BONUS – Arafura’s Strategic Vision in Rare Earth Mining

Highlights

• Arafura is at a pivotal moment in the rare earth sector.
• China controls nearly 90% of the rare earth market.
• Arafura’s project is the most advanced and construction-ready.
• The company aims to bypass China’s supply chain.
• Economic imperatives are driving changes in the rare earth market.
• Arafura aspires to become a processing hub for rare earths.
• Government support is crucial for the success of the sector.
• The West is moving towards creating a non-China supply chain.
• Arafura has more long-term options compared to competitors.

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In this episode of the Rare Earth Exchanges podcast, host Dustin Olsen and co-hosts John Parkinson and Daniel O’Connor engage with Darryl Cuzzubbo, CEO of Arafura, to discuss the company’s journey in the rare earth sector. They explore the challenges of bringing rare earth mines into production, the impact of pricing floors on the market, and Arafura’s strategic position in the global supply chain. The conversation also delves into financing strategies, government support, and the competitive landscape, particularly in relation to China’s dominance in the market.

Chapters

• 00:00 Introduction to Arafura and Darryl Cuzzubbo
• 03:15 The Long Journey of Nolans Project
• 05:54 Challenges in Rare Earth Mining Production
• 08:14 Impact of Pricing Floors on the Market
• 11:06 Financing Strategies for Rare Earth Projects
• 15:08 The Future of Non-China Rare Earth Supply Chains
• 18:35 Investor Sentiment and Market Dynamics
• 21:05 Joint Ventures and Strategic Partnerships
• 27:04 Strategic Partnerships and Joint Ventures
• 28:28 Understanding Capital Costs and Economic Viability
• 30:21 Optimizing Capital Efficiency and Cost Structure
• 33:48 Phase Two Plans and Growth Opportunities
• 37:32 Government Support and Its Impact on the Sector
• 41:15 Cash Grants vs. Debt Financing in Project Development
• 42:33 Global Financing and Market Dynamics
• 44:00 China’s Role in the Rare Earth Market
• 46:09 Arafura’s Competitive Position and Future Outlook

Transcript

Dustin Olsen (00:06.192)
Hey everyone, welcome to the Rare Earth Exchanges podcast. We’re joined by an incredibly special guest. We’ve got Darryl Cuzzubbo from Arafura, he is the CEO. And I’m also joined by my illustrious co-host, John Parkinson, Daniel O’Connor. And we’re super excited. This show’s probably gonna little longer. We’ve got some great questions that we’ve lined up and we’re excited to see where the conversation goes. But before we dive into that, I just wanna…

put out a little disclaimer really quick that any of the information here today is not investment advice. We’re not telling you to go and invest anywhere. Although, uh, team members here at, uh, Rarerith exchanges does hold shares in AeroFura. So we’re not biased. We’re not telling what to do, but if you are interested in AeroFura, consult with your financial expert and advisor to decide what to do. So with that,

Darryl, welcome to the Rare Earth Exchanges podcast. Thank you for joining us and taking the time out today. You’re in Perth, Australia, which makes this early morning for you. So thanks for getting up early to join us here. To kick things off, can you tell us a bit about your background and then how you became CEO of Aerofura and things that you’re working on today?

Darryl Cuzzubbo (01:03.944)
you

Darryl Cuzzubbo (01:30.568)
Sure, Dustin. So firstly, thank you for the invitation. I think we’re doing this at a very, very exciting and dynamic time in the rare earth sector. So just, yeah, so how do I join Arafura? So I joined Arafura’s board about four years ago and became CEO 18 months ago. And I joined because I was just fascinated by the energy transition. And if you look at my background, it’s running complex plants.

plants and building projects. And that’s actually why I joined the Arafura board because of that skill set that I brought. So I used to run the global manufacturing sites for Orica and explosive companies, so complex plants. And I used to also run Olympic Dam. And there’s a lot of similarities between the process plant at Olympic Dam and what we will be building at Dolans. I became CEO 18 months ago because we

John Parkinson (02:03.335)
you

Darryl Cuzzubbo (02:30.418)
felt that as a board that was appropriate time to transition to a CEO that had that project operations background.

John Parkinson (02:39.369)
Yeah, that’s great. Before we get into it, I just want to sort of highlight sort of the long road that Arafura has been through. So I think it’s worth just highlighting all the work that has happened at Nolens. And most people don’t know, but

But Nolans isn’t a legacy project or something that’s been picked up sort of midstream. It was a green field discovery back in 1999. So just think about that. That was before the year 2000. So 20 years. And it was found through targeted exploration, looking for these phosphate rich rocks. And from that point, they’ve then nearly spent nearly two decades progressing through all the different phases, like the drilling, the resource definition.

building pilots to see if it works, all the environmental approvals, feasibility studies, they’ve even done front-end engineering design. And so this has thoroughly de-risked the project. So I guess that leads really into my first question is, why does it take so long to get rare earth mines into production?

Darryl Cuzzubbo (03:47.59)
Yeah, that’s a great question, John, and you’ve clearly done your homework. So, and look, let me make a couple of comments on what drives the timeline and then of what we have done and goes to your point around how we de-risk this project significantly. So, so firstly, on average, it takes 18 years to drill out an old body and take it all the way through development and into commercial production. And on top of that, with the rare

sector, you’ve got this additional, if you like, task to come up with a flow sheet that is quite ore body specific and that process is iterative, but it’s important that you get it right so that when you build a process plant, you know that it’s going to work. And plus also be economic, right? So, you know, about six years ago, we changed the flow sheet to produce a phosphoric acid because we’ve got a phosphate hosted ore body.

