REG - Rainbow Rare Earths - Interim Results for the 6 months ended 31 Dec 2019
30 March 2020
Rainbow Rare Earths Ltd ('Rainbow' or 'the Company') (LSE: RBW)
Interim Results for the six months ended 31 December 2019
Rainbow is pleased to announce its unaudited results for the six months ended 31 December 2019.
Highlights
· New Chief Executive Officer (George Bennett) appointed in the period
· Revised strategy announced - based on a much larger operation targeting at least 20k tonnes of concentrate per annum for 20 years
· Exploration and other test work being undertaken - JORC Resource targeted for April 2020
· Current operations being revised and optimised to achieve breakeven, to mitigate production losses
· Production in the period modest - 100t concentrate exported and sold - reflecting operating challenges which triggered changes to strategy
· EBITDA loss for the period US$2.3 million (6 months to 31 December 2018: US$1.4 million)
· 10 mining claims obtained in Zimbabwe
· Coronavirus impacts to production limited at the present time - but the situation is being monitored closely
Enquiries:
Rainbow Rare Earths Ltd
Company
George Bennett
Jim Wynn
+27 82 652 8526
+44 (0) 20 3910 4551
SP Angel Corporate Finance LLP
Joint Broker
Ewan Leggat
Charlie Bouverat
+44 (0) 20 3470 0470
Turner Pope Investments
Joint Broker
Andy Thacker
Zoe Alexander
+44 (0) 20 3657 0050
CEO Statement
Coronavirus/COVID-19
It is impossible to begin a discussion at the present time without covering the impact of coronavirus on Rainbow and its operations.
Rainbow's operations are in Burundi, which, at the time of writing, has had no officially recorded instances of coronavirus. Our operations continue to run largely as normal, however international travel restrictions have meant that senior management are currently remaining at site for extended rotations, to ensure continued productivity.
If restrictions on travel continue for a prolonged period, or if the Burundi government imposes stricter controls or lockdowns, it is possible that production and development activities would be disrupted. It is also likely that the disruption to the financial markets will make fundraising more challenging, which in turn may delay the Company's ability to deliver on its development milestones.
The Company has issued health guidelines to all its staff, to minimise risks to wellbeing. Above all, the health of our staff, as well as their families and communities, must be our key priority, and we will not hesitate to take appropriate measures as required.
Most people will be aware that the situation continues to change rapidly, and updates will be sent out as soon as appropriate.
Production and sales in six months to 31 December 2019
In the six months to 31 December 2019, 114 tonnes of concentrate were produced (6 months to 31 Dec 2018: 564 tonnes, and 12 months to 30 June 2019: 788 tonnes). 100 tonnes of concentrate were exported and sold in the period.
This fall in production reflected the operational challenges at Gakara that had been experienced since late 2018, and which led to a revision to the operating strategy in the period.
The mining of ore since the commencement of operations at the mine in early 2017 had consisted of the extraction of almost pure vein materials using hand tools, with the removal of waste being undertaken using a small fleet of largely rented mining equipment. Mining had commenced at Gasagwe, with the second pit, Murambi, beginning operations in December 2018.
Tonnages of ore mined declined from the advent of the rainy season in September 2018, despite two pits being operated in parallel, and highlighted the limitations of this initial approach.
In particular, the rented equipment struggled to perform in wet conditions, resulting in significant periods of downtime following each rain event. In addition, the lack of geological information on the orebody meant that ore tonnages were unpredictable, with veins seen at surface pinching and swelling, or even proving discontinuous, as mining descended.
Following a review of operations in August and September, mining was suspended at Gasagwe in order to focus on Murambi, which was felt to be more prospective in the near term. In addition, the mining fleet was reduced to six rented vehicles (five haul trucks and a dozer) in addition to an owned excavator, and two TLBs. Orders were placed in the period for five new haul trucks to replace the rented fleet, as well as a grader. The grader arrived in January 2020, and the trucks arrived in March 2020. Both the trucks and the grader will improve operating efficiency and significantly reduce rental costs.
The methodology for extracting ore was also revised during the period. Instead of mining veins by hand, assisted by mechanical equipment for waste removal, a more traditional bulk mining approach to extracting ore was trialled, whereby zones of mineralisation were identified and mined by excavator, prior to being transported by truck to the plant for treatment.
As a result, the total ore tonnage mined in the period increased to 3,900 tonnes (compared with 580 tonnes in the six months to 30 June 2019), albeit at much lower grades (typically between below 5%).
Additional focus was placed on catching up on waste removal. In total, 246k tonnes of waste was removed to dumps in the period, a substantial increase compared with the previous six months, during which just 80k tonnes were removed.
Revised near-term production strategy
Production at Gakara has focused on deposits consist of stockworks of narrow, high-grade veins. The veins themselves are almost pure bastnaesite/monazite, and require minimal treatment to upgrade to the 54% minimum grade of Total Rare Earth Oxide ('TREO') required for export and sale.
However, the veins are variable in form and thickness, and as a result production has proven difficult to predict from one bench to the next.
A key priority for near-term production, therefore, is to explore methods to be able to identify vein formations below surface level, in order to allow a reliable mine plan to be formulated. Conventional drilling has limited effectiveness for vein stockworks, but may be used in conjunction with other methods under consideration (including ground-penetrating radar, channel boring, and surface trenching).
Production levels cannot be stated with certainty, however once a mine plan has been drawn up, based on reliable geological data, and utilising the new mining equipment, concentrate production is expected to increase to more than 100 tonnes per month, which is expected to cover the production costs following recent cost saving measures.
Achieving break-even profitability at production level represents a considerable downgrading of expectations from the existing production set-up, however reflects a realistic assessment of the productive capacities of current operations. In addition, continuing operations represents an important means of meeting the Company's social obligations towards its current workforce and local community. The goal will be to maximise production, beyond these levels if possible, provided this does not impact the longer-term prospects of for the mine.
