(Corrects in paragraph 1, 5 to clarify that the funding amount has not yet been offered but is likely to be around $100 million)

MELBOURNE (Reuters) -Arafura Rare Earths has received a letter of interest from Australia's export finance agency about potential funding for its Nolans project in the Northern Territory, which a source said would likely amount to around $100 million.

Export Finance Australia has provided a non-binding letter of interest for funding support for the project, Arafura - which is backed by billionaire Gina Rinehart - said in an exchange filing on Tuesday.

The potential funding is part of a Western push to develop rare earths supply chains with international partners outside of top producer China. Australia's resources minister last week said the government was considering price floors to support critical minerals projects, including for rare earths.

"We will now be advancing due diligence with both of these parties," Arafura's CEO Darryl Cuzzubbo said.

The funding, which is yet to be decided on but is likely to be in the vicinity of $100 million, would mean that Arafura would be able to "materially close" a cornerstone equity target that is 60% of the $775 million total equity requirement, the source said.

The backing follows Prime Minister Anthony Albanese's announcement last year that Australia would provide up to A$840 million ($547.85 million) for Nolans, the first combined rare earths mine and refinery in the Northern Territory.

The project has also entered an appraisal phase for potential equity investment from Germany's Raw Materials Fund after being referred by the country's Interministerial Committee last month.

Rinehart's Hancock Prospecting is Arafura's largest shareholder with an 8.57% stake, per LSEG data.

Shares of the company were down 2.4% at A$0.2 as of 0258 GMT, while the broader mining sub-index fell 0.2%.

($1 = 1.5333 Australian dollars)

(Reporting by Melanie Burton in Melbourne and Nikita Maria Jino in Bengaluru; Editing by Sonia Cheema)