The Arafura Rare Earths Ltd (ASX: ARU) share price has started the week positively.
In afternoon trade, the rare earths developer's shares are up 3% to 34 cents. This is despite there being no news out of the company.
But while this is positive, it doesn't hide the fact that its shares are down by approximately 28% since the start of the month.
Where next for the Arafura share price?
The good news for shareholders is that one leading broker believes today's gain could be the start of even greater gains for the Arafura share price.
According to a recent note out of Bell Potter, its analysts have a speculative buy rating and 72 cents price target on its shares.
Based on where its shares currently trade, this implies massive potential upside of 111% for investors over the next 12 months.
To put that into context, if Bell Potter is on the money with its recommendation, a $10,000 investment today would be worth $21,100 in 12 months.
What did the broker say?
Bell Potter was pleased with recent news that the company has signed an agreement with Germany's Siemens Gamesa. It commented:
ARU announced the signing of a binding offtake agreement with Siemens Gamesa (Siemens), a German based manufacturer of wind turbines. The agreement will supply Siemens with up to 400tpa of separated Neodymium & Praseodymium (NdPr) oxide over 5 years, referencing the ex-works China NdPr price with similar characteristics to the Hyundai + Kia offtake agreements (7 November 2022).
It also highlights that the company has debt support almost in place to fund project development. It adds:
The announcement comes following the in-principle debt support for up to US$600m from the German export credit agency Eueler Hermes (EH). Both announcements continue to provide momentum for ARU as it moves towards a final investment decision (FID) over the near-term (BPe Mar-23, now likely Apr-23) and financing decision (mid CY23). We estimate ARU needs to secure another 1,874t (including the GE Renewable MoU) of NdPr offtake to support debt financing. Given Siemens represents ~9% of nameplate capacity, we suspect ARU will continue to target German OEM's in order to support the EH funding agreement.
All in all, the broker believes this could be a great option for investors and sees significant value in the Arafura share price.
Particularly given how its analysts believe Arafura's "Nolans [project] could supply up to 8% of global demand by the time it reaches full capacity of 4,440tpa NdPr oxide, a crucial ingredient in permanent magnets used in electric vehicles, wind turbines and a range of defence and consumer products."
