Why the Arafura (ASX:ARU) share price has rocketed 42% in just one month

The company has shot for the moon over the last 30 days.

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A drawing of a white rocket streaking up, indicating a surging share pirce movement

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The Arafura Resources Limited (ASX: ARU) share price is having a month to remember.

At the close of trade on Thursday, shares in the rare earth elements (REE) miner were trading for 21 cents per share – even on the previous day’s close. Over the course of the month, however, the company’s shares have had a phenomenal run. Over that time, its shares have increased 41.2%, an eye-watering number.

Let’s take a closer look.

Arafura shares are HOT, HOT, HOT!

The first major story that had a material impact on the Arafura share price over the last month was the news European car manufactures, such as BMW and Volkswagen, approached Arafura about “sourcing elements that help power electric cars”.

As The Motley Fool previously reported, these European-based car manufacturers 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.

At the time, it was reported a new law in Germany on supply chain responsibility also spurred European interest in Arafura. 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 being so widely discussed may have led to the rising Arafura share price. The company said as much in a response to an ASX query a few days later.

Is anything else boosting the Arafura share price?

The company did hold its annual general meeting (AGM), today. Company Chair, Mark Southey, gave the following optimistic assessment of the market going forward. Remember, expectations are an important aspect when it comes to share price.

Recently, we’ve seen global expectations and awareness increase in Australia’s role to provide a secure and stable supply of critical minerals. The need to redefine the supply chain in the face of a changing geopolitical context for critical minerals has become very apparent and urgent. This was highlighted just last month by world leaders meeting through the Quad Security Dialogue (Quad). Leaders of Australia, the United States, India and Japan are set to develop a strategy to secure supply chains of critical minerals.

Australia is front and centre to meet this demand. While it will take some time to develop a global network which can overcome existing challenges, this is a crucial combined first step from governments which all clearly understand that rare earths will be a critical part of the future.

Southey added that demand for REE would continue to grow.

Demand for magnets that use NdPr Oxide is driven by renewable and green energy applications and in particular electric vehicles and wind turbines. Forecasts show that the Electric Vehicle outlook looks to exceed earlier market expectations with several manufacturers with goals of having 50 to 100% Electric Vehicle platforms by 2025.

Investors may believe the miner is in a unique position to exploit these circumstances – at least judging by the rising Arafura share price.

Arafura share price snapshot

Over the past 12 months, the Arafura share price has increased 95.5%. Year-to-date, shares in the company are 65.4% higher. Its 52-week high is 30 cents per share and its 52-week low is 9 cents per share.

Arafura Resources has a market capitalisation of approximately $333 million.

Should you invest $1,000 in Arafura right now?

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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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