“We’ve gone offshore and targeted those countries and customers in which there is strong manufacturing reliance on rare earth magnets, and … they’ve got strong export credit agency backing by their governments.”
Mr Lockyer also noted that having a Chinese shareholder had become problematic in talking to some potential customers. Chinese state-owned group East China Non-Ferrous Mineral Resources has been a major Arafura shareholder and backer since 2009 but has been selling down its stake. Last week, its nominee, Quansheng Zhang, resigned from the board.
Strategic decision
East China’s exit has gathered momentum since it declined to take part in a $121 million capital raising last December in which Gina Rinehart’s Hancock Prospecting emerged as a big backer with 10 per cent of Arafura stock.
The sell-down is part of a strategic decision by the Chinese group to focus on domestic projects amid a heavy emphasis by the US – through the Inflation Reduction Act – on building non-China critical minerals supply chains.
Arafura’s strategy is to have binding offtake agreements in place for 85 per cent of the neodymium praseodymium oxide and metal it produces from Nolans, about 130 kilometres east of Alice Springs, and to target equipment manufacturers in countries with supportive export credit agencies.
Mr Lockyer said some downstream users of critical minerals were pushing to diversify supply chains that relied heavily on China.
“If [Chinese entities] are a significant shareholder, and you’re trying to deal with customers that might be a bit more Sino-phobic, that is a problem for them because they don’t want the Chinese understanding what is their business,” Mr Lockyer said.
Data compiled by Bridgend Capital Advisory in March showed the exposure of the big banks to the resources industry has sunk to a decade-low.
The research, which showed the exposure of the largest four local banks to mining, oil and gas has fallen $25 billion since a peak of $64.7 billion in 2015, led to warnings from funding veterans about a decline in technical understanding and risk appetite that would make it hard for local banks to participate in a boom in critical minerals.
Arafura announced a binding offtake agreement with leading wind turbine manufacturer Siemens Gamesa last month that fits with German export credit agency Euler Hermes confirming in-principle eligibility for an untied loan guarantee of up to $US600 million ($902 million) to develop Nolans.
Perth-headquartered Arafura also struck a binding offtake agreement with Korean carmaker Hyundai last November and signed a non-binding offtake agreement with American conglomerate General Electric in July.
The agreement with GE Renewable Energy outlines a potential strategic investment in Arafura. Mr Lockyer said the company was also in talks with Hyundai about an equity stake.
He said Hancock was a supportive shareholder and remained open to providing knowledge and expertise with Nolans based on its experience in large project development.
Arafura has started earth works at Nolans, which is considered one of the world’s biggest undeveloped rare earth deposits, and is aiming to be in production by the second half of 2025.