Project Update

Nolans is on track to be one of Australia’s first ore-to-oxide rare earths processing facilities that will deliver responsibly mined and processed products to its global customers.

Debt funding completed

Arafura confirms it has secured the remaining conditional approvals from commercial lenders for the US$775 million of senior debt facilities and an US$80 million Cost Overrun Facility (COF). 

The announcement of US$533 million in debt funding (refer ASX Announcement 14 March 2024) from Export Finance Australia (EFA), both on EFA’s Commercial Account and under the Commonwealth Government’s A$4 billion Critical Minerals Facility (CMF) which EFA administers, and the Northern Australia Infrastructure Facility (NAIF) was the catalyst to unlock direct lending and untied loan guarantee commitments from Canadian, Korean and German export credit agencies (ECAs). 

Strong ECA participation in the debt structure has facilitated commercial lender approvals under the ECA covered tranches, the COF and provision of a full suite of institutional banking and risk management services to support Arafura through Nolans construction and into operations. 

The commercial lender group consists of KfW IPEX-Bank (mandated lead arranger and ECA structuring bank), KEXIM Global (Singapore) (KEXIM coordinator), Commonwealth Bank of Australia, ING and EFA. The debt facilities are summarised in Table 1. HCF International Advisers and Grant Thornton Australia Limited are acting as debt advisers and Ashurst as legal counsel to Arafura.

This is a pivotal milestone for the Company as it paves the way for securing the strategic equity funding required for FID.

These commitments highlight the strategic value in developing Australian downstream rare earths processing capability and a diversified NdPr global supply chain to meet forecast growth in demand for electric vehicles and wind turbines.

These commitments highlight the strategic value in developing Australian downstream rare earths processing capability and a diversified NdPr global supply chain to meet forecast growth in demand for electric vehicles and wind turbines.

The syndicate of lenders comprises EFA (under the Critical Minerals Facility), NAIF, Export Development Canada (EDC) and the Export-Import Bank of Korea (KEXIM) with untied loan guarantees from Euler Hermes and KEXIM facilitating commercial lenders KfW IPEX-Bank, KEXIM Global – Singapore, Commonwealth Bank of Australia, ING and EFA (under its Commercial Account) providing funding under the ECA covered tranches. The $775 million senior debt facilities have a weighted average tenor of 12.2 years.

The US$80 million COF is provided by both ECAs and commercial lenders. The commercial lender group has also provided commitments to contingent instrument facilities and swap lines required to manage foreign exchange exposures during construction.

The subordinated Standby Liquidity Facility (SLF) of up to US$200 million provided by EFA provides another layer of funding contingency¹ and ensures that Nolans is funded through first production and ramp-up to nameplate capacity of 4,440 tonnes NdPr oxide per annum.² The debt facilities are summarised in Table below.

¹Refer ASX Announcement dated 14 March 2024 

²Refer ASX Announcement dated 11 May 2021

Debt facilities

⁽¹⁾NAIF commitment of A$150 million converted to US$ for comparison purposes only at AUD/USD 0.6667428.

⁽²⁾US$10m of EDC funding is included in the COF.

⁽³⁾Commercial bank lenders supported by untied loan guarantees from Euler Hermes of US$110 million and KEXIM of US$75 million (Refer to ASX Announcements dated 4 July 2024 and 1 July 2024).

⁽⁴⁾US$160m total Cost Overrun funding, 50% debt funded (COF) with the remaining US$80 million to be funded by equity. COF debt includes A$ tranche with NAIF commitment up to A$50 million.

⁽⁵⁾Excludes Contingent Instrument Facilities to support the provision of bank guarantees.

The loan facilities are eligible Green Facilities under Arafura’s Green Loan Framework (GLF).

The GLF aligns Arafura’s financing strategy with its offtake, sustainability and climate change related objectives and is based on the Green Loan Principles jointly issued by the Loan Market Association, Asia Pacific Loan Market Association and the Loan Syndications and Trading Association.

The GLF enables Arafura to access capital and liquidity from commercial lenders provided the use of proceeds is to fund expenditure that supports transition to a low-carbon economy whilst aligning with Arafura’s sustainability and climate change strategy. Arafura is eligible for its expenditure dedicated to NdPr Oxide extraction and processing for the production of wind turbines and electric vehicles. This reflects the product traceability and strong ESG credentials associated with Nolans Project single site ore to oxide production.

The Company has completed an extensive legal, technical, market, environmental and social due diligence program with financiers to obtain credit approved commitments.

Negotiation of loan documentation including the Common Terms Deed with lenders is well progressed. All debt facilities remain conditional on final documentation and satisfaction of conditions to drawdown customary for secured project financing arrangements of this nature.

