A rare earths giant is brewing: Arafura raises $121m to accelerate the Nolans Project

Arafura Rare Earths (ASX: ARU) wants to Lynas (ASX: LYC) a run for its money as the world's largest rare earths producer outside of China.

The company successfully raised $121 million on Monday at 37 cents per share or a 15.9% discount to the stock's last closing price of 44 cents.

The funds will be used to accelerate the company's flagship Nolans Rare Earths Project, including the placement of long-lead items and commencement of early works construction.

Rinehart raises the stakes

Gina Rinehart's Hancock Prospecting acted as a cornerstone investor, gobbling up almost half the placement or $60 million.

Arafura notes that post placement, Hancock Prospecting will have an approximate 10% stake in the company.

“We are extremely pleased with the number of new and significant Australian and offshore institutional investors joining our register including Hancock Prospecting, a company well experienced in large project developments," said Managing Director, Gavin Lockyer.

Nolans catch-up

The Nolans Project is located 135 kilometres north of Alice Springs in the Northern Territory. Arafura considers the project as 'one of the largest and most intensively explored deposits of its kind in the world', containing a unique mix of rare earths, phosphate, uranium and thorium.

A definitive feasibility study update released on 11 November expects the project to produce 4,440 tonnes of NdPr oxide per annum. Under an assumed NdPr price of $125.5/kg to $130.10/kg and forecasted production profile, the company expects Nolans to deliver $822 million in annual revenues.

To add some perspective, Lynas delivered FY22 revenues of $920.0 million, although at a much lower average price of $60.3/kg.

Arafura said the project is on track for commencing procurement and construction in early 2023. If all goes to plan, Nolans is forecast to hit production status in mid 2025.

Post raise blues

Arafura shares are down -12.5% to 38.5 cents around noon but still trading just above its raise price of 37 cents. Stocks generally slump post raise to reflect the discount and dilution from the new shares.

Of note, Arafura raised $41.5 million just four months ago, at 26.5 cents per share or a 17.2% discount to its pre-raise price.

If you look at the chart below, Arafura shares fell -14.1% post raise, on 5 August and chopped the high 20 cent level for exactly one month before pushing out on 5 September.

Arafura share price chart (Source: TradingView)