Arafura Rare Earths Limited

Thank you for standing by and welcome to the Arafura Rare Earths Limited June 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 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 enter it into the ask a question box and click submit. I would now like to hand the conference over to Mr Darryl Kasubo, Managing Director and CEO. Please go ahead.

Thanks, Melanie. Good morning, everyone, and thank you for making the time to join us today for our quarterly update. We do appreciate your interest in taking the time to dial in where we can share a little bit about what's happening in our company, but also share a little bit about our perspective on what's happening externally. For anyone that is new to these calls, my name is Darryl Subo, the Managing Director of Arafura Rare Earths, and again with me is Peter Sherrington, our CFO. Similar to last quarter, what we'd like to do is just firstly share with you key external events that we think are shaping the rare earth sector both now and into the future. Secondly, talk through our progress towards securing funding and announcing food. And thirdly, Peter's going to unpack our recent announcement regarding the German Raw Materials Fund. So let me start by just summarising some of the key things that we see are shaping the external market. Now many of you would have invested in Arafura because you anticipated exactly what we are seeing playing out at the moment as the global manufacturing regions of the US, Korea and the European Union get just a glimpse of the cost of not having a diversified rare earth supply chain which is paramount to their security and economic future. For a diversified rare earth supply chain to be established with long-term certainty, it's critical that there is a functioning market rare earths price index where investors can be confident that pricing and returns will be driven by typical supply-demand dynamics. And if you look at the supply-demand dynamics for rare earths, they are exceptionally strong, with demand doubling over the next decade, with a pretty sparse pipeline to fill that demand. During this quarter we're starting to see the pieces come together for the creation and use of this functioning market price index. During the quarter we also saw an indication of what is at stake by not having a diversified supply chain where electric vehicle production lines had reportedly been shut down in Europe, US and Japan. We're seeing electric vehicles worth an average of $47,000 US dollars not being produced because they do not have access to $70 worth of MDPR. Consequently, we personally, we've witnessed a shift in the OEMs where they're looking at pricing and supply security to being predominantly focused on just securing supply. An example of this bearing out is that we've heard recently from one of the traders that we talked to that pricing for heavy rare earths has tripled in response to the current situation. Whilst China has recently started exporting rare earths magnets again, we understand that such agreements are typically only for three to six months. So in other words, the rare earth supply crisis still has a long way to play out. Further adding to this uncertainty of supply, we understand that China has recently released their production quotas, which they've done in the past typically twice a year, but this time they no longer have published what those production quotas are. If I can just now shift to the US, where there's been substantial events of late. We've seen the US Department of Defence underpin the development of Mountain Pass in securing for the US an independent supply of rare earths magnets. This now only leaves Korea and Europe as the major manufacturing hubs that do not have an independent supplier of Rare Earths. And as you know, they have been the two markets that we have been primarily focused on. So these two markets, Korea and Europe, today are still essentially 100% dependent on China's supply. The US Department of Defense has also set a floor pricing of $110 a kilo for NDPR, which is interestingly close to an incentive pricing of between $130 to $160 a kilo that we would expect to see if we had a functioning market. Just last week, we saw that Benchmark Minerals Intelligence established for the first time a non-China controlled NDPR price index. Now if I just bring this closer to home, the Australian Government as you know has played a key role in helping to establish a rare earth sector in Australia through funding support and production tax incentives to encourage downstream value add under the Future Made in Australia program. The Australian Government also recently announced the concept of a strategic Reserve, hence enabling them to play a global leadership role in creating a functioning diversified rare earths sector by placing volumes associated with such a strategic reserve onto a non-China controlled price index. This is exactly what is required to bring credibility and weight to such an index, hence encouraging its use as the primary price index going forward. This is something that our marketing team foresaw and have made provisions for in our most recent contract negotiations. When we last released our economic model, we included two scenarios. The first scenario was based upon a long-term pricing that assumes China maintains a level of control over pricing, noting that it is expected from a number of forecasters that China can't maintain supply for the fast-increasing demand. We also included a second scenario, an upside scenario, that included long-term incentive pricing that would be reflective of underlying supply-demand fundamentals. In our view, what we positioned as an upside case is progressively becoming, over time, the more plausible scenario. Again, this all bodes very well to bring on a Nolan's project at exactly the right time. And as you've said before, when you look across the globe, we are uniquely positioned as the most advanced construction-ready rare earths project that processes to an oxide, hence being able to provide a one-stop shop for a non-China feed for magnet manufacturing. By also processing to an oxide, we don't have the radiation challenges associated with our products, which projects that don't process all the way to an oxide invariably have to contend with. Let me now talk a little bit about our progress towards a fully funded solution and announcing fit. Whilst, you know, we continue activities around reducing project execution risk, reducing capital, improving our schedule, and we need to do these things because invariably, you know, you come across capital pressures, etc. going forward. However, our primary focus remains upon securing equity as the final step required to calling fit and moving into construction. We're very pleased to report that we continue to make good progress on by securing cornerstone investors of up to 60% of our required equity, as well as progressing joint venture discussions. We are progressing both pathways in parallel as fast as we can. So one pathway is not waiting for the other, or vice versa. We were very pleased to announce recently that we've entered the appraisal phase for equity investment from the German Raw Materials Fund, with Arafura seeking up to €100 million, which is tied to additional supply from Knowlers. You might remember that our strategy around offtake, around the remaining offtake, was to leave that open to pull in additional equity, and you can see how that strategy has played out with the German Raw Materials Fund. This announcement is significant in that it demonstrates the importance of our project to German and European manufacturing sectors, but also I want to point out that we were one of the first two projects being able to progress into due diligence since the formation of the fund. Just as we've been at the front of the queue for the National Reconstruction Fund, we've been at the front of the queue for the German Raw Materials Fund. And the reason why I announce that, the reason why I point that out, is our progress has been slower than we would have liked and slower than what we had expected. We're doing everything we can to progress this as fast as possible and I think it says something when despite the size of our project, the complexity of the project, we're at the front of the queue with these newly established funds. As reported last time, we continue to have a clear line of sight securing 60% of our equity with Cornerstone Investors, which is the higher end of our 50% to 60% target range, as previously communicated. We are pursuing the higher end because, one, we can, we've got clear line of sight of achieving that 60%, plus it remains prudent given uncertainties in the market, particularly with respect to ongoing trade negotiations. The only thing I would say is, as different trade deals are done with the US, the market volatility, as we see it, is starting to settle. We are acutely mindful that it's very important to US shareholders to provide visibility of progress, and we will announce what we can, noting that decisions to announce need to be agreed upon with other related parties, and we may not always be able to do so, but this does not mean progress isn't being made. At this point, we expect that our timeline is likely to be mostly driven by the due diligence that will be conducted by KfW on behalf of the German Raw Materials Fund, as well as locking in the additional offtake volumes. In other words, we expect that the components that make up the 60% of our cornerstone investment to be completed prior to the German Raw Materials Fund making their decision. Whilst the German Raw Materials Fund can't and won't commit to a timeline, and that's because they don't know what they're going to find in due diligence, they don't know what questions or follow-up questions that are going to be asked, our view is that this is likely to take towards the end of this calendar year. With that said, we're supporting them as much as we can to expedite their process as much as we possibly can. I'm now going to hand over to Peter Sherrington to unpack for you a little bit more about the general materials funding and what Peter and his team are doing to secure the additional offtake related to that fund. Thanks Peter.

