity strategy. Daryl has already talked about the objective of securing up to 60% of the total million of equity required to fully fund the Nolens project from Cornerstone and strategic investors. Potential investment from the German raw materials fund and the National Reconstruction Fund represents approximately 50 percent of that cornerstone investment target and indicates or demonstrates significant progress on the execution of that strategy. With due diligence commencing on the German raw materials fund investment, our sales and marketing effort has increased the German focus to ensure we can secure the additional 500 tonnes of NDPR offtake required to target the full investment amount of EUR100 million.

Historically, our engagement with German offtake partners and others has in many instances focused on offtake with linked strategic investment. With the German raw materials fund investment opportunity, there is now reduced emphasis on the direct investment with potential German offtake partners. We already have a number of prospective groups that we have engaged with in Germany, and we look forward to providing shareholders with additional updates on strategic investment and the remaining offtake as and when these arrangements become more certain. That’s all I’ve really got to talk about on the the German raw materials fund and the related offtake activities around that. I think I’ll I’ll pass back over to the moderator, and we can go to q and a.

Conference Moderator: Thank you. If you to ask a question via the phones, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please type your question into the ask a question box and click submit. We’ll now pause a moment to allow for the phone questioners to register. Thank you.

We are showing no phone questions at this time. I’ll now hand back to Lewis for the webcast questions.

Lewis, Webcast Moderator: Thanks, Mel. The first round of questions comes from John Parkinson from Rare Earth Exchanges and reads: what is the expected timeline for the dysprosium and terbium recovery test work? Could a successful pilot lead to a near term revenue stream or be integrated into phase one ramp up?

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah. So let me let me answer that. It’s a good question, John. So, you know, we talk about nearly 90% of NDPR being controlled by China. And the reality on the heavies, it’s 98 to 99% controlled by China.

And as we engage with OEMs, the heavies, whilst not significant in terms of revenue, have been strong in terms of creating engagement with the OEMs. Because as you know, you cannot create a high performance magnet without heavies. So just coming back to your question. So we we’ve got about six months of flow sheet testing and development around these heavies, we think we can increase our heavies somewhere in the order of 30 to 40% for a very modest amount of capital. We will then do the engineering, which is a further six to nine months.

But the aim is to have this additional heavies be incorporated into our phase phase one for a modest amount of capital. And when I say modest, we’re talking in the low tens of millions of dollars.

Lewis, Webcast Moderator: Thanks, Daryl. The next question from John reads, can you provide more information on the JV opportunity and the terms of any potential transaction? How do you ensure any JV deal won’t delay FID or undermine existing debt and offtake terms?

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah. Sure. Good question, John. So if I just take a step back, so our strategy has always been to pursue multiple options and pathways to create, I’m going to say, a level of competitive tension, but also choice so that we, Arafura, can choose what’s in the best interest of the long term interest of the company and also our our shareholders. So by having options, we have we have choice.

Just coming back to your your JV question. At the end of the day, we’re running the JV pathway and the equity in parallel. And I’m going to say whichever one gets there first is best positioned to to to lock in, if you like, the the final solution. It’s important that any JV that we, do enter, if we do get to an agreement, is structured around our existing debt terms and honors the offtakes that we that we already have. So we don’t we don’t see any conversations with the JV delaying out primary equity part, and we’re seeing it fitting in with what we’ve already secured by way of debt and offtakes.

Lewis, Webcast Moderator: Thanks, Daryl. John’s next question reads, retail holders often look for alignment between management incentives and shareholder outcomes. Can you speak to how recent equity purchases or lack thereof reflect your confidence in the project’s near term trajectory?

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Good question. So if you look at our board, including myself. Right? So when I first joined the board, we all bought into Arafura stocks. Now with the board, we’ve, you know, we’ve we have changed the board mix to reflect having construction and operational skills as we go into the next phase.

I think all board members have actually bought into Arafura bar bar one, noting that there’s a lot going on at the moment. So the the trading windows for board members have been have been limited.

Lewis, Webcast Moderator: Thanks, Daryl. John’s next question reads, what tangible changes are you seeing in your commercial discussions post the US Department of Defense transaction with MP Materials? Are any of your new offtake proposals now referencing the floor price under this transaction or BMI’s ex China index?

