REG - Rainbow Rare Earths - Interim Results for six months to 31 December 2021
17/03/2022 07:15
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RNS Number : 1114F Rainbow Rare Earths Limited 17 March 2022
Rainbow Rare Earths Limited
("Rainbow" or the "Company")
(LSE: RBW)
17 March 2022
Interim Results for the six months ended 31 December 2021
Rainbow is pleased to announce its unaudited results for the six months ended
31 December 2021 ("H1 2022", "the period").
Highlights
· The low-carbon technologies required to facilitate the green
revolution carry an intensive demand for minerals; accelerated by evolving
emissions legislation and targets, rare earths demand is expected to be driven
by growing electric vehicle production and offshore wind exploitation.
· Rainbow's rare earths basket prices have risen 80% during H1 2022,
significantly outstripping forecast price rises, driven by a 94% increase in
the reported price of Neodymium oxide.
· Exclusive intellectual property licencing agreement with
K-Technologies, Inc. to use its rare earths separation technology in the
Southern African Development Community region, focusing on recovering
separated magnet rare earth oxides from the Phalaborwa project in South
Africa.
· Positive test work results at Phalaborwa indicate:
o strong recoveries via a simple acid leaching process expected to allow
65-70% of the rare earths contained in the Phalaborwa gypsum stacks to be
recovered in solution;
o low capital and operating costs expected compared to a traditional hard
rock rare earth mining project, with hydraulic reclamation of the gypsum
stacks to the processing facility eliminating costs traditionally associated
with primary mining, crushing and griding of ore, and low-cost reagents
available locally to the project;
o optimisation opportunities identified to further reduce capital and
operating costs with trade-off studies under way;
o flexibility in terms of project development allowing a mixed rare earth
carbonate to be initially produced if required at a lower up front capital
cost; and
o environmental benefits identified from the very low levels of radioactive
elements associated with the gypsum stacks and the ability to treat and use
the existing water from the stacks as the bulk of the process water in a
closed circuit.
· Rainbow's shareholding in Phalaborwa was confirmed at 70%, removing
any downside uncertainty concerning the potential to dilute the Company's
Joint Venture share, as well as assuring a material share in future revenue.
· Gross proceeds of £6.435 million raised through a placing and
subscription from Techmet Limited and other global institutional investors.
· Gakara remains on care and maintenance, with short-term cash
requirements minimised - Rainbow looks forward to further constructive
engagement with all stakeholders to allow trial mining and processing
operations to recommence.
George Bennett, CEO, said: "The escalating urgency to tackle climate change is
revealing a number of challenges, including a supply deficit of the raw
materials required to drive the clean energy transition and a need to
diversify the supply chain. With our near-term development opportunity at
Phalaborwa in South Africa, we believe Rainbow is well positioned to
contribute to this global effort by providing a responsible, Western source of
rare earth oxides, critical minerals for the permanent magnets used in
offshore wind generation, electric vehicles, mobile phones, electric scooters,
bicycles, and other green technologies.
We have reached an important stage at Phalaborwa following the recent test
work carried out and are working hard to explore all the optimisation
opportunities and define the optimised process flow sheet. With the right team
in place, I believe we are in a strong position to move forward and realise
the full value of this exciting asset for our stakeholders."
Market Abuse Regulation ("MAR") Disclosure
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law
by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is
disclosed in accordance with the Company's obligations under Article 17 of
MAR.
For further information, please contact:
Rainbow Rare Earths Ltd Company George Bennett +27 82 652 8526
Pete Gardner
SP Angel Corporate Finance LLP Broker Ewan Leggat +44 (0) 20 3470 0470
Charlie Bouverat
Tavistock Communications Limited PR/IR Charles Vivian +44 (0) 20 7920 3150
Tara Vivian-Neal rainbowrareearths@tavistock.co.uk
Notes to Editors:
Rainbow's strategy is to become a globally significant producer of rare earth
metals. Nd/Pr and Dy are vital components of the strongest permanent magnets
used for the motors and turbines driving the green technology revolution.