Thanks Darryl. Darryl's already discussed the changing landscape and action by Western governments that are looking to address the need to develop diversified value chains. and specifically around rare earths, the need to reduce the dominance of China in the rare earth and magnet value chain. The Department of Defense underwriting a floor price for MP materials of $110 per kilo of NDPR has been a really highly visible example of government talk being turned into some pretty decisive action Arafura is seeing similar conviction with government agencies in other jurisdictions it's engaged with for offtake and debt facilities and also with equity facilities that are state-backed. In September last year, the German federal government actually announced the allocation of €1 billion to the German Raw Materials Fund. Arafura was fortunate enough at the time to be in Frankfurt when the fund was announced in September last year, and we met with KfW at that time to gain a better understanding of the process and mandate for the German Raw Materials Fund. So KfW will administer the fund on behalf of the Inter-Ministerial Council which consists of representatives from the Federal Ministry of Economic Affairs and Climate Action and the Federal Ministry of Finance. The German federal election unfortunately caused some delays in the commencement of the German raw material funds activities and approval of projects to advance through to DD was deferred until the outcome from that election was known. As Darryl mentioned, Arafura is one of two companies selected to advance to appraisal or DD phase once government was formed and the IMC meeting or the inter-ministerial council meetings were recommenced. We've applied for a total equity investment of €100 million. Half of this amount will be linked to our existing off-take agreement with Siemens Gamesa Renewable Energy. Arafura will seek additional equity through the supply of a further 500 tonnes per annum to the German market. So we're already partway through the commitment on offtake and working to expand that out to secure the total investment of Euro 100 million. The commencement of DD by the German Raw Materials Fund combined with the $200 million Australian dollars or US $130 million investment from the National Reconstruction Fund, which was announced in January, demonstrates Arafura's delivering on its strategy to leverage the strategic nature of NDPR to secure the cornerstone and strategic investment required to deliver on our equity strategy. Darryl's already talked about the objective of securing up to 60% of the total 790 million US of equity required to fully fund the Nolans project from Cornerstone and strategic investors. Potential investment from the German Raw Materials Fund and the National Reconstruction Fund represents approximately 50% of that Cornerstone investment target and indicates or provides, demonstrates significant progress on the execution of that strategy. With due diligence commencing on the German Raw Materials Fund investment, our sales and marketing effort has increased the German focus to ensure we can secure the additional 500 tonnes of NDPR offtake required to target the full investment amount of €100 million. Historically, our engagement with German offtake partners and others has in many instances focused on offtake with linked strategic investment. with the German Raw Materials Fund investment opportunity, there is now reduced emphasis on the direct investment with potential German off-take partners. We already have a number of prospective groups that we have engaged with in Germany and we look forward to providing shareholders with additional updates on strategic investment and the remaining off-take as and when these arrangements become more certain. That's all I've really got to talk about on the German Raw Materials Fund and the related offtake activities around that. I think I'll pass back over to the moderator and we can go to Q&A.