And because of that, we will be in the lowest cost quartile of the cost curve because we’re producing these byproduct credits. So just, where are we? You know, we’ve done over hundred kilometres of drilling. So we know the ore body very well. Even though it’s open at depth of, you know, at 400 metres, the first 200 metres gives us a 38 year life. We’ve got all of the approvals that we need to start

construction. We’ve got over USD $1 billion of debt secured with substantial completion support, which lowers the risk for both lenders and investors for any potential overruns. We’ve got two-thirds of our off-takes that we need in binding agreements. We’ve got the team in place and there’s just one remaining step, which is raising the equity, which we’re well on the pathway to

do. So all of that has taken substantial time but to your point you know we’ve done the work which really makes us as lower risk proposition as you can possibly be as we go into construction.

John Parkinson (06:02.244)
So I assume you guys do competitor analysis. And can you see, can these

other rare earth companies, do think they can shorten these time periods to get into production?

Darryl Cuzzubbo (06:17.82)
Look, let me say, so you’ve got a choice to make.

You can go with the capital light scenario where you produce a concentrate and that would reduce the timeline. But the problem there is you basically got to send that concentrate or carbonate to a country that can process it and a country that can receive an intermediate product that has elevated radiation issues. So one of the challenges with rare earths is that the rare earths are associated with radionuclides.

Daniel O’Connor (06:38.673)
you

Darryl Cuzzubbo (06:53.738)
and you have that challenge if you go to an intermediate product. The other alternative is that you go all the way to an oxide and that does two things for you. It allows you to bypass China’s supply chain and hence become a true non-China alternative and it deals with the radiation issue because all the radionuclides are taken out. So in our case we can bypass China and we don’t have the radiation.

issues. So everything that leaves our site is clean from a radiation issue. So the only way you can really reduce the timeline substantially is to go with the concentrate pathway. We’ve chosen not to do that and I would say with what’s happening with China exercising export controls with EV production lines shutting down, has shown that our pathway is actually the better pathway and we and our shell

will see the benefit of that. Now if you take this order oxide pathway, it’s hard to see how you can fast track that substantially given the amount of drilling you’ve got to do, the approvals that you’ve got. In fact approvals are taking longer, not less, because social environmental standards are rising. So it’s hard to say that if you take a non-China pathway, it’s going to be a lot quicker than what we’ve seen.

John Parkinson (08:10.746)
Stop.

John Parkinson (08:23.433)
Yeah, I think the radiation issue is very not well understood by the general market and I think that’s something that the people really need to do their homework on when looking at what is supposed to be similar compared companies. that’s something that I know Arafura has been across for a long time.

So just overnight, there’s been obviously this announcement by MP about a price floor of $110 US. And I know that Arafura has secured a lot of offtake, a lot of binding agreements. guess the question is, does this change everything? Can you maybe talk to what this pricing floor means for Arafura in particular, but also

Daniel O’Connor (08:49.091)
you

John Parkinson (09:13.167)
for the global market more generally.

Darryl Cuzzubbo (09:15.942)
Yeah. So let me start with the global market part of your question and then bring it back to Arafura. So if you look at, so as you know, China controls nearly 90 % of the market and the primary way they have done that is by controlling the price. So they set production quotas that has suppressed the price. So if we had a proper functioning NDPR index, we would have had a non-China supply chain. that has been the primary

way that China has got and retained control over the rare earth sector. And what’s also not widely known is that most of the 10 % that China doesn’t control has been locked up with Japan through Linus. And Japan acted a bit over a decade ago when China first threatened rare earth supply. So Japan was proactive and as a result is really the only country that’s got an independent supply chain

John Parkinson (09:56.454)
you

Darryl Cuzzubbo (10:15.722)
for Rare Earths. So what we’ve seen overnight with Mountain Pass is on top of other events that’s leading to a bifurcation in NDPR pricing. So the number one thing that the globe needs to achieve is a functioning NDPR index. So we’ve seen the US put tariffs on Rare Earths magnets. We’ve seen the European Union introduce the Critical Role Materials Act, which again overnight they’re looking at breaking forward. And that says that

John Parkinson (10:44.965)
Okay.

Darryl Cuzzubbo (10:45.642)
no more than 65 % of supply of rare earths can come from one country. So those things create a China and a non-China pricing. And now overnight, we’ve seen the US underwrite the development of mountain pass with a floor pricing. So not a pricing, but a floor pricing of $110 a kilo. Now, Argus did some work on this and they believe that if you had a

price and you had an incentive price to develop out a non-China supply chain, then the price needs to be two to three times what it is today. The $110 a kilo pricing that we’ve seen overnight as a floor makes that look like quite a likely scenario. So I’m confident we will see this

Daniel O’Connor (11:23.01)
you

Darryl Cuzzubbo (11:39.848)
functioning NDPI index. One, because we’ve seen the US and European government do the right sort of things to create that. But you know the other reason? Is the economic imperative. So, you know, we’ve seen EV production lines shut down. And there’s trillions of dollars per annum at stake here in electronics, the EV, the wind turbine, the robotics sector. And we’ve seen that shut down. Now to put this all into context,

John Parkinson (11:45.657)
you

Darryl Cuzzubbo (12:09.802)
The average price globally of an EV is $47,000 USD. The cost of NDPR, the rare earths that enable that, today is $63.

So if you triple the price of NDPR, which is more than $110, The $110 is just under double what we’re seeing today. You’re only paying an extra $120 for a $47,000 US vehicle. So the economic imperative is there, but you’ve seen production lines shut, jeopardizing trillions of dollars of revenue. And the cost to set up a non-China supply chain is quite low. So that’s why there will be

a bifurcation pricing. Now bring that back to us. And I know John, you know this, right? So we’ve been talking for about 12 months of creating a seaborne traded price index that basically takes out China’s domestic production and hence limits their ability to continue to control the pricing.

John Parkinson (12:57.304)
Okay.