Conditions to drawdown include providing an updated Financial Model based off, amongst other things, independent commodity price forecasts which demonstrates compliance with financial ratios and debt sizing criteria. Other customary project financing conditions include entry into material project contracts with associated tripartite agreements, project authorisations, representations, undertakings and Offtake Policy compliance.

Offtake discussions with potential counterparties are well advanced toward achieving the required minimum 80 percent of nameplate production³ after project ramp up. For ECA-linked offtake, including Euler Hermes and KEXIM, Arafura must maintain ECA-linked offtake agreements for the term of the loan facilities. The Company will provide further details of these arrangements as and when binding agreements are entered into.

³Refer ASX Announcement dated 11 May 2021

Sources and uses of funds

The completion of conditional credit approvals required for the senior debt finance facilities of US$775 million and robust Project Economics⁴ has provided a basis for disclosing the sources and uses of funds, including the amount of new equity required to meet the balance of the Project’s funding requirement.

The Project’s total funding requirement includes:

• Pre-production capital costs (including escalation and contingency) of US$1,226 million
• Working capital over the construction period and initial stage of operational ramp up of US$66 million
• Financing costs over the construction period and initial stage of operational ramp up of US$168 million

As part of the due diligence undertaken by the Project’s lenders, an independent technical expert reviewed the Project and recommended various assumptions be adopted in the lenders base case financial model to ensure a robust and conservative funding solution was designed for the Project (Lenders Contingency). The Lenders Contingency increases the Project’s total funding requirement by US$67 million.

The sources and uses of funds for the Project are shown in Table 2 and include the following completion support facilities which remain unutilised under the Project’s base case:

• The COF debt component of US$80 million which has been conditionally approved by participating lenders
• The COF equity component of US$80 million which is targeted to be raised at the same time as the new equity
• The subordinated SLF of US$200 million conditionally approved by EFA⁵

The completion support facilities are reserved to fund additional project and ramp up costs outside the base case, should they arise.

The total new equity targeted to be raised for the Project is US$793 million (including COF).

The sources and uses contains four layers of contingency including the project contingency (included in Capital expenses), Lenders Contingency, COF and SLF reducing risk of requiring additional capital for both lenders and equity investors.

⁴Refer to ASX presentation dated 23 July 2024

⁵Refer to ASX announcement dated 14 March 2024

Sources and uses of funds^(*)(1)

*Subject to drawdowns under the debt funding facilities occurring and all funds being raised under the equity component of the funding.

⁽¹⁾Excludes environmental bonds required by the Northern Territory Government and financial guarantees which are anticipated to be funded by a Contingent Instrument Facility (CIF).

⁽²⁾Comprises cash and cash equivalents of US$28m as 30 June 2024 plus remaining grant funding under the Modern Manufacturing Initiative of US$11m.

⁽³⁾Includes pre-production capital, project contingency, pre-production costs and escalation.

⁽⁴⁾Net of pre-completion revenue.

⁽⁵⁾Includes interest, debt establishment and commitment fees and equity raising fees over the construction period and initial stage of operational ramp up.

⁽⁶⁾Includes additional project continency of A$50m, increase in ramp-up period (from 2 years to 3 years), 3-month delay in first production and adjustments to mining and labour costs.

Nolans Phase 2 preliminary study completed

The Company has completed an in-house preliminary study which considered the possibility of expanding the size of the processing facility at Nolans (Phase 2 Study).

The Phase 2 Study explored whether the Company (using the existing mining inventory that is based off mineral resources and ore reserves (and which includes inferred resources) and the same pit designs, sequencing and mining methods used for the base case production scenario at Nolans – refer ASX Announcement dated 11 November 2022) could significantly expand the size of the planned processing facility by factors of up to a further 150 percent, and how such an expansion would impact the mine life of the Project and production capacity. The Phase 2 Study also considered whether a potential expansion to the processing facility could enable the Company to process third-party rare-earth feedstocks (including monazite concentrates) as a downstream processing hub. This would enable Arafura to operate a leading rare earths processing facility in Australia, underpinning a diversification of the global supply chain.

The results from the Phase 2 Study were positive and the Company will carry out a more detailed investigation into a potential Phase 2 expansion through a pre-feasibility study (PFS). The PFS will explore two options, building a discrete second processing plant or an integrated expansion of existing processing capacity. The PFS will require an investment of approximately A$15 million and is planned to be commissioned once a final investment decision has been made with respect to Nolans. The Company intends to commence the process of obtaining the necessary government and regulatory approvals for a Phase 2 expansion around the same time.

If the results of the PFS are positive (and commercially viable), a final investment decision on Phase 2 may be made following commencement of commercial production. Planning for the PFS is currently underway to ensure that the Company is appropriately positioned to make a decision regarding Phase 2 in order to meet the expected increasing demand for NdPr driven by global decarbonisation, particularly for electric vehicles and wind turbines.