Analysts are predicting demand for magnet rare earth oxides will grow
substantially over the coming years, driven by increasing adoption of green
technology, pushing the overall market for Nd/Pr and Dy into deficit.
The Phalaborwa Rare Earths Project, located in South Africa, comprises an
Inferred Mineral Resource Estimate of 38.3Mt at 0.43% TREO contained within
gypsum tailings stacked in unconsolidated stacks derived from historic
phosphate hard rock mining. High value NdPr oxide represents 29.1% of the
total contained rare earth oxides, with economic Dysprosium and Terbium oxide
credits enhancing the overall value of the rare earth basket in the stacks.
The rare earths are contained in chemical form in the gypsum stacks, which is
expected to allow high-value separated rare earth oxides to be produced with
lower operating costs than a typical rare earth mineral project.
The Company's Gakara Project in Burundi has produced one of the highest-grade
rare earth concentrates in the world (typically 54% total rare earths oxides
("TREO")) through trial mining operations. The Gakara basket is weighted
heavily towards Nd/Pr, which account for approximately 19.5% of the contained
TREO and 85% of the value of the concentrate. The Gakara project is currently
on care and maintenance at the request of the Government of Burundi.
CEO Review
The shift away from fossil fuels toward the greater utilisation of renewable
energies and widespread adoption of green technology is essential for the
planet's future. However, the low-carbon technologies required to drive the
green revolution carry an intensive demand for minerals.
Central to this demand are rare earth elements ("REEs") - in particular,
Neodymium, Praseodymium (together "NdPr") and Dysprosium - which are used to
make compact, high-strength permanent magnets employed in hybrid and electric
vehicles ("EVs") and wind turbines. These permanent magnets also have
specialist uses in the aerospace and defence industries. According to the
International Energy Agency ("IEA"), REEs may see three to seven times higher
demand by 2040 when compared to 2021. 1
With no acceptable substitutes for NdPr in permanent magnets, we anticipate
strong demand for these rare earth elements driven by increasingly ambitious
government targets and evolving global emissions legislation, particularly in
the wake of the United Nations Climate Change Conference ("COP26") at the end
of 2021. With REE separation and refining plants predominantly located in
China (accounting for a 90% market share of the rare earths refining market in
2019(( 2 ))), Rainbow is one of the few companies operating in other parts of
the world.
This demand growth stands in contrast to a scarcity of new economic project
development opportunities, which drive increasing pressure on rare earths
supply. As a result, REE prices have risen considerably, with Rainbow's
typical basket prices for both the Gakara and Phalaborwa projects increasing
by 80% in H1 2022 and continuing to escalate after the period end. This was
driven by a 94% increase in the reported price for Nd oxide and a 67% increase
in the reported price of Pr oxide. Many analysts are predicting continued high
prices throughout 2022 and beyond, given the tension between supply and
demand.
We believe that, with its near-term development opportunity at Phalaborwa,
Rainbow is in a pivotal position to provide the foundational materials
required to advance this clean technology and the green revolution. Phalaborwa
can be brought into production quickly, with low capital and operating
expenditure, in an environmentally responsible manner to deliver a high-grade
oxide.
Operational update
Phalaborwa
The Phalaborwa Rare Earths Project, located in South Africa, comprises an
Inferred Mineral Resource Estimate of 38.3 million tonnes at 0.43% TREO
contained within gypsum residue stacked in unconsolidated stacks derived from
historic phosphate hard rock mining. In January 2022, we signed an agreement
confirming Rainbow's shareholding in the Phalaborwa Joint Venture at 70%, with
the remaining 30% held by Bosveld Phosphates (Pty) Ltd. This amendment removes
any downside uncertainty concerning the potential to dilute the Company's
share within the Joint Venture, assuring Rainbow's material share in future
revenue.
High-value NdPr oxide represents 29.1% of the total contained rare earth
oxides, with economic Dysprosium (Dy) and Terbium (Tb) oxide credits enhancing
the overall value of the rare earth basket contained in the stacks.
