Arafura Resources : Share Purchase Plan

Arafura Share Purchase Plan

Not for release or distribution in the United States

16 November 2018

Dear Shareholder

OFFER TO PARTICIPATE IN SHARE PURCHASE PLAN

The Directors of Arafura Resources Limited (ASX: ARU) (Arafura or the Company) are pleased to offer you the opportunity to participate in the Arafura Share Purchase Plan (SPP).

Under the SPP, the Company offers eligible shareholders who were registered holders of fully paid ordinary shares (Shares) in the Company as at 4:00pm Australian Western Standard Time (AWST) on Friday, 9 November 2018 (Record Date), and whose registered address is in Australia or New Zealand, the opportunity to apply for parcels of new Shares (New Shares) in Arafura of up to A$15,000 without paying brokerage or other transaction costs.

The offer price for the New Shares will be set at a 20% discount to the volume weighted average market price of Arafura shares calculated over the last 5 days on which sales in the Shares are recorded before the day on which the issue is made.

Arafura is pleased to confirm that Patersons Securities Limited (Patersons) has agreed to underwrite the SPP to the amount of A$3,000,000, subject to standard terms and conditions. Patersons has also agreed to act as Lead Manager to the SPP. Further details regarding the underwriting arrangements are set out on page 8. A scale-back policy will be applied if valid applications are received for greater than A$3,000,000. Arafura reserves absolute discretion regarding the amount raised under the SPP and the exercise of its right to scale-back applications. Should a scale-back happen, you may be allocated New Shares to a value which is less than the parcel of New Shares you applied for and the difference will be refunded to you, without interest. Arafura has also agreed that Patersons may facilitate an offer of New Shares to be issued at the same price as those under the SPP (Top-Up Placement). The maximum number of New Shares that may be issued under the Top Up Placement will be equal to the Company's remaining placement capacity, pursuant to ASX Listing Rules 7.1 and 7.1A, on completion of the SPP, or such lower amount as nominated by the Company.

Funds raised under the SPP will be used to advance the Company's Nolans Neodymium Praseodymium (NdPr) Project in the Northern Territory and for general working capital.

The SPP will open (and the SPP offer documents will be despatched to eligible shareholders) on Friday, 16 November 2018 and will remain open until 5:00pm AWST on Friday, 7 December 2018. As soon as practicable after the close of the SPP, Arafura will make an ASX announcement as to the outcome of the SPP and the number of New Shares to be issued.

The offer of New Shares is made under an SPP Offer Booklet and an Application Form (both enclosed). To apply for a parcel of New Shares, please follow the instructions on pages 2 and 3 of the SPP Offer Booklet, and on the Application Form.

These documents are important and should be read thoroughly in conjunction with the publicly available information relating to Arafura. If you are unsure about whether to participate, please contact your professional adviser. If you require further information, please contact the Company Secretary (contact details are in the enclosed instructions).

On behalf of the Board, I encourage you to consider this opportunity to increase your investment in Arafura.

Yours sincerely

Ian Kowalick Chairman

Arafura Resources Limited

Key Dates*

Date (and time if relevant)	Event
4:00pm AWST, Friday, 9 November 2018	Record Date The date and time at which Arafura determines who is eligible to participate in the SPP.
Friday, 16 November 2018	Opening Date
5:00pm AWST, Friday, 7 December 2018	Closing Date Application Forms together with payment by cheque or money order must be received by this time and date. NOTE: BPAY payments must be received by 3:00pm AWST, Friday, 7 December 2018 (which is when the BPAY system closes on the Closing Date).
Tuesday, 11 December 2018	Company to notify Underwriter of Shortfall (if any)
Friday, 14 December 2018	Issue Date The date on which the New Shares are expected to be issued and any scale back of the New Shares is announced.
Monday, 17 December 2018	Trading Date The date on which the New Shares are expected to begin trading.
Tuesday, 18 December 2018	Despatch Date Transaction confirmations / holding statements will be sent to shareholders on or around this date.

* Arafura may change any of the Key Dates at its discretion (even if the offer has opened or applications have been received).

Instructions

The SPP opens on Friday, 16 November 2018 and under the offer you may only apply for a parcel of New Shares as set out in the table below. Fractional entitlements to New Shares will be rounded up.

