Earnings call transcript: Arafura Resources outlines strategic initiatives in Q4 2025

Arafura Rare Earths Limited (ARU) provided a comprehensive update on its strategic initiatives during its Q4 2025 earnings call. The company is focused on securing funding for its Nolans Project while exploring new product innovations and operational strategies. Arafura's stock saw a minor decline of 1.82%, closing at 0.275, amid broader market volatility.

Key Takeaways

• Arafura is targeting a 50-60% cornerstone investment for its Nolans Project.
• The company has secured $1.05 billion in debt facilities.
• Arafura is exploring joint ventures to reduce capital requirements.
• The demand for rare earths is expected to double over the next decade.
• Arafura is uniquely positioned to provide non-China rare earth supply.

Company Performance

Arafura Rare Earths is advancing its Nolans Project, with a focus on securing necessary funding and exploring strategic partnerships. The company is leveraging its unique processing capabilities to address market challenges and capitalize on the growing demand for rare earth elements, particularly in the electric vehicle (EV) sector.

Financial Highlights

• Current cash holdings: $27 million
• Cash burn rate: $2 million per month
• Total project funding requirement: $790 million in equity
• Debt facilities secured: $1.05 billion

Outlook & Guidance

Arafura anticipates making a Final Investment Decision (FID) by the end of the calendar year. The company is pursuing a €100 million investment from the German Raw Materials Fund and continues discussions with government equity contributors. Arafura aims to extend its cornerstone investment beyond 60% and has a cash runway extending into Q1 2026.

Executive Commentary

CEO Darryl Cuzzubbo emphasized the strategic importance of developing an alternative rare earth supply chain, particularly for Korean and European markets. He stated, "The economic and strategic imperative of an alternative rare earth supply chain has never been more apparent." Cuzzubbo also highlighted the company's proactive approach: "Our strategy is very clear... we're deliberately pursuing multiple options to give us choice."

Risks and Challenges

• Supply chain disruptions in EV manufacturing could impact demand.
• China's control over 90-99% of rare earth supply poses a competitive challenge.
• Export restrictions and pricing volatility may affect market dynamics.
• Securing sufficient funding for the Nolans Project remains critical.
• Regulatory changes in key markets could influence project timelines.

Arafura Rare Earths is navigating a complex landscape, with significant strategic initiatives underway to secure its position in the rare earth market. The company's focus on innovation and strategic partnerships aims to mitigate risks and capitalize on emerging opportunities.

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

Melanie, Conference Moderator: Thank you for standing by and welcome to the Arafura Rare Earths Limited June 2025 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 Mr. Darryl Cuzzubbo, Managing Director and CEO. Please go ahead.

Darryl Cuzzubbo, 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 Cuzzubbo, the Managing Director of Arafura Rare Earths Limited, and again with me is Peter Sherrington, our CFO. Similar to last quarter, what we'd like to do is just firstly share with you 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. Thirdly, Peter's going to unpack our recent announcement regarding the German Raw Materials Fund.

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 Rare Earths Limited because you anticipated exactly what we are seeing playing out at the moment, as the global manufacturing regions of the U.S., 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 a diversified rare earth supply chain to be established with long-term certainty, it's critical that there is a functioning market rare earths price index where investors can be confident that pricing and returns will be driven by typical supply-demand dynamics.

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, the U.S., and Japan. We are seeing electric vehicles worth an average of $47,000 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 earths magnets again, we understand that such agreements are typically only for three to six months. In other words, the rare earth supply crisis still has a long leg 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 U.S., where there's been substantial events of late. We've seen the U.S. Department of Defense underpin the development of Mountain Pass in securing for the U.S.

an independent supplier of rare earths magnets. This now only leaves Korea and Europe as the major manufacturing hubs that do not have an independent supplier of rare earths. As you know, they have been the two markets that we have been primarily focused on. These two markets, Korea and Europe, today are still essentially 100% dependent on China's supply. The U.S. Department of Defense has also set a floor pricing of $110 a kilo for NdPr, which is interestingly close to an incentive pricing of between $130 to $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.

If I just bring this closer to home, the Australian government, as you know, is playing 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 rare earth 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 it's encouraging 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 was 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 increase in 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. This all bodes very well to bringing on a Nolans Project at exactly the right time. 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 fully funded solution and announcing FID. Whilst we continue activities around reducing project execution risk, reducing capital, improving our schedule, we need to do these things because invariably you come across capital pressures, etc., going forward. However, our primary focus remains upon securing equity as the final step required to call in FID 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.