Darryl Cuzzubbo (13:19.14)
In our negotiations, so in our binding offtake agreements that we’ve got with three parties, two of them have got a floor pricing that protects our downside. And in more recent negotiations, we’ve allowed for a different pricing mechanism on the basis that what we’re starting to eventuate does eventuate. So we’ve got the ability to move across to that. But also, we’ve been very clear that we are not going to lock in more than the

John Parkinson (13:48.977)
Okay.

Darryl Cuzzubbo (13:48.986)
80 % contracts that we need for our lenders. So we’ve got 20 % that we could put on a proper functioning index. The Australian government announced the strategic reserve and we’ve been very vocal in saying, well, the Australian government can play a a global leadership role in creating this seaborne traded index. Because to the index is easy, but the trick is to put volumes on it. And if the strategic

stockpile can be used to create that index and you’ve got this functioning index. So this for me is the number one thing that we need to bring forward having a functioning NDPR index that will create a China rare earth supply chain.

John Parkinson (14:24.268)
Okay.

John Parkinson (14:40.197)
And I think, you know, the current pricing that we get is generally off Shanghai metals. And that particular index, you know, the way it’s actually formed is just a few phone calls to a few traders. But that price, you know, it lacks transparency because it is just talking to a couple of phone calls a day, excludes all the taxes, the transport storage.

all of those things aren’t factored in into that price, whereas I assume a Seaborn index that you’re talking about would be more that end-to-end sort of price with all those things factored in. Yeah.

Daniel O’Connor (15:15.496)
John, was just going to… Darryl, if I could just interject one thing. are… And correct me if I’m wrong here. There are, for China’s market, there are two exchanges. I don’t know how functional they are. There’s no futures, but there are two exchanges within China. Is that also a form or a means of sharing prices in that market, those exchanges?

Darryl Cuzzubbo (15:15.804)
That’s right.

Darryl Cuzzubbo (15:41.928)
So I’m going to say, Daniel, we’ve got to move away from the China controlled exchanges.

Daniel O’Connor (15:47.1)
no, I totally agree. But the only thing I’m asking, John said that the pricing comes from Shanghai metals and Asian metals. I’m just wondering if another source, I totally get we have to move away from the Chinese price, but if also they’re getting their prices from those exchanges. That’s all. That’s the only question I had.

Darryl Cuzzubbo (16:07.559)
So today they are.

So today when we’re negotiating with off-takers, they refer to those prices. But that’s because if you’re an EV manufacturer, you want a competitive price. So you’ve got to present an alternative to what you’ve got today. But what you’ve got today is the only one that you’ve got. It’s a big call to ask an OEM to say, lock in this fixed-term price, this long-term price.

Daniel O’Connor (16:10.152)
Okay.

Darryl Cuzzubbo (16:39.922)
not related to the market and hence is not related to what your competitors might pay. That’s a big ask. If you present an alternative that is fair, that is market driven, then I feel the OEMs would move to that. Now I would also hug you that

John Parkinson (16:55.364)
What?

Darryl Cuzzubbo (17:00.274)
that there’s going to be a structural supply deficit and we may already be seeing that happen. And I’m going to say the OEA’s probably don’t have a choice at that point and they’ll be prepared to lock in on a different index if that’s the only way they’re going to get supply security.

John Parkinson (17:16.74)
I think by the end of today, you might have a few phone calls from some of these offtake partners wanting to sign quick, given the new flaws that seem to be coming in place. this leads us on to the next part, is, know, trying to having a monopoly on pricing has always been a real concern for financiers wanting to finance rare earth projects. you know, let’s maybe start at the beginning.

Darryl Cuzzubbo (17:38.652)
Mmm.

John Parkinson (17:45.666)
The way that Arafura has gone about its financing is a little bit different. Generally, you secure your offtake, you then get the equity, maybe see if you can get some debt at the end and then bang, you reach your FID and you’re into construction. So you guys have done that a bit differently. Do you wanna talk to sort of what you’ve done and why?

Darryl Cuzzubbo (18:05.766)
Yeah, for sure. It’s a good pick up, John. So we’ve been very deliberate in our strategy and it has borne fruit. the number one thing that we have to offer OEMs, customers, is a non-China source feed. So that is of strategic significance to them. So the first thing we did is we locked in binding off takes with Ho and I and Kieran Kriya and Siemens Gimeza.

in Germany. those off takes, we were able to secure over USD billion of debt and that includes USD $280 million of completion support and contingency cost of run facility, etc. That was important because investors wanted to know whether we’d be able to secure the debt given that there wasn’t a proper functioning rare earths index that we’ve just been talking about.

So by securing the debt we did three things to help us with investors. Firstly, we took the issue off the table that we would be able to secure the debt. Secondly, we’ve done extensive due diligence. I mean extensive. So yeah, the debt is nine lenders, five countries. So you can just imagine the amount of due diligence that we’ve gone through which provides confidence to investors. But thirdly, we’ve got completion support. In fact, if you look at our

our full completion support, it’s nearly $430 million. So we’ve got a very strong safety net that protects lenders, but also protects investors. So stepping back, we’ve got the binding off takes that allowed us to go to the export credit agencies to lock in over $1 billion of debt on attractive long tenure terms with significant completion support. That is enabling us to lock in the corner.

of stone investors off the back that we’ve got the debt, we’ve got the completion support, we’ve done the due diligence which then allows us to get the final piece which is 40 % of our equity from the public market.

John Parkinson (20:07.716)
.

John Parkinson (20:22.327)
So, I mean, I guess the other part is these financiers, you know, there’s not that many rare earth mines have come online since Linus basically came on. They’re the last one at scale.

I guess it’s hard for them to get their heads around all these financing risks. so they’ve, you know, obviously you’ve then taken a structured approach to come to get that happening. But in one of the recent quarterly’s, you said that some of these equity participants are sort of waiting to see what happens. And I guess, what are they waiting to see? I mean, aren’t we seeing the ex China market being formed now? Wouldn’t they want to rush in now before

the market takes off too much. So perhaps if you could dig into that a little bit more.