Peter Sherrington, CFO, Arafura Rare Earths Limited: Do you wanna take that one, Peter? Sure. So, look, there’s there’s been some significant changes in the engagement with offtakers since the Department of Defense transaction was announced. I think the key thing is that, you know, we are seeing less resistance to referencing different pricing mechanisms. There’s probably a a view that referencing a non China pricing mechanism in contract negotiations is now becoming more acceptable, and we’re focusing on on that in in our new offtake agreements we’re engaging or our proposals that we’re engaging in.

We also have discussion around existing contracts, looking to make sure that we have a pricing mechanism that is valid. There there is a risk here that the China mechanism either disappears or becomes less relevant as it focuses mainly on internal transactions in China. So it’s been a catalyst for discussing different pricing mechanisms, and there’s much more acceptance that off takers see the need for a sustainable pricing mechanism within the off take agreements. So, yeah, it’s definitely had an impact.

Lewis, Webcast Moderator: Thanks, Peter. The next question also comes from John. Can you provide an update on the permitting strategy and timing for phase two? Have any third party Australian juniors expressed interest in feedstock partnerships?

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Good question, John. So when we announced phase two after a preliminary scoping study, we said that our plan with phase two is we wanna get funding secured for phase one and move into construction. And as soon as we’d achieve that, we would then pursue the engineering and the approvals for for phase two. And the reason we’re doing that is, one, we just wanna stay focused, right, to to get into construction as quickly as we can. But secondly, it makes sense that phase two follows phase one for two reasons.

One, that as we ramp up phase one, we will learn of debottlenecking opportunities that will allow for a much, you know, an improved capital efficient phase two. So we wanna factor that capital efficiency into phase two. And secondly, it makes sense that phase two is funded at a cash flow from phase one so that we don’t have to tap the market for for additional capital. So that is our plan, remains our plan as we see it today. Now in terms of offtakers, we’re not going to engage with offtakers until we’re progressing with with phase two.

But if you look at, you know, if you look across Australia, there’s a number of rare earth projects. We are very centrally located to those to those projects. So we think, we will be able to secure offtakes. But right now, our focus is on securing the funding so we can move into construction of phase one.

Lewis, Webcast Moderator: Thanks, Daryl. John’s next question reads, In table one offtake overview in the quarterly report, the seven thirty tonnes per annum allocation to OEM wind auto tier one and trading is the largest outstanding segment. Is this tied to a single advanced strategic partner? And is it fair to say that finalising this agreement is the last hurdle to reaching FID?

Peter Sherrington, CFO, Arafura Rare Earths Limited: Thanks, Lewis. So look, the remaining uncontracted volume is allocated 500 tons to German raw material fund linked off take and then 730 tons allocated to OEM, Wynn, Auto, t one, and Trader. It’s it’s possible the German groups we’re targeting for linked investment to German raw materials funds will want more than the 500 tons tied to the German raw materials fund. So the the remaining volume is 730 tons or less will likely be contracted with one to two of the remaining groups. Notwithstanding support from the German raw materials fund, we will still prioritize product or NDPR to groups that have an interest in linking equity contributions to the final offtake volume.

So if if if there is a chance to secure funding over and above what’s from the German raw materials fund, we will be pursuing that as well. So it’s hard to say if if if that will be the last hurdle to fit. It it could be a a combination of things. It could be the German offtake. It could be the German raw materials fund investment decision.

And, obviously, securing funding over and above the cornerstone group, they’re all likely to play out close to that that final investment decision.

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Lewis? Lewis is just had a power outage, so just bear with us for for a minute.

Penny, Chief Corporate Affairs Officer, Arafura Rare Earths Limited: Thank you, Daryl. I’ll just jump in if my line is live.

Peter Sherrington, CFO, Arafura Rare Earths Limited: Yep. You go, Penny.

Penny, Chief Corporate Affairs Officer, Arafura Rare Earths Limited: Great. Daryl, just perhaps in reference to the Australian stockpile, can you please provide us information on any movement that you’ve seen regarding the proposal by the Australian government? And do you do you expect that that will be able to act as an anchor for the NBPR price?