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 €100 million, which is tied to additional supply from Nolans. 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 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 want to 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. 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 expected. We are doing everything we can to progress this as fast as possible, and I think 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 a 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 U.S., the market volatility, as we see it, is starting to settle. We are acutely mindful that it's very important to U.S. shareholders to provide visibility of progress, and we will announce what we can, noting 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 words, we expect that the components that make up 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, and that's because 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 German Raw Materials Fund 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, Darryl. Darryl's already discussed the changing landscape and action by Western governments that are looking to address the need to develop diversified value chains, and specifically around rare earths, the need to reduce the dominance of China in the rare earth and magnet value chain. The U.S. Department of Defense underwriting a floor price for MP Materials of $110 per kilo of NdPr has been a really highly visible example of government talk being turned into some pretty decisive action. Arafura Rare Earths Limited is seeing similar conviction with government agencies in other jurisdictions it's engaged with for offtake and debt facilities, and also with equity facilities that are state-backed. In September 2023, the German federal government actually announced the allocation of €1 billion to the German Raw Materials Fund.

Arafura Rare Earths Limited was fortunate enough at the time to be in Frankfurt when the fund was announced in September 2023, and we met with KfW at that time to gain a better understanding of the process and mandate for the German Raw Materials Fund. 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 Materials Fund's activities, and approval of projects to advance through to due diligence was deferred until the outcome from that election was known. As Darryl mentioned, Arafura Rare Earths Limited is one of two companies selected to advance to appraisal or due diligence phase once government was formed and the Interministerial Council meetings were recommenced.

We've applied for a total equity investment of €100 million. Half of this amount will be linked to our existing offtake agreement with Siemens Gamesa Renewable Energy. Arafura Rare Earths Limited will seek additional equity through the supply of a further 500 tons for ammon to the German market. We're already partway through the commitment on offtake and working to expand that out to secure the total investment of €100 million. The commencement of DD by the German Raw Materials Fund, combined with the $200 million Australian dollars or $130 million U.S. investment from the National Reconstruction Fund, which was announced in January, demonstrates Arafura 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. Darryl's already talked about the objective of securing up to 60% of the total $790 million U.S.

of equity required to fully fund the Nolans Project from cornerstone and strategic investors. Potential investment from the German Raw Materials Fund and the National Reconstruction Fund represents approximately 50% of that cornerstone investment target and indicates or provides 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 tons of NdPr offtake required to target the full investment amount of €100 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 a 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 German Raw Materials Fund and the related offtake activities around that. I think I'll pass back over to the moderator, and we can go to Q&A.

Melanie, Conference Moderator: Thank you. If you wish to ask a question via the phones, you will need to press the star key followed by the number 1 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 Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah, let me answer that. It's a good question, John. We talk about nearly 90% of NdPr being controlled by China, and the reality on the heavies is it's 98% to 99% controlled by China. 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. Just coming back to your question, 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. The aim is to have this additional heavies be incorporated into our phase one for a modest amount of capital.

When I say modest, we're talking in the low tens of millions of dollars.

Lewis, Webcast Moderator: Thanks, Darryl. 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 Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah, sure. Good question, John. If I just take a step back, 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 at Arafura can choose what's in the best interests of the long-term interests of the company and also our shareholders. By having options, we have choice. Just coming back to your JV question, at the end of the day, we're running the JV pathway and the equity in parallel. I'm going to say whichever one gets there first is best positioned to lock in, if you like, 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 already have.

We don't see any conversations with the JV delaying our primary equity path, and we're seeing it fitting in with what we've already secured by way of debt and offtakes.

Lewis, Webcast Moderator: Thanks, Darryl. 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 Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: Good question. If you look at our board, including myself, when I first joined the board, we all bought into Arafura stocks. Now, with the board, we've 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 one, noting that there's a lot going on at the moment, so the trading windows for board members have been limited.

Lewis, Webcast Moderator: Thanks, Darryl. John's next question reads, "What tangible changes are you seeing in your commercial discussions post the U.S. Department of Defense transaction with MP Materials? Are any of your new offtake proposals now referencing the floor price under this transaction or Benchmark Minerals Intelligence's ex-China index?

Darryl Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: Did you want to take that one, Peter?

