ARAFURA RARE EARTHS LTD — Capital/Financing Update 2018

Aug 9, 2018

Appendix 3B New issue announcement

Rule 2.7, 3.10.3, 3.10.4, 3.10.5

Appendix 3B

New issue announcement, application for quotation of additional securities and agreement

Information or documents not available now must be given to ASX as soon as available. Information and documents given to ASX become ASX’s property and may be made public.

Introduced 01/07/96 Origin: Appendix 5 Amended 01/07/98, 01/09/99, 01/07/00, 30/09/01, 11/03/02, 01/01/03, 24/10/05, 01/08/12, 04/03/13

Name of entity

Arafura Resources Limited (“ARU”)

ABN

22 080 933 455

We (the entity) give ASX the following information.

Part 1 - All issues

You must complete the relevant sections (attach sheets if there is not enough space).

1 +Class of +securities issued or to Fully paid ordinary shares be issued

2 Number of+securities issued or to be issued (if known) or maximum number which may be issued

Up to 143,938,988 fully paid ordinary shares under a 1 for 4 accelerated non- renounceable entitlement offer (“Entitlement Offer”) as detailed in Arafura’s ASX announcement dated 10 August 2018. The exact number of shares to be issued under the: • Institution component of the Entitlement Offer; and • Retail component of the Entitlement Offer is to be finalised and is subject to reconciliation of shareholder entitlements androunding.

• See chapter 19 for defined terms.

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• 3 Principal terms of the[+] securities (e.g. if options, exercise price and As per existing fully paid ordinary shares expiry date; if partly paid +securities, the amount outstanding and due dates for payment; if +convertible securities, the conversion price and dates for conversion)

• See chapter 19 for defined terms.

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4 Do the[+] securities rank equally in Yes. The new shares rank equally in all all respects from the[+] issue date respect with other fully paid ordinary with an existing[+] class of quoted shares. +securities? If the additional[+] securities do not rank equally, please state: • the date from which they do • the extent to which they participate for the next dividend, (in the case of a trust, distribution) or interest payment • the extent to which they do not rank equally, other than in relation to the next dividend, distribution or interest payment

5 Issue price or consideration

6 Purpose of the issue (If issued as consideration for the acquisition of assets, clearly identify those assets)

$0.08 per share The funds raised under the Entitlement Offer will be used to progress further development of the Company’s Nolans NdPr Project in the Northern Territory by carrying out technology, engineering and piloting activities as required to progress to a definitive feasibility study (DFS) and to enable project execution readiness, and for general working capital purposes.

6a Is the entity an[+] eligible entity that has obtained security holder approval under rule 7.1A?

No.

If Yes, complete sections 6b – 6h in relation to the[+] securities the subject of this Appendix 3B , and comply with section 6i

6b The date the security holder resolution under rule 7.1A was passed

6c Number of +securities issued without security holder approval under rule 7.1

6d Number of +securities issued with security holder approval under rule 7.1A

N/A N/A

• See chapter 19 for defined terms.

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6e Number of +securities issued N/A with security holder approval under rule 7.3, or another specific security holder approval (specify date of meeting) 6f Number of +securities issued N/A under an exception in rule 7.2 6g If[+] securities issued under rule N/A 7.1A, was issue price at least 75% of 15 day VWAP as calculated under rule 7.1A.3? Include the[+] issue date and both values. Include the source of the VWAP calculation. 6h If[+] securities were issued under N/A rule 7.1A for non-cash consideration, state date on which valuation of consideration was released to ASX Market Announcements 6i Calculate the entity’s remaining N/A issue capacity under rule 7.1 and rule 7.1A – complete Annexure 1 and release to ASX Market Announcements 7 +Issue dates The issue date under the institutional Note: The issue date may be prescribed by ASX component of the Entitlement Offer is (refer to the definition of issue date in rule scheduled for Wednesday 22[nd] August 2018. 19.12). For example, the issue date for a pro rata entitlement issue must comply with the applicable timetable in Appendix 7A. The issue date under the retail component of Cross reference: item 33 of Appendix 3B. the Entitlement Offer is scheduled for Wednesday 5[th] September 2018. Number +Class 8 Number and +class of all Up to 719,694,937 Fully paid ordinary +securities quoted on ASX (subject to rounding shares ( including the +securities in and determination of section 2 if applicable) entitlement)

• See chapter 19 for defined terms.

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9 Number and +class of all +securities not quoted on ASX (including the +securities in section 2 if applicable)	Number	+Class
	2,850,000 3,000,000 1,815,000 14,605,000	Unlisted Options expiring 30 September 2018 exercisable at $0.105. Unlisted Options expiring 30 September 2018 exercisable at $0.105. Unlisted options expiring 30 June 2021 exercisable at $0.15. Unlisted options expiring 1 July 2022 exercisable at $0.12.

