Australia's Arafura Resource (ARU.AX) said it has successfully produced commercial quality separated rare earths and would be able to utilise the technology at its Nolans Project once production starts in the second half of 2013.

Arafura said the Australian Nuclear Science and Technology Organisation under commission from the company separated middle rare earth oxides and heavy rare earth oxides -- elements used in a wide range of consumer products, from mobile phones to batteries and electric car motors.

Arafura shares surged over 12 percent on the announcement while shares in domestic rival Lynas (LYC.AX) rose 7.8 percent, both outperforming a 1.2 percent rise by the broader market .AXJO.

Arafura shares have risen 41 percent this year as world demand for the 17 rare earth metals grows, while supplies are shrinking, threatening with a global supply shortage.

East China Mineral Exploraton & Development Bureau (ECE) is Arafura's biggest shareholder with a 22 percent stake.

Prices of rare earths are rising, while separation and purification is difficult and expensive, making many of the world's rare earth deposits commercially unviable.

China dominates production with 95 percent of global supply of the group of metals and prices jumped in July after reports that China's government plans to fix prices so companies do not engage in "cut-throat competition" [ID:nTOE66706V]

Arafura last week said the average valuation concluded in August for its Nolan project increased 278 percent since December 2009.

Rare earths pricing continued to rise in August and appeared to stabilise in early September," Arafura said last week.

The Nolans resource in the Northern Territory contains 850,000 tonnes rare earth oxides, 3.9 million tonnes of phosphate pentoxide and 13.3 million pounds of uranium oxide.