Why has the Arafura Resources (ASX:ARU) share price dropped 9%?

The Arafura Resources Limited (ASX: ARU) share price is down today after news the company pushed delivery of its Nolans Project back by 8 months.

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The Arafura Resources Limited (ASX: ARU) share price has fallen today after news the company has pushed delivery of its Nolans Project back by 8 months.  The company also announced it won’t be initially mining cerium at the rare earth project. These adjustments to the company’s former plans come as it optimises its execution strategy.

At the time of writing, the Arafura share price is 9% lower than yesterday’s close, trading for 18 cents apiece.

Let’s take a deeper dive into the mineral exploration company’s news.

Optimising the project’s execution strategy

Today’s news from Arafura is that it’s decided to modify the execution strategy of the development of its Nolans Project. The new strategy will be a traditional detailed front-end engineering and design (FEED) model.

Nolans Project is to be a rare earth mine, mining neodymium-praseodymium. It’s located in the Northern Territory.

Arafura states the FEED model will result in a more competitive tendering process, a reduced risk for contractors and more cost certainty.

It will mean the contracts for construction and engineering will be split and, according to the company, will be more competitive as a result.

Also, its engineering contract will be carried on rates to a target cost, including performance and design warranties for the plant. The tendering of other contracts, such as the numerous on-site plants and infrastructure, will also be started.

All this will make the process 8 months longer than originally planned, due to the extended tendering process.

The company also shared its plans to defer the production of cerium at the project. Arafura said the optimisation process found cerium delivered only limited value to the project, as there will potentially be a future oversupply of the rare earth mineral. Only 5% of the project’s initial income was expected to come from cerium production.

Arafura said it was looking into federal government grants to help fund the FEED program. It has also applied for a grant through the Modern Manufacturing Initiative.

Commentary from management

Arafura managing director Gavin Lockyer said the project was “shovel-ready”, with Arafura still optimising its delivery and funding:

Arafura’s ore to oxide model is a differentiator from other companies that are only proposing to produce concentrates or intermediate products for processing elsewhere, and the feedback we’ve received from both customers and financiers indicates strong support for that approach and for the shift to the more traditional FEED model for the project.

Arafura Resources share price snapshot

The Arafura share price has performed well on the ASX lately, despite today’s setback. Currently, Arafura shares are up 40% year to date and up by 203% over the last 12 months.

The company has a market capitalisation of around $234 million, with approximately 1.1 billion shares outstanding.

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The Motley Fool Australia has no position in any of the stocks mentioned. 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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