Phalaborwa's NdPr grade is substantially higher than a typical low-cost ionic
clay rare earth project, much closer to traditional hard rock style deposits.
However, due to the unique nature of the project, with the rare earths
contained in a 'cracked' chemical form in the phosphogypsum, no significant
costs associated with mining, crushing and grinding, or chemical cracking of
the underlying rare earth minerals are required, comparing favourably with
other projects.
In September 2021, we entered into an exclusive intellectual property ("IP")
licencing agreement with K-Technologies, Inc. ("K-Tech"), the processing
technology developer located in Lakeland, Florida, USA, to use its rare earths
separation technology in the Southern African Development Community ("SADC")
region. We believe that this agreement provides Rainbow with a significant
competitive advantage and that the IP is ideally suited to Phalaborwa, where
it would enable us to focus on the separation of only the most valuable rare
earth oxides within the basket, namely NdPr, Dy and Tb, which are all critical
building blocks for the green revolution.
Post year-end, positive results were received from the ongoing phased test
work programme, which is being conducted in conjunction with ANSTO Minerals in
Australia, a world-leading critical and strategic metals processing expert
("ANSTO"), and K-Tech. The K-Tech purification and separation desktop study
has confirmed the ability to participate further downstream in the value chain
and produce separated NdPr oxide, Dy oxide and Tb oxide on site with
99.5-99.9% purity from the leach solution, providing a 47% increase in revenue
over the expected sales price for a mixed rare earth carbonate.
Test work has also indicated strong recoveries and optimisation opportunities
and continues to underscore Phalaborwa's robust fundamentals. Potential for
capital and operating cost savings have been identified, with flexibility for
phased project development if required providing versatility: the K-Tech study
has shown that a cerium-depleted mixed rare earth carbonate could be produced
at Phalaborwa as an initial phase if required at a lower up-front capital
cost.
The studies have also highlighted the significant environmental benefits of
the project, which include very low levels of radioactivity (exempting
Phalaborwa from radioactivity regulation) and the ability to neutralise the
existing water from the stacks for reuse in a closed circuit as plant process
water. In processing material from the existing gypsum stacks at Phalaborwa,
we aim to deliver a clean rare earths project, removing existing environmental
liabilities and redepositing benign gypsum on a new stack, built according to
International Finance Corporation ("IFC") Performance Standards and Equator
Principles.
The test work results are enabling us to develop an economic rare earths
extraction flowsheet as part of the ongoing work on the Preliminary Economic
Assessment ("PEA"). The next phase of the test work programme, which includes
several trade-off and project optimisation studies, is progressing.
Despite some bottlenecks relating to covid restrictions at international
laboratories, which have delayed some of our metallurgical analysis results,
we have achieved considerable progress at this asset since Rainbow secured the
project in December 2020. By getting this stage of process flow sheet
definition right we will realise the full value of Phalaborwa and develop a
responsible, independent Western rare earths supply chain.
Gakara
Rainbow's Gakara Project is one of the world's richest rare earth deposits,
with trial mining and processing carried out since 2017 demonstrating the
deposit's amenability to simple open pit mining and low-cost gravity
separation from ore sourced from high-grade stockwork vein systems across the
licence area. Gakara produces a high-value rare earth concentrate of 52-58%
TREO, with low levels of radioactivity. NdPr represents approximately 85% of
the overall basket value, at only 19.5% of the mass.
Gakara was placed on care and maintenance in June 2021 at the request of the
Government of Burundi, with the majority of staff placed on suspension. At 31
December 2021, to comply with Burundi legislation, suspended staff contracts
were terminated and short-term cash requirements minimised. Rainbow looks
forward to further constructive engagement with all stakeholders to allow
trial mining and processing operations to recommence.
