Thank you for standing by and welcome to the Arafura Rare Earths 2024 First Quarter Update. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question via the phone, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please type it into the Ask a Question box and click Submit. I would now like to hand the conference over to Mr. Mark Southey, Chairman. Please go ahead.
I will. Good morning and afternoon, everyone, and thank you, Darcy. I'd like to welcome you to Arafura's first quarterly update for 2024. We have Managing Director and Chief Executive Officer Darryl Cuzzubbo and Chief Financial Officer Peter Sherrington with me on the panel here. Now, we've got about 30 minutes set aside for this. This year is shaping up to be a very significant and exciting year for Arafura as we progress further towards securing funding, which will enable us to achieve our aim of reaching Final Investment Decision this year, and then immediately mobilising for site and commencing construction of the Nolans Project. I'd also like to take this opportunity to welcome our new non-executive directors, Roger Higgins and Mike Spreadborough, to the board. They both bring skills and expertise fully aligned to where we need to take the project.
On that, I will hand over to our newly appointed MD and Chief Executive Officer Darryl, and he will take you through the highlights and results of the quarter and provide a general update of Nolans and the market. Over to you, Darryl.
Thank you, Mark. Good morning, everyone. It's great to be here with you today to share what progress we've made in the last quarter, as well as talk about what we expect to achieve for the remainder of this year. Joining me to my right is Peter Sherrington, our CFO, and also in the room is Stuart Macnaughton, our recently appointed Chief Operating Officer. We also have Rob Gerrard, our Project Director, Shaan Beccarelli, our Head of Investor Relations and Corporate Affairs, as well as our Company Secretary, Catherine Huynh. What we'd like to run through with you today is a recap on what differentiates Arafura as an attractive investment in the rare earth sector and, more broadly, the energy transition.
We'll cover what we've achieved in the quarter, as well as a detailed run-through by Peter on our funding and where we're up to, including what our equity funding approach is. We'll also touch on our schedule, what we've done to strengthen our board and management team, and some comments on our ESG approach. Firstly, let's recap on what differentiates Arafura and the Nolans Project and why the timing is right now to progress Nolans into project execution. I'll just jump to the first slide. OK. Nolans will be only the third NdPr oxide producer globally outside of China. While there are other rare earth projects, they almost all don't produce an oxide and hence are dependent upon processing capacity that today only exists in China.
In other words, they cannot provide car and wind turbine manufacturers a non-China-dependent supply chain, which is why we've had such strong interest in our offtake. Furthermore, we will be the only single-site ore-to-oxide plant in Australia, proudly keeping the value add and jobs in Australia, hence why we have enjoyed such strong government support by way of long-tenure loans. We also have a very large ore body that makes us scalable. The Nolans Project, as we have presented to you, is only Phase 1. We have a 56 million tonne resource, but it is open at depth at 400 meters. In other words, we don't know how deep the resource goes and how large the resource will end up being.
To put this into perspective, Nolans Phase 1 has a mine life of 38 years, but this only takes us to a depth of 200 meters when the resource is open at 400 meters. Consequently, we've initiated a scoping study to define what a Phase 2 looks like. Our intention is to pursue the approvals for Stage 2 while Nolans Stage 1 is being built, where the successful ramp-up of Phase 1 provides the cash flow to fund Phase 2. As you know, Nolans is fully permitted and ready to go. We are construction- ready. With the completion of early works, we have the road access, the water access, and construction camp facilities in place and commissioned, ready to start main construction activities as soon as we have secured funding.
It's also important to note that a key byproduct for us is the production of 144,000 tonnes of near-battery-grade phosphoric acid. Not only is this of interest to potential offtake partners that have an interest in the manufacture of batteries, as a byproduct, it significantly offsets our costs, putting our net unit cost below current producers at $35 a tonne, which is well below the current price despite the price being at multi-year lows. I'll just jump onto the next slide. A key point that we have been eager to explain to investors is that NdPr pricing is elastic. That is, as we move into a structural and hence extended supply deficit, we should expect NdPr to demonstrate significant upside as we've seen in the recent past. We want to get ourselves into production to help address this supply deficit, but also to benefit from the structural supply deficit.
