Proactive investors

Operations Our short term objectives are focused on ensuring that the Nolans project has all approvals and commercial agreements, enabling us to capitalise on rare earths and phosphate market opportunities.

This will include construction of a rare earths processing plant with a plan for production from Nolans in 2012.

Test work to date has provided significant progress in the definition of the flow sheet required for the engineering of a processing plant to recover:

* rare earths,
* phosphate,
* uranium
* and by-product calcium chloride.

Approvals documents including Notice of Intent (NT Government), Project Referral (Federal Government, Department of Environment and Water Resources) and application for Mineral Lease (NT Government) have been submitted. Responses to these documents will form the basis of an Environmental Impact Statement and Bankable Feasibility Study, targeted for completion by the end of 2009.

Rare Earths Our short term objectives are focused on ensuring that the Nolans project has all approvals and commercial agreements, enabling us to capitalise on rare earths and phosphate market opportunities.

This will include construction of a rare earths processing plant with a plan for production from Nolans in 2012. Test work to date has provided significant progress in the definition of the flow sheet required for the engineering of a processing plant to recover the rare earths, phosphate, uranium and by-product calcium chloride. A bankable feasibility study is underway to provide economic certainty to the project.

Approvals documents including Notice of Intent (NT Government), Project Referral (Federal Government, Department of Environment and Water Resources) and application for Mineral Lease (NT Government) have been submitted. Responses to these documents will form the basis of an Environmental Impact Statement and Bankable Feasibility Study (Q4 2008).

Phosphate Test work has indicated that the production of technical grade phosphoric acid (H3PO4) is likely with the most commonly trading product as merchant grade (52%) phosphoric acid. In 2006, the world demand for phosphoric acid was 34 million tonnes of P2O5 and growing at about 2% per annum.

Phosphoric acid is an important industrial acid used in the manufacture of fertilisers, for the anti-corrosion treatment of metals and the production of inorganic phosphates, especially detergent and food grade phosphate compounds. In Australia, phosphoric acid is almost entirely confined to the production of phosphate fertiliser.

The world trade for phosphate based products is an active and transparent commodity market.

Australia was a net importer of phosphate rock last year even with the supply from the Southern Cross operation in north western Queensland. The Australian Bureau of Statistics for March 2006 states that Australia imports about 825,000 tonnes of phosphate rock per annum. The general market outlook for the supply of phosphoric acid in Australia and the world market looks optimistic. Arafura's marketing strategy will hinge around niche markets where market share can be secured from economies of supply. There is excess phosphoric acid production capacity in the world and expansions in northern Africa can strongly influence price.

Calcium Chloride Calcium chloride is a chemical compound that is used for two primary purposes. These are:

* As an anti-freeze product used to de-ice airports and roads in regions where winter snow and ice require removal to enable the use of air and road transport; and
* As a binding agent and dust suppressant for unsealed roads.

Geology The Nolans Bore deposit is located at the southern end of the Reynolds Range in the central Aileron Province of the Arunta Region. The Aileron Province comprises greenschist to granulite facies metamorphic rocks with protolith ages in the range 1865-1710 Ma.

Supracrustal rocks in the Reynolds Range are divided into 2 broad units: the Lander Rock Beds (LRB) and the Reynolds Range Group. The LRB comprise (meta)turbiditic rocks that range in metamorphic grade from greenschist to granulite. In the Nolans region, the LRB include schist, phyllite, andalusite hornfels, garnet-cordierite-biotite-quartz granofels, sillimanite-biotite-cordierite-orthoclase granofels, tourmaline metaquartzite, and tourmaline-quartz pods.

Granite intrusion occurred in the Reynolds Range area between 1810 and 1790 Ma. Granitic rocks which intrude the LRB in the vicinity of Nolans are a southern extension of the Mount Boothby Orthogneiss (MBO). The supracrustal rocks and granites were overprinted by high grade metamorphism to amphibolite and granulite facies during 1590-1560 Ma.

Nolans Bore is a geologically unique deposit, which has world-class characteristics in size and grade of rare earth elements (REE), phosphate, uranium and thorium.