A$1,000 of New Shares

A$2,500 of New Shares

A$5,000 of New Shares

A$7,500 of New Shares

A$10,000 of New Shares

A$15,000 (maximum) of New Shares

To apply and pay for your New Shares, you have two options:

Option 1: BPAY®1

You can make a payment by BPAY® if you have an Australian bank account enabled for this purpose. BPAY® customers must follow the instructions on page5and in the Application Form and must use the customer reference

1 ® Registered to BPAY Pty Ltd ABN 69 079 137 518.

number shown on the Application Form which is required to identify your holding. If paying by BPAY®, you do not need to return your Application Form. See page5for further information.

Option 2: Application Form and cheque, bank draft or money order

You can complete the Application Form and return it to Link Market Services Limited (Share Registry), Locked Bag A14, Sydney South, New South Wales 1235 Australia together with a cheque, bank draft or money order, in accordance with the instructions on the Application Form.

Cheques, bank draft and money orders must be made payable to "Arafura Resources Limited" in Australian dollars and drawn on an Australian bank for the correct amount. Arafura will not accept payment by cash.

Timing

All payments by cheques, bank draft and money orders and Application Forms must be received before 5:00pm AWST, Friday, 7 December 2018. You cannot withdraw or cancel your application or BPAY® payment once you have sent it in. BPAY® payments must be received by 3:00pm AWST, Friday, 7 December 2018 (which is when the BPAY® system closes on the Closing Date).

Questions

If you have any questions, please contact the Share Registry, Link Market Services Ltd, on ([phone] (toll free within Australia), 8:30am to 5:00pm (AEDT) Monday to Friday.

No offer outside Australia and New Zealand

This document may not be released or distributed in the United States or any country other than Australia and New Zealand. This document does not constitute an offer to sell, or a solicitation of an offer to buy, securities in the United States or any country other than Australia and New Zealand. In particular, any securities described in this document have not been, and will not be, registered under the US Securities Act of 1933 (as amended) and may not be offered or sold in the United States except in transactions exempt from, or not subject to, registration under the US Securities Act and applicable US state securities laws.

Terms and Conditions

IMPORTANT NOTICE: The market price of Arafura shares may rise or fall from now to when the New Shares are issued to you under the SPP. Therefore, if you apply for and we allot to you New Shares under the SPP, the offer price for those New Shares may be more than, or less than, the market price of Arafura shares you could buy at that time. By completing and returning the Application Form or making a BPAY payment, you acknowledge this risk. We encourage you to contact your professional adviser regarding whether to participate in the SPP and how much to contribute.

Offer timetable

• (a) The offer timetable is set out in the Key Dates above and is included in these Terms and Conditions.

• (b) Payment by BPAY®, Application Forms, cheques, bank draft and money orders may not be processed and may not be valid if they have not been received by or on behalf of Arafura by the time and date specified for the Closing Date. You must allow adequate time for Application Forms and cheques, bank draft or money orders forwarded by post to be received by the Share Registry. You should be aware that your financial institution may implement earlier cut-off times with regards to electronic payment, and you should therefore take this into consideration when making payment.

• (c) Arafura expects to send a transaction confirmation or holding statement to you on or around the Despatch Date.

• (d) Arafura expects that the New Shares will be issued under the SPP on the Issue Date and will commence trading on ASX on the Trading Date. You must confirm your holding before trading in any New Shares you believe have been issued to you under the SPP.

• (e) At any time, Arafura can change the Closing Date, the Issue Date, the Trading Date and the Despatch Date (even if the offer has opened, or BPAY® payments and Application Forms have been received) by lodging a revised timetable with ASX.

Eligible Shareholders

You are an eligible shareholder and may participate in the SPP if you were a registered holder of Arafura ordinary shares with a registered address in Australia or New Zealand as at 4:00pm AWST on Friday, 9 November 2018, unless you hold Arafura shares on behalf of another person who resides outside Australia or New Zealand (in which case you will not be

eligible to participate in respect of the shares of that person) (Eligible Shareholder).

Arafura has determined that it is not practical for holders of Arafura shares with registered addresses in other countries to participate.

• • Holders receiving more than one offer:

  If you are the only registered holder of

  Arafura shares, but you receive more than

  one offer under the SPP (due to multiple

  registered holdings), you may only

  contribute a maximum of A$15,000 in

  applying for New Shares.