Peter Sherrington, CFO, Arafura Rare Earths Limited: Sure. So look, there's been some significant changes in the engagement with offtakers since the U.S. Department of Defense transaction was announced. I think the key thing is that we are seeing less resistance to referencing different pricing mechanisms. There's probably a view that referencing a non-China pricing mechanism in contract negotiations is now becoming more acceptable, and we're focusing on that in our new offtake agreements that 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 is a risk here that the China mechanism either disappears or becomes less relevant as it focuses mainly on internal transactions in China. It's been a catalyst for discussing different pricing mechanisms, and there's much more acceptance that offtakers see the need for a sustainable pricing mechanism within the offtake agreements.

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 Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah, good question, John. When we announced phase two after a preliminary scoping study, we said that our plan with phase two is we want to get funding secured for phase one and move into construction. As soon as we'd achieve that, we would then pursue the engineering and the approvals for phase two. The reason we're doing that is, one, we just want to stay focused, right, to get into construction as quickly as we can. 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 debottling opportunities that will allow for a much, you know, an improved capital-efficient phase two. We want to factor that capital efficiency into phase two.

Secondly, it makes sense that phase two is funded out of cash flow from phase one so that we don't have to tap the market for additional capital. That is our plan, remains our plan as we see it today. In terms of offtakers, we're not going to engage with offtakers until we're progressing with phase two. 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 projects. We think we will be able to secure offtakes. Right now, our focus is on securing the funding so we can move into construction of phase one.

Lewis, Webcast Moderator: Thanks, Darryl. John's next question reads, "In table one, offtake overview in the quarterly report, the 730 tons 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 finalizing this agreement is the last hurdle to reaching FID?

Peter Sherrington, CFO, Arafura Rare Earths Limited: Thanks, Lewis. The remaining uncontracted volume is allocated 500 tons to German Raw Materials Fund linked offtake, and 730 tons allocated to OEM wind auto tier one and trader. It's possible the German groups we're targeting or linked investment to German Raw Materials Fund will want more than the 500 tons tied to the German Raw Materials Fund. The remaining volume of 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. 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. It's hard to say if that will be the last hurdle to FID.

It could be 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 final investment decision.

Lewis, Webcast Moderator: Lewis?

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

Penelope, Chief Corporate Affairs Officer, Arafura Rare Earths Limited: Thank you, Darryl. I'll just jump in here with my line of fire.

Peter Sherrington, CFO, Arafura Rare Earths Limited: Yep, you go, Penelope.

Penelope, Chief Corporate Affairs Officer, Arafura Rare Earths Limited: Great. Darryl, 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? Do you expect that that will be able to act as an anchor for the NdPr price?

Darryl Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: Yes, that's a good question, Penny. I'd like to welcome Penny as our new Chief Corporate Affairs Officer. 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 were 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 you just take a step back, the number one mechanism that China has used to control the rare earth sector is preventing a functioning price index. Benchmark Minerals Intelligence has established now only last week this non-China controlled price index. For that to have weight, to have life, we need to put volumes onto that.

I think the Australian government can continue to play a key leadership role across the globe in putting any strategic reserve volumes in rare earths onto that index. We presented that to a number of industry players as well as to the federal government. That concept has been very well received. We will progress that through the task force that's being established by the federal government. 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, Darryl, and apologies for the technical delays there. I just jumped out of the meeting for a second. The next question comes from Fifi Jiang and reads, "When will the final investment decision for the Nolans Project be officially announced?

Darryl Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah, as we said last time, we're not in control of the due diligence process. As I mentioned in the voiceover, 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. They have not committed to, and they can't commit to, a timeline because it's very difficult to obviously put a timeline around due diligence because you don't know what will be covered by that. Our sense is that is likely to take towards the end of the year, and that will secure our 60%, which then allows us to raise the 40% from the public market, which is typically a six-week to eight-week process.

Lewis, Webcast Moderator: Thanks, Darryl. The next question comes from Stefan JVR and reads, "If the German Raw Materials Fund 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 Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: Stefan, this probably goes back to what I was saying before, and that is we're pursuing multiple options. We have redundancy. We have choice. I also mentioned that we've got a clear line of sight to 60%. Assuming those pieces fall in, we should be at a good place, we think, by the end of this year. We're also pursuing a potential joint venture option. There are a number of benefits of the joint venture option. One of those is it would reduce the capital that we would need to raise significantly and hence dilution. At the end of the day, it also comes down to what the joint venture partner brings to de-risk our growth trajectory, and also how they value the company, not just phase one, but phase two. It'll be a trade-off between what they bring, how they value the company, versus if we go it alone.

