Arafura Resources : Quarterly Activities Report and Appendix 5B

ASX ANNOUNCEMENT

QUARTERLY ACTIVITIES REPORT AND APPENDIX 5B

31 December 2021

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HIGHLIGHTS

• Global demand for critical minerals linked to electric vehicles and clean energy infrastructure continues to rise sharply while supply chain security risks increase.
• Corresponding NdPr price increase of 45% in December quarter to US$133/kg following 26% increase in September quarter.
• Strong engagement continuing between Arafura and key European and South Korean customers looking to secure long-term strategic supply of NdPr.
• Arafura's focus shifts to progressing negotiations with customers aligned with
  Export Credit Agency debt funding strategy.
• Sustainability Report released with initiatives and targets set in line with Arafura's
  ESG commitments and sustainability goals including achieving net zero carbon emissions by 2050 and Sustainability Committee established to oversee this process.
• Appointment of Darryl Cuzzubbo as independent non-executive director, bringing a wealth of knowledge and experience in running major operational assets and development of and execution of breakthrough strategies to deliver major projects.
• Strong cash position of $41.7 million to continue progress on Front-End Engineering Design (FEED) with Hatch in line with schedule.
• Clough and UGL engaged to complete design and constructability reviews to support the FEED design.

Arafura Resources Limited | ABN: 22 080 933 455

Level 6, 432 Murray St, Perth WA 6000

PO Box 5773, St Georges Terrace, Perth WA 6831

T: [phone] | W: www.arultd.com | E: [e-mail]

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31 December 2021 | ASX Announcement

QUARTERLY ACTIVITIES REPORT AND APPENDIX 5B

NOLANS NdPr PROJECT

Site Investigations

In November a diamond core drilling program was undertaken in the borefield area of the Project. The aim of this program was to determine the stratigraphy of the reaphook paleochannel to better define the requirements for the bore designs across the borefield. As part of this program the following was carried out:

• 4 diamond drill holes on MLs at borefields F, A, B and D.
• 772.2 m of drilling with logging of core by Arafura geologists and consultant hydrogeologists.

The program demonstrated that the paleochannel is likely to have a higher degree of porosity than previously anticipated.

Also, during November, an airborne LIDAR survey was carried out of the Project area. This survey will provide detailed topographical information for the use in the design of bulk earthworks and roads required for the project delivery. The processed data and digital terrain model were completed in late December.

The non-process infrastructure (NPI) team visited site to review the location of key infrastructure during the quarter with the following key outcomes:

• Minor re-alignment of the site access road within the previously proposed access authority to better facilitate surface water management and reduce cut to fill quantities.
• Proposed re-design of the intersection of the site access road with the Stuart Highway to reduce construction requirements.
• Revised route of the mine access road to significantly reduce construction requirements, particularly drill and blast requirements, shorten the road length and reduce surface water management issues.
• Relocation of the proposed magazine for the project to allow flexibility in the layout of the mine infrastructure and improve surface water management issues. This relocation will require the application for a new ancillary mineral lease for the Project.
• Relocation of the mine infrastructure area to an area with improved geotechnical conditions which will reduce bulk earthworks costs for this area.

Front-End Engineering and Design

Front-end engineering and design works (FEED) continued during the quarter across multiple fronts of the Project, including:

• Hydrometallurgical plant,
• Beneficiation plant,
• Sulphuric acid plant,
• Power station,
• Process control system, and
• Non-processinfrastructure.

The FEED program is aimed at progressing the design of the Project and providing sufficient detail to reduce the risk profile and provide certainty for the tendering of fixed price contracts for the project delivery, which is a requirement identified by potential project finance partners.

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QUARTERLY ACTIVITIES REPORT AND APPENDIX 5B

Activities across the various areas of the Project are outlined below.

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Hydrometallurgical Plant

Significant progress has been made by Hatch on the Hydrometallurgical plant FEED during the quarter, with progress including:

• Progress of the process engineering design including completion of the process design criteria, process flow diagrams (PFDs) and commencement of delivery of the piping and instrumentation diagrams (P&IDs).
• Radiation management workshop completed, and actions implemented into the design.
• Hazard and operability workshops commenced to feed into the finalisation of the design and the P&IDs.
• Equipment specifications continue to be developed to provide the basis for tendering of mechanical equipment.
• Tendering of mechanical equipment commenced on long lead and critical equipment with tenders being received towards the end of the quarter and evaluation of tenders commenced.
• 3D modelling of the Hydrometallurgical plant commenced, building on the layout from the definitive feasibility study (DFS).
• Options study completed on the storage of concentrate and pre-leach residue resulted in the change from a concentrate shed with a front-end loader for reclaim to slurry storage of concentrate and dry silo storage of the pre-leach residue. This change improves the radiation management aspects as well as the operability of the plant while being capital cost neutral.
• Risk engineering commenced to finalise fire control strategies and other risk management aspects of the design.

