Arafura Rare Earths Limited

Thank you for standing by and welcome to the Arafura Rare Earths Limited March 2025 Quarterly Report Investor Call. 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 phones, you will need to press the star key followed by the number one on your telephone keypad. And if you do wish to ask a question via the webcast, please enter it into the ask a question box and click submit. I would now like to hand the conference over to Mr Darryl Kazubo, Managing Director and CEO. Please go ahead.

Good morning, everyone. Thank you for making the time to join us today for our quarterly update. For those that are new to these calls, my name is Darryl Kazubo, the Managing Director of Arapura Rare Earths. And again today with me is Peter Sherrington, our CFO. A lot has happened since our last quarterly update, both from an external market perspective and in terms of activities to secure the best possible pathway to FID that rewards existing shareholders and opens up the best long-term growth options for our company. Between Peter and I, we will make some comments on the external market, how we are progressing towards securing the equity ahead of FID and the TRAXIS offtake agreement recently announced before opening to your questions. So let me start by summarising how we see the external market. We've seen escalating trade tensions between the US and the rest of the globe, but in particular China. On April the 9th, the US imposed China specific tariffs of 36% on the imports of rare earth magnets. China subsequently announced plans to restrict exports of high performance magnets and rare earth products on national security grounds with no specific country being targeted. This has created significant supply uncertainty for nearly 90% of the world's high-performance permanent magnets required for everything from everyday electronics to electric vehicles, wind turbines, robotics, and military equipment. We are already hearing of supply disruptions for ex-China manufacturers such as Tesla, noting that their robot manufacturing is being affected. In response to this, The US President signed an order directing the Commerce Secretary to begin a national security review, noting that the US dependency on mineral imports raises the potential for risks to national security, defense readiness, price stability, and economic prosperity and resilience. Within 180 days, the Commerce Secretary is required to report his findings back to the President, including whether to impose further tariffs. It should be noted that the European Union has already stated some time ago that they will introduce trade restrictions through their Critical Oral Materials Act, where no more than 65% of their needs can come from a single country. In conjunction with these developments, our federal government has announced plans to secure strategic reserves of critical minerals, including rare earths, which presents a potential mechanism that can be used to break China's monopoly over pricing. It was in anticipation of circumstances like this that Arafa has held tightly to our ore-to-oxide rare earths strategy so that we can offer a meaningful alternative to China's rare earths supply chain. If you look across the globe, we are uniquely positioned as a truly construction ready project that can bypass China's supply chain. Given that we have secured the debt required, our only remaining step ahead of moving into construction is raising the required equity. I believe that our timing could not be better. With these developments, we should expect that there will be a bifurcation of rare earths pricing, creating the market opportunity for a seaborne-based pricing system. The domestic rare earth prices in China should no longer be a functional representative price for a non-China magnet value chain. Importantly, Argus, a well-regarded independent forecaster, believes that a long-term incentive pricing of US $163 is necessary to create a rest of world NDPR supply chain that isn't dependent on China. Now, let me make a couple of comments on securing the required equity before handing over to Peter to talk through our recent TRAXIS offtake agreement, and then we'll open up to questions. As stated previously, we have been targeting 50 to 60% of our equity to come from cornerstone investors before raising the remainder from institutions and the broader market, including current shareholders. This target of 50 to 60% is dependent on market conditions, which have been volatile, particularly given the recent uncertainty of the impact to the global economy of a potential trade war. Consequently, we have been pursuing the upper end of this target range. Earlier this quarter, we announced securing $200 million from the National Construction Fund as part of our cornerstone investor funding. Following significant engagement and progress over the last quarter, we are confident in achieving our cornerstone investor equity target, and we are now in a position to be able to progress with multiple investor pathways to a fully funded solution. This is important. Having multiple pathways not only firms up securing the required funding, but also so that we can attain the best outcome for our shareholders and the long-term objectives of the company. Specifically, Arafura is assessing a potential joint venture structure which could significantly reduce the equity required to fund Arafura's remaining project interests. Given the need to evaluate the merits of multiple pathways, as well as some potential cornerstone investors requiring additional time to progress through their internal processes and due diligence, FIT for Nolans will extend beyond the previously advised window of the first half of this calendar year. We will update the market as material equity funding milestones are achieved in advance of announcing FIT later this calendar year. We expect that as we progress the different funding solutions during this quarter, we will be able to provide more definitive guidance on FIT timing. I do want to point out that we will only progress a funding solution that requires requires more time if it presents a better outcome for our shareholders and the long-term objectives of the company. Given this and the advanced status of our engineering, we have conducted an operational review. This has led to a reduction of project and engineering effort that will see our financial runway push out to the first quarter of next calendar year 2026. This decision does however mean that we will need to rev back up the project and engineering Capability Post-Fit, placing up to an additional four months to the project schedule. We will use this four-month ramp-up period as an opportunity to retest market prices and retender where appropriate to ensure that the best possible capital outcomes for the project are being achieved. I will now hand over to Peter to talk through the strategic importance of the Traxxas Soft Take. Thank you, Peter.

Thanks, Daryl. During the quarter, we announced and concluded a binding offtake agreement with Traxxas, with Traxxas Europe, for a base amount of 100 tonnes per annum of NDPR. The offtake agreement has a five-year period, and at Arafura's option, we can nominate up to a further 200 tonnes per annum of NDPR to be placed into the market with Traxxas Europe. For those who don't know, Traxxas is a global physical commodities trader, and it trades battery materials, industrial minerals, and has existing business in the rare earths sector and with other metals as well. We know that Arafura has been prioritising offtake partners who bring strategic support to Nolans, and this is, in most instances, a link to equity investment. We know that the Traxxas offtake doesn't bring equity, but it does provide us with some volume flexibility, which we felt was quite strategic. We, in effect, have a 100 tonnes per annum amount, but an optional amount of 200 tonnes per annum. The key here is that can assist us with managing variability in production volumes and delivery schedules that arise over the life of the initial offtake agreements. We also saw some significant value in building a strategic relationship with a trading company who has a deep understanding of the rare earths market. And from that perspective, Traxxas was a good fit. So whilst the volume was small, it doesn't have a link to equity. It's fairly strategic from a long-term perspective in building that relationship. And it's also critical to us in that it provides us some optionality around a volume from 100 to 300 tonnes to be placed with that off-taker. and we were sort of very keen to get this arrangement locked in and just Frank Richards, our sales and marketing manager, did a good job in structuring this offtake and worked well with Traxxas in order to complete the arrangement.