The Arafura Rare Earths Ltd (ASX: ARU) share price is catching the eye on Wednesday.

In morning trade, the rare earths developer's shares are up 30% to 15 cents..

Why is the Arafura share price rocketing?

Investors have been bidding the company's shares higher today after it received a major cash injection.

According to the release, the company has signed a binding term sheet with the National Reconstruction Fund Corporation (NRFC) for a $200 million investment commitment through the issue of unsecured convertible notes.

The NRFC invests to diversify and transform Australia's industry and economy. It has $15 billion to invest using direct loans, equity investments and loan guarantees.

The release notes that the funding will be used to support the development of the Nolans Project in the Northern Territory.

What are the terms?

The convertible notes have a conversion period of seven years with a non-convertible period of two years. During the conversion period, interest on the outstanding face value will accrue at the rate of the three-month Bank Bill Swap Yield (BBSY) + 3% per annum.

This will be payable quarterly by the issue of new shares or by capitalising the coupon into the face value. There will be no cash interest payable during the conversion period.

Management also notes that at the NRFC's election during the conversion period, the convertible notes will convert into Arafura shares at a fixed conversion price which will represent a 40% premium to the reference price. This reference price will be determined by the future equity raising required to fully fund and develop the Nolans Project.

This equity financing is expected to be announced when the company makes a final investment decision (FID) for Nolans.

'Immensely proud'

Arafura's managing director, Darryl Cuzzubbo, was very pleased with the news. He said:

I am immensely proud to confirm a A$200 million commitment from the NRFC, which demonstrates the strategic and economic importance of Nolans to the Northern Territory, and Australia more broadly. This is indeed a significant day for Arafura and the Nolans Project.

This deal has been months in the making and de-risks the equity funding required for the development of Nolans. On behalf of the Board and management of Arafura, I would like to thank both the NRFC and the Commonwealth Government for their continued support and look forward to the next steps of achieving a final investment decision on Nolans Project in the first half of this year.

NRFC investment chairman, Martijn Wilder AM, said:

Rare earth minerals are strategically important resources that are crucial to modern economies and the global transition to net zero. Arafura's Nolans Project demonstrates the enormous contribution that Australia can make to the global supply of rare earth minerals and the considerable opportunities for Australia to add value to the raw materials that it mines.

Following today's jump, the Arafura share price is now largely flat over the past 12 months.