Why have shares in the Gina Rinehart-backed Arafura Rare Earths entered a trading halt?

Shares in Arafura Rare Earths Ltd (ASX: ARU) were placed in a trading halt on Tuesday, while the company seeks to raise new capital from investors.

To be frank, it was a pretty good day to have a rare earths company's shares remaining untraded, with peers in the sector such as Lynas Rare Earths Ltd (ASX: LYC) trading down 12.4% and Brazilian Rare Earths Ltd (ASX: BRE) off 3.5%.

This followed news that US President Donald Trump and Japan's newly-inducted Prime Minister Sanae Takaichi had signed a framework agreement to increase the supply of rare earth minerals and reduce their reliance on China for the critical inputs to the defence and renewables sectors.

Arafura shares were untraded on Tuesday, last changing hands at Monday's close at 37.5 cents, valuing the company at $1.1 billion.

Capital to back new mine

The Australian's Dataroom column was reporting on Tuesday that Arafura had halted trade in its shares as it was looking to raise $475 million to fund its Nolans rare earths project in the Northern Territory.

Arafura shares have more than tripled in the past 12 months, up from lows of 10.5c, but have pulled back from recent highs around 62c.

Iron ore magnate Gina Rinehart owns 10.01% of the company.

Rare earths a hot topic

Interest in Australian rare earths stocks has been heightened in recent weeks by news that China had added another five rare earth elements to its list of elements under export controls.

Currently 12 of the 17 rare earth elements are now subject to export controls.

Soon after this was announced, Australian Prime Minister Anthony Albanese and Mr Trump announced their own critical minerals framework agreement, under which each country will invest at least US$1 billion into the critical minerals sector over the next six months.

As part of this new deal, Arafura was one of two companies singled out for special treatment, with with Mr Albanese saying that Australia would invest US$100 million in equity in the Nolans project.

As he said at the time:

Once operational, this project will produce 5% of global rare earths – essential for energy security and defence. The historic framework signed today will assist both countries in achieving resilience and security of critical minerals and rare earths supply chains, including mining, separation, and processing, through use of economic policy tools and coordinated investment.

While rare earth elements are relatively plentiful, despite the name, they are hard to mine economically and Australia currently only has one major mine in Lynas's Mt Weld project in Western Australia.

Arafura's shares are expected to return to trade at or before the start of trade on Thursday 30 October.

The post Why have shares in the Gina Rinehart-backed Arafura Rare Earths entered a trading halt? appeared first on The Motley Fool Australia.

Motley Fool contributor Cameron England has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Lynas Rare Earths Ltd. 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 Scott Phillips.

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