Clough and UGL have also been engaged to provide constructability and design innovation inputs to the design. This input will be carried out through a series of workshops notionally at the 30% and 60% design maturity levels. These reviews will develop designs which deliver the following outcomes:

• Reduced construction labour requirements
• Improved construction safety
• Reduced capital cost through reduced procurement and construction costs.

Beneficiation Plant

Preparation has commenced on the beneficiation plant scope of work with an aim to commence tendering in line with a final investment decision (FID) during the second half of 2022. Development of a detailed basis of design and metallurgical design criteria has commenced along with a review of the battery limits with the hydrometallurgical plant.

Sulphuric Acid Plant

Budget pricing has been received for the sulphuric acid plant from a Chinese based vendor. This budget pricing represents the opportunity to significantly reduce the cost of the facility. On this basis a detailed scope of work will be prepared for the sulphuric acid plant for tendering to a range of vendors.

In parallel discussions with potential build, own and operate (BOO)contractors for the sulphuric acid plant have been ongoing.

It is intended to finalise the strategy for the sulphuric acid plant in Q1 2022.

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31 December 2021 | ASX Announcement

QUARTERLY ACTIVITIES REPORT AND APPENDIX 5B

Power Station

Following engagement with potential contractors for the BOO power station a short-list has been developed for tendering of the package. This package will be tendered in preparation for the contract to be let soon after FID to facilitate the design, procurement and delivery of the facility.

In addition, during the quarter, a consultant has been identified, with unique experience in remote infrastructure projects, who will work with Arafura to develop a detailed carbon reduction pathway for power generation on the Project and from that an appropriately structured power purchase agreement to drive the reduction in greenhouse gases from power generation over the course of the power station contract.

Control System

Following the discussions and submissions for the control system technology providers and integration partners a short-list has been developed for both the supply of control equipment and the integration partners. It is anticipated that a final selection on both these aspects will be completed in the first half of 2022 such that a detailed specification for the control system can be prepared for use in tendering the construction contracts.

Non-Process Infrastructure

NPI design across the following areas has progressed:

• Continuation of the design of the site access road based on updated topographical data from an aerial LIDAR survey.
• Continued design of the intersection between the site access road and Stuart Highway.
• Updated mine access road alignment and commenced preliminary design.
• Surface water management design and flood modelling has commenced for site access road, process plant site and reside storage facility.
• Updated mine infrastructure and magazine layout has been developed.
• Borrow management plan has been finalised.
• Preliminary selection of village operations contractor who will work with selected village supply contractor, NT Link, on finalising design of the village.
• Communications system design commenced.
• Design basis for plant site buildings has been developed and preparation of tender documents has commenced.

Project Execution

Preparation for project execution has continued in a number of areas:

• Logistics strategy for construction has been finalised and short-list developed for tender.
• Planning has commenced, following a range of meetings with various departments within the Northern Territory Government and industry support bodies, for industry presentations in Alice Springs and Darwin to provide updates on the Project to potential contractors and help identify local and indigenous businesses who can assist with the Project delivery.
• Implementation of the InEight project management system has been ongoing with completion of the document management and estimating modules and final preparation for contract management, cost control and change management modules completed with final implementation commencing in January 2022.

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31 December 2021 | ASX Announcement

QUARTERLY ACTIVITIES REPORT AND APPENDIX 5B

• Implementation of the project risk management plan.
• Engagement with operational logistics contractors to provide input into the scope of work and develop a tender list.
• Investigation of various operational management systems required for construction and operations.

Independent Technical Review

Tenders were received from various consultants for a multi-disciplinary independent technical review of the project. These tenders were evaluated and a recommendation for award was prepared for presentation to targeted lenders, following input from these groups, SRK Consulting were awarded the independent technical review.

The scope of work includes a preliminary review, focussing on potential "red flag" issues on the Project which will be followed by a detailed review to provide input to the banker's due diligence prior to FID. It is envisaged that SRK Consulting will also continue to provide monitoring and completions assessment during construction.

SRK Consulting commenced the preliminary review in November 2021 based on data provided in the Project data room, and it is anticipated that the draft preliminary report will be delivered in January 2022.

Technology Development

During the quarter, the final outstanding component of the overall corrosion test work program, namely, the rigorous testing of the conditions in the acid bake, which were previously tested in short-term screening tests, was conducted, with results provided to Hatch for engineering design and on to vendors for equipment design.

Vendor test work was also conducted during the quarter on chloride removal in the cerium processing circuit with associated report provided to Hatch for engineering design, and on to vendors for equipment design. It is expected that this test work will provide the vendors with sufficient clarity to be able to provide performance guarantees for the equipment in this processing step.

Project Schedule

The Company has made significant progress this quarter and remains on track for production towards the end of 2024. The overall schedule for the Project has not materially changed since the feasibility study update released in May 2021. All dates presented are contingent on securing funding for the activities as required. With FEED commencing on schedule in August 2021 the following are the next key dates:

• Completion of FEED and tendering in May 2022 followed by FID in August 2022.
• Construction period of 26 months from FID giving first ore processing in October 2024 and first production towards the end of 2024.

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