Ultimate strategy - designing a larger mine capable of producing 20k tonnes of concentrate per annum
The near-term production strategy seeks to satisfy the Company's in-country social obligations, thus keeping the mining permit in good order, while eliminating production losses as soon as practicable.
However, the ultimate strategy of the Company remains the design of a much larger operation, capable of producing in excess of 20k tonnes of concentrate at 54% TREO per annum for at least 10 years (ideally up to 20 years or more).
The extent of mineralisation across the permit is clear from the number of separate occurrences of mineralisation already found at surface. The Company is confident that there exists more than enough material to supply a processing facility sized at 20k tonnes per annum output. However, the work needs to be undertaken to define the deposit, and a first JORC-compliant Resource is expected to be announced in April 2020.
This Resource will be initially based on Kiyenzi - which is a breccia deposit, in which rare earth mineralisation has been dispersed more widely. This results in an orebody that is lower in grade, but much wider than the high-grade vein stockworks seen elsewhere. Importantly, it is also therefore more amenable to diamond core drilling, as well as being simpler to mine, which is why it is expected to form the cornerstone of the larger mining strategy.
An initial JORC Resource is expected to be announced in the coming weeks, based on the analysis of drill cores which were taken during 2018 but not yet fully analysed. Thereafter, a further drilling campaign will be undertaken later in 2020, with an enlarged Resource to be declared subsequently.
At the same time, mineralogical and metallurgical analysis is being undertaken on various ore deposits, in order to ascertain the most appropriate treatment methodology for the larger plant. Initial studies indicate that the mineralogy of the deposit is highly benign, and that crushing and gravity separation are likely to be all that is required to liberate the mineralisation and produce a high-grade concentrate (note that many rare earth projects require flotation or other more complex beneficiation techniques, which carry significant capex and opex costs).
Corporate
The Company concluded a major fund-raise in July 2019, which raised a net US$5 million while also satisfying a number of outstanding creditors (including a convertible loan from an affiliate of Lind Partners).
I was appointed as Chief Executive Officer on 28 August 2019, having participated in that placing as an investor.
However, the losses incurred during 2019 were greater than had been expected, and a larger portion of these funds were required for working capital. As a result, and as we continue to define the exploration and expansion strategy, it is expected that further funding will be needed, although the Company is keen to minimise dilution at prevailing share prices, which reflect wider market conditions as well as Rainbow's own challenges.
I have underlined my confidence in the project by acquiring further shares during the period (together with the Company's Chairman, Adonis Pouroulis), and by extending an unsecured loan of US$1 million.
The Company is currently discussing new financing plans with a number of prospective investors (both new and existing shareholders), and will provide an update shortly once its decision has been finalised.
In November 2019, the Company announced that it had obtained 10 new mining claims in Zimbabwe. These permits, which relate to carbonatite-type bodies, are at an early stage, however for limited cost, initial exploration work will be put into place to establish their prospects.
Rare earths ('RE') market
RE prices fell in the period and at 31 December 2019, and Rainbow's basket was 14% lower than at 1 July 2019. Short-term movements in RE prices tend to be driven by inventory levels in China, which accounts for the majority of RE production and consumption.
Nevertheless, the long-term prospects for rare earths, particularly Neodymium and Praseodymium ('NdPr' - which together account for more than 80% of Rainbow's basket price), remain very strong. Demand for rare earth magnets is set to increase substantially in response to the growth in manufacture of electric vehicles (as well as electric bikes, buses, trains, and trams), wind turbines, hi-tech electronics, and other strategic and defence uses.
While electric vehicle purchases continue to increase, the rate of growth has been somewhat slower than had been forecast by many. However, there is no doubt that the car manufacturing industry will very soon be dominated by electric vehicle ('EV') manufacturing - global auto makers (including VW, Daimler, Hyundai, Ford, as well as Tesla) have announced investment of over US$300 billion in EV-producing facilities. This, together with government-led targets, and natural consumer demand, means that the replacement of hydrocarbon-burning combustion engines with electric drive motors is now inevitable.
It is worth pointing out that each new EV consumes between 1-2kg of NdPr, and that forecast EV production to meet government EV targets alone is expected to account for an increase in demand for NdPr of between 25-90% by 2030. At the same time, few new sources of RE production are likely to come online in the next few years - putting Rainbow in a strong position to take advantage of this demand increase.
George Bennett
Chief Executive Officer
Financial Review
Overview
The six months to 31 December 2019 represented a period during which production at the Gakara project was disappointing, and, as a result, further losses were incurred. At the same time, the Company raised money (mainly from an equity placing of US$5 million in July 2019) to invest in exploration activities and new mining equipment, as well as to cover a working capital shortfall.
Income statement
100 tonnes of concentrate were sold in the six months to 31 December 2019, at an average net price (after accounting for marketing fees and handling costs deducted at source) of US$1,560 per tonne (six months to 31 December 2018: 650 tonnes at US$1,892 per tonne). Revenue was therefore US$0.2 million in the period, compared with US$1.2 million for the six months to 31 December 2018 (and US$1.5 million for the year ended 30 June 2019).
Royalty and transport costs of US$46k (six months to 31 December 2018: US$208k) included the cost of transporting the concentrate from the mine site to the port of Mombasa, as well as the government royalty of 4%.
Production costs totalled US$1.6 million (six months to 31 December 2018: US$1.6 million), including the cost of running the processing plant (US$0.2 million), mining costs (US$0.8 million), and local administrative and support costs in Burundi (US$0.6 million).
Stockpile movement of US$22k represents the net decrease in the value of the concentrate stocks held during the period, as this amount is shown separately from cash production costs.
