Arafura Resources (ASX:ARU) share price rockets 18% on rare earths interest

European car manufacturers are reportedly in talks with the company.

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The Arafura Resources Limited (ASX: ARU) share price is shooting straight for the moon. The positive price movement comes as the Sydney Morning Herald (SMH) reports European car manufacturers have approached the company about “sourcing elements that help power electric cars”.

At the time of writing, shares in the rare earths elements (REE) company are trading for 20 cents each – up 17.7%.

Let’s take a closer look at today’s news.

Car manufacturers looking for alternatives to Chinese REE

According to the SMH, car manufacturers like BMW and Volkswagen are looking for ethically sourced alternatives to Chinese REE as they ramp up manufacturing of electric vehicles.

REE are crucial in the manufacturing of electric car batteries. In fact, the average electric car has about 3kg of REE, especially those that use magnets in their batteries.

“We have engagement with European manufacturers to directly supply them with material,” Chief Financial Officer Peter Sherrington is quoted in the paper as saying. Apparently, Sherrington expects to “ink a deal” with the manufacturers as soon as the end of this year.

This news may be spurring on the Arafura share price.

As well, a new law in Germany on supply chain responsibility has also spurred interest, Sherrington told the paper. Starting from 2023, companies in the central European country will be held accountable on social standards across their entire supplier network and including waste products, or face fines.

Up to 90% of all the planet’s REE is produced in China, recent geo-political tensions between the People’s Republic and the west have seen many US and EU based companies and governments looking to reduce their reliance on the eastern nation. Companies like Arafura, which sources its REE from the Northern Territory, may be part of the solution.

Arafura share price snapshot

Over the past 12 months, the Arafura share price has increased 150%. Year-to-date, shares in the company have increased 53.9%. Its 52-week high is 30 cents per share and its 52-week low is 7.6 cents per share.

Arafura Resources has a market capitalisation of about $263 million.

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Motley Fool contributor Marc Sidarous has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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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