Darryl Cuzzubbo (21:07.206)
Yeah.

Yeah, so.

So everyone’s seen the urgency, right? Like, you know, get that, you know, the last four months, the world has changed, right? So everyone knows what’s at risk by not having a non-China rarer supply chain. So they’re in, I’m going to say they’re in action mode, if not panic mode. So there’s a few things happening. So firstly, just the general investor market, just with what’s going on with the US trade tariffs, the market’s a little bit jittery, right?

which is not the environment to be raising money, but I think that will settle. I’d like to think it will settle over coming months. The other thing that you’re seeing is you’re seeing the equipment manufacturers…

go into crisis mode. And their focus has been on securing short term supply out of China so they can keep their factories going. So they’ve kind of run to ground and focused on that. Now, China has started releasing some of their export controls, but to our understanding, it’s only for like six months, right? Like this, rarest supply issue is far from over. It’s got many, many months to play out.

John Parkinson (22:08.867)
.

Darryl Cuzzubbo (22:28.106)
Daniel O’Connor (22:28.845)
Yeah, Darryl, just to interject, you’re absolutely right. We get told from multiple sources that this is just beginning.

Darryl Cuzzubbo (22:36.775)
Mmm.

So, but now as China releases some of these export constraints, we’re now getting these manufacturers come to us, now we’ve got to address this in the medium to long term. There is no short term solution to this. The only solution is building out a non-China rareware supply chain. This train smash has been a slow one coming for over three decades and there is no short

John Parkinson (22:55.694)
Yep.

Darryl Cuzzubbo (23:07.434)
short-term answer to fix this overnight. We are our firm. We are globally the most construction ready project that can bypass China. It’ll take us three years to bring this project into construction. There is no short answer to this. But until you have that alternative supply in place, we’re going to continue to be on the edge of this crisis mode.

we’ve seen of light.

John Parkinson (23:39.2)
Yeah.

Daniel O’Connor (23:39.516)
John, I had a question. think it’s a very important point, Darryl, that you had just mentioned, which is extremely valuable because the work’s been done, essentially. I mean, it’s ready to go. so does the market understand that when it prices Arafura today?

Darryl Cuzzubbo (24:02.534)
That’s a good question, right? So I’m going to say there is a bit of a disconnect, right? So…

there’s a bit of a disconnect in understanding how much work has to be done to get to the phase that we are. Now, if you talk to a car manufacturer, they typically engage with their tier one suppliers, right? A tier one supplier can address an issue in a couple of years, right? We have found that the car manufacturers do not appreciate because they don’t deal with mining, that it takes 18 years to find and build a mine.

semiconductor chip crisis coming out of COVID. There are some similarities here, right? Similarities, doesn’t, the semiconductor chips don’t cost much. But the car manufacturers, when they’re controlling their production, would have paid just about anything for these chips. Because it’s such a small cost component of the car. That took two to three years to resolve. Right?

you look at when you depend on mind supply.

It takes a lot longer to crack that. So just coming back to your question, Daniel, if you look at the number of various projects, I think it’s important to have a sober look at how long it will take them to get to where we are. And they are way down. The vast majority of them are way down the maturity curve. And secondly, they have an issue if they’re only going to concentrate a carbonate, who’s going to process it? Who’s going to deal with this radiation issue?

Darryl Cuzzubbo (25:37.706)
Yeah, so if you look at the fundamentals of the rarest sector and this has been pleasing, right, so a lot of institutional investors kind of looked at the rarest sector kind of little bit more complex to understand and you know copper or iron or and so it’s a little bit in that too hard basket whereas with what’s happening they’re now understanding it and as they understand it the fundamentals are incredibly strong. You’ve got demand

you know, at least doubling over the next 10 years and the supply response is pretty weak.

John Parkinson (26:14.77)
Mm.

Daniel O’Connor (26:15.726)
Yeah, yeah, very fascinating, very fascinating.

John Parkinson (26:19.746)
So just to finish off on the financing, so you’ve basically got your debt secured, you’ve got most of the offtake secured, and the last bit of offtake you’re trying to link to equity. And you’ve had some recent announcements with Germany potentially, that sounds like it’s pretty much a done deal in my words. And you’ve got the Australian government. So your finances arrangers have been

been working pretty hard, but then this joint venture has been, potential joint venture has been announced. What happens to all that financing?

Darryl Cuzzubbo (26:58.748)
Yeah, so that’s a good question. So let me just take a step back and then let me answer your question. So we’re running the equity process that we’ve always spoken about, the equity strategy in parallel as fast as we possibly can. And the JV is happening in parallel. One is not waiting for the other. This is in line with our strategy, which has always been to maximize

a number of options as we’ve gone out to more parties in different ways than we needed to. By having more options you can kind of pick and choose which is the faster versus the slow one because you want to get this thing done. You can choose the better terms and you can ultimately I think you you increase the probability of success but also if you’ve got options you can choose what’s in the best interests the long-term interests of the company in the shareholders.

So we’ve always gone out far and wide to get this thing done so we’ve got options. Now coming back to your question, so your question, that’s quite insightful right? So let me just say this, any JV will be structured around maintaining the debt terms and honouring the off takes.

We also said, as you just rightly pointed out, John, we have deliberately, so we’ve got two thirds of our required overtakes locked in. The one third remaining, we have deliberately not locked that in to help us pull in equity, whether it’s direct equity, whether it’s through JV, doesn’t matter. And that has proven to be quite a prudent strategy, even with the German Royal Materials Fund, right? So we can get up to 100 million euro if we can put more volumes into Germany.

John Parkinson (28:28.066)
.

Yep.

