Western Governments Take Equity Stakes to Push Arafura’s Nolans Project Past the Funding Line

State-backed investors from Germany and Australia buy equity in Arafura Rare Earths' Nolans project, aiming to secure a strategic source of magnet materials and reduce dependence on China.

The race to build rare earths supply chains outside China is taking a new turn. Instead of relying solely on debt or offtake agreements, two state-backed investors are buying equity directly in Arafura Rare Earths, betting its Nolans project in Australia’s Northern Territory can become a strategic source of magnet materials.

Germany and Australia have signed binding subscription agreements worth a combined A$230 million, with the funds earmarked for the integrated mine and processing plant. The German Reconstruction Credit Institute (KfW), acting on behalf of the German Raw Materials Fund, is taking shares worth €50 million – roughly A$84 million – while Export Finance Australia is contributing US$100 million (about A$146 million) from Canberra’s Critical Minerals Facility. That facility has a total envelope of A$5 billion.

The issue price of A$0.2447 per share represents a 12.6% discount to the previous closing price, a deliberate move to compensate existing holders for the dilution that comes with such state-led placements.

Nolans is designed to produce 4,440 tonnes of neodymium-praseodymium oxide annually, a key input for the high-strength magnets used in electric vehicles, wind turbines and defence systems. That volume would account for roughly 4% of global magnetic rare earth supply. Management has pencilled in commercial production for the second half of 2029.

The new equity is the latest layer in a complex financing stack that blends convertible notes, senior credit facilities and now direct share subscriptions. Including the KfW and Export Finance Australia placements, total state-backed financing has climbed to more than A$1.2 billion. The pool of capital specifically dedicated to Nolans – comprising the A$200 million convertible note from the National Reconstruction Fund Corporation, the new equity and several senior debt facilities – now exceeds A$900 million.

Yet the path to a final investment decision is not entirely clear. The company is targeting FID by the end of June 2026, but lenders have set conditions that still need to be met. Project financiers typically require binding offtake agreements covering at least 80% of planned output before they commit. Furthermore, Arafura still has an equity shortfall of around US$134 million that needs to be filled to reach the 50:50 debt-to-equity split the lenders demand.

Arafura’s managing director, Darryl Cuzzubbo, described the subscription agreements as a “transformative milestone”. The company has already completed early site works, including water infrastructure and accommodation for 250 workers. Once FID is taken, main construction can begin.

The political logic behind the equity injections is clear. Both Berlin and Canberra are keen to reduce dependence on China, which dominates the processing of rare earths into magnet metals. By taking direct stakes in Arafura, the two governments gain a degree of control over a project that could supply a meaningful slice of Western demand.

The outstanding equity tranche of about US$134 million remains the critical variable. If Arafura can nail down the remaining capital in the coming months – ideally accompanied by the required offtake contracts – the Nolans project will cross from finance planning into active construction. If the gap persists, the timeline to first production in the second half of 2029 could come under renewed pressure.