Administration costs totalled US$0.8 million, slightly higher than the six months to 31 December 2018 (US$0.7 million), reflecting some one-off costs associated with the changes in strategy following the appointment of a new Chief Executive in August 2019.
EBITDA in the period was a loss of US$2.3 million, compared with a loss of US$1.4 million for the six months to 31 December 2018 and a loss of US$3.4 million for the year to 30 June 2019.
Share-based payments were minimal in the period, as a result of charges in respect of all existing employee share options having been incurred over their two-year vesting periods, and no new employee share options having been issued since August 2017.
Depreciation was charged on vehicles and office equipment only, with the bulk of capitalised costs in respect of the Gakara project either having been impaired at 30 June 2019, or having been transferred to Exploration and Evaluation assets in the period (see below).
Finance income, primarily FX gains on currency movements, was US$0.6 million, reflecting in particular currency gains that the Company was able to benefit from through its acquisition of Burundian Francs at competitive rates, while finance costs (including the interest on the Finbank loan facility) amounted to US$0.1 million.
Pre-tax losses were therefore reported of US$1.8 million, compared with losses of US$3.1 million in six months to 31 December 2018 and US$12.1 million for the year to 30 June 2019.
Income tax expenses primarily related to withholding taxes, and were less than US$0.1 million.
Total loss after tax was US$1.9 million, compared with losses of US$3.2 million in six months to 31 December 2018 and US$12.3 million for the year to 30 June 2019.
Balance sheet
During the year, the Company revised its operating strategy, and reclassified the existing mining approach as trial mining, with the Kabezi processing plant to be considered a pilot plant. Capitalised costs in respect of the Gasagwe and Murambi pits, as well as the Kabezi processing plant, were impaired in full at 30 June 2019, however the Company now believes that US$6.2 million of capitalised mine development costs, which relate to the Gakara project as a whole, should now be considered Exploration and Evaluation assets, rather than Property, Plant and Equipment. This assessment reflects the fact that work on the project as a whole is considered an early phase of the much larger operation currently being designed, rather than an economically viable operation within its own right. A transfer of US$6.2 million was made during the period to reflect this revised management view.
US$59k of exploration costs were capitalised during the period, as well as US$0.7 million of fixed assets (the largest element of which was a prepayment of US$0.4 million in respect of five new haul trucks and a grader). The additional fixed asset additions relate to capitalised development costs at Gakara, where work continues to extend the Company's understanding of its ore bodies.
Current assets at 31 December 2019 totalled US$1.0 million, up from US$0.7 million at 30 June 2019, as a result of holding additional cash at the period end.
Current and non-current borrowings totalled US$1.5 million, of which USS$0.8 million related to the Finbank facility (an overdraft which was transformed into a loan in the period), and US$0.6 million related to trade and other creditors (reduced from US$1.1 million at 30 June 2019).
Cash flow statement
The Company's cash balance at 31 December 2019 was US$553k (30 June 2019: US$119k), an increase of US$434k in the period.
This movement reflects cash operating losses of US$2.3 million, a reduction in working capital creditors of US$1.2 million (mainly trade and other creditors settled following the July equity placing), and capitalised fixed asset (exploration and property, plant and equipment) of US$0.7 million.
These outflows were primarily funded by the July 2019 placing, which raised US$4.3 million net of transaction costs.
Going concern
The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future, although acknowledge that there continues to exist a material uncertainty that may cast doubt over its ability to do so, in that the Company requires additional funding in order to meet working capital requirements and to deliver on its expansion and exploration programmes over the next 12 months. Nevertheless, they continue to adopt the going concern basis in preparing the Condensed Consolidated and Company Financial Statements. For further detail refer to the detailed discussion of the assumptions outlined in note 2(a) to the Condensed Consolidated Financial Statements.
Cautionary Statement:
The business review and certain other sections of this Half Yearly Report contain forward looking statements that have been made by the Directors in good faith based on the information available to them up to the time of their approval of this report. However, they should be treated with caution due to inherent uncertainties, including both economic and business risk factors (not least of which is the impact of the coronavirus), underlying any such forward-looking information and no statement should be construed as a profit forecast.
Risks and uncertainties
There are a number of potential risks and uncertainties inherent in the mining sector which could have a material impact on the long-term performance of the Company and which could cause the actual results to differ materially from expected and historical results. The Company has taken reasonable steps to mitigate these where possible. Full details are disclosed on pages 26-27 of the Annual Report for the year ended 30 June 2019. The risks and uncertainties are summarised below:
· Production issues
- The production of rare earth mineral concentrate involves a series of processes, from the mining of the ore at the mine sites near Mutambu, to the processing of material at the Kabezi plant.
- Mining operations are subject to a number of risks, including mechanical outages, supply issues (eg fuel), interruptions due to weather and soil conditions, among many others.
· Geological risk
- Company published a JORC Resource for four of the pits within the Gakara deposit, with the rest of the deposits representing an Exploration Target. In a subsequent review for the Competent Persons' Report published in July 2019, MSA held the view that the geological information was only sufficient to report an Exploration Target under JORC.
- The variations in form and direction of the vein stockwork seen at Gakara are inherently difficult to predict with accuracy.
- It is possible that the quantity of rare earths present in the licence area is less than management expectations with resulting impacts on production in the short and longer term.
· Rare earth prices
- The Company produces rare earth mineral concentrate which is sold to TK on market price less deductions and a discount (negotiated by TK with each end customer).
- Rare earth prices have been volatile in the past. If the underlying rare earth basket price falls, this reduces revenue and will impact the profitability of the mine.
- The current discount rate is approximately 70%, however this may vary dependent on the arrangements ThyssenKrupp negotiates with any new customers or as terms are renegotiated.