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Yes. That’s a good that’s a good question, Penny. And I’d like to welcome Penny as our new chief corporate affairs officer. So the Australian government announced the strategic reserve concept during the election campaign. They are establishing a task force to assess different options, and that is progressing quite well.

We’re actually in Canberra only last week presenting how we see the strategic reserve being very helpful in creating this non China controlled price index. If if you just take a step back, the number one mechanism that the China has used to control the railroad sector is preventing a functioning price index. So benchmark materials intelligence has established now, only last week, this non China controlled price index. But but for that to have weight, to have life, we need to put volumes onto that. And I think the Australian government can continue to play a key leadership role across the globe in putting any strategic reserve volumes and rare earths onto that index, and we presented that we presented that to a number of industry players as well as to the federal government.

And that concept is is has been very well received, and we will progress that, through the the task force that’s being established by the federal government. But to to date, we have not had any how do I say it? We have not encountered any opposition or concerns with that concept.

Lewis, Webcast Moderator: Thanks, Daryl, and apologies for the technical delays there. I I just jumped out of the meeting for for a second. The next question comes from Fifei Jiang and reads, when will the final investment decision for the Nolan’s project be officially announced?

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah. So so as we’ve said last time, so we’re not in control of the due diligence process. But as I mentioned in the voice over, there’s a there’s a number of steps to securing the 60% cornerstone investment. We think that the step that will take the longest is related to the announcement of the German raw materials fund and then completing their due diligence ahead of making a decision. Now they have not committed to, and they can’t commit to a timeline because it it’s very difficult to obviously put a timeline around due diligence because you don’t know what what will be covered by that.

But our sense is that it’s likely to take towards the end of the the year, and that will secure our 60%, which then allows us to raise the the 40% from the public market, which is typically a six week to eight week process.

Lewis, Webcast Moderator: Thanks, Daryl. The next question comes from Stefan JVR and reads, If the GRMF appraisal phase extends beyond the next six months, does the team have any concrete mitigation strategies in place to avoid a dilutive capital raise?

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: I see. It probably goes so, Stefan, it probably goes back to what I was saying before, and that is we’re pursuing multiple options. So we have redundancy. We have we have choice.

Conference Moderator: I

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: also mentioned that we’ve got a clear line of sight to 60%. And assuming those pieces fall in, we should be at a good place, we think, by the end of this year. But but we’re also pursuing a potential JV option, And there’s a number of benefits of a of a JV option, and one of that is it would reduce the capital that we would need to raise significantly, enhance dilution. But at the end of the day, also comes down to what the JV partner brings to derisk our growth trajectory, but and also how they value the company, not just phase one, but phase two. So it’ll be a trade off between what they bring, how they value the company versus if we if we go it alone.

What I can say is that so whilst there’s uncertainty and how this may all land, we are doing what we can, which is to progress as many options as we can in parallel. So we’ve got competitive tension, and we’ve got choice where we can make a decision that’s in the best interest of our organization and our shareholders.

Lewis, Webcast Moderator: Thanks, Daryl. The next question also comes from Stefan and reads, The Traxxas Agreement is binding subject to conditions precedent being met by thirty one December twenty eight, including the completion of construction, commencement of commercial production and ramp up. Given the slow progress Arafura has made to date, is this agreement being renegotiated?

Peter Sherrington, CFO, Arafura Rare Earths Limited: So we have continuous engagement with all of our offtakers, you know, whether they’re already secured or or their potential offtaker partners. And then it’s really important to have that engagement going to inform them of where the project’s at. You know, obviously, to be honest, that engagement has increased through the the China magnet export restrictions. And, you know, our offtakers are very aware of the strong link between raising the equity and when construction commences, which drives when production commences. And in in most instances, we’re also engaged with them them on the opportunity of equity as well even where their off take is already secured.

So they are very aware that the equity is is the the critical path to when construction commences and when they get first product. And we have constant dialogue running with them on what that pro how that process is running. They they have a fairly good view through to the the need for the strategic equity as part of that process, understanding that where China has managed to keep pricing low, it’s to discourage downstream investment in in the rare earth’s magnet value chain. So suffice to say, they have a good understanding of where our target production timeline sits, where the critical path is is is heading on on securing that equity. And in some instances, they’re on that critical path if we’re pursuing them for equity as well.

