Arafura Resources Ltd (ASX:ARU) is trading higher on news that it has negotiated an agreement with Hyundai Motor Company for the offtake of neodymium and praseodymium (NdPr) from its Nolans Project in the Northern Territory.
The offtake agreement with the South Korean brand, which Arafura describes as “one of the world’s most progressive automotive groups”, would take place on a cost, insurance and freight (CIF) basis over a seven-year term commencing in 2025.
“Tier-1 credentials”
Arafura managing director Gavin Lockyer said: “The signing of the MoU represents a fantastic outcome and validates the Tier-1 credentials of the Nolans Project as one of the world’s premier next generation NdPr ore to oxide projects.
“The Nolans Project is strategically significant for Tier 1 customers as it offers scale and supply chain diversification and security that will underpin their EV technologies.”
Recognising the significance of the agreement, investors sent ARU shares as much as 18.58% higher to A$0.415 intraday on strong volume of more than 28 million shortly after 3pm AEST.
Ramped up production by 2027
The offtake would include approximately 1,000 to 1,500 tonnes per annum of NdPr oxide when the Nolans Project achieves full production capacity in 2027, potentially just over a third of the estimated average annual production capacity of 4,440 tonnes from Nolans once it ramps up.
Arafura and Hyundai are working towards executing a definitive binding offtake agreement by September this year.
The parties will also work collaboratively to engage with relevant export credit agencies to access debt funding and guarantees linked with critical materials procurement for use in Korean based manufacturing.
Pricing for any sale would be determined quarterly using a formula-based mechanism referencing the NdPr oxide ex-works-China price per tonne. An industry-recognised customary discount in recognition of the long-term offtake agreement would also be applied.
Commercial-grade NdPr oxide should be greater than or equal to 99% total rare earth oxide (TREO).
Binding agreement on the horizon
Arafura and Hyundai will work towards agreeing terms and executing a definitive binding offtake agreement by September 2022.
The parties would work collaboratively to engage with relevant export credit agencies to access debt funding and guarantees linked with critical materials procurement for use in Korean-based manufacturing.
The definitive and binding offtake agreement would be subject to certain customary conditions being satisfied, including Arafura securing project finance to develop the Nolans Project – which will include a mine, beneficiation, rare earth processing plant and rare earth separation plant – and completion of construction, development and commissioning of the project.
Recognition of strategic importance
The signing of the MoU follows the Joint Statement of Cooperation signed by Arafura and Korea Mine Rehabilitation and Mineral Resources Corporation (KOMIR) in February, recognising the strategic importance of Australian critical minerals projects supporting Korea’s industrial development and participation in electrification and renewable energy economies.
Arafura’s offtake strategy for Nolans has been to target automotive original equipment manufacturers (OEMs) from geographic regions with supportive export credit agencies, working with customers that are strategically aligned with the company’s value proposition of supply chain diversification, product traceability and security of supply with high ESG standards.
Demonstrated commitment to an EV future
Hyundai has demonstrated its global leadership and commitment towards an EV future by securing the critical minerals to de-risk its permanent magnet supply chain and Arafura welcomes its interest in becoming a foundation customer.
Arafura continues to advance its engagement with a range of other parties interested in long-term offtake from the Nolan’s Project that are aligned with its offtake strategy.
About Hyundai Motor Company
Established in 1967, Hyundai Motor Company is present in more than 200 countries with more than 120,000 employees dedicated to tackling real-world mobility challenges around the globe.
Hyundai invests in advanced technologies such as robotics and advanced air mobility (AAM) to bring about revolutionary mobility solutions, while pursuing open innovation to introduce future mobility services.
Hyundai says it is continuing its efforts to introduce zero-emission vehicles equipped with industry-leading hydrogen fuel cell and EV technologies, in pursuit of sustainable future for the world.