Apatite-hosted REE-P-U(-Th-F) mineralisation at Nolans Bore is distributed over an area of approximately 150 hectares within a kilometre radius of the bore. Primary mineralisation occurs predominantly in a series of sub-parallel tabular zones of massive fluorapatite (Ca5(PO4)3(F,OH)), or as a stockwork of fluorapatite ± allanite ± carbonate veins and associated calcsilicate alteration. The massive zones dip steeply (65°-90°) to the NNW, are up to about 75 metres thick, and extend laterally and at depth over tens to several hundreds of metres. They are hosted primarily by gneissic granite assigned to the MBO, and also by the LRB and pegmatites.

Consistently higher grades and greatest widths of mineralisation are observed in the North Zone Resource of the deposit. However, drilling during early-2008 intersected a new zone of high-grade mineralisation in the Central Zone, under several metres of alluvium.

A simplistic three-fold subdivision of rock types is apparent in the North Zone at Nolans Bore:

* A footwall granitic gneiss (to the SE), which includes mineralised stockwork of fluorapatite + calcsilicate alteration zones (see bottom half of photo below);
* A main mineralised zone, comprising massive zones of fluorapatite, truncated by a localised mylonite/breccia zone (see top half of photo below); and
* A hangingwall gneiss (to the NW), which hosts fluorapatite zones.

The bulk (65-70%) of the REE-U content in the fluorapatite rock is hosted by minor amounts (up to 7-8%) of the phosphate-deficient REE mineral cheralite ([LREE, Ca][P, Si]O4). Only about 30-35% of the REE-U is hosted in the crystal lattice of the fluorapatite. The image below is a Scanning Electron Microscope (SEM) photograph showing crackle/mosaic brecciation of fluorapatite with cheralite infill. Other identified REE-U-Th mineral species identified include bastnaesite, monazite, thorite and allanite.

Resource

The Nolans resource is currently at 30.3 million tonnes of measured, indicated and inferred resources, containing:

* 850,000 tonnes of REO (grading 2.8% REO);
* 3.9 million tonnes of phosphate pentoxide (grading 12.9% P2O5); and
* 13.3 million pounds of uranium (grading 0.44 lb/t U3O8).

The total resources for Nolans as at November 2008 are:

REO Distribution

Rare earths are a suite of elements with discrete and related association. Some of these elements have higher values than others. Nolans is enriched in neodymium and europium, making the deposit valuable.

Mining The dimension of the mineralisation suits open pit mining methods with a low strip ratio. The mineralisation is exposed at surface eliminating the need for expensive stripping of barren overburden. The low strip ratio of less than 1:1 and low mining rates of less than 1 million tonne per annum results in a small fleet of mining equipment. The deposit is approximately 15 km from the Stuart Highway. This minimises the cost of the access haul road.

Beneficiation Beneficiation test work and pilot plant scale operations have proven that heavy media separation is an effective way to remove waste materials from the Nolans mineralisation. This process involves crushing and screening the run of mine mineralisation before processing through heavy media. This process is important as the optimum rejection of waste in the plants will allow:

* The optimisation of grade control processes in HMS
* The optimisation of waste rejection
* The optimisation and recovery of a “concentrated ore” product
* The capability of significantly reducing transportation costs to the processing plant
* The potential of producing a high grade concentrated ore.

Metallurgy Arafura has engaged the Australian Nuclear Science and Technology Organisation (ANSTO) to determine the processing route for rare earths production. ANSTO is a leader in rare earth metallurgy and nuclear science technology in Australia.

Arafura has also engaged Bateman Chemical Technologies to determine the processing route for phosphoric acid and other by-products production. Bateman is a leading designer/builder of fertiliser/phosphoric acid plants.

Test work has returned consistently encouraging results from the metallurgical programme to date. The ANSTO results indicated that a three step process provides the best approach for the recovery of rare earths, phosphate and uranium.

The Bateman results have identified commercial production of technical grade phosphoric acid may be possible. Further value to the project has been identified in the production of calcium chloride.

The development of the Nolans phosphate hosted - rare earths project has progressed through pilot plant operation at ANSTO.

Phosphoric Acid The Nolans project is delivering products for the future as well as materials for well established, active and transparent markets.

With the capability to produce phosphoric acid and calcium chloride, Nolans provides multiple market opportunities.

Phosphoric acid is a fundamental building block in the production of phosphate fertilisers, detergents, food stuffs and
several other chemicals that contribute to today’s improving standard of living, particularly in emerging economies like Brazil, Russia, India and China.

With the potential high growth of ethanol as an alternative fuel, much of which is extracted from corn, phosphate
fertilisers will be essential to this industry.