Arafura Rare Earths (ASX:ARU) said it will raise AU$475 million via a placement of 1.7 billion shares at AU$0.28 per share, according to a Tuesday filing with the Australian bourse.

The offer price represents a 38.6% discount to the company's five-day volume weighted average price, the filing said.

Tranche one will consist of AU$123.4 million worth of shares, while tranche two, for AU$351.6 million, will be subject to shareholder approval.

The company also invited eligible shareholders to raise a maximum of AU$50 million via a share purchase plan at the same price, the filing added.

Proceeds will be used to fund costs at the company's Nolans project, working capital, and transaction costs, the company said.