Let me explain a little bit more. So the biggest driver for future NdPr demand is electric vehicles. The graph on the right-hand side illustrates what some of the top global car manufacturers have been presenting to their shareholders by way of electric vehicle growth. The graph is in a logarithmic scale because the growth is predicted to be exponential as electric vehicles hit a tipping point. Now, why wouldn't you buy an electric vehicle when they become cheaper than conventional vehicles as economies of scale kick in, when their ranges are longer than conventional vehicles, and when there is sufficient charging infrastructure in place? The problem, of course, is that you can't manufacture a high-performance electric vehicle unless you have NdPr. There is limited substitution risk unless you're prepared to have a heavier vehicle with less range that costs more.
Now, the reason why I say the NdPr price is elastic is because NdPr cost represents only 0.1% of electric vehicle price. So if you put yourself into electric vehicle car manufacturer's shoes, if an electric vehicle magnet uses about one kilogram of NdPr, which at today's pricing costs about $50, the average price of an electric vehicle today is $53,000. So if you're an EV manufacturer, would you pay double the current price of $100 or even quadruple the current price at $200 per car to get out an extra $53,000 electric vehicle out the door? And the answer is, of course, you would. The best analogy that we can make is: can you remember the semiconductor chip crisis coming out of COVID, where car manufacturers had to curtail the number of cars they were manufacturing because they couldn't get enough chips?
The car manufacturers would have paid just about anything for those chips to get out to get another car out the door. Electric vehicles have an important role to play in the energy transition. As in any transition, there will be winners and losers. You can see that a key enabler for any car manufacturer to win in this transition is to have access to NdPr. But just move to the next slide. This brings me to the point illustrated here, that today 90% of NdPr is processed in China. What is not as widely known is that the Japanese have secured much of the remaining 10%, hence protecting their industries that now and in the future depend upon NdPr.
What this means, though, is if you are a U.S., a Korean, or a European car and wind turbine manufacturer, you are dependent heavily on the supply from China, who will inherently and naturally look after their growing domestic market first. Arafura represents the opportunity for other countries and related companies to do the same as what the Japanese so wisely did a decade ago with Lynas. If you look at the development cupboard for other rare earth projects that are likely to go into production in the next 5-10 years, the cupboard is pretty bare. Apart from ASM for ore to oxide, there is no one else. Consequently, Arafura has an important and timely role to play in diversifying the supply chain of NdPr at a time when historically it has never been needed more. Just moving to the next slide.
The aim with this slide is to demonstrate the size and quality of the Nolans ore body and why it makes Arafura scalable. Our ore body is similar in size to the Lynas Mount Weld and slightly smaller in terms of overall grade, knowing that Nolans is open at depth at 400 meters, and just the first 200 meters supports a mine life of 38 years. It is because of the Nolans potential due to its size that we've commenced a scoping study to define what is the natural next step of growth, i.e., Nolans Phase 2. Our aim is to pursue the approvals of this in parallel with building Phase 1 so that when Phase 1 is generating sufficient cash flow, we are ready to initiate the build of Phase 2. I look forward to updating you on this in the next few months.
The Nolans' ore body is also an inherently low-cost ore body. Being open-cut but also because of the host ore type, we can produce a phosphoric acid, which with the byproduct credits puts our unit cost at around $35 a tonne, which is a kilo, which is well lower than existing operations and well below the current multi-year low pricing point. Just move to the next slide, please. So let me now move on to what has been achieved in the past quarter. The key highlights of the quarter have been securing AUD 533 million in Commonwealth funding support, which Peter will take you through shortly. This funding package is not only a significant achievement because of the size of the total debt stack but also significant due to the structure, which lowers the risk for other lenders and investors alike.
I would like to thank the Commonwealth Government for their support and, in particular, EFA and NAIF, and acknowledge the fantastic work that Peter and his team have done in securing this debt. We've been very pleased to announce the appointment of two new independent directors, Mike Spreadborough and Roger Higgins, as well as management appointments to the leadership team that make sure that we're ready for the next phase of our development. The Nolans Project remains shovel-ready. So as soon as we have secured financing, we'll be announcing FID and releasing main construction contracts to get the project execution underway. I'll now hand over to Peter, our CFO, to talk you through in more detail of where we're up to from a financing perspective.