· Financing risk
- The Company currently forecasts that additional funding will be required in order to deliver its development plans (drilling, test work and mine fleet capex), as well as for general working capital requirements.
· Soil instability in mining areas and/or access routes
- Heavy rains during the rainy season (Oct-May) can lead to land slippages, which could lead to production interruption in the event that these impacted the mining areas or access routes
· Civil unrest
- Burundi has experienced civil unrest, most recently in 2015. Any subsequent instances of civil unrest could impact the operation of the mine, including its ability to obtain supplies or export its material, or even access its bank accounts in country.
· Currency controls
- The Company receives proceeds in US dollars, which, are repatriated to an account in the Burundi Central Bank.
- Burundi has experienced shortages of foreign currency reserves in the past, and it is therefore possible that access to US dollars held in country might be difficult. This would affect the Company's ability to meet ongoing foreign currency obligations (eg corporate costs, and any debt payments in US dollars).
The impact of coronavirus clearly constitutes a major risk that has arisen since these risks were set out in the Annual Report for June 2019. The situation is changing rapidly at the present time, and a great deal of uncertainty exists regarding the effect of COVID-19 on global markets as a whole, as well as on Rainbow specifically.
Potential risks relating to COVID-19 include:
· Impact on the operation of the mine - including the need to shut down operations for health reasons or to comply with government orders; difficulty in obtaining supplies; disruption to transport for key personnel
· Difficulty in raising finance - the impact of the virus on the markets has been significant in recent weeks and may mean that sources of funding are harder to obtain, or more expensive
Other than this, there have been no significant changes to the risk profile during the first half of the year.
Directors' Responsibility Statement
We confirm that to the best of our knowledge:
a) the Condensed set of Interim Financial Statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';
b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year);
c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein); and
d) the condensed set of interim financial statements, which has been prepared in accordance with the applicable set of accounting standards, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer, or the undertakings included in the consolidation as a whole as required by DTR 4.2.4R.
This Half Yearly Report has been approved by the Board and signed on its behalf by:
George BennettChief Executive Officer
27 March 2020
Condensed Consolidated Statement of Comprehensive Income
Six months ended 31 December 2019
6 months to 31 December 2019
6 months to 31 December 2018
12 months to 30 June 2019
Notes
US$'000
Unaudited
US$'000
Unaudited
US$'000
Audited
Revenue
156
1,230
1,541
Royalty and transport costs
(46)
(208)
(269)
Production costs
(1,614)
(1,557)
(3,057)
Stockpile movement
5
(22)
(188)
(153)
Administration expenses
(765)
(651)
(1,433)
Adjusted EBITDA1
(2,291)
(1,374)
(3,371)
Share based payments
(7)
(128)
(62)
Depreciation
4
(76)
(1,688)
(2,570)
Impairment of fixed assets
-
-
(3,854)
Loss from operating activities
(2,374)
(3,190)
(9,857)
Finance income
627
131
355
Finance costs
(74)
(79)
(2,644)
Loss before tax
(1,821)
(3,138)
(12,146)
Income tax expense
(111)
(58)
(131)
Total loss after tax and comprehensive expense for the period
(1,932)
(3,196)
(12,277)
Total loss after tax and comprehensive expense for the period is attributable to:
Non-controlling interest
(100)
(217)
(785)
Owners of parent
(1,832)
(2,979)
(11,492)
(1,932)
(3,196)
(12,277)
The results of each period are derived from continuing operations.
Loss per share (cents)
Basic
3
(0.50)
(1.61)
(5.93)
Diluted
3
(0.50)
(1.61)
(5.93)
__________________________
1 Adjusted EBITDA represents earnings before finance items, depreciation, amortisation, taxation, share based payments and impairments.
Condensed Consolidated Statement of Financial Position
31 December 2019
31 December 2018
30 June 2019
Notes
US$'000
Unaudited
US$'000
Unaudited
US$'000
Audited
Non-current assets
Exploration and evaluation assets
2c
6,150
-
-
Property, plant and equipment
4
536
10,715
6,408
Prepayments
4, 6
389
-
-
Total non-current assets
7,075
10,715
6,408
Current assets
Inventory
5
78
92
98
Prepayments
6
327
294
389
Trade and other receivables
79
159
116
Cash and cash equivalents
553
56
119
Total current assets
1,037
601
722
Total assets
8,112
11,316
7,130
Current liabilities
Borrowings
9
(131)
(945)
(1,562)
Trade and other payables
7
(563)
(1,118)
(2,097)
Total current liabilities
(694)
(2,063)
(3,659)
Non-current liabilities
Borrowings
9
(686)
-
-
Provisions
8
(100)
(60)
(100)
Total non-current liabilities
(786)
(60)
(100)
Total Liabilities
(1,480)
(2,123)
(3,759)
NET ASSETS
6,632
9,193
3,371
Equity
Share capital
10
26,613
18,598
20,056
Shares to be issued
-
-
1,375
Share based payment reserve
1,771
1,201
1,764
Other reserves
43
47
40
Retained loss
(20,903)
(10,397)
(19,040)
Equity attributable to the parent
7,524
9,449
4,195
Non-controlling interest
(892)
(256)
(824)
TOTAL EQUITY
6,632
9,193
3,371
Condensed Consolidated Cash Flow Statement
Six months ended 31 December 2019
6 months to 31 December 2019
6 months to 31 December 2018
12 months to
30 June 2019
Notes
US$'000
Unaudited
US$'000
