Why R&D is needed

Rare earths are a collection of 16 chemical elements that are used in a variety of applications on which we depend. Two of the rare earths - neodymium and praseodymium (NdPr) - are the key raw materials in ultra-strong permanent magnets. They are essential to electronics, technology and automotive industries, as well as to realise energy efficiency and reduce greenhouse gases.

CFO and company secretary of Arafura Resources (Arafura) Peter Sherrington says that China supplies more than 90% of the global use of rare earths and that they are unchallenged in the market.

Arafura's R&D allows them to become a long-term supplier by extracting and producing NdPr oxide from phosphate minerals at its Nolans site in the Northern Territory (NT). Arafura started as an exploration company for a range of commodities. About 10 years ago, rare earths became important for emerging technologies and Arafura changed from being an explorer to focus on project development at Nolans. The R&D project is to mine and process rare earths at Nolans.

Arafura has invested in R&D over the past 10 years and Mr Sherrington estimates a further investment of $7 million in the project.

The company has benefited from a number of grants including the Commercial Ready grant, the R&D Tax Concession and more recently the R&d Tax Incentive (R&DTI).

According to Mr Sherrington, the R&DTI was introduced when the company was up-scaling their R&D activities.

“The scheme came in at a perfect time for what we needed to do. Our biggest year of spend on R&D was the first year the R&D rebate scheme ran,” Mr Sherrington said.

We never undertake our work on the basis that we will get a R&D rebate, but it does mean that we can finish the work and, before we get back out to equity markets to raise more money, we can raise a lesser amount because the R&D rebate is coming in.
— Peter Sherrington, CFO, Arafura Resources Ltd

How the Research and Development Tax Incentive Helps

As the rare earths industry is different to traditional resources industries, Mr Sherrington says the investment market tends to hesitate when it comes to financing projects like Nolans.

“[Our company] is creating sophisticated processing technology and doing research for an industry that doesn't even really exist in Australia,” he said.

During times that the resources industry was not seen as a desirable investment opportunity because of the mining downturn, the R&DTI enabled Arafura to stay in business and to continue with focused R&D.

Arafura has funded laboratory and large scale pilot plants, which help progress their project and enable laboratories, research facilities and external consultants in WA and interstate to generate knowledge and expertise.

This newly created knowledge will help other companies to start further along in the development process.

Arafura has received about $30 million of rebates through the R&DTI program and is in the feasibility stage of the Nolans project, which when in production will have a tremendous impact on the economy and the local NT community.

There has been little economic activity around the Nolans site and many local communities depend on government support. In the next few years, Arafura will create a “processing hub which is going to see the best part of half a billion dollars invested in the local community,” Mr Sherrington said.

This will create employment and career development opportunities for local people. In addition, extracted NdPr-rich resources will support better environmental outcomes because the permanent magnet industry is growing worldwide and there are many clean energy applications. Electric vehicles and wind turbines operate more efficiently with permanent magnet motors.

A successful project will allow Australia to challenge China's position as the dominant global producer of rare earths. Apart from the benefit to the company itself, this will create an additional supply source for non-China based users.

Arafura will produce rare earths to highly regulated standards, meet important regulations related to waste management (which may not apply to overseas companies), and provide traceability from mine to final products.

If we hadn't secured the R&D rebate we wouldn't have been able to sustain development of the project. We lived off the R&D rebate from around 2012 until 2017.
— Peter Sherrington, CFO, Arafura Resources Ltd

More information

  • Potential for half a billion dollars of investment into the local NT community, creating job opportunities and economic support for the region
  • About $30 million of rebate which supports funding of further R&D activities
  • Ability to extract rare earths to produce permanent magnets within Australia
  • Development of intellectual property that will benefit other Australian companies
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