So we'll move on to the next slide, Shaan. OK. So thanks, Darryl. Yeah. So as Darryl has already discussed, we had the significant milestone in March of this year with the announcement of the Commonwealth debt facilities, totalling $533 million from EFA and NAIF. As you can see, the facilities that have been approved are $125 million from EFA, which was under the National Interest Account, and $100 million from the Northern Australia Infrastructure Facility. Both of these facilities have a 15-year tenor, which is a significant tenor for a mining project. EFA also provided a Standby Liquidity Facility of $200 million to manage potential increases in capital or ramp-up costs.
It's not our intention that we'd be using the SLF or the Standby Liquidity Facility , but it's important to equity holders, other lenders, and also offtakers as it provides some completion support for the project. Importantly, that facility is also subordinated to the other debt facilities that are within the debt stack. In addition, EFA has also got approval to provide funding of $75 million under the up to $75 million under the Commercial Account in the ECA in the Export Credit Agency covered tranche . So it has the opportunity to sit alongside some of the commercial lenders in that covered tranche .
You'll also see there that NAIF has agreed to provide funding of up to $33 million via an oversized contribution to the cost overrun facility. So we're building into the funding lots of opportunities to manage any potential overrun. While that's something we're managing through our detailed engineering and the work that's going on, it's significant because it's been an issue with a number of projects that have been completed recently. And it provides comfort to lenders that there's the ability for completion support.
As I mentioned before, it also has a flow-on benefit for equity holders and offtakers as well. Work's progressing on the credit approval with the other ECAs. Engagement is underway with a number of commercial lenders to participate under the club debt tranche. Those activities are very advanced at the moment, and we hope to provide more news flow as those work items are completed. Might move on to the next slide. Yeah. So in terms of offtake--I mean, our offtake and debt activities are very much linked. The offtakers provide us with the access to the Export Credit Agencies. Our offtake position is we have 2,000 tonnes of NdPr oxide under binding offtake agreements with Hyundai and Kia and also Siemens Gamesa Renewable Energy. In addition to the binding offtake agreements, we have contracts under negotiation for roughly 1,600 tonnes.
These are contracts where commercial terms are largely agreed, and we're down to negotiating the key terms of the take-or-pay agreements. The take-or-pay agreements have already been reviewed by our lenders as being suitable for debt financing. So it's a case of negotiating those terms to meet those debt financing requirements. Currently, we have a total of 3,600 tonnes either under contract or under contract negotiation. That volume of offtake is sufficient for our project financing. Of the 1,600 tonnes that is under contract negotiations, roughly only 600 tonnes of that is required for the ECA funding for the link to those Export Credit Agencies.
It means that of the final 1,000 tonnes that we are negotiating, we are also pushing for other strategic benefits from the offtakers who are interested in that 1,000 tonnes and also in discussion with numerous groups around equity and strategic equity to assist with the project funding. We have a number of groups outside the contract discussion group that are also interested in that 1,000 tonnes. So there is broader interest than we have product available under that negotiation phase. We look forward to providing you with more detail on the offtake as we advance these activities. As we've always stated, we have a debt-led funding strategy. That debt-led funding strategy is performing extremely well. We're in advanced stages of credit approvals with a number of providers. We've had the EFA and NAIF facilities approved.
Our equity engagement has been building up in the background as we've been advancing those activities. During the period, we have engaged UBS and Canaccord as the joint lead managers for that equity raising. The equity strategy will leverage off the progress that's been achieved with the debt activities and will follow a cascade approach targeting significant support from customers and other strategic investors to build a significant cornerstone group before we go to the market and launch a public equity raising. With the NdPr price being low as a result of oversupply from within China and creating that low-price environment, we need the participation of key strategics in the equity raising to demonstrate the strategic imperative of the NdPr supply chain to the manufacturing and the critical energy transition.
So as we work through this process, we'll build that critical cornerstone, provide some leadership with the capital raising from some key groups, and build on that momentum for the rest of the capital raising as we're advancing the debt and the rest of the offtake arrangements.
All right. Let me talk a little bit about our schedule. We expect to achieve FID in the second half of this calendar year. And aspirationally, we're pushing ourselves to, of course, achieve this earlier rather than later in the second half. With that said, I do want to point out that the timing isn't completely in our control.
It's not even determined by the average speed of the different counterparties that we're working with and is typically determined by the slower of the parties recognizing that the parties are naturally more concerned with making sure that their internal stakeholders are comfortable with the decision rather than making a fast decision. What we're doing, though, is we review progress on a weekly basis and make sure that we're giving all the support we can to the parties in particular that are driving our critical path. I also want to point out that we will prioritize probability of funding success over speed.