Unaudited
US$'000
Audited
Cash flow from operating activities
Loss after tax for the period
(1,932)
(3,196)
(12,277)
Depreciation
4
76
1,688
2,570
Impairment of property, plant and equipment
-
-
3,854
Share based payment charge
7
128
62
Finance income
(627)
(131)
(355)
Finance costs
74
79
2,644
Tax expense
111
58
131
Provisions
-
-
40
Operating loss before working capital changes
(2,291)
(1,374)
(3,331)
Net decrease in inventory
5
20
188
182
Net decrease in other receivables
99
217
165
Net (decrease)/increase in other payables
(1,334)
(328)
679
Cash used by operations
(3,506)
(1,297)
(2,305)
Realised foreign exchange gains
656
121
352
Finance income
2
1
1
Finance costs
(11)
(13)
(22)
Taxes paid
(111)
(55)
(131)
Net cash used in operating activities
(2,970)
(1,243)
(2,105)
Cash flow from investing activities
Purchase of exploration and evaluation assets
(59)
-
-
Purchase of property, plant and equipment
4
(689)
(1,060)
(1,583)
Net cash used in investing activities
(748)
(1,060)
(1,583)
Cash flow from financing activities
Proceeds of new borrowings
(8)
185
798
Interest charge on borrowings
(63)
(63)
(139)
Payment of finance lease liabilities
(7)
(9)
(18)
Proceeds of Lind convertible
-
-
750
Cost of issuing Lind convertible
-
-
(75)
Proceeds from the issuance of ordinary shares
9
4,582
2,049
2,350
Transaction costs of issuing new equity
9
(321)
(173)
(215)
Net cash generated by financing activities
4,183
1,989
3,451
Net increase/(decrease) in cash and cash equivalents
465
(314)
(237)
Cash & cash equivalents at the beginning of the period
119
354
354
Foreign exchange (loss)/gain on cash & cash equivalents
(31)
16
2
Cash & cash equivalents at the end of the period
553
56
119
Condensed Consolidated Statement of Changes in Equity
Six months ended 31 December 2019
US$'000
Note
Share capital
Shares to be issued
Share-based payment reserve
Other reserves
Accum-ulated losses
Attribut-able
to the
parent
Non- controll-ing interest
Total
Balance at 1 July 2018 (audited)
16,722
-
1,203
40
(7,548)
10,417
(39)
10,378
Total comprehensive expense
Total comprehensive loss
-
-
-
-
(2,979)
(2,979)
(217)
(3,196)
Transactions with owners
Issue of shares during the period
2,049
-
-
-
-
2,049
-
2,049
Share placing transaction costs
(173)
-
-
-
-
(173)
-
(173)
Fair value of employee share options
-
-
(2)
-
130
128
-
128
FX on translation
-
-
-
7
-
7
-
7
Balance at 31 December 2018 (unaudited)
18,598
1,201
47
(10,397)
9,449
(256)
9,193
Total comprehensive expense
Total comprehensive loss
-
-
-
-
(8,643)
(8,643)
(568)
(9,211)
Transactions with owners
Issue of shares during the period
301
-
-
-
-
301
-
301
Share placing transaction costs
(42)
-
-
-
-
(42)
-
(42)
Shares issued to settle convertibles
1,199
-
-
-
-
1,199
-
1,199
Shares to be issued to settle convertibles
-
1,375
-
-
-
1,375
-
1,375
Share options issued as cost of convertible
-
-
499
-
-
499
-
499
Fair value of employee share options
-
-
64
-
-
64
-
64
FX on translation
-
-
-
(7)
-
(7)
-
(7)
Balance at 30 June 2019 (audited)
20,056
1,375
1,764
40
(19,040)
4,195
(824)
3,371
Total comprehensive expense
Total comprehensive loss
-
-
-
(1,832)
(1,832)
(100)
(1,932)
Transactions with owners
Issue of shares during the period
4,582
-
-
-
4,582
-
4,582
Shares issued to settle convertibles & creditors
2,111
(1,375)
-
-
-
736
-
736
Shares issued to settle remuneration
185
-
-
-
-
185
-
185
Share placing transaction costs
(321)
-
-
-
-
(321)
-
(321)
Fair value of employee share options
-
-
7
-
-
7
-
7
Reclassification of losses from minority interest
-
-
-
-
(31)
(31)
32
1
FX on translation
-
-
-
3
-
3
-
3
Balance at 31 December 2019 (unaudited)
26,613
-
1,771
43
(20,903)
7,524
(892)
6,632
Notes to the Condensed Financial Statements
Six months ended 31 December 2019
1. General information
Rainbow Rare Earths Limited (the 'Company', together with its subsidiaries the 'Group'), is incorporated in Guernsey as a non-cellular company limited by shares. The address of the registered office is c/o Trafalgar Court, Admiral Park, St Peter Port, Guernsey GY1 3EL. The nature of the Group's operations and its principal activities are set out in the CEO Statement and the Financial Review.
The financial information for the year ended 30 June 2019 does not constitute the audited statutory accounts, but has been extracted from those accounts. The report did not include reference to matters to which the auditors drew attention by way of emphasis.
This Half Yearly Report has not been audited or reviewed.
A copy of this Half Yearly Report has been published and may be found on the Company's website at www.rainbowrareearths.com
2. Basis of preparation
The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards ('IFRS') as issued by the International Accounting Standards Board ('IASB') and as adopted by the European Union ('EU'). These Condensed Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting.
The same accounting policies and methods of computation are followed in the condensed interim financial statements as were followed in the most recent annual financial statements of the Group, which were published on 30 October 2019.
The Group has reviewed newly effective IFRS Standards and notes that:
· IFRS 9 Financial Instruments has been implemented but has no material effect on the financial statements
· IFRS 15 Revenue Recognition was early adopted for the audited financial statements for the year ended 30 June 2018
· IFRS 16 Leases has been adopted, however as the Company has no material leases other than short-term, the impact of this standard is immaterial.
