Work is on track for Arafura Resources' Nolans project, which will make Whyalla part of one of the biggest rare earths projects in the world.

The company reported this week that it had achieved substantial progress on the project.

Since announcing its intention to develop a rare earths processing plant near Whyalla, Arafura Resources has undertaken extensive test work that has provided the company with detailed knowledge of all facets of the design chain, from demonstration of technology through to mine design and process flowsheet optimisation.

It has also undertaken practical application of the results of this test work to the project's design, which is fundamental to the successful development of a rare earths project and significantly de-risks the Nolans project.

Arafura Resources chief executive officer Chris Tonkin said the company was pleased to report its progress.

"We are striving for ongoing transparency to ensure that all stakeholders are informed of the significant achievements that have been made on the project and the company's overall strategic objectives," he said.

"Importantly, 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.

"We look forward to providing regular updates to the market on progress at Nolans and our funding plans as we move towards a final investment decision and look to raise our finance from mid 2013 to develop and construct the Nolans project.

Arafura is currently at an advanced stage of a feasibility study into the Nolans project, developed on a base case that includes a mine and a concentrator at Nolans Bore in the Northern Territory and a chemical processing operation near Whyalla.

As a result of advanced feasibility work, project risk and uncertainty has been reduced significantly while project economics remain robust.

The project's base case generates a net present value of $4.3 billion, an internal rate of return of 30 per cent and capital payback within the fourth year of the project's operation.

A key final step to validate the process flowsheet and mass balance, as well as the major recycle circuits, is the successful operation of an Integrated Pilot Plant (IPP) that will be constructed early next year.

The company is also assessing a number of options for process improvements and work on the program is scheduled for completion by October 2012.

The results may change the base case if it delivers a benefit to project economics to satisfy the company's criteria for inclusion.

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

"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," he said.