The market may be a sea of red but that hasn't stopped the Arafura Resources Limited (ASX: ARU) share price from surging higher.
In morning trade, the rare earth developer's shares are up 18% to 41.5 cents.
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Why is the Arafura share price surging higher?
Investors have been bidding the Arafura share price higher today following the release of a major announcement.
According to the release, the company has signed a non-binding memorandum of understanding (MoU) with one of the world's largest automotive groups, South-Korean based Hyundai Motor Company.
The release advises that the MoU provides a framework for the parties to negotiate a binding offtake agreement for the supply of up to approximately 1,000 to 1,500 tonnes per annum (tpa) of NdPr Oxide from the Nolans Project.
If all goes to plan, this will commence in 2025 for a seven-year term and represents just over one third of the estimated average annual production capacity of 4,440 tonnes from Nolans following an expected ramp-up.
Pricing will be determined quarterly using a formula-based mechanism referencing the NdPr oxide Ex Works China price per tonne. In addition, an industry recognised customary discount in recognition of the long-term offtake agreement would also be applied.
A 'fantastic outcome'
Arafura's Managing Director, Gavin Lockyer, was very pleased with the news and appears optimistic that this won't be the only automotive group that the company signs an offtake agreement with. He said:
The signing of the MoU represents a fantastic outcome and validates the Tier-1 credentials of the Nolans Project as one of the world's premier next generation NdPr ore to oxide projects.
The Nolans Project is strategically significant for Tier-one customers as it offers scale and supply chain diversification and security that will underpin their EV technologies.