Darryl Cuzzubbo (28:51.498)
If we had all of our bindings, off takes locked in, we wouldn’t have been able to do that. So coming back to your question, the way we’d want to structure NEJV is to keep the debt in place under the off take agreements that we’ve already got. On the equity side, of course it changes the game because NEJV party has to buy into the company, which gives us cash, and then they have to fund their share. So the equity piece is reduced dramatically.

John Parkinson (29:20.993)
Yeah. So obviously that helps current shareholders because dilution’s less.

I kind of thought that Hancock, Gina Rinehart’s company, of was a strategic partner. And they bring a lot of skills in opening doors and understanding the broader sector really well. So what would Arafura be looking for in a joint venture party? What is the skill set or the bit that would help Arafura apart from the equity side?

Darryl Cuzzubbo (29:50.439)
Yeah.

Darryl Cuzzubbo (29:54.737)
Yeah.

So that’s a good question. So firstly, so Hancock definitely a strategic partner, right? They’re here for the longterm. know, they saw early on what the rest of the world is now waking up to, right? And as you would know, John, Hancock are into four different rare earths company, including us, and they clearly understand this sector. So they’re definitely strategic. They’ve been very supportive and helpful. We could not have asked for a better major shareholder.

In terms of JV strategic parties, there’s really two things. Firstly, they have to buy in to the long-term ambition of the company.

John Parkinson (30:28.977)
So.

Darryl Cuzzubbo (30:38.054)
So, all of our focus is on phase one, but we wanna do a phase two, we wanna become a processing hub, and I’m talking like a 10 year time frame here. We also wanna be in a position to acquire other projects that are early on in their development so we can bring the project expertise and the processing capability. Now, if you think about that, those three things open up an incredible growth trajectory for our company. So it’s important

that a JV partner has the same conviction, the same ambitions that we do. So that’s point one. Point two, they’ve got to bring something. So, you know, apart from balance sheet strength, you know, we want them to bring something that de-risk that longer term growth pathway, whether that’s technical capability, whether that’s off take or something else. So they’re the two things. Buy into the long-term ambition of the company and share our conviction.

the sector and our opportunities and secondly bring something to de-risk that or to enable that to happen faster.

John Parkinson (31:45.224)
That’s interesting.

I was going to read out a whole lot of names and you were just going to blink when it was that one, but we’ll skip that bit. We have a web forum and Arafura’s got loads of posts in there and I look at other forums as well, which are pretty interesting to say the least. But one of the general questions that always gets raised is the capital side.

of the Nolens projects. And you compare it with some of the other projects around the world, which I know only take it to a concentrate or a carbonate. They don’t quite go to the full oxide, which you’ve said before, takes a lot more time and energy and money. But I think it’d be really good for you to explain that one, what all the cost is going to and why you’ve got so many contingencies and working capital.

But also, given all that cost, that it still is an economic project. Can you talk to that a bit more?

Darryl Cuzzubbo (32:48.488)
Yeah, so John, I can tell you know the sector, right? Because you ask the questions that go to the heart of the underlying debates, right? So just the first part, and it goes back to what I said before. So if you’re a rare-erase company, you’ve got to choose between capital light that requires subsequent processing that really largely only exists in China today, or more capital heavy that enables you to go all the way to an oxide. And the benefit of going all the way to an oxide

then not only do you bypass China, you deal with the radiation challenge, but you’ve got options, right? There’s more options in multiple regions to take it to a magnet, right? So we’ve gone with the latter. Now, if you look at projects that have gone to the latter, Capital’s about right. You know, taking into account that we’re just fortunate that we can tap into existing infrastructure. So we’ve got the Stuart Highway that runs between two capital cities.

We’re just off that. We’re just off the railway line that runs between two capital cities. We’ve got a gas pipeline that runs through our tenement, 135 kms out of it, know, Alice Springs, a material town with its own airport. So when you take into account that we can tap into that existing infrastructure, our capital is actually in line with our strategy. Now, the other thing that matters is obviously the return on the capital.

John Parkinson (34:13.697)
.

Darryl Cuzzubbo (34:18.218)
you

And that return is driven by what price you can get and your cost. I keep on banging on about creating the seaborne traded index because I want a pricing environment that is two to three times more than what we’re seeing at the moment. And by going to an oxide, we can tap into that. If you don’t go to an oxide, you are dependent on the argy-bargy between you and the processor as to how much of that you get. And if there’s not too many processes, then you don’t have the leverage.

So we, by going to an oxide, will see the full pricing of the NDPR index, point one. Point two.

is we will sit in the lowest cost quartile. And that’s not because we’re doing anything fancy. It’s because we’re fortunate enough to sit on a large phosphate-hosted ore body that enables us to produce phosphoric acid as a byproduct credit and save on reagents because you don’t have to neutralize your waste stream. It’s those two things that push us way down into the bottom of the cost curve.

lower than the current producers and lower than China because of the ore body. So think about that. We’ve got the leverage to get the maximum price and our cost position is in the bottom cost quarter. That’s why we offer a good return to our shareholders and we’ve got growth optionality because we’re sitting on a very large, low cost ore body.

John Parkinson (35:32.124)
Yep.

John Parkinson (35:52.913)
And I think that point you’ve made about, I hear people go, it’s in the middle of Australia, it’s the middle of nowhere. You’re going to spend huge amounts trucking everything in. Well, that’s just what happens in Australia. There’s roads going, being so close to the highway is amazing. mean, you look at some of the other mines where they’re building 130 kilometre roads that keep collapsing and

Daniel O’Connor (36:14.57)
Thank you.

John Parkinson (36:17.184)
they’re spending half a billion dollars just on their roads. So Arafura doesn’t have to do that, which I think is amazing. The other part of the CAPEX cost and why the amount seems so large is we seem to have, I think it’s about 50 % is in contingencies and working capital. Now, obviously when Linus was being commissioned, there were a whole lot of problems and there were, you

there had to be capital raises and more money pumped into the project. Were these continuities sought by the financiers to de-risk the project?