And, you know, obviously, if there is a need on a contract to negotiate those first delivery clauses, they will be renegotiated and set once there is good certainty around when construction will commence. So, yeah, that that that is that is something we need to manage with all off takers. But there’s a fairly significant engagement process that runs with all of those groups to keep them informed of our progress.

Lewis, Webcast Moderator: Thanks, Pete. The next question or round of questions comes from Bernard Ho. The first one reads, With CapEx requirements for the project projected to be US1.2 billion and debt secured of US1.05 billion dollars Why do we need to raise so much equity to the tune of seven ninety million dollars It would appear we only need half the amount of equity.

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah. That’s a good question. Let me make a couple of comments, and Peter can add a lot more specifics to it. But so firstly, the the the plus 1 US billion of debt includes, completion support, cost overrun facilities. So that’s so that’s only available if there was a budget or a schedule overrun.

But secondly, we need to fund not just the the CapEx for building the plant, but we need to fund working capital, interest repayments, etcetera, until we’re cash flow positive through the through the ramp up phase. So when you take all of that into account, we’re raising the minimum equity we need to get through that and to support the requirements of the lenders. But but, Peter, please jump in and and add to that.

Peter Sherrington, CFO, Arafura Rare Earths Limited: No. I think I think you’ve covered it, Daryl, in terms of the the total funding envelope is is larger because of the working capital requirements and the need to fund costs like interest during ramp up. And that of those debt facilities, some of them are not drawn under the the base case. And and so therefore, they’re not counted as part of the base case funding. They are contingent facilities or overrun facilities.

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Just look. Just one other thing that I would add. You know, we had a choice. Right? Every rare earth company has a choice.

Do you go with a low CapEx solution? But that kinda means you’ve got to send your product for processing in China as it exists today, or do you go with a higher CapEx solution where you can bypass China? We’ve gone with the latter, which I think our recent events has shown the the much better strategy, but it means we’ve gotta raise more raise more capital. Peter and his team, our strategy has always been to minimize equity, minimize dilution, and maximize debt. So we’re very conscious of that, and hence, we while we’ve maximized our our debt as much as we can.

Lewis, Webcast Moderator: Thanks, Daryl. The next question from Bernard reads, apart from the German raw materials fund, are we progressing with any other government equity contributions? And if yes, how are we going with this?

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah. Good good question, Bernard. So the answer is yes. Right? So so as I said, you know, we’re progressing multiple pathways.

We know that as shareholders, you want visibility of that. So we are progressing as quickly as we can, and we’re encouraging announcements around that. But we can only announce such things when there is agreement with the different parties around that. But just if I can bring you back to the comment, you know, we made the same comment at the last quarterly. We have a clear line of sight to 60%.

So so we have a level of confidence that we’ve got the pieces progressing that will get us to the 60%. And as we’ve shown, you know, more recently with the German raw materials fund, previously with the National Reconstruction Fund, we have cast a wide net to tap into new funding that has been established in supporting projects like ours to establish a diversified supply chain for critical minerals.

Lewis, Webcast Moderator: Thanks, Daryl. The next question from Bernard reads, what are the reasons why you limit the cornerstone investment target to 60%? Would you raise this to a higher percentage if there is appetite to do so?

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Absolutely, Bernard. Yep. Absolutely. Yep. So there is opportunities to go over the 60%.

We’ve said to the market that depending market conditions, we wanna get within 50 to 60%. We have a high confidence getting to the 60%, but there are possibilities and options to go beyond that.

Lewis, Webcast Moderator: Thanks, Daryl. The last question from Bernard reads, with the maturity of AI technologies now permeating into the workforce, what can you see as opportunities to apply AI into the development of the Nolan’s project?

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: That is a great question. So I would say so, obviously, there’s opportunities on the development side, but there’s much more opportunities in the operational side and particularly for projects like ours. If you look at our project, it is a complex integrated process plant. And and for such a plant, you need to run the many elements of it in a stable fashion and in a way that is optimized for the whole. That actually has proven to be quite difficult in the past with AI, with improved maintenance preventative maintenance techniques.

