A Summary of ARAFURA given recent policy - Part 2

This Month's Findings - I thought a summary would be helpful given how fast things are moving...

To clarify the recent statement regarding ARAFURA's debt being secured at 68% by @Sharesdude, it is important to note that it might actually be 100%. This was conveyed during shareholder meetings earlier in the year. However, it has not been formally announced due to ongoing strategic negotiations around equity. Here’s an explanation:

Key Points

1. Transparency and Information Sensitivity:

   • Shaan (Head of Investor Relations) or Catherine from ARU often respond to inquiries, hence speculation isn't necessary when direct communication is available.
   • Revealing one piece of information can lead to a cascade of further questions and the exposure of sensitive business details. For instance, the recent AU$450M Canadian Loan to ARU came without details on the offtake, sparking numerous questions. ARU explained that releasing this information could compromise commercially sensitive negotiations.
   • Current shorters are still manipulating, although annoying, I would have never been given the oppportunity to buy shares at this low price without them.

2. Debt Providers to make up the 100%:

   • Korea @AU$112M: This is almost guaranteed but won't be disclosed until the last moment due to potential equity involvement. Revealing this information alongside the offtake of around 1500t would prompt questions about the AU$450M provided by GE.
   • Debt club of Commercial Funders @AU$224M: The conditions of this debt are too revealing to be disclosed at this time.

3. Strategic Equity and Expansion:

   • The delay in announcing equity and the final part of the debt is strategic, focusing on securing the right kind of equity to ensure stage 2 expansion is achievable. Investors providing significant sums for equity will likely expect returns tied to future expansions.

4. Korean Involvement:

   • Recent posts by Darryl Cuzzubbo highlight the reliance of Hyundai and Kia on Arafura’s NdPr offtake, indicating significant Korean interest.
   • The Korean government mandates a reduction in critical mineral imports from China below 50% by 2030, similar to policies in Europe and the US.

5. Retail Investors and Capital Raise:

   • It is unlikely that retail investors will be given the opportunity to invest in the capital raise. Given the high demand for offtake and the strategic negotiations for equity, Arafura is not expected to offer discounted shares through a retail capital raise.

6. Phosphoric Acid Revenue:

   • Darryl Cuzzubbo confirmed that the full 144kt of Phosphoric Acid is sold, with the revenue credited as a byproduct, reducing the overall cost base.

7. Chinese Spot Pricing:

   • Contracted prices are above the current spot price.
   • A buffer of around $10 is provided by Phosphoric Acid credit, and a new 10% processing credit adds another $4.
   • Price elasticity allows for negotiations up to four times the current spot price, particularly important as the market decouples from Chinese influence.

Market Dynamics

1. Western Market:

   • Companies like ARAFURA, LYC, ILU, ASM, and MP are part of a new, highly regulated market focused on ESG standards and genuine spot pricing. This market is expected to attract a premium due to high demand and ethical supply chains. They have been supported by all governments around the world. An example being the recent AU$450M provided to ARU from the Canadian Government.

2. Eastern Market:

   • China is manipulating the spot price to make suppliers unprofitable, while continuing low-cost expansion in Myanmar. This strategy includes imposing tariffs on the rest of the world (ROW) and ensuring that countries without mandated supply diversity policies remain dependent on Chinese supply chains.

The division between these markets highlights the strategic maneuvering needed to navigate the complexities of the global rare earth supply chain.