So what I mean by that, by way of example, if a large investor who is a high-profile is likely to bring in support from other investors, needs an extra one or two months for due diligence, then, of course, we will support them in that additional one-two months of diligence because it'll make sure that we get there. My team and I can't get into project execution fast enough. If you look at the recent appointments, we joined because of our background and what we can bring for the next phase of the project. The timeline that you can see on this slide here shows the major activities from FID. Whilst the timing of some of the activities have changed since you've seen it last and it'll continue to change, the timing from FID to first product remains the same at 37 months.
Just move to the next slide. Everything we are doing is focused on securing the necessary funding and being ready for the next phase of project execution and demonstrating to investors that we are ready for the next phase. As our Chairman, Mark Southey, has already mentioned, he has refreshed the board. We're very pleased to announce the appointment of the two new independent directors, Mike Spreadborough and Roger Higgins. Both of these independent directors bring substantial project and complex operational expertise across multiple organizations, which really helps set us up to be ready for the forthcoming project execution and operational phases. We also announced new appointments to our leadership team of Stuart Macnaughton as COO. I've had more than 30 years of experience in the resource sector.
I do not know of a person more capable than Stuart to get us through project execution and ramp-up into stable operations. We've also had Shaan Beccarelli as Head of Investor and Corporate Affairs join us. We've promoted Tanya Perry as Head of Sustainability, reporting directly into me, which better reflects the importance that we attribute to ESG and sustainability. We know that strong ESG is a threshold expectation for our community stakeholders, lenders, investors. But it also represents an important opportunity to further differentiate us from Chinese-supplied rare-earth oxides. We know that many electric vehicle customers want to be part of a responsible and sustainable energy transition. It's important that we fit in with these principles so that EV manufacturers can demonstrate that their rare-earths have been responsibly sourced. The diagram here demonstrates that sustainability has many components with ESG cutting across all of them.
We have the opportunity to design this right from scratch given that we are a greenfield project. An example includes the design of the process plant and the power supply, which have been around maximizing energy efficiency and the increasing reliance on renewables over time. As you can imagine, our multiple international lenders demand high ESG standards. We have and will continue to meet those standards. In visiting Nolans, some of our lenders have engaged directly with our Indigenous stakeholders and have seen firsthand the strong and trusting relationship that has been built over many years. This is something that we don't and will never take for granted. An area where I know from experience where we can and will have a profound impact on the Northern Territory region is in creating jobs directly and indirectly in the region.
As we build capability not just at the Nolans site but also with local businesses, we will help enable other projects to get up due to improved infrastructure and services. We will be the largest mining resource project by far in the Northern Territory with the longest mine life. Working together with the NT Government, education institutions, and local leaders, we can and will have a profound multi-generational impact in Alice Springs and the NT more broadly, not to mention becoming Australia's first iconic ore-to-oxide mine and processing plant. So let me finish where I started. We have a great project. And I think history will show that we will be bringing it on when our production is needed most. Upon securing the remaining financing, we are ready to go.
We have a well-defined project with engineering levels beyond what you would typically see at FID stage, which has been a key reason why our CAPEX forecast has been stable. We have Native Title agreements in place with very good relationships with our Indigenous stakeholders. We have the necessary federal and territory government approvals. Our debt package is well-progressed and tracking as we hoped it would. Our offtakes are well-advanced with our focus on those that will bring strategic support through equity. The early works is complete, which means we can start main construction activities on multiple fronts, hence reducing project execution risk. We're ramping up investor engagement as we secure the remaining debt. A lot has been achieved. We're very excited and energized about moving into the next phase of our rare earths growth as a company.
I look forward to updating you further as we achieve remaining milestones towards achieving FID. Thank you. I will now pause there and open up to questions.
Thank you. If you wish to ask a question via the phone, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. If you wish to ask a question via the webcast, please type it into the Ask A Question box and click Submit. Your first question comes from Al Harvey from JP Morgan. Please go ahead.
Yeah. Good day, team. Interested in your comments around the stage 2 expansion. I don't know; it's very early stage. But just wondering if you can give us a sense of what kind of scenarios are being looked at. Are there any options to, I guess, increase scale and bring forward some of that mine life? You've noted the 38-year life to about 200 meters depth. Could you bring some of that forward in terms of an increase in scope? Or is it all about mine life? Cheers.
