Annual report Mount Porter ERL 116 for the year ended 11 September 2009

Abstract

There has been no on-ground exploration activity carried out over ERL 116 by Arafura Resources Limited ('Arafura' or 'the Company') during the year ended 11 September 2009. Expenditure against the licence during this period totalled $6,199 and was largely administration costs. This follows expenditure by Arafura of approximately $250,000 on the same tenement during 2003-2007. Most of this expenditure would now be apportioned to the area occupied by ML 23839, excised from ERL 116 and granted in February 2005. As you are aware, Arafura is an organisation whose focus is on building a long-term rare earths exploration, production and marketing business, centred on our Nolans Project and associated strategic land position in the nearby Reynolds Range. Consequently over the past two years, the Company has been attempting to either divest its non-core exploration projects (Mt Porter-Frances Creek, Kurinelli and Jervois), or seek suitable partners to help develop them through joint ventures. Arafura's gold interests, represented by the Mount Porter-Frances Creek (ML 23839, ERL 116 and four additional tenements held by Territory Resources or its subsidiaries) and Kurinelli (AC 74 and MCC 950-953) projects, were assessed by several parties during the reporting period, including Rubicon Resources, Siburan Resources, Navigator Resources and Indago Resources. Unfortunately no commercial proposals were presented by these organisations. This outcome, in hindsight, was predictable as we now understand that the September 2008 - September 2009 period represented perhaps one of the most difficult investment environments in recent memory. Nevertheless, Arafura continues to explore strategies, including online advertising (MinesOnline.com, MiningAssets.net) and actively engaging with potential development partners (most recently Island Resources), which may assist in the Company's determination to extract value from its gold projects. Arafura will advise DRDPIFR of progress in this regard as and when appropriate. Arafura notes DRDPIFR's expectations in relation to the renewal of ERL 116, and in particular the second of the two-year renewal period. However in light of our current position, and recent unsuccessful attempts by the Company to dispose of its Pine Creek gold assets (most particularly ML 23839, ERL 116 and Arafura's gold interests on Territory Resources' tenement EL 23237), Arafura proposes that no on-ground activity (and therefore no exploration expenditure, excepting administration costs) be undertaken during the next year of exploration on ERL 116. Furthermore Arafura respectfully requests that the Minister for Primary Industry, Fisheries and Resources set the expenditure covenant to zero for the forthcoming year.