(a) Going concern
The Directors have continued to use the going concern basis in preparing these condensed financial statements. The Group's business activities, together with the factors likely to affect future development, performance and position are set out in the CEO Statement. The financial position of the Group, its cash flow and liquidity position are described in the Financial Review.
The Group's cash balance at 31 December 2019 was US$553k (30 June 2019: US$119k).
The Company is currently loss-making, and while operational improvements are expected in the coming months, the Gakara project is not expected to become break-even at project level until later in 2020. Until that time, the Company will require working capital to fund corporate costs and production losses, believed to be approximately US$1-2 million.
In addition, the Company is in the process of defining an exploration and expansion programme, that includes drilling and test work at Kiyenzi (and other sites), investing in an on-site laboratory and other improvements at the Kabezi facility, completing JORC Resource work (at least two phases) and commencing work on a feasibility study for a larger operation at Gakara. The scope of this work is being set out, however the cost over the coming 12 months is expected to be between US$3-6 million, depending on the extent of work, and the funding available.
The Company is in discussion with a number of potential investors and financiers, and is confident that a finance package will be put in place in the coming weeks that will ensure the Company is fully funded for at least the next 12 months, while avoiding unnecessary dilution of shareholders as far as possible as a result of the prevailing low share price.
This confidence is based on the track record of the Company in raising funds in the past, and the nature of the discussions with potential investors, who share the Board's view of the prospects of the Company and the RE market in general.
The recent impact of coronavirus on the financial markets has clearly made the securing of funding more challenging. The Board is aware that it may be necessary to stage financing over a longer period in order to ensure the best terms are secured, and to minimise shareholder dilution wherever possible. It may also be necessary to take mitigating actions to minimise cash outflows, including delaying and deferring discretionary or development activities.
In the event of the requirement to suspend activities at the Gakara mine, the Company would look to minimise operating expenditure, and the Board has confidence that doing so would not impact the longer-term value of the Company, which is based on the wider strategy around delivering a much larger operation. The Board therefore believes that such an action would not in itself increase the risk of obtaining funding, and that its outgoings in the near term could be reduced significantly to preserve cash balances.
The Company also notes that it has received financial support from its Chairman (A Pouroulis) as well as more recently its CEO G Bennett (a US$1 million unsecured facility). This provides evidence that the Company has a supportive investor base, which has proved willing, in the past, to provide funding to ensure the continued activity of the Company.
No financing package can be considered certain until it has been formally signed. Accordingly, the need for additional financing represents a material uncertainty that casts doubt over the ability of the Company to continue as a Going Concern. Nevertheless, the Board's confidence means that it has a reasonable expectation of the Company's ability to continue as a Going Concern, and therefore has adopted this basis for reporting these interim results for the six months to 31 December 2019.
(b) Impairment at Gakara
The Company reviews its non-current assets at each reporting date to determine whether an impairment might be necessary. In accordance with accounting policies, should such an indication exist, then the Company would estimate the recoverable amount of the asset or, where applicable, the cash generating unit to which it belongs. The recoverable amount is assessed by reference to the higher of 'value in use' (being the net present value of expected future cash flows of the relevant cash generating unit) and 'fair value less cost to sell'.
At 30 June 2019, the Directors concluded that that the previous method of focussing on high-grade veins was unlikely to be profitable in the foreseeable future, and that although mining was to continue in the near term, this was primarily to reduce operating losses to a minimal level in order to conserve cash, while the Company proceeded with exploration and other test work in order to define a larger, lower-grade resource and bulk mining operation
Management thus considered this change in outlook to be an indicator of potential impairment in respect of the carrying values of the processing plant at Kabezi, and the Gasagwe and Murambi pits, whose profitability was predicated on mining and processing high grade ores. The carrying values of assets associated with these areas of operations were written down to nil at 30 June 2019.
The Directors do not consider there to be any indications since this time that the value of the remaining assets (which relate to the project as a whole) should be impaired, on the basis that the orebody is believed to be large in scale and likely to be economically mineable. Work is currently ongoing with a view to determining the scale of the deposit (and reporting a JORC-compliant Resource), as well as completing a feasibility study for a much larger, lower-grade plant.
(c) Transfer of non-current assets from property, plant and equipment to exploration and evaluation
On 1 July 2018, the Gakara project was determined by the Board to have reached commercial production, on the basis that the initial preparatory work had been substantially completed, the plant had been constructed and was fully functional, and production levels, while below target, were expected to increase further as mining continued into the initial mining areas.
The fall in productivity in the latter part of 2018 and into 2019 caused the Board to revisit the operating strategy of the project. The Board has since concluded that production from the mine as initially designed was likely to be considerably lower than initial expectations, and in fact more appropriately described as trial mining, with the Kabezi treatment plant to be considered a pilot plant.
The costs capitalised in respect of the project as a whole are therefore now considered exploration and evaluation in nature, particularly as a considerable amount of work is to be undertaken to understand the orebody and to design and build a larger, lower-grade processing plant in the future.
As a result, US$6.2 million of property, plant and equipment was reclassified to exploration and evaluation in the balance sheet at 1 July 2019, and no further depreciation was charged in respect of these assets in the period. These assets will now be accounted for in accordance with IFRS 6.
(d) Dividend
The Directors do not recommend the payment of a dividend for the period (31 December 2018: US$nil; 30 June 2019: US$nil).
3. Loss per ordinary share
Loss per ordinary share is calculated by dividing the net loss for the period attributable to Ordinary equity holders of the parent by the weighted average number of Ordinary shares outstanding during the period.
The Company was loss making for all periods presented, therefore the dilutive effect of share options has not been taken account of in the calculation of diluted earnings per share, since this would decrease the loss per share for each of the period reported.