This will be one of, I think, the key differentiators that will enable us to not just ramp up quicker than we have been able to in the past, but also to optimize this plant through better information, better automation. So the use of AI will be a key plank in optimizing our asset. It’ll help us I believe it’ll help us much more in operations than in development.

Lewis, Webcast Moderator: Thanks, Daryl. The next question comes from Jerome Vanderpepel and reads, Darrell, you mentioned in a recent podcast that you will potentially be visiting The US more frequently. Can you expand on the reasons why?

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah. Look. So, like, again so we always you know, we go with multiple options. Right? We are engaging with The US.

We have engaged with The US, and we’ve engaged through multiple different pathways, and we’ll continue to do so. The US focus has been so the so The US has clearly increased its determination to secure an independent source feed for their rare earths. However, they have prioritized processing in country, which is something that we’re not we’re not doing. But with that said, we are engaged we are engaged with The US, both from a US manufacturing perspective, but also from a US government perspective.

Lewis, Webcast Moderator: Thanks, Daryl. The last question from Jerome reads, I’ve observed recently some volatility in Arafura’s share price and also trading volume. Can you please provide comment on whether the company is aware of any unusual trading activity or has received any queries from the ASX or ASIC regarding market integrity over this period?

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Did did you wanna talk to that one, Peter?

Peter Sherrington, CFO, Arafura Rare Earths Limited: Sure. Yep. So look. I’m I’m not aware of any any queries from ISX and ASIC just to sort of deal with that question first up. And we we we we follow the register fairly closely, and whilst we haven’t detected any any transactions that look suspicious, what we have noticed is that, you know, it was widely anticipated that The US would use the Defense Protection Act to to provide some support to MP materials, and the breadth and extent of that support probably took took the market by surprise.

But what we have noticed in in the lead up around some specific geopolitical events and and then more broadly some some rare earth related events. So for example, the the export on on magnet exports, the the restrictions on the export of magnet exports from China, and then then the the US Department of Defense support for MP materials. Around those transactions, there was some increased buying on the register. So I think some traders had a strategy where they’d identified those opportunities might emerge and took exposure to the NDPR market by investing in Arifura, and they may have done it in other rare earth projects. And that probably created some buying around the time of of those those events.

And what we probably have seen more recently is perhaps some profit taking by those groups as a result of those announcements flowing through, share price appreciation, and then reducing their exposure. I think it’s probably more a view on an investment strategy rather than the underlying fundamentals of of Arifur itself. I mean, that’s probably what we’ve gleaned from it from from our analysis of movements on the share register.

Lewis, Webcast Moderator: Thanks, Pete. The next round of questions comes from Nick Stop and reads, Can you explain to shareholders why FID guidance was not achieved by June? And what confidence can shareholders have in guidance the company is now providing, given its record to date?

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah. Good question, Nick. And I know you’re not the only one that would be asking that. Look, Nick, it’s just so, you know, we spoke a little bit about the German raw materials fund. We engaged with them at the I’m gonna use it as a bit of an example.

So we engaged with them, as Peter said, in the towards the end of last year, and then the process was paused as the German government went through their their elections. And the change in government was significant, and all that added months to the delay of establishing this fund. So these are sort of delays that we that aren’t really in in our control. Like I said in the in the introduction, you know, we’re one of the first two projects. So out of the many projects that have applied for general raw materials funding support, same with the National Reconstruction Fund, we are we were one of the first two.

So that to me, that demonstrates that we’re doing everything we can to progress this as fast as possible, but it’s important to say a few things. Funds that we’re tapping into, they’re not just dealing with us. They’re dealing with many companies. They’re dealing with external events such as elections, such as trade negotiations, etcetera, and we’re not in control of that process. And the due diligence that they’re doing is is very extensive.

Now that will help us with securing the the 40%. But just coming back to your your question, we are dependent on other entities’ timelines. There are external events that are impacting those timelines that we don’t control, but we’re at the front of the queue. So I feel like we’re doing it as fast as we can to to secure funding and move into construction.

