Arafura Rare Earths Ltd (ASX: ARU) shares are surging on Thursday morning.
At the time of writing, the ASX mining stock is up 11% to 20.5 cents.
This latest gain means the rare earths developer's shares are now up over 65% since the start of the year.
Why is this ASX mining stock surging?
Investors have been buying the company's shares after it took another key step towards commercialising its Nolans Project in the Northern Territory.
According to the release, the company has secured a binding offtake agreement with global metals and minerals trader Traxys Europe SA.
The deal will see Arafura supply at least 100 tonnes per annum (tpa) of neodymium-praseodymium (NdPr) oxide to Traxys over five years, with the option to increase the volume up to 300 tpa at Arafura's election.
NdPr is a critical material used in the production of high-performance permanent magnets, which are essential for electric vehicles, wind turbines, and a range of advanced technologies.
The Nolans Project, located in the Northern Territory, is being developed as a key supplier of rare earths outside of China, aiming to strengthen global supply chain resilience.
By partnering with Traxys, the ASX mining stock is gaining access to a well-established global trading network. Traxys will market Nolans' NdPr to participants in the magnet supply chain, particularly those unable to commit to long-term offtake agreements. This provides flexibility for the company while supporting global diversification in rare earths supply.
The agreement with Traxys is subject to conditions. This includes the successful construction and development of the Nolans Project and the commencement of commercial production. Arafura has until 31 December 2028 to satisfy these conditions.
An important step toward production
The ASX mining stock has set a target of securing binding offtake agreements covering 80% of Nolans' nameplate capacity of 4,440 tpa of NdPr oxide.
With this agreement covering up to 8% of that target, the company now has 66% of its offtake goal secured.
It also notes that it has discussions in place that would cover the balance and significantly more.
'Well-positioned'
The ASX mining stock's managing director, Darryl Cuzzubbo, was pleased with the deal. He said:
This agreement with Traxys moves us closer to achieving our offtake target of 80 percent. With only 34 percent of the product from Nolans remaining to be marketed our ongoing negotiations means we are well-positioned to reach this target.
This arrangement complements our global supply chain diversification strategy and highlights the desirability of securing product from a Tier 1 jurisdiction like Australia and a project like Nolans with globally recognised ESG credentials.