Darryl Cuzzubbo (36:54.78)
Yeah, so John, that’s a fantastic question. Peter Sherrington’s our CFO. Peter and our team have done honestly an exceptional job. And anyone that’s associated with financing have said that. One, because we’ve been able to pull together nine lenders across five countries that just show the geostrategic importance of our project. But also the terms and the completion support.

So we have over, sorry, we have around $430 million of, I’m going to call it contingency on top of your normal project contingency. So that includes cost over run facility of 160 million, completion support of $200 million of lenders, let’s call it conservatism of.

just under 70 US million dollars. Now this is so important, right, because it de-risks the project execution from both the lender and investor perspective, which goes to your point. So…

John Parkinson (38:02.304)
Okay.

Darryl Cuzzubbo (38:05.148)
We’ve got a war chest that we can tap into in nearly $430 million before we need anything more from lenders or investors. And the other point I would make, and that’s about, if you look at it total, it’s about 30 % of our total funding in contingency. But the other benefit is you look at Linus. That’s an extraordinary company, extraordinary leadership.

what Amanda and her team has been able to pull off, right, in a pretty tough, what has been a pretty tough environment. We’re now getting some tile wins. She didn’t have those tile wins. But we’ve been able to learn as well. Like it’s always tougher for the company that goes first for the trailblazer. And we’ve been able to look at some of the things that drove their ramp up period or some of their challenges. And we’ve changed our process. We’ve changed our equipment selection to learn from that.

John Parkinson (38:47.467)
Mm.

Darryl Cuzzubbo (39:04.862)
So it’s always easier for the one that goes second. And we’ve got $430 US million worth war chest that we can tap into.

John Parkinson (39:07.637)
I think so. Yeah. That’s a huge amount of money and like you say, the project’s been so de-risked. So the question then leads on to, and you’ve spoken about this previously in some of the quarterlies that, you know, if that money is not required,

then there might be the ability to renegotiate that money to be pumped into phase two. And just before you maybe talk about that, just so the retail people understand that that means that Arafura would not go out to the market to fund phase two. So that is huge. That means no more capital raisings or anything like that. So what you buy now is the share that you’ll have now. You won’t be diluted in the future.

Darryl Cuzzubbo (39:58.182)
Yeah. Thanks.

John Parkinson (39:58.291)
Would you like to talk about phase two?

Darryl Cuzzubbo (40:00.356)
Yeah, so John, that’s exactly right. So if you want to get in, now’s your opportunity, right? And there’s two reasons we don’t want to tap the market again for phase two. One, it’s the right thing for our shareholders, right? But the second thing is with complex projects like ours, you are always able to get incremental throughput through incremental capex. But you kind of got to ramp up

the plant to see where the deer bottlenecking can most efficiently happen. We want to see that before we’re phase two. So we want to get the approvals for phase two, but we want to ramp it up sufficiently to know where the bottlenecks are so they can factor that in a very capital efficient way for phase two and ultimately achieve more volume out of phase two for less capital. Realizing you can also tap into the existing infrastructure that you built in phase one.

It’s a lot more capital efficient. But just on phase two, we also want to become a processing hub. And this is really important.

You know, it not only enables another growth trajectory for us, but it unlocks the rest of the rare earth sector in Australia. And the reason why I say that is, you know, I mentioned before, you’ve got to go with a capital light solution where the processing base, you’ve got to send it to China or capital heavy. Other rare earth projects, when we become a processing hub, don’t have to choose. They can have their cake and eat it. They can spend only 30 % of the capital to produce

John Parkinson (41:29.599)
.

Darryl Cuzzubbo (41:40.154)
concentrate and send it to us and we process it to an oxide enabling them for their product to bypass China. So they have capital light and can bypass China, access to the seaborne market and we’ve got a growth trajectory. Now we are well positioned for a number of reasons to become Australia’s preeminent processing hub. One, because in our process plant we’ve got to cater for

John Parkinson (41:55.616)
.

Darryl Cuzzubbo (42:10.897)
an appetite and a monazite ore body. So if you look at Linus and Naluka, they’ve got a monazite. So we’ve got to be able to process monazite and appetite. So that allows us more flexibility in our process plan to deal with different types of ore bodies. Secondly, where we’re located. If you look at where the other potential arous projects, so we’re in the middle of Australia, sure, we’ve got access to road and rail, et cetera, et cetera.

actually pretty close to other rare earths projects. So we save on transport costs. And thirdly, we’ve got options. you know, whether it’s 100 % supply from our mine or 0 % because we’re a third party, we could always fall back to our low cost large scale ore body. So we’ve got optionality. that those three factors make us a natural processing hub for the rare earth sector in Australia.

John Parkinson (42:42.163)
Okay.

John Parkinson (43:08.429)
Yeah, and that really explains in detail why order oxide is so important for Arafura. It just creates optionality in the future. might just go on to talk about some government support.

Darryl Cuzzubbo (43:14.28)
Absolutely.

John Parkinson (43:24.359)
sort of more generally. Obviously the Australian government’s been super proactive in Australia. You know, they’ve been providing debt equity, guarantees, potentially buying off take. How do you see this helping the critical minerals sector more generally?

Darryl Cuzzubbo (43:45.276)
Yeah, yeah. So, good question. So I would say that the Australian government have been leading the way globally. Just remember, you know, we dealt nine lenders, five countries. So we kind of get to see what’s happening across the globe here. And the Australian government honestly been leading the way globally and in a commercially savvy way.

and let me explain what I mean by that.

there has to be appropriate risk sharing between government and industry in getting up a new sector like ours, but also recognizing that China today control the price. And investors can’t change that, but governments can. So for investors to invest, they need to see that the Australian government, the German government, the Korean government, et cetera, are determined to create a non-China supply

including the pricing environment that goes with it. If those governments got skin in the game, then investors say, you know what, they can do something about making sure that this non-China supply chain is successful, so we will invest in the back of that. But it also goes the other way. Governments need to know that they’re putting taxpayer funds into economic projects. And investors are much better at doing that than governments.

