The company cited the drop in rare earths prices, increasing business costs and continuing depressed capital markets as contributing factors for the decision to cut costs, with chairman Ian Kowalick noting that industry and financial pressures are hitting companies across Australia.

"The upward pressure on costs and the recent softening in rare earth prices has created an environment which, at present, compromises the viability of the Nolans project in its current configuration," he said.

One area for major savings is in the transport and logistics component, with the chance to shave off roughly $160 million in capital costs and $1.60 per kilogram rare earth oxide in operating costs by relocating intermediate chemical processing to Nolans from Whyalla in South Australia.

Exploratory drilling south of the Nolans site in recent months identified an extensive aquifer system, which the company believes may supply enough water for the life of operation to limit or possibly eliminate any need to draw water from the Ti Tree Basin, which is used for horticultural and pastoral development in the district.

Arafura believes it can successfully relocate the plant based on discussions with the SA and Northern Territory governments but it will retain its interest in the Whyalla site pending a final decision.

The company had announced it needed $30 million in funds to complete the Nolans feasibility study but after working with its major shareholder and strategic partner East China Mineral Exploration and Development Bureau, Arafura says it may no longer need those funds.

Arafura is also working with Chinese rare earth experts to help it identify further optimisation options for the project.

"With the help and support of the Northern Territory government and our major shareholder ECE, we are confident that we can advance the Nolans project towards sustainable financing and commercialisation," Kowalick said.

Arafura shares climbed 4.3% to 12c.