The calculation of the basic loss per share is based on the following data:
Six months to 31 December 2019
Six months to 31 December 2018
12 months to 30 June 2019
Unaudited
Unaudited
Audited
Loss attributable to the owners of the Company
US$'000
US$'000
US$'000
The loss for the period attributable to ordinary equity holders of the parent company
(1,832)
(2,979)
(11,492)
Number
Number
Number
Number of Shares
'000
'000
'000
Weighted average number of Ordinary shares for the purposes of basic and diluted loss per share
366,874
184,603
193,844
Loss per Ordinary share
Cents
Cents
Cents
Basic
(0.50)
(1.61)
(5.93)
Diluted
(0.50)
(1.61)
(5.93)
4. Property, plant, and equipment
US$'000
Mine development costs
Plant & machinery
Vehicles
Office equipment
Mine restoration
Total
Cost
At 1 July 2019
7,788
430
709
41
10
8,978
Additions
284
-
398
7
-
689
Disposals
-
-
(5)
-
-
(5)
Transferred to exploration and evaluation assets
(8,072)
-
-
-
-
(8,072)
At 31 December 2019
-
430
1,102
48
10
1,590
Depreciation
At 1 July 2019
1,981
430
142
7
10
2,570
Charge for period
-
-
72
4
-
76
Transferred to exploration and evaluation assets
(1,981)
-
-
-
-
(1,981)
At 31 December 2019
-
430
214
11
10
665
Net Book Value at 31 December 2019
-
-
888
37
-
925
Net Book Value at 30 June 2019
5,807
-
567
34
-
6,408
US$'000
Mine development costs
Plant & machinery
Vehicles
Office equipment
Mine restoration
Total
Cost
At 1 July 2018
7,791
2,665
709
24
60
11,249
Additions
1,136
2
-
17
-
1,155
At 30 December 2018
8,927
2,667
709
41
60
12,404
Depreciation
At 1 July 2018
-
-
-
-
-
-
Charge for period
(1,329)
(279)
(71)
(3)
(7)
(1,689)
At 30 December 2018
(1,329)
(279)
(71)
(3)
(7)
(1,689)
Net Book Value at 31 December 2018
7,598
2,388
638
38
53
10,715
Net Book Value at 30 June 2018
7,791
2,665
709
24
60
11,249
5. Inventory
US$'000
Balance at 31 December 2019
Balance at 31 December 2018
Balance at 30 June 2019
Unaudited
Unaudited
Audited
WIP
73
60
95
Consumables
5
32
3
Total inventory
78
92
98
WIP (Work in Progress) represents approximately 66 tonnes of bagged concentrate awaiting exportation as at 31 December 2019. Stockpile movement of US$22k in the Income Statement reflects the movement on this balance since 30 June 2019.
Consumables mainly relates to fuel stocks held at the period end.
6. Prepayments
US$'000
Balance at 31 December 2019
Balance at 31 December 2018
Balance at 30 June 2019
Unaudited
Unaudited
Audited
Non-current prepayment
389
-
-
Current prepayments
327
294
389
Total prepayments
716
294
389
Non-current prepayments relate to advance payments for the purchase of five haul trucks and a grader as at 31 December 2019.
Current prepayments relate to prepaid operating expenses and include US$280k in respect of government royalty payments of 4% which have been paid based on the total basket price of exports, rather than on the discounted price received from the Company's customer TK. These amounts have been recorded as prepayments on the basis that Rainbow believes that they will be offset against future royalty payments, in particular in view of the recommendations of a report published in July 2019 by SRK, commissioned by the World Bank at the request of Rainbow and the government, into the reasonableness of the discount received by Rainbow.
7. Trade and other payables
US$'000
Balance at 31 December 2019
Balance at 31 December 2018
Balance at 30 June 2019
Unaudited
Unaudited
Audited
Trade payable
251
495
1,074
Accrued expenses
236
240
358
Payroll and other taxes
6
34
82
Amounts due to staff and management
27
294
517
Pension contributions
-
-
3
Other payables
43
55
63
Total trade and other payables
563
1,118
2,097
Trade payables and accrued expenses relate to the ongoing operating costs of the mine. These included US$100k in respect of the rental of mining equipment, US$67k for technical and professional mining consulting, and US$84k for consumables, equipment, and other running costs.
The average terms for trade and other payables are 30 days.
The Directors consider that the carrying value of trade and other payables approximate to their fair value.
8. Provisions
US$'000
Balance at 31 December 2019
Balance at 31 December 2018
Balance at 30 June 2019
Unaudited
Unaudited
Audited
Rehabilitation provision
100
60
100
Total trade and other payables
100
60
100
Rehabilitation provisions relate to the anticipated cost of restoring the operating sites at Kabezi, Gasagwe and Murambi. The provision is normally revised at year end, and no amounts were spent on rehabilitation during the period.
9. Borrowings
US$'000
Balance at 31 December 2019
Balance at 31 December 2018
Balance at 30 June 2019
Unaudited
Unaudited
Audited
Bank borrowings (Finbank)
795
921
836
Pella Convertible
-
-
704
Other borrowings
22
24
22
Total borrowings
817
945
1,562
Borrowings of US$0.8 million (30 June 2019: US$1.6 million, and 31 December 2018: US$0.9 million) were predominantly made up of a US$0.8 million (1.3 billion BIF) facility with Finbank Ltd, the Company's bankers in Burundi.
The Finbank facility had previously been in the form of an overdraft, however was converted into a loan in the period. The facility is denominated in Burundian Francs (BIF), and is secured over the mining and plant assets of the Gakara project. Interest on this facility is charged at 14%.
US$0.7m of the facility was classified as non-current at 31 December 2019 as it related to repayments not due for more than 12 months. All other borrowings in this and prior periods were classified as current liabilities.