So it kind of works both ways. Governments need to say, you know, investors are coming in and can see the economic credentials of this project. It does not help anyone in the long term for governments to support a non-economic project. So if you look at what’s happening in Arafura’s case, sure we’re tapping into debt and equity from different governments around the world, but we’ve also said we would

John Parkinson (45:33.39)
Mm.

Darryl Cuzzubbo (45:45.634)
only ask for that money when we’ve got a fully funded solution of your institutional investors make up a significant, institutional investors at Cornerstone, investors take up a significant proportion of the capital. So you can be sure this is a long-term economic project. So I think this government with us has been quite savvy and we’ve recognised the role that governments need to play and industry needs to play. Now I would say

John Parkinson (46:09.663)
.

Darryl Cuzzubbo (46:15.498)
with the Australian government is, you know, once you get, you know, you’ve got Linus, but we will be the first auto oxide project in Australia from mining all the way to oxide. And it makes sense to support us as they have, because we’re developing the capability that supports that. And that capability can then support other Everest projects. But to my point earlier, you know, in us becoming a processing hub,

That is by far and away the single biggest thing that will unlock the railroad sector in Australia.

John Parkinson (46:54.786)
It’s interesting when we look back in history and look at how governments have dealt with these issues in the past, because this is nothing new, know? Governments have had to step in to get markets sort of working again.

And I know just before World War II, the US actually put direct cash grants into the materials it thought it would need for the next 10 years if potentially a war was to happen. I’m not saying a war is about to happen now, the Australian government’s put in debt equity. They put a small amount of cash grant in the early days. But is that something that has been discussed previously?

cash grants rather than taking debt and equity because all this stuff has to be repaid eventually to the tax payer. And the best way to get a sector going is to pump money into those projects that are most likely viable to get into operation. Has that been discussed?

Darryl Cuzzubbo (47:48.124)
Yeah.

Darryl Cuzzubbo (47:57.586)
Look, I’m going to say it’s horses for courses. So you’d be aware that we had some cash grant through the MMI, one manufacturing initiative, and that supported us in developing out the separation part of the order oxide. So without that, we wouldn’t have fully fleshed out the order oxide model. So there’s a role to play in cash grants, but I would say there’s a significant risk. If a project is fully or largely

largely funded by cash, you’re running the real risk of getting up an uneconomic project that can’t stand on its own feet. And that creates a problem for the broader sector. That doesn’t help.

John Parkinson (48:36.331)
OK. Yeah, OK.

Darryl Cuzzubbo (48:44.294)
So I think cash grants have a role to play and of course on behalf of shareholders we always take a cash grant but if you take a step back from a government tax pay perspective you want to be very careful about using cash grants to largely or fully fund a project because you may actually be supporting a project that should never get up.

John Parkinson (49:09.47)
Yeah, so and Arafura’s obviously got money locked in from the Australian government now, the Korean governments through their export agencies and Germany as well now. Any discussions with any other governments like

the US or Arabic states, including funds.

Darryl Cuzzubbo (49:31.154)
Yeah, so we’ve also got Canada through the EDC, Export Development Canada, 300 US million dollars. So it goes back a little bit to your earlier question. So we reached out to all regions, all options. We’ve done a number of non-deal road shows and we’ll continue to do that off the back of this German Raw Materials Fund announcement and also what’s happening with Mountain.

John Parkinson (49:33.95)
Sorry, Canada. Yep.

Darryl Cuzzubbo (50:01.13)
mountain pass. I can’t think of…

region or a company that has been suggested to us that we haven’t reached out to or considered or progressing in some form. So we’ve really gone out as widely as we could. What I would say though, John, is the market is changing, right? So some investors that said, and I’m paraphrasing, but you rare earths is too difficult, too challenging, not for us.

John Parkinson (50:13.566)
.

Darryl Cuzzubbo (50:35.88)
now saying, can you come and talk to us? So the number of interested parties is definitely expanding given what’s happened the last four months.

John Parkinson (50:47.664)
Okay. I’d just be interested to move on maybe. It’s a difficult question, but and you’re going to have to pull out your crystal ball, you know, obviously the West is creating an ex-China market now. How do you see China responding to this? What do you think that they’re going to do?

Darryl Cuzzubbo (51:04.797)
Yeah.

So first of all, in some ways I don’t think it matters and I’ll come back to why I say that in a minute. It’s not up to China to create a non-China rare air sector. It’s actually up to the Western world to create it. For whatever reason, apart from Japan, they haven’t done so, but they are doing so now. So China can’t stop the West from creating a non-China supply chain. But back to your question, who knows what China’s going to do in an uncertain,

world when there’s these trade negotiations going on with the US. But what I would say is they’ve got the stranglehold on Rare Earths.

They’ve basically got, you know, trillions of dollars of revenue, you know, the US, Japan, Korea, Europe, kind of in their pocket. They’re going to get the maximum mileage out of that, right? I think the genie is already out of the bottle, but the West has woken up to that and the West is now moving to create a non-China rare earth supply chain and to create, I think that the die has already been cast in creating a non-China pricing

So we don’t have it today, but you can see all the pieces are rapidly moving in that direction. So China has largely controlled the rare-earth sector through pricing, through their production quotas. That mechanism, particularly with the mountain pass decision overnight, floor price of $110.

Darryl Cuzzubbo (52:41.926)
That strategy is clearly not going to work into the future. So one thing China could do is become more aggressive in securing ownership of non-China rare earths projects. And you know what, we may be already seeing that. I know it was on your exchange that China took control just recently of Peak as an example.