10 Dividend policy (in the case of a N/A trust, distribution policy) on the increased capital (interests)

Part 2 - Pro rata issue

11 Is security holder approval No. required? 12 Is the issue renounceable or nonNon-renounceable. renounceable? 13 Ratio in which the[+] securities will One new fully paid ordinary share for every be offered four fully paid ordinary shares held at the record date. 14 +Class of +securities to which the Fully paid ordinary shares. offer relates 15 +Record date to determine 15 August 2018 at 7:00pm (AEST) entitlements 16 Will holdings on different No. registers (or subregisters) be aggregated for calculating entitlements?

• See chapter 19 for defined terms.

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17 Policy for deciding entitlements in relation to fractions 18 Names of countries in which the entity has security holders who will not be sent new offer documents Note: Security holders must be told how their entitlements are to be dealt with. Cross reference: rule 7.7. 19 Closing date for receipt of acceptances or renunciations	Any fractions arising in the calculation of entitlements will be rounded up to the nearest wholenumberofshares.
	For the institutional component of the Entitlement Offer, all countries other than Australia, New Zealand, Hong Kong, Malaysia, European Economic Area (Germany, Luxembourg and the Netherlands) and Switzerland. For the retail component of the Entitlement Offer, all countries other than Australia and NewZealand.
	The institutional component of the Entitlement Offer is scheduled to close on Tuesday 14thAugust 2018. The retail component of the Entitlement Offer is scheduled to close on Wednesday 29thAugust2018.

• See chapter 19 for defined terms.

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20 Names of any underwriters 21 Amount of any underwriting fee or commission 22 Names of any brokers to the issue 23 Fee or commission payable to the broker to the issue 24 Amount of any handling fee payable to brokers who lodge acceptances or renunciations on behalf of security holders 25 If the issue is contingent on security holders’ approval, the date of the meeting 26 Date entitlement and acceptance form and offer documents will be sent to persons entitled 27 If the entity has issued options, and the terms entitle option holders to participate on exercise, the date on which notices will be sent to option holders 28 Date rights trading will begin (if applicable) 29 Date rights trading will end (if applicable) 30 How do security holders sell their entitlements_in full_through a broker?	N/A.
	N/A.
	Origin Securities Pty Ltd and Amvest capital Inc. (acting through Mann Mann Jensen PartnersLP)
	5% of the amount each of their clients invest under the institutional component of the Entitlement Offer (including under the institutionalshortfallbookbuild).
	N/A.
	N/A.
	A retail entitlement offer booklet and entitlement and acceptance form are scheduled to be sent to eligible retail shareholders on or around Monday 20th August 2018. No prospectus is being prepared for the Entitlement Offer. An Investor Presentation has been provided to ASX with this Appendix3B.
	N/A.
	N/A.
	N/A.
	N/A.

• See chapter 19 for defined terms.

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31 How do security holders sell part of their entitlements through a broker and accept for the balance?

N/A.

• See chapter 19 for defined terms.

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32 How do security holders dispose of their entitlements (except by sale through a broker)?

N/A.

33 +Issue date

The issue date under the institutional component of the Entitlement Offer is scheduled for Wednesday 22[nd] August 2018. The issue date under the retail component of the Entitlement Offer is scheduled for Wednesday 5[th] September 2018.

Part 3 - Quotation of securities

You need only complete this section if you are applying for quotation of securities

• 34 Type of[+] securities ( tick one )

• (a) +Securities described in Part 1

• (b)[All other ][+][securities ]

Example: restricted securities at the end of the escrowed period, partly paid securities that become fully paid, employee incentive share securities when restriction ends, securities issued on expiry or conversion of convertible securities

Entities that have ticked box 34(a)

Additional securities forming a new class of securities

Tick to indicate you are providing the information or documents

• 35 If the[+] securities are[+] equity securities, the names of the 20 largest holders of the additional[+] securities, and the number and percentage of additional[+] securities held by those holders

• 36 If the[+] securities are[+] equity securities, a distribution schedule of the additional +securities setting out the number of holders in the categories

• 1 - 1,000

1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over

37 A copy of any trust deed for the additional[+] securities

• See chapter 19 for defined terms.

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Entities that have ticked box 34(b)

38 Number of+securities for which +quotation is sought 39 +Class of+securities for which quotation is sought 40 Do the+securities rank equally in all respects from the+issue date with an existing+class of quoted +securities? If the additional+securities do not rank equally, please state: • the date from which they do • the extent to which they participate for the next dividend, (in the case of a trust, distribution) or interest payment • the extent to which they do not rank equally, other than in relation to the next dividend, distribution or interest payment 41 Reason for request for quotation now Example: In the case of restricted securities, end of restriction period (if issued upon conversion of another+security, clearly identify that other+security) 42 Number and +class of all +securities quoted on ASX (_including_the+securities in clause 38)
	Number	+Class

• See chapter 19 for defined terms.