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

Lewis, Webcast Moderator: Thanks, Darryl. The next question also comes from Stefan and reads, "The TRAXUS agreement is binding subject to conditions precedent being met by 31 December 2028, 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: We have continuous engagement with all of our offtakers, whether they're already secured or they're potential offtake partners. That's really important to have that engagement going to inform them of where the project's at. To be honest, that engagement has increased through the China magnet export restrictions. Our offtakers are very aware of the strong link between raising the equity and when construction commences, which drives when production commences. In most instances, we're also engaged with them on the opportunity of equity as well, even where their offtakers are already secured. They are very aware that the equity is the critical path to when construction commences and when they get first product. We have constant dialogue running with them on how that process is running.

They have a fairly good view through to the need for the strategic equity as part of that process, understanding that where China has managed to keep pricing lower, it's to discourage downstream investment in the rare earths magnet value chain. Suffice to say they have a good understanding of where our target production timeline sits, where the critical path is heading on securing that equity. In some instances, they're on that critical path if we're pursuing them for equity as well. 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. That is something we need to manage with all offtakers. 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 $1.2 billion and debt secured of $1.05 billion, why do we need to raise so much equity to the tune of $790 million? It would appear we only need half the amount of equity.

Darryl Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah, that's a good question. Let me make a couple of comments, and then Peter can add a lot more specifics to it. Firstly, the plus $1 billion of debt includes our completion support cost overrun facilities. That's only available if there was a budget or a schedule overrun. Secondly, we need to fund not just the CapEx for building the plant, but we need to fund working capital, interest repayments, etc., until we're cash flow positive through the ramp-up phase. 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. Peter, please jump in and add to that.

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

Darryl Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: 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 kind of 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 have shown the much better strategy, but it means we've got to raise more capital. Peter and his team, our strategy has always been to minimize equity, minimize dilution, and maximize debt. We're very conscious of that, and hence why we've maximized our debt as much as we can.

Lewis, Webcast Moderator: Thanks, Darryl. 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 Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah, good question, Bernard. The answer is yes, right? As I said, we're progressing multiple pathways. We know that as shareholders, you want visibility of that. 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. If I can bring you back to the comment, we made the same comment at the last quarter. We have a clear line of sight to 60%. We have a level of confidence that we've got the pieces progressing that will get us to the 60%. As we've shown 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, Darryl. 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 Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: Absolutely, Bernard. Yeah, absolutely. There are opportunities to go over the 60%. We've said to the market that depending on market conditions, we want to get within 50% to 60%. We have a high confidence of getting to the 60%, but there are possibilities and options to go beyond that.

Lewis, Webcast Moderator: Thanks, Darryl. 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 Nolans Project?

Darryl Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: That is a great question. I would say, obviously, there's opportunities on the development side, but there's much more opportunities in the operational side, particularly for projects like ours. If you look at our project, it is a complex integrated process plant. 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. 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, Darryl. The next question comes from Jerome van der Peppel and reads, "Darryl, you mentioned in a recent podcast that you will potentially be visiting the U.S. more frequently. Can you expand on the reasons why?

Darryl Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah, look, so we always, you know, we go with multiple options, right? We are engaging with the U.S. We have engaged with the U.S., and we've engaged through multiple different pathways, and we'll continue to do so. The U.S. focus has been, the U.S. 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 doing. With that said, we are engaged with the U.S., both from a U.S. manufacturing perspective, but also from a U.S. government perspective.

Lewis, Webcast Moderator: Thanks, Darryl. 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 Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: Did you want to talk to that one, Peter?

Peter Sherrington, CFO, Arafura Rare Earths Limited: Sure, yep. I'm not aware of any queries from ASX and ASIC just to sort of deal with that question first up. We follow the register fairly closely, and whilst we haven't detected any transactions that look suspicious, what we have noticed is that it was widely anticipated that the U.S. would use the Defense Protection Act to provide some support to MP Materials. The breadth and extent of that support probably took the market by surprise. What we have noticed in the lead-up around some specific geopolitical events and then more broadly some rare earth-related events, for example, the restrictions on the export of magnet exports from China, and then the U.S. Department of Defense support for MP Materials. Around those transactions, there was some increased buying on the register.