Lewis, Webcast Moderator: Thanks, Daryl. The next question from Nick reads, Are there any time considerations with regards to any of the loan facilities and existing offtakes? If so, how is the company managing this?

Peter Sherrington, CFO, Arafura Rare Earths Limited: So I think we’ve probably already talked about the first delivery dates on contracts, so I won’t go over that again. But in terms of debt facilities, obviously, the the credit credit approved facilities, they all have time frames on them. And we’ve in in the quarterly, we noticed that noted that we’ve been continually having those credit approvals extended. So we have a have a fairly extensive engagement with the lenders like our off takers, continually update them of where we are at with the project. Obviously, we can provide more frank information to to those lenders as they’re under CA and they’re our advisers.

So they have a very good insight as to what activities we have running around the the equity and how we’re tracking towards raising that equity. There’s also a number of ECAs who are central to the funding strategy. They probably have a very good insight as to the the need to diversify the value chains. So we do get fairly strong support on on the renewal of those or extension of those those credit approvals. But, you know, it’s it requires engagement and us to keep them fully informed of where we are and our views on where the market is and what we’re doing to align ourselves with those opportunities.

Lewis, Webcast Moderator: Thanks, Pete. The next question comes from John Trany and reads, On Page 14 of the quarterly report, you mentioned the current cash burn rate has reduced to $2,000,000 per month. Can the shareholder therefore assume that the $27,000,000 in cash holdings is enough to last past the end of the March?

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah. Good question, John. So so the short answer is yes. So we you know, this quarterly, the last quarterly, we said we had cash flow that takes us into q one. Our burn rate is less than what we’ve forecast.

So the that cash flow runway is is extending as time goes on. And, also, what I should point out is at the end of q one, we’ve got a healthy buffer as well. So yes. Mhmm.

Lewis, Webcast Moderator: Thanks, Daryl. The next round of questions comes from Fredrik Driftman. The first one reads complete at the latest so that no further capital increase is necessary.

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: So, Lewis, we lost you there for a few seconds. Can you just

Lewis, Webcast Moderator: Oh, sorry about that. I’ll reread that question. The the next question comes from Frederic Driftman and reads, what is your current expectation as to when the financing must be complete at the latest so no further capital increase is necessary?

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah. So that’s why we talk about the cash flow runways. The cash flow runway is out to to q one plus of next year.

Peter Sherrington, CFO, Arafura Rare Earths Limited: I I think the question Daryl’s referring to, if it takes longer to to secure the funding, how does that impact on on CapEx? Is it likely to cause CapEx to increase?

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Sorry. I did I did miss that question. So that so so, Frederic, that’s a good question. You know, we continue to monitor their CapEx trends with our primary service providers, equipment providers. But you’ll note that we continue to look at ways to reduce CapEx, to reduce schedule so that we’re, I’m going to say, ahead of the curve.

So as we see CapEx pressures as time goes on, we can offset that with opportunities. And, look, we’ve been doing that for two years or more, and you can see that our CapEx has stayed relatively stable because of that.

Lewis, Webcast Moderator: Thanks, Daryl. The next question from Frederic reads, if it comes to the price bifurcation you mentioned in the quarterly report, do any of your existing offtake agreements reference the China price? And how could Arafura benefit from this new pricing mechanism?

Peter Sherrington, CFO, Arafura Rare Earths Limited: So, you know, as we’ve disclosed, as we’ve announced offtake agreements, they do have a reference to the China price. All contracts, though, have a fallback provision in that if that China price or index is no longer available, that we agree a process to switch to an alternate pricing strategy. You know, we’ve had discussion with with off takers, and with some off takers, there is actual agreement that the the China price is not sustainable. So, you know, we we we have a process with existing contracts to move to new pricing should an index disappear. In contracts or proposals that are current at the moment but not executed, we have some time ago switched to focusing on non China price referencing.