• • Joint Holders: If 2 or more persons are recorded in the register of members of Arafura as jointly holding Arafura shares, they are considered to be a single registered holder for the purpose of the SPP and they are entitled to participate in the SPP in respect of that single holding only. If as joint holders you receive more than one offer under the SPP due to multiple identical holdings, you may still only contribute a maximum of A$15,000 in applying for New Shares.

• • Custodians, trustees and nominees: If you are a custodian, trustee or nominee within the definition of "custodian" in ASIC Class Order [CO 09/425] (Custodian), and hold Arafura shares on behalf of one or more persons (each a Participating Beneficiary), or on behalf of a "downstream custodian" within the definition of ASIC Class Order [CO 09/425] who holds the beneficial interest in Arafura shares on behalf of a Participating Beneficiary, you may apply for up to a maximum of A$15,000 worth of New Shares for each Participating Beneficiary, subject to providing Arafura with a Custodian Certificate in accordance with paragraph (d) of "Significance of applying for New Shares" below. If you are not a Custodian, the rules for multiple single holdings apply and you may only contribute a maximum of A$15,000 in applying for New Shares. You are not eligible to participate on behalf of a person who resides outside Australia and New Zealand.

Participation is optional

Participation in the SPP is entirely optional. If you are an Eligible Shareholder, you can choose whether or not to participate.

How much can you invest?

• (a) the New Shares the subject of this application;

• (b) any other shares applied for under this SPP, or shares or interests in the class issued under a similar arrangement in the 12 months before this application;

  • (a) If you are an Eligible Shareholder, you may apply to buy a parcel of New Shares by contributing a set amount of either A$1,000, A$2,500, A$5,000, A$7,500, A$10,000 or A$15,000.

  • (b) Your application may be subject to a scaleback and rounding. A scale-back policy will be applied if valid applications are received for greater than A$3,000,000 or for greater than 30% of the number or Arafura ordinary shares currently on issue. Arafura reserves absolute discretion regarding the amount raised under the SPP and exercise of its right to accept additional funds or to scaleback applications.

  • (c) Unless you are applying as a Custodian, the maximum amount of A$15,000 applies even if you receive more than one Application Form or if you hold shares in Arafura in more than one capacity (for example, if you are both a sole and joint holder of shares in Arafura - see "Eligible Shareholders" above) and irrespective of the number of Arafura shares you hold on the Record Date. We can reject any application for New Shares if we believe you have not complied with this condition.

• (c) any other shares or interests in the class which you have instructed a custodian to acquire on your behalf under this SPP; and

• (d) any other shares or interests in the class issued to a custodian under an arrangement similar to this SPP in the 12 months before this application as a result of you instructing the custodian or another custodian, which resulted in you holding a beneficial interest in the shares or interests.

Payment by BPAY® may not be processed and may not be valid if it has not been received by Arafura by the time and date specified for the Closing Date. You should be aware that the BPAY® system closes at 3:00pm AWST and your financial institution may implement earlier cut-off times with regards to electronic payment, and you should therefore take this into consideration when making payment.

Option 2: Application Form and cheque, bank draft or money order

You must complete an Application Form and return it with a cheque, bank draft or money order in accordance with the instructions on the Application Form.

How to apply for New Shares

If you would like to participate in the SPP, you have two options:

Option 1: BPAY

Provided you are not a Custodian, you can make a payment by BPAY® if you have an Australian bank account enabled for this purpose. BPAY® customers must use the customer reference number shown on the Application Form which is required to identify your holding. If paying by BPAY®, you do not need to return your Application Form.

IMPORTANT NOTE: By using this BPAY® facility to apply for New Shares, you represent that the total of the application price for the following does not exceed A$15,000:Cheques, bank draft and money orders must be payable to "Arafura Resources Limited", in Australian dollars and drawn on an Australian bank for the correct amount. Arafura will not accept payment by cash.

Application Forms, cheques, bank draft and money orders may not be processed and may not be valid if they have not been received by or on behalf of Arafura by the time and date specified for the Closing Date. You must allow adequate time for Application Forms and cheques, bank draft or money orders forwarded by post to be received by the Share Registry.

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