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 Arafura, and they may have done it in other rare earth projects. That probably created some buying around the time of those events. 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 Arafura itself. That's probably what we've gleaned from our analysis of movements on the share register.

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

Darryl Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah, good question, Nick. I know you're not the only one that would be asking that. Look, Nick, just so you know, we spoke a little bit about the German Raw Materials Fund. We engaged with them at the, and I'm going to use it as a bit of an example. We engaged with them, as Peter said, towards the end of last year, and then the process was paused as the German government went through their elections. The change in government was significant, and all that added months to the delay of establishing this fund. These are sort of delays that aren't really in our control. Like I said in the introduction, we're one of the first two projects. Out of the many projects that have applied for German Raw Materials funding support, same with the National Reconstruction Fund, we were one of the first two.

To me, that demonstrates that we're doing everything we can to progress this as fast as possible. It's important to say a few things. Funds that we're tapping into are not just dealing with us. They're dealing with many companies. They're dealing with external events such as elections, such as trade negotiations, etc., and we're not in control of that process. The due diligence that they're doing is very extensive. That will help us with securing the 40%. Just coming back to 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. I feel like we're doing it as fast as we can to secure funding and move into construction.

Lewis, Webcast Moderator: Thanks, Darryl. 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: I think we've probably already talked about the first delivery dates on contracts, so I won't go over that again. In terms of debt facilities, obviously, the credit-approved facilities all have timeframes on them. In the quarterly, we noted that we've been continually having those credit approvals extended. We have a fairly extensive engagement with the lenders, like our offtakers, and continually update them on where we are at with the project. Obviously, we can provide more frank information to those lenders as they're under CA and they're our advisors. They have a very good insight as to what activities we have running around 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 need to diversify the value chains.

We do get fairly strong support on the renewal or extension of those credit approvals. It requires engagement from 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 Tranny and reads, "On page 14 of the quarterly report, you mentioned the current cash burn rate has reduced to $2 million per month. Can the shareholder therefore assume that the $27 million in cash holdings is enough to last past the end of the March 2026 June quarter?

Darryl Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah, good question, John. The short answer is yes. This quarterly, the last quarterly, we said we had cash flow that takes us into Q1. Our burn rate is less than what we've forecast, so that cash flow runway is extending as time goes on. What I should point out is at the end of Q1, we've got a healthy buffer as well. Yes.

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

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

Lewis, Webcast Moderator: Sorry about that. I'll reread that question. The next question comes from Frederick 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 Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah, that's why we talk about the cash flow runways. The cash flow runway is out to Q1 plus of next year.

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

Darryl Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: Sorry, I did miss that question. Frederick, that's a good question. We continue to monitor the CapEx trends with our primary service providers and equipment providers. You'll note that we continue to look at ways to reduce CapEx and reduce schedule so that we're, I'm going to say, ahead of the curve. As we see CapEx pressures as time goes on, we can offset that with opportunities. 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, Darryl. The next question from Frederick 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? How could Arafura benefit from this new pricing mechanism?

Peter Sherrington, CFO, Arafura Rare Earths Limited: As we've disclosed, as we've announced offtake agreements, they do have a reference to the China price. All contracts, though, have an all-back provision in that if that China price or index is no longer available, we agree a process to switch to an alternate pricing strategy. We've had discussion with offtakers, and with some offtakers, there is actual agreement that the China price is not sustainable. 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. Those contracts that haven't been executed, that pricing index is actually open at the moment and has probably, probably some six months ago, we started to talk with those offtakers around bifurcation of pricing.

There was probably some resistance to it at that point, probably in the lead-up to the restrictions on magnet exports. Perhaps the more significant announcement around the price for MP Materials, the discussion has probably switched to focus to alternate references. The key thing for us will be to try to define a pricing reference when those pricing mechanisms that are now emerging are only in their infancy. That's probably the challenge for us. I think there's general agreement with customers that a different pricing reference is becoming more relevant.

Lewis, Webcast Moderator: Thanks, Peter. The next question comes from Richard Brescianini and reads, "Can you please provide an update on Arafura's Korean engagement and the GE Renewable Energy MOU? Are any progress on a potential JV with these parties?

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

Peter Sherrington, CFO, Arafura Rare Earths Limited: There are two questions there, Lewis, just to clarify. One is on Korean market engagement, was it?

