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Why Arafura Resources Limited shares have doubled in 3 months

The Arafura Resources Limited (ASX: ARU) share price has more than doubled in the past three months to close on Thursday at 0.13 cents.

Now the rare earths company has been placed in a trading halt.

Arafura Resources told the ASX the trading halt was required “pending an announcement regarding a proposed capital raising that is material to the company”.

The company, with a market cap of about $73.8 million, didn’t mention much more aside from its expectation that trading would resume before market open on Tuesday.

As part of its Nolans Project, in the Northern Territory, Arafura intends to produce Neodymium-Praseodymium (NdPr) oxide.

NdPr oxide products are used throughout a range of industries including electric vehicle manufacturing and oil refining.

In June, the company announced that it intended to capitalise on Chinese demand for NdPr amid a significant price increase and tightening of supply.

For the period from December 2016 to 13 July 2017, NdPr prices increased by over 40%, according to Arafura.

The company attributed various factors to the rise in NdPr prices, including:

  • Government-led initiatives to enforce higher environmental standards on China-based producers and to reduce the quantity of material available from illegal sources;
  • Leading Chinese producer Northern Rare Earth continuing efforts to withhold product from the market and push prices up; and
  • Increased buying interest from magnet manufacturers.

Other rare earths companies have also been doing well over the past three months.

The Lynas Corporation Ltd (ASX: LYC) share price has almost doubled in the past three months to close on Thursday at 0.20 cents.

And the Hastings Technology Metals Ltd (ASX: HAS) share price has done even better, almost tripling in that three-month period to close on Thursday at 0.25 cents.

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Motley Fool contributor Steve Holland has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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