Arafura in Funding Talks for $964 Million Rare Earths Project

Arafura Resources Ltd. is in talks to raise funds for its A$1 billion ($964 million) rare earth project in Australia after China capped exports of the metals used in hybrid cars and laptops this year and prices soared.

“With the outlook of the market, the robustness of the project, we have every chance of raising the money,” Chief Executive Officer Steve Ward said in an interview in Perth. “The money will come from a combination of sources from all over the globe. It will come from debt, equity, maybe some financial instruments, and maybe some involvement with some customers and some raw-material suppliers.”

China, which controls more than 90 percent of the global market of the metallic elements, in July reduced export quotas for the rest of the year by 72 percent, sending prices up as much as ninefold. That highlighted a supply shortfall that’s been developing for years, Ward said.

“End-users are looking to companies like Arafura to get into production so they can secure a supply chain outside of China,” said Andrew Sullivan, a Sydney-based analyst for BBY Ltd. “While the quantities of rare earths required are quite small, these materials are important in a lot of the applications. Supply shortfalls won’t go away when China has a stranglehold on the market.”

Arafura climbed 4.9 percent to A$1.185 at 4:10 p.m. close of trading in Sydney, giving the company a market value of A$344 million. The stock has risen 67 percent this year.

Chinese Dominance

China produced 120,000 metric tons of the world’s 124,000- ton supply of rare earths last year, according to the Government Accountability Office, the investigative arm of the U.S. Congress.

“Even if China didn’t regulate its exports, there would still be a shortage,” Ward said yesterday. “Assuming the global economy stays in reasonable shape, supply is going to be very tight. China has been reducing quotas for the past five years.”

Arafura, in which East China Exploration and Development Bureau has the largest stake with 22.2 percent, is planning to produce 22,000 tons a year of rare earth oxides from 2013 over 20 years from its Nolans mine in Australia’s Northern Territory, with a processing complex to be built at Whyalla in South Australia state.

The company, which is also starting contract sales talks with potential buyers, has a year to secure funding, Ward said.

Japan accused China of imposing a “de facto” ban on rare earth exports this week amid a diplomatic spat with China over Japan’s detention of a Chinese fishing boat captain whose ship collided with two Japanese Coast Guard vessels. China’s Ministry of Commerce spokesman Chen Rongkai denied there was a ban.

Japanese Stockpiles

Japan’s Trade Minister Akihiro Ohata said yesterday his country may budget measures to secure supplies of the minerals after China curtailed exports.

“The latest incident between China and Japan is a subset of a bigger picture,” Ward said. “The fact that China is electing to keep its products in China is exacerbating the supply shortfall. It may be a situation where the quotas for the second half have been used up already.”

To contact the reporter on this story: Jason Scott in Perth at jscott14@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@Bloomberg.net.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.