Yeah. So let me make some preliminary comments knowing that it can be more definitive once we've completed the scoping study in the next two-three months. So in terms of phase one, it's about making sure we've got the best internal rate of return, making sure that the CapEx is affordable, etc. Phase 2 will be very similar to that, building off the infrastructure that we already have in place. And I'm going to say building off the knowledge that we have in building phase 1. So phase 2 will, I'm going to say, optimize the same sorts of variables that we have optimized in phase 1. Very importantly, though, our intention is to be ready to bring on phase 2 when phase 1 is working, it's generating cash flow.
Our intent at this point, with what we know today, is that it would be funded from cash flow out of Phase 1. We think that's a prudent approach. But what it also says to investors, if you want in on what will be one of the largest NdPr producers in the world, if it all goes to plan, now is your time. If it all goes to plan, now is the only opportunity to be part of that. But I'll be able to say more in two to three months when we've completed the scoping study.
Yeah. Great. And really looking forward to that. I guess just building on that, I guess with the scoping study in 2-3 months, are we likely to see economic parameters, particularly price assumptions, similar to the stage 1 study? And I guess following on from that, are we likely to get full updated economics on phase 1 ahead of FID?
Yeah. So just let me answer the first question. So yeah. So the assumptions for phase 2 will be linked to the sort of long-term forecast assumptions that we would use in phase 1. But we will update the market as we learn more around the economic drivers. So as we find things that have changed, we will update the market.
Yeah. Definitely. Understand. And just finally, just in terms of the equity piece, are you guys willing to put kind of a line in the sand on where you'd like to see the strategic partnering piece versus the split from the broader equity markets? Or is it still up in the air?
I think it's still to be resolved. We do consider the equity piece to be substantial in terms of the total funding required. Probably that's always been our position. As I mentioned, with the current NdPr price being at a significant low compared to where it's tracked from over the last couple of years, we sort of strengthened our resolve on that cornerstone needing to be substantial.
Understood. Thanks very much.
Okay. So we've got one question online. Mark has asked, "How are we avoiding CapEx jumps like other majors are facing?
Yeah. Mark, that's a very good question. So there's a few pieces to that. So firstly, we did a CapEx update in November 2022. And that CapEx update was substantial and incorporated much of the price pressures that other projects have seen since then. So we picked up most of the capital increase pressures in our November 2022 update. We did update the market on our CapEx at the end of last year. And the CapEx went up a bit under 6%. And the two other reasons it only went up 6% is because, one, if you look at our project, the most complex part, the largest part, is the Hydromet plant. And our engineering is over 60%. Why that is important is because our engineering is advanced to where we're no longer getting surprises in terms of scope. So the scope is locked down.
So that's not driving increased CapEx. We're still susceptible to pricing pressures. However, Rob Gerrard, the project director, and his team, for over 18 months has been running a process of continually looking at ways to reduce CapEx, reduce project execution risk, reduce schedule. And we've found that as we progressed those ideas, they've been offsetting the CapEx pricing. So our CapEx has been stable for a few reasons. One, when we did the update in November 2022, we picked up most of the pricing pressures. Two, our engineering is well-progressed. So our scope is stable. And thirdly, we're continually looking for ways to improve the project, which has offset pricing pressure increases.
Another question asking, "When will site access works recommence?
Yeah. So, good question. So we've done everything we need to on site to enable main construction works. So we've put in 20 kilometers of road access. I think it's 26 kilometers of pipeline, construction camps. And it's all been commissioned. So once we've secured funding, we will announce FID. And we will release contracts to start main construction activities. So to answer your question, as soon as we've secured funding, we will be starting main construction activities.
The final question, just asking for an approximate schedule for debt to be finalized and FID to happen, which you've covered.
Yeah. Did you want to talk to that?
We're working towards our credit approvals on the balance of the facilities over the balance of this quarter. We would look then to build the equity stake around that debt funding announcement. I think in our schedule and the presentation, we've indicated we're targeting the second half of this year for funding.
Is that it? Is there no more questions? Okay. So look, let us wrap it up then. Again, just thank you for joining us on our quarterly update. We are truly at a very exciting juncture in Arafura's life. I want to recognize and appreciate the shareholders and your loyalty and support along this journey. I think the next six months are going to be very exciting for all of us. And we're certainly energized and ready for it. So thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.