Australia's Arafura Seeks Japan Rare Earth Deals-CEO

By Stephen Bell

Special to DOW JONES NEWSWIRES

PERTH (Dow Jones)-Australia's Arafura Resources Ltd. (ARU.AU) said it's in talks to sell rare earths to Japan from its 1 billion Australian dollar (US$996 million) Nolans project, the latest challenge to China's domination of trade in a key raw material used to produce mobile phones and handheld devices.

"There is a lot of interest in Japan in Arafura and our product," said Steve Ward, the company's chief executive, who travelled to Tokyo last month to speak at a conference for Japan's Metal Research Bureau.

Japan is stepping up efforts to diversify its supply of rare earths away from China after companies reported in September disruptions to scheduled deliveries caused by more stringent customs checks by Chinese authorities, a claim China's government denied. Beijing has tightened quotas for the export of the group of minerals known as rare earths, giving its own consumers an advantage as international demand picks up. China produces 97% of the global supply of rare earths and has a 16.7% stake in Arafura held by East China Exploration & Development Bureau.

In November, Japan's Sojitz Corp. (2768.TO) said it will partner with Lynas Corp. (LYC.AU), another Australian miner, to supply rare earth metals to Japan. At the same time, U.S. producers are speeding up development of rare earth mines to challenge China's near-monopoly control over supply. U.S.-based Molycorp Inc. (MCP) recently began preparations in an open-pit mine in the California desert that had been the world's dominant rare-earth supplier before mining stopped in 2002.

Perth, Western Australia-based Arafura hopes to secure funding for its Nolans mine by the end of the year, with rare earth production expected to start in the second half of 2013. After a lull in marketing after the global financial crisis, Arafura restarted its sales pitch last year, Ward said.

"It's fair to say there has been a huge amount of interest," said Ward, adding that the company is talks with several rare earth customers.

Arafura is being backed by the Australian government to develop its processing technology for Nolans, and is seeking further help, said Ward. Last year, Australia's government offered support to domestic miners to help the country become a stable, long-term supplier of rare earths to Japan.

"We will be pursuing Federal and state government incentives," said Ward.

Arafura plans to mine rare earths at its deposit in Australia's Northern Territory state and process the material at a purpose-built chemicals facility at Whyalla, in South Australia state, to produce 20,000 metric tons a year of rare earth oxides.

The company says rare earths prices have continued to rise this year, mainly on supply-side concerns.

Prices of neodymium and cerium, rare earths used respectively in magnets and catalytic converters, are currently around five times and 17 times their 2009 prices, according to Sydney-based Lynas.

-By Stephen Bell, contributing to Dow Jones Newswires; 61-8-9244-4243; [e-mail]