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Quotation agreement

• 1 +Quotation of our additional +securities is in ASX’s absolute discretion. ASX may quote the[+] securities on any conditions it decides.

• 2 We warrant the following to ASX.

• The issue of the[+] securities to be quoted complies with the law and is not for an illegal purpose.

• There is no reason why those[+] securities should not be granted +quotation.

• An offer of the[+] securities for sale within 12 months after their issue will not require disclosure under section 707(3) or section 1012C(6) of the Corporations Act.

Note: An entity may need to obtain appropriate warranties from subscribers for the securities in order to be able to give this warranty

• Section 724 or section 1016E of the Corporations Act does not apply to any applications received by us in relation to any[+] securities to be quoted and that no-one has any right to return any[+] securities to be quoted under sections 737, 738 or 1016F of the Corporations Act at the time that we request that the[+] securities be quoted.

• If we are a trust, we warrant that no person has the right to return the +securities to be quoted under section 1019B of the Corporations Act at the time that we request that the[+] securities be quoted.

• 3 We will indemnify ASX to the fullest extent permitted by law in respect of any claim, action or expense arising from or connected with any breach of the warranties in this agreement.

• 4 We give ASX the information and documents required by this form. If any information or document is not available now, we will give it to ASX before +quotation of the +securities begins. We acknowledge that ASX is relying on the information and documents. We warrant that they are (will be) true and complete.

Sign here:

==> picture [188 x 49] intentionally omitted <==

Company secretary

Date: 10 August 2018

Print name: Peter Sherrington.

== == == == ==

• See chapter 19 for defined terms.

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Appendix 3B – Annexure 1

Calculation of placement capacity under rule 7.1 and rule 7.1A for eligible entities

Introduced 01/08/12 Amended 04/03/13

Part 1

Rule 7.1 – Issues exceeding 15% of capital

Step 1: Calculate “A”, the base figure from which the placement capacity is calculated

Insert number of fully paid[+] ordinary securities on issue 12 months before the + issue date or date of agreement to issue

Add the following:

• Number of fully paid[+] ordinary securities issued in that 12 month period under an exception in rule 7.2

• Number of fully paid[+] ordinary securities issued in that 12 month period with shareholder approval

• Number of partly paid[+] ordinary securities that became fully paid in that 12 month period

Note:

• Include only ordinary securities here – other classes of equity securities cannot be added

• Include here (if applicable) the securities the subject of the Appendix 3B to which this form is annexed

• It may be useful to set out issues of securities on different dates as separate line items

Subtract the number of fully paid[+] ordinary securities cancelled during that 12 month period

“A”

• See chapter 19 for defined terms.

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Step 2: Calculate 15% of “A”
“B”	0.15 [Note: this value cannot be changed]
Multiply“A” by 0.15
Step 3: Calculate “C”, the amount of placement capacity under rule 7.1 that has already been used
Insertnumber of+equity securities issued or agreed to be issued in that 12 month period_not counting_those issued: • Under an exception in rule 7.2 • Under rule 7.1A • With security holder approval under rule 7.1 or rule 7.4 Note: • This applies to equity securities, unless specifically excluded – not just ordinary securities • Include here (if applicable) the securities the subject of the Appendix 3B to which this form is annexed • It may be useful to set out issues of securities on different dates as separate line items
“C”
Step 4: Subtract “C” from [“A” x “B”] to calculate remaining placement capacity under rule 7.1
“A” x 0.15 Note: number must be same as shown in Step 2
Subtract“C” Note: number must be same as shown in Step 3
Total[“A” x 0.15] – “C”	[Note: this is the remaining placement capacity under rule 7.1]

• See chapter 19 for defined terms.

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Part 2

Rule 7.1A – Additional placement capacity for eligible entities

Step 1: Calculate “A”, the base figure from which the placement capacity is calculated

“A” Note: number must be same as shown in Step 1 of Part 1

Step 2: Calculate 10% of “A”

“D”

0.10

Note: this value cannot be changed

Multiply “A” by 0.10

Step 3: Calculate “E”, the amount of placement capacity under rule 7.1A that has already been used

Insert number of[+] equity securities issued or agreed to be issued in that 12 month period under rule 7.1A

Notes:

• This applies to equity securities – not just ordinary securities

• Include here – if applicable – the securities the subject of the Appendix 3B to which this form is annexed

• Do not include equity securities issued under rule 7.1 (they must be dealt with in Part 1), or for which specific security holder approval has been obtained

• It may be useful to set out issues of securities on different dates as separate line items

“E”

• See chapter 19 for defined terms.

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Step 4: Subtract “E” from [“A” x “D”] to calculate remaining placement capacity under rule 7.1A

“A” x 0.10 Note: number must be same as shown in Step 2 Subtract “E” Note: number must be same as shown in Step 3 Total [“A” x 0.10] – “E” Note: this is the remaining placement capacity under rule 7.1A

• See chapter 19 for defined terms.

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