So those contracts that haven’t been executed, that pricing index is actually open at the moment and and has probably probably some six months ago, we started to talk with with those offtakers around bifurcation of pricing. There was probably some resistance to it at at that point, probably in the lead up to the the restrictions on magnet exports, and then perhaps probably the more more significant announcement around the price for for MP materials, the discussion has probably switched to focus to to alternate references. The key thing for us will be to try to define a a pricing reference when those pricing mechanisms that are now emerging are only in their infancy. So that’s probably the challenge for us. I think there’s general agreement with customers that that a different pricing reference is becoming more relevant.

Lewis, Webcast Moderator: Thanks, Peter. The next question comes from Richard Brechineni and reads, Can you please provide an update on Arafura’s Korean engagement and the GE renewable energy MOU? Any progress on a potential JV with these parties?

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Do you want to take that, Peter?

Peter Sherrington, CFO, Arafura Rare Earths Limited: So so there’s two questions there, Lewis, just to clarify. One is on Korean market engagement, was it? And then

Lewis, Webcast Moderator: Korean engagement. Correct. And then the the g renewable energy MOU and and any linkages through to the potential JV.

Peter Sherrington, CFO, Arafura Rare Earths Limited: Yeah. Okay. So look. We’re we’re not gonna provide specific detail around the potential JV. The more information we provide, the the easier it is for people to sort of try to speculate around what might be happening around the JV, which may create, you know, market speculation, which might not be helpful in in our engagement with with potential JV partners.

I suppose in terms of the the GE renewable energy MOU, so we’ve seen GE have reduced their their their market activity in the offshore wind sector. As a result of that, it’s been difficult to get GE to commit to a a long term offtake because they’re uncertain about what their forward requirements are for for material. We’ve maintained engagement with them to understand if there is an opportunity to enter into some arrangement as they get a further as they have contracts that may settle or they may win win contracts for offshore wind, there may be an opportunity there to lock into a volume that ties in with those long term agreements. What what we probably have seen is over the past two years is the market dominance of Siemens Gamesa renewable energy in the offshore sector has become quite significant. And we’ve noticed that, you know, GE have been reducing their footprint in France, which is where their main offshore sector sits.

So whilst we we wouldn’t say that we we won’t secure offtake with GE, we we know that we probably are getting less traction with them than we are with other groups. I think that’s probably consistent with the feedback we provided in the previous quarterly. So it’s it’s probably pretty much as we report as we discussed it in that previous quarter. I think that’s probably, hopefully addressed Richard’s question.

Lewis, Webcast Moderator: Thanks, Peter. The next round of questions comes from Bernard Hoffman and reads: In relation to equity finance, is Arifura also in talks with Italy or France who have comparable funds like the German raw materials fund?

Peter Sherrington, CFO, Arafura Rare Earths Limited: I think we’re in engagement with just about every country that has a raw materials fund. So yes and yes, and then plus others as well. Having said that, they’re not all as perspective as each other, and we need to look at the the link of offtake or other other strategic alignment with each of those funds and and determining whether or not that alignment is going to be sufficient. Sufficient. But, yes, we are definitely engaged with both of those groups, but plus others as well.

Lewis, Webcast Moderator: Thanks, Peter. The next round of questions comes from Lee Birch. The first one reads: What action is being taken to improve the cadence and clarity of communications so shareholders are being properly informed? What is being done to ensure accurate, consistent and timely information is shared with the broader shareholder base?

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah. Let me take that one, and and, Peter, feel free to jump in. So so, Lee, so we we know that, as shareholders, you want as much visibility on progress as possible, and we push for that, noting that any announcements, you know, need to satisfy the ASX requirements, but also need to be agreed with the other parties. So we’re continually pushing to get announcements that show that show progress. Peter, do you have any anything to add to that?

Peter Sherrington, CFO, Arafura Rare Earths Limited: No. I think that covers it, Darryl.

Lewis, Webcast Moderator: Thanks, Darryl. The next question from Lee reads, how will management ensure value is preserved for existing shareholders through the funding solution for the Nolans project?

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah. So same as what I think we got asked the same question last quarter. So look. Our strategy is very, I think, very clear on this, Lee. Right?

So we’re deliberately pursuing multiple options to give us choice, including the JV discussions so that at the end of the day, we’ve got choice around choosing what is in the best long term interest of the organization and our existing shareholders.

