Arafura Rare Earths LtdEV Materials | Flash UpdateDebt funding...

Arafura Rare Earths Ltd

EV Materials | Flash Update

Debt funding secured for Nolans with FID in sight

ARU-ASX| Price A$0.19 | Market Cap A$439.0M SPECULATIVE BUY PRICE TARGET A$0.40

Total debt package conditionally approved ARU has secured conditional credit approval for its total targeted US$775m senior debt funding to assist in funding the Nolans RE Project. The total debt package (incl. completion support, overrun facility) is >US$1b. Major milestone with commercial lenders on board The senior debt facilities of US$775m includes several ECA's including EFA/NAIF (Australian, US$225m), EDC (Canadian, US$290m), KEXIM (South Korea, US$75m), plus several commercial lenders (incl. KfW IPEX, CBA, ING, KEXIM, EFA US$185m). We see commercial bank support (i.e. CBA) as a key endorsement of the project, as these types of financiers have typically been reluctant to fund new emerging sectors like rare earths. One step closer to FID in 2024, but still need to close the equity gap With debt funding for the project now secured, the company's focus is now on securing further offtake (contract coverage target is >80%, currently ~50%) and equity. The new equity target to be raised is ~US$0.8b (~A$1.2b) for a total funding requirement (incl. WC, financing costs, cost overrun etc) of ~US$1.9b (~A$2.8b), which represents a D:E ratio of ~60:40. Strategic involvement likely, in our view While we acknowledge the soft market conditions (NdPr spot ~US$50/kg), we think the strategic nature of Nolans (long mine life at 38 years and large production capacity of 4.4ktpa NdPr oxides, noting potential for an expanded +150% production scenario), alongside its government-backed funding solution, increases the possibility of strategic involvement (noting Hancock's existing ownership of ~9%). Valuation and recommendation Our price target for ARU of $0.40 (ricked NPV) remains unchanged. Maintain SPECULATIVE BUY.