Broker tips 100%+ upside for the Arafura share price

Is this a dirt cheap mining share? One broker thinks it could be.

| More on:
A bearded man holds both arms up diagonally and points with his index fingers to the sky with a thrilled look on his face over these rising Tassal share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Arafura shares have been hammered in 2023
  • One leading broker is tipping them to rebound and double in value from current levels
  • Its analysts see huge potential in the company's Nolans rare earths project

The Arafura Rare Earths Ltd (ASX: ARU) share price has started the week positively.

In afternoon trade, the rare earths developer's shares are up 3% to 34 cents. This is despite there being no news out of the company.

But while this is positive, it doesn't hide the fact that its shares are down by approximately 28% since the start of the month.

Where next for the Arafura share price?

The good news for shareholders is that one leading broker believes today's gain could be the start of even greater gains for the Arafura share price.

According to a recent note out of Bell Potter, its analysts have a speculative buy rating and 72 cents price target on its shares.

Based on where its shares currently trade, this implies massive potential upside of 111% for investors over the next 12 months.

To put that into context, if Bell Potter is on the money with its recommendation, a $10,000 investment today would be worth $21,100 in 12 months.

What did the broker say?

Bell Potter was pleased with recent news that the company has signed an agreement with Germany's Siemens Gamesa. It commented:

ARU announced the signing of a binding offtake agreement with Siemens Gamesa (Siemens), a German based manufacturer of wind turbines. The agreement will supply Siemens with up to 400tpa of separated Neodymium & Praseodymium (NdPr) oxide over 5 years, referencing the ex-works China NdPr price with similar characteristics to the Hyundai + Kia offtake agreements (7 November 2022).

It also highlights that the company has debt support almost in place to fund project development. It adds:

The announcement comes following the in-principle debt support for up to US$600m from the German export credit agency Eueler Hermes (EH). Both announcements continue to provide momentum for ARU as it moves towards a final investment decision (FID) over the near-term (BPe Mar-23, now likely Apr-23) and financing decision (mid CY23). We estimate ARU needs to secure another 1,874t (including the GE Renewable MoU) of NdPr offtake to support debt financing. Given Siemens represents ~9% of nameplate capacity, we suspect ARU will continue to target German OEM's in order to support the EH funding agreement.

All in all, the broker believes this could be a great option for investors and sees significant value in the Arafura share price.

Particularly given how its analysts believe Arafura's "Nolans [project] could supply up to 8% of global demand by the time it reaches full capacity of 4,440tpa NdPr oxide, a crucial ingredient in permanent magnets used in electric vehicles, wind turbines and a range of defence and consumer products."

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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.

More on Materials Shares

A man stands with hands on hips surveying construction of three high-rise buildings.
Materials Shares

Building activity on the rise – will ASX materials shares benefit?

New data from the March quarter shows a sharp rise in building activity. 

Read more »

Man smiling at a laptop because of a rising share price.
Materials Shares

Macquarie predicts 11% upside for this ASX materials stock

Here's why the broker is positive on the stock.

Read more »

Miner and company person analysing results of a mining company.
Materials Shares

Rio Tinto share price falls on Q2 update

Let's see what the mining giant reported for the second quarter.

Read more »

a man in a hard hat and high visibility vest smiles as he stands in the foreground of heavy mining equipment on a mine site.
Materials Shares

Could these 3 ASX materials shares be set to double?

This broker has buy ratings and aggressive price targets for these holdings. 

Read more »

Man in yellow hard hat looks through binoculars as man in white hard hat stands behind him and points.
Materials Shares

Rio Tinto shares on watch after naming new CEO

The mining giant has found its new leader.

Read more »

Three miners looking at a tablet.
Materials Shares

How much upside does Macquarie project for South32 shares?

The miner faces more headwinds, but the broker maintains its optimism.

Read more »

a mine worker holds his phone in one hand and a tablet in the other as he stands in front of heavy machinery at a mine site.
Materials Shares

Why are South32 shares sinking 5% today?

Let's see what is weighing heavily on this mining giant's shares today.

Read more »

A male sharemarket analyst sits at his desk looking intently at his laptop with two other monitors next to him showing stock price movements
Materials Shares

How much upside does Macquarie forecast for Pilbara Minerals shares?

Is the broker bullish or bearish on this lithium giant? Let's find out.

Read more »