Arafura is working on a project which involves mining rare earths in the Northern Territory and shipping them to Whyalla for processing and then export.

The company is working on a feasibility study for the project, and yesterday said the base case for the development would "deliver excellent returns to shareholders".

The project involves a $1.395 billion mine and processing plant, with $517 million worth of ancillary plants. 

The company said these costs had increased, but: "The increase in capital expenditure over earlier expectations is in line with comparable global development projects on a like-for-like basis".

The report released by the company ascribed a net present value of $4.3 billion to the Nolans project, which could run for more than 30 years.Arafura chief executive Chris Tonkin said the company would be in a position to make a financial decision to go ahead with the project by mid next year, but the signs so far were very positive.

Rare earths are a large category of products many of which are used in new technologies such as batteries and television screens.

The Nolans project will produce a product rich in neodymium, which is in particular demand.

Mr Tonkin said the project's 20 per cent neodymium production would generate more than 60 per cent of the revenues.

The company has estimated its operating costs at $20.55 per kilogram while the price for the product produced would be about $US60 per kg.

"Arafura remains on track to become one of the world's largest rare earths producers and the only new rare earth oxide supplier globally with significant volumes available for sale," he said.

"The demand outlook for rare earths looks strong, with timing of first production from Nolans expected to coincide with a forecast major global rare earths supply shortage.

"This update reinforces the strong commercial appeal of the Nolans Project with robust returns expected on the basis of assumptions that we believe to be conservative.

"The advanced stage of our Nolans Project is a key point of difference over other rare earths projects and significantly de-risks our path to both production and commercialisation."

Shareholders will shortly be asked to approve a $9.9 million share placement with Chinese company and major shareholder ECE Nolans Investment Company to provide working capital to progress the current feasibility study.

When complete the Nolans project would produce 20,000 tonnes of rare earth oxide products each year, together with phosphate, uranium and gypsum co-products. Arafura shares were trading steady at 16.5c.