Lewis, Webcast Moderator: Korean engagement, correct, and then the Siemens Gamesa Renewable Energy MOU and any linkages through to the potential joint venture.

Peter Sherrington, CFO, Arafura Rare Earths Limited: Yeah, okay. We're not going to provide specific detail around the potential JV. The more information we provide, the easier it is for people to try to speculate around what might be happening around the JV, which may create market speculation, which might not be helpful in our engagement with potential JV partners. I suppose in terms of the GE Renewable Energy MOU, we've seen GE have reduced their market activity in the offshore wind sector. As a result of that, it's been difficult to get GE to commit to a long-term offtake because they're uncertain about what their forward requirements are for material. We've maintained engagement with them to understand if there is an opportunity to enter into some arrangement as they have contracts that may settle or they may 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 we probably have seen over the past two years is the market dominance of Siemens Gamesa Renewable Energy in the offshore sector has become quite significant. We've noticed that GE have been reducing their footprint in France, which is where their main offshore sector sits. Whilst we wouldn't say that we won't secure offtake with GE, we note 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. 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 Ho and reads, "In relation to equity finance, is Arafura 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. Yes and yes, and then plus others as well. Having said that, they're not all as prospective as each other, and we need to look at the link of offtake or other strategic alignment with each of those funds and determining whether or not that alignment is going to be sufficient. Yes, we are definitely engaged with both of those groups, plus others as well.

Lewis, Webcast Moderator: Thanks, Peter. The next round of questions comes from Lee Birch and 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 Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah, let me take that one, and Peter, feel free to jump in. Lee, we know that as shareholders, you want as much visibility on progress as possible, and we push for that, noting that any announcements need to satisfy the ASX requirements, but also need to be agreed with the other parties. We're continually pushing to get announcements that show progress. Peter, do you have 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 Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah, same as what I think we got asked the same question last quarter. Our strategy is very, I think, very clear on this, Lee, right? 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 interests of the organization and our existing shareholders.

Lewis, Webcast Moderator: Thanks, Darryl. Lee's next question reads, "Given Arafura Rare Earths Limited'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: John, may I answer that one, Darryl?

Darryl Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: Yeah, go for it, Peter.

Peter Sherrington, CFO, Arafura Rare Earths Limited: Yeah, yeah. Just to clarify, our offtake agreements are with 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 tier ones, for the component makers for those groups. Our arrangements are that the contract partner has the relationship with the magnet maker, so the contract offtaker 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 thought about the strategy around committing to supplying a magnet to an offtaker, 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 value chain to a magnet and try and project fund the project on that basis.

At the moment, the offtaker can direct us to settle with their magnet maker directly, and the magnet maker will settle with us and order the volumes, but the offtaker remains responsible for the volume commitment and the payment commitment. Whilst we don't have a contractual relationship with the magnet makers, we actually have a fairly significant engagement directly with them. Through the magnet makers that 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.

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.

Darryl Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: We've already said a schedule. Sorry, Lewis, I just said, look, we don't need to engage with a magnet partner. As Peter said, probably 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, Darryl. 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. With that said, I will pass to Darryl now for closing comments. Oh, you're on mute, Darryl. Sorry.

Darryl Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: Sorry about that. Can you hear me?

Lewis, Webcast Moderator: Okay.

Darryl Cuzzubbo, Managing Director and CEO, Arafura Rare Earths Limited: Yes, loud and clear. Thanks, Lewis. Look, again, just thank you for dialing in to our quarterly. What I'd like to do is just reiterate some of the key points that we've covered today. One that 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 the number of EV production lines being shut across multiple regions. The cost of neodymium-praseodymium oxide per electric vehicle is only $70. Without it, you cannot produce a $47,000 vehicle. The export agreements that have been struck with China only have a term of three to six months. Hence, the rare earth supply remains tenuous. The economic and strategic imperative of an alternative rare earth supply chain has never been more apparent. The U.S.

have acted decisively more recently, just as Japan did over a decade ago. We are well-positioned to support an alternative rare earth supply chain, particularly into Korea and Europe. With the recent leadership from the U.S. setting a floor price for neodymium-praseodymium oxide 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 on securing the remaining equity so that we can finalize our funding and move into construction. 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 answer the questions that we didn't get to, but please, I just encourage shareholders to ask questions anytime during the quarter. Thank you again for dialing in.

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