Lewis, Webcast Moderator: Thanks, Darryl. Leigh’s next question reads: Given ARU’s need for tolling or processing obligations to magnets, what is the realistic likelihood of securing an ex China partnership to complete the full value chain, including magnet production? Have any formal partnerships or commitments been secured?

Peter Sherrington, CFO, Arafura Rare Earths Limited: Do me to answer that one, Daryl?

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah. Go go for

Peter Sherrington, CFO, Arafura Rare Earths Limited: it, Peter.

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Yep. Mhmm.

Peter Sherrington, CFO, Arafura Rare Earths Limited: So look. Just to just to clarify, our offtake agreements are are with the the end user of the product, whether that’s an OEM, an original equipment manufacturer, like an automaker or a wind turbine maker, or engagement with the the tier one, so for the component makers for those groups. Our arrangements are that the the the contract partner has the relationship with the magnet maker. So the the contract taker has the tolling arrangement with the magnet maker, and our responsibility is to deliver either an oxide or a metal. We’ve not contemplated, and we certainly have discussed and and thought about the strategy around committing to supplying a magnet to an off taker, but it just increases the level of perceived risk and technical risk in terms of monetizing our product if we have to go down that that value chain to a magnet and try and project fund the project on that basis.

So at the moment, the the the offtaker can direct us to settle with their magnet maker directly, and the magnet maker will will will settle with us and and order the volumes, but the off taker remains responsible for the the volume commitment and the payment commitment. So whilst we don’t have a contractual relationship with the magnet makers, we actually have a fairly significant engagement directly with them and through the magnet makers that our our our customers are engaged with. There are some instances where we have some engagement going with magnet makers for offtake. We’ve had to be fairly selective around those particular arrangements because the magnet makers generally are not large corporates. They have quite modest margins, and it makes it very challenging for them to be bankable or commit to long term offtake agreements.

So sort of I hope that sort of addresses the question, but it probably gives you a bit more of a feel of how our contractual arrangements and market engagement happens.

Lewis, Webcast Moderator: Thanks, Peter. We’ve reached the schedule.

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Hi, Lewis. So so I just said, look, we don’t need to engage with a magnet partner. As Peter said, Pompeii adds risk at this point. We would never not pursue an opportunity. But at this point, we just don’t need to.

Lewis, Webcast Moderator: Thanks, Daryl. We’ve reached the scheduled closing time for this quarter’s call. There are some unanswered questions from shareholders that we will respond to directly. But with that said, I will pass to Daryl now for for closing comments. You’re on mute, Daryl.

Sorry.

Darryl Kosubo, Managing Director and CEO, Arafura Rare Earths Limited: Sorry about that. Can you hear me? I’m here. Thanks, Lewis. Look.

Again, just thank you for for dialing in to our our quarterly. What I’d like to do is just reiterate some of the the key points that we’ve covered today. So one, you know, we’ve had over the course of the quarter a glimpse of the cost in having a global supply chain of rare earths that is dependent on one country with a number of EV production lines being shut across multiple regions. The cost of NDPR per electric vehicle is only $70. Without it, you cannot produce a 47,000 US dollar vehicle.

The export agreements that have been struck with China only have a term of three to six months, and Sterero supply remains tenuous. The economic and strategic imperative of an alternative rare earth supply chain has never been more apparent. The US have acted decisively more recently just as Japan did over a decade ago. We are a thorough well positioned to support an alternative rare earth supply chain, particularly into Korea and Europe. With the recent leadership from The US seeing a floor price for NDPR that was nearly double the China price at the time, We’re seeing the market conditions turn rapidly to support a non China controlled pricing index with the creation of such an index only being announced last week.

We’ve been able to announce further progress on securing Cornerstone equity and are closing and securing the remaining equities that we can finalize our funding and move into construction. And we’re determined to finalize the funding as soon as we can and appreciate that you’ve been waiting patiently for this. It is evident to us, as I hope it is to you, that our timing is proving to be quite fortuitous. I will close there. Please, we will take the we will answer the questions that we didn’t get to, but please, I just encourage our shareholders to to ask questions anytime during the quarter.

Thank you again for dialing in.

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