Corporate
Rainbow successfully raised gross proceeds of £6.435 million through a
placing and subscription of new ordinary shares of no par value each in the
Company ("Ordinary Share") in October 2021 (the "Placing"), and we were
delighted to welcome new institutional shareholders alongside TechMet Limited
("TechMet") in the Placing. With its stringent investment criteria and its
goal to secure the critical metals for the global technology revolution, the
substantial investment by TechMet, which counts the U.S. government as a major
investor, represented a significant development for the Company. We also
continue to be encouraged by the sustained strong support of existing
shareholders.
I firmly believe that we have the right people in place at Rainbow to take
Phalaborwa's development forward, with significant experience throughout the
asset lifecycle from optimisation, feasibility and development to plant
construction and commissioning. As a team, we have led numerous projects
through this vital phase and recognise the enormous benefits of implementing
the correct trade-offs and optimising to the greatest extent possible to
deliver a successful result.
With our near-term development opportunity at Phalaborwa, we believe Rainbow
is ideally positioned to contribute to a responsible, Western source of rare
earths to drive the global green energy transition.
George Bennett
Chief Executive Officer
Financial Review
The six months ended 31 December 2021 have seen a focus on the definition of
the Phalaborwa project processing flowsheet. Exploration and Evaluation
expenditure totalling US$294k was capitalised in the period primarily relating
to test work undertaken at international laboratories and the management
thereof by the Rainbow team to understand the optimal economic methodology for
the extraction of separated rare earth oxides from the gypsum residue.
At Gakara, operations remained on care and maintenance throughout the period
at the direction of the Government of Burundi. As a result, no costs have been
capitalised relating to the project in the period, with expenditure totalling
US$810k recognised on the income statement for H1 2022. In the comparative
period in H1 2021, Burundi costs totalled US$1,311k, with US$268k of
administration costs recognised in the income statement, and a further US$516k
capitalised to exploration and evaluation assets net of US$527k export
revenue. Costs in the current period include US$128k recognised for the
retrenchment of staff following a period of employment contract suspension
since July 2021. With these retrenchments, the care and maintenance costs at
Gakara have now been minimised, with a small team remaining to ensure the
equipment at the site remains in good order and to manage the ongoing
administration. In line with the International Financial Reporting Standards
requirements, depreciation totalling US$173k has been recognised for the idle
mining and processing equipment during the period.
The Group's corporate costs grew in the six months ended 30 June 2021 from a
low base. With the expected fast track development of Phalaborwa, the
administrative structures for the Group are being strengthened, and a new head
office function is being set up in South Africa. Total expenditure of US$970k
(excluding US$154k share option costs) in the six months ended 31 December
2021 is significantly higher than US$561k in the period ended 31 December
2020, as set out in note 3 to the interim financial statements. However, it
was in line with the costs incurred in the period from 1 January to 30 June
2021 (US$971k excluding US$554k share option costs).
During the period, the Group significantly strengthened its balance sheet,
raising US$8.5 million, net of costs, at a price of 15 pence per new Ordinary
Share. This funding has allowed the Pipestone loan to be fully repaid,
including accrued interest, via US$886k cash and US$175k equity at 15p per new
Ordinary Share. This has left a closing bank balance of US$6.4 million at 31
December 2021, with the sole remaining long-term financial liability being the
US$0.6 million FinBank loan in Burundi, on which capital repayments are
currently being deferred. The current cash balance is expected to allow the
Preliminary Economic Assessment for the Phalaborwa project to be delivered
following a period of process flow sheet definition and optimisation. Once
this phase of work is completed at Phalaborwa, a timetable and budget for the
Definitive Feasibility Study, including necessary on-site pilot test work,
will be prepared, allowing the longer-term financing strategy for the Group to
be set out with greater precision.
Cautionary Statement:
The business review and certain other sections of this interim 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, underlying
any such forward-looking information and no statement should be construed as a
profit forecast.