John Parkinson (53:09.031)
Yeah. And I mean, there’s been many examples of China, you know,

They had a large holding of Arafura through ECE Nolans and know, they’ve Northern Minerals that’s ongoing. It’s happening everywhere. I guess then if we’re just coming towards the end now, but in terms of other competition out there, obviously there’s some big players out there. There’s Linus and MP, Aluka is in construction now. Where do you see Arafura in?

Daniel O’Connor (53:36.843)
Next.

John Parkinson (53:42.162)
you know, assuming everything goes to plan in say five years, like, can you sort of give us a feel for that?

Darryl Cuzzubbo (53:47.932)
Yeah, sure,

So what I would say is that we have more long-term options, which creates value for our shareholders. So what do I mean by that? So firstly, if you look at Linus, I think it’s something like three quarters of their volume is locked up with Japan in return for Japan underwriting Linus. know, Lucas got a stockpile that I think at 100 % capacity lasts like four years or something like that. So they depend on other projects getting up.

mountain pass with the announcement overnight, their volumes have to be directed ultimately into the US. So if you take a step back, so we have options, right? We’re not tied to any specific country. We have targeted Korea and the EU. So we have options around where we can send our product, which means we can kind of choose the regions that are going to sign up to this seaborne pricing concept or a fair market pricing concept. we were unsure

shackled in that sense. I think the second thing is we’ve got growth options because we’re sitting on a very large ore body and we’re the natural processing hub in Australia because of our process plant flexibility, because of where we’re located and because we’ve got the mine as a backstop. So I think those, and it will be the first ore oxide mine single site in Australia. So all of that presents us with pricing.

options, growth options that will ultimately lead to a higher return.

John Parkinson (55:26.484)
Yeah, it’s interesting. Our rankings that everyone should go and check on our website has

currently in the fifth position out of 161 projects or deposits. And yet many other junior miners on this who sit much lower in our rankings have a much larger market cap than Arafura. like personally doesn’t seem to add up for me. I guess if in sort of one sentence to all the governments of the world, the fund managers, the retail investors about why Arafura is like, if you could sum it up in one sentence, what, why Arafura

matters. How would you put that?

Darryl Cuzzubbo (56:05.276)
Yeah. So if you look across the globe, John, we are the most advanced construction ready project that can bypass China. And we’re sitting on a very low cost, large scalable oil body. So we’ve got growth options. We can bypass China. We’re ready to go into construction and we’ve got growth options.

John Parkinson (56:28.304)
Yeah, it’s amazing. We spent a lot of time building our rankings and what we found is really three key categories when assessing a rare earth project. You’ve got to look at the geopolitical strategic considerations, the mineralogy and what stage the project is up to. And they should be the key for any investor out there. And that’s why our RFURA is so high now, our rankings. Daniel, did you want to just…

Darryl Cuzzubbo (56:55.528)
100%.

Daniel O’Connor (56:56.699)
I was just going to say, mean, based on what we’re observing, Darryl, I think the market, you said it nicely. I don’t think the market totally understands AuraFura yet. There’s a lot of noise out there. I know from folks over here, there’s a lot of chatter in Washington, DC, lot of entrepreneurial activity, not necessarily the amount of rigor and

investment and sophistication of readiness. I think that again, this is just my point of view. I think that the market is going to start adjusting its understanding and your stock price is going to go up. So that’s my prediction.

Darryl Cuzzubbo (57:44.584)
I’m sure you’re right. There’s a lot of window dressing going on at the moment, but I wear the real thing. Wear the real thing.

Daniel O’Connor (57:46.206)
Yeah.

A lot. Yes, that’s, know, Darryl, that’s important. You know, right now in Washington and throughout the United States, you know, the culture here is different. It’s, it’s, we don’t have, we did an article, there’s three, there’s three major centers where there’s mining finance expertise. And it’s not in the United States. So London, Toronto, Perth, you know,

Darryl Cuzzubbo (58:15.09)
Mmm, mmm.

Daniel O’Connor (58:19.965)
We got out of mining, so we’re kind of coming back. bridges need to be built. I think, do you have a presence over here? Do you all have, how often do you come over to the States?

Darryl Cuzzubbo (58:35.272)
probably every six months. But what I’m going to say is given everything that’s happening, it’s probably going to be a little bit more than that.

Daniel O’Connor (58:37.36)
Okay, so.

Daniel O’Connor (58:48.732)
Yeah, makes sense, makes sense.

John Parkinson (58:52.86)
Well, thank you, Daryl, for it’s been a great sort of, I think it’s one of our longer podcasts, but I think we got through some amazing material. So thank you for coming.

Darryl Cuzzubbo (59:04.978)
Yeah, thank you. And like you really do know this sector and ask, I think, the questions that need to be asked.

John Parkinson (59:12.316)
Thank you.

Daniel O’Connor (59:13.77)
Thanks. Yeah.

Dustin Olsen (59:13.773)
Absolutely. Yes. Great. Great job, John. Great questions. And Darryl, very insightful and powerful statements that were made. think many, many of us will be able to pull some snippets there and reuse them in the future. So thanks to you and your team for getting this podcast organized so we could have this conversation. We’re, going to eat it up for a long time in the future. And for everyone who’s listening, if you found this episode helpful,

Give us a like if you don’t want to miss a future episode, please subscribe to the podcast so you can listen to other guest speakers and hopefully Darryl will have you back on the channel again and we can get some updates. Hope you guys will be in the construction by then and we’ll have some exciting news to share in the future. So perfect. Thank you so much and we’ll see you guys later.

Darryl Cuzzubbo (01:00:00.296)
It would be a pleasure.

Daniel O’Connor (01:00:01.501)
Thanks.

Darryl Cuzzubbo (01:00:06.642)
Thank you. See you.

Daniel O’Connor (01:00:06.929)
Thank you.