Borrowings at 30 June 2019 included US$0.7 million in respect of an unsecured bridge funding facility (the Pella Convertible) of US$0.7 million announced in May 2019, between the Company and Pella Ventures Limited (an entity in which Adonis Pouroulis, Rainbow's chairman and largest shareholder, has a beneficial interest).
Pella Ventures Limited advanced US$0.7 million to the Company in June for a period of up to 12 months at an interest rate of 15% per annum from drawdown. The terms of the loan agreement dated 7 May 2019 provided that the principal amount of US$700k and the outstanding interest (US$4k) would convert into new Ordinary Shares on the same terms as apply to the next equity fundraising undertaken by the Company. The loan was initially recorded at the proceeds received, net of costs. Subsequently, the host liability was recorded at amortised cost with the derivative associated with the variable number of shares that would be issued on conversion as a derivative. However, the fair value of the derivative was insignificant at 30 June 2019 given the terms of the instrument and proximity to year end.
Following the completion of that placing in July 2019, the Pella Ventures Convertible converted into 18,636,040 new Ordinary Shares.
10. Share capital
On 3 July 2019, the Company concluded a placing of 163,975,884 at a price of 3 pence per share for net proceeds of US$4.2 million.
121,207,778 new shares were issued for gross funds of US$4.6 million, including 333,333 shares for US$13k to A Lowrie, a director of the Company, as well as 26,455,026 shares for US$1.0 million to a beneficiary of G Bennett, who was appointed a director of the Company on 27 August 2019.
4,859,603 shares were also allotted in satisfaction of US$184k of outstanding remuneration and fees to directors and senior management.
17,843,891 shares were issued to Lind Partners in settlement of the final balance of the Lind Convertible, while 18,636,040 shares were issued to Pella Ventures Ltd (a beneficiary of A Pouroulis) in settlement of the US$0.7 million convertible loan drawn down in June 2019.
1,428,572 shares were allotted in settlement of other liabilities.
All shares were issued at a value of 3 pence per share.
Commission and other fees totalled US$321k, and net cash proceeds of the raise amounted to US$4.3 million, with liabilities and other obligations valued at US$2.3 million also settled in shares.
Shares
Cash
Other amounts settled
Total
US$'000
US$'000
US$'000
1 July 2019 - issued share capital
216,339,000
20,056
Placings for cash
George Bennett (prior to appointment as Director)
26,455,026
1,000
-
1,000
Alex Lowrie
333,333
13
-
13
Others
94,419,419
3,569
-
3,569
Total raised for cash
121,207,778
4,582
-
4,582
Amounts in settlement of outstanding remuneration and fees
Adonis Pouroulis
472,222
-
18
18
Shawn McCormick
305,555
-
12
12
Robert Sinclair
305,555
-
12
12
Atul Bali
305,555
-
12
12
Martin Eales
1,182,563
-
45
45
Jim Wynn
844,688
-
32
32
Cesare Morelli
640,315
-
24
24
Gilbert Midende
803,150
-
30
30
Total to settle outstanding remuneration and fees
4,859,603
-
185
185
Amounts to settle convertible loans and other obligations
Lind Partners1
17,843,891
-
1,375
1,375
Pella Ventures Ltd (A Pouroulis)
18,636,040
-
704
704
Others
1,428,572
-
32
32
Total to settle convertible loans and other liabilities
37,908,503
-
2,111
2,111
Total allotment
163,975,884
4,582
2,296
6,878
Less: commission
(78)
-
(78)
Other transaction costs
(243)
-
(243)
Net movement
163,975,884
4,261
2,296
6,557
31 Dec 2019 - issued share capital
380,314,884
26,613
1 - 17,843,891 shares were allotted to Lind Partners as the final settlement of a convertible facility (the Lind Convertible). The valuation at the time of conversion was fixed at US$1,375k and recognised as shares to be issued, whereas the value of these shares based on a share price of 3 pence (the subscription price for the rest of this placing) was US$674k.
11. Related party transactions
US$'000
Six months to 31 Dec 2019
Six months to 31 Dec 2018
Year to 30 June 2019
Charged in period
Settled in period
Balance at 31 Dec 2019
Charged in period
Settled in period
Balance at 31 Dec 2018
Charged in year
Settled in period
Balance at 30 Jun 2019
Artemis Trustees Limited
(R Sinclair) - Company
secretarial services
16
(24)
8
16
(8)
8
32
(16)
16
Gilbert Midende - rental
of land for plant site and
accommodation
20
(40)
-
21
(14)
9
43
(25)
20
Pella Ventures Limited
(A Pouroulis) - convertible
loan
-
(704)
-
-
-
-
704
-
704
Uvumbuzi Resources
Limited (C Morelli) -
exploration services
-
-
-
38
(38)
-
38
(38)
-
Benzu Minerals (C Morelli)
- exploration services
105
(140)
-
45
(30)
15
90
(55)
35
141
(908)
8
120
(90)
32
907
(134)
775
The above table does not include remuneration of Directors and senior management
Artemis Trustees Limited, in which R Sinclair holds an interest, provided company secretarial services, which were settled in cash, together with balances due in respect of historic invoices, during the period.
G Midende provided accommodation for staff as well as land at Kabezi for the plant site.
Uvumbuzi Resources Limited and Benzu Minerals, in which C Morelli holds an interest, provided exploration services to the Company during the period of US$105k.
All the balances due to related parties at the period end are intended to be settled in cash. All amounts due to related parties are unsecured.
12. Post balance sheet events
There were no post balance sheet events.
13. Capital commitments
The Company has no capital commitments
14. Contingent liabilities
There were no contingent liabilities at 31 December 2019 (30 June 2019: nil, and 31 December 2018: nil).
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDIR EANDXADLEEFA
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