Australian rare earths developer Arafura Resources had backed out from a planned $74 million share sale as the continuing instability in the global markets have affected the company's share prices.

In October, Arafura launched a one-for-three non-renounceable rights issue at a share price of 60c a share, with the offer closing on Wednesday. Funds that will be generated from the share sale would have been used to complete a key feasibility study for its flagship Nolans project in the north of Australia.

But Arafura's shares for much of the month traded below the offer price. It ended 46.5 cents on Thursday.

"At a special board meeting held Thursday, the directors determined it would be unreasonable to those shareholders who participated in the rights issue to be issued shares at 60 cents," Arafura said in a statement to the Australian Securities Exchange.

It also said a new corporate adviser would be appointed to help raise the funds.

"Despite the volatile financial markets and consequent fall in our share price to below the rights issue offer price, a pleasing number of shareholders were prepared to participate, demonstrating strong underlying support for the company," Steve Ward, MD and CEO, said in Mining Weekly.

Shareholders who have already partaken in the rights issue would be refunded.

"We appreciate their preparedness to contribute, but felt under current circumstances it wasn't appropriate to call on their support at this time," Ward said.

Ward said that opportunities for shareholders to participate in future capital raisings would certainly be considered in the company's future plans.

He added the outlook for the rare earths market continues to be positive, and that Arafura had initiated discussions with prospective customers and possible strategic partners.

The Perth-based company hopes to become the world's fourth-biggest producer of rare earths with its Nolans project.

The Nolans project hosts an estimated 850,000 tonnes of rare-earth oxides, 3.9-million tonnes of phosphate pentoxide and a further 13.3-million pounds of uranium. It was initially slated to start production in 2013, but got delayed as the company completed an expanded bankable feasibility study.

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