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 Interim Report has been approved by the Board and signed on its behalf
by:
George Bennett
Chief Executive Officer
16 March 2022
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 31 December 2021
6 months ended 6 months ended
31 December 2021
31 December 2020
Notes US$'000 US$'000
Unaudited Unaudited
Revenue - 527
Production and sales costs - (527)
Gross loss - -
Administration expenses 3 (1,934) (829)
Loss from operating activities (1,934) (829)
Finance income - 249
Finance costs (168) (310)
Loss before tax (2,102) (890)
Income tax expense (5) (5)
Total loss after tax and comprehensive expense for the period (2,107) (895)
Total loss after tax and comprehensive expense for the period is attributable
to:
Non-controlling interest (56) (7)
Owners of parent (2,051) (888)
(2,107) (895)
Loss per share (cents)
Basic 4 (0.42) (0.21)
Diluted 4 (0.42) (0.21)
The results of each period are derived from continuing operations.
Condensed Consolidated Statement of Financial Position
As at 31 December 2021
As at As at As at
31 December 2021
30 June
31 December 2020
2021
Notes US$'000 US$'000 US$'000
Unaudited Audited Unaudited
Non-current assets
Exploration and evaluation assets 5 10,045 9,751 8,909
Property, plant and equipment 6 1,220 1,354 1,081
Right of use assets 68 70 93
Total non-current assets 11,333 11,175 10,083
Current assets
Inventory 864 863 227
Trade and other receivables 414 441 630
Cash and cash equivalents 6,371 573 2,494
Total current assets 7,649 1,877 3,351
Total assets 18,982 13,052 13,434
Current liabilities
Trade and other payables 7 (990) (1,009) (610)
Borrowings 8, 2b (178) (1,231) (1,175)
Lease liabilities (18) (14) (27)
Total current liabilities (1,186) (2,254) (1,812)
Non-current liabilities
Borrowings 8 (749) (662) (622)
Lease liabilities (52) (69) (86)
Provisions (61) (61) (100)
Total non-current liabilities (862) (792) (808)
Total Liabilities 2b (2,048) (3,046) (2,620)
NET ASSETS 16,934 10,006 10,814
Equity
Share capital 9, 2b 41,345 32,465 31,686
Share based payment reserve 1,375 1,295 1,260
Other reserves 2b 60 60 60
Retained loss 2b (24,854) (22,878) (21,301)
Equity attributable to the parent 2b 17,926 10,942 11,705
Non-controlling interest (992) (936) (891)
TOTAL EQUITY 16,934 10,006 10,814
Condensed Consolidated Cash Flow Statement
For the six months ended 31 December 2021
6 months ended 6 months ended
31 December 2021
31 December 2020
US$'000 US$'000
Unaudited Unaudited
Cash flow from operating activities
Loss from operating activities (1,934) (829)
Adjustments for:
Depreciation 187 28
Share-based payment charge 154 -
Operating loss before working capital changes (1,593) (801)
Net (increase)/decrease in inventory (1) 7
Net decrease/(increase) in other receivables 27 (251)
Net (decrease) in trade and other payables (16) (338)
Cash used by operations (1,583) (1,383)
Realised foreign exchange gains 76 219
Finance costs (43) (8)
Taxes paid (2) (5)
Net cash used in operating activities (1,552) (1,177)
Cash flow from investing activities
Purchase of property, plant & equipment (44) (264)
Exploration and evaluation costs (294) (797)
Net cash used in investing activities (338) (1,061)
Cash flow from financing activities
Proceeds of new borrowings - 275
Repayment of borrowings (885) (390)
Interest payments on borrowings (43) (70)
Payment of lease liabilities (17) (14)
Proceeds from the issuance of ordinary shares 8,962 4,198
Transaction costs of issuing new equity (257) (85)
Net cash generated by financing activities 7,760 3,914
Net increase in cash and cash equivalents 5,870 1,676
Cash & cash equivalents at the beginning of the period 573 788
Foreign exchange (loss)/gain on cash & cash equivalents (72) 30
Cash & cash equivalents at the end of the period 6,371 2,494
Condensed Consolidated Statement of Changes in Equity
For the six months ended 31 December 2021
Share capital Share- based Payments Share warrant reserve Other reserves Accumulated losses Attributable Non-controlling interest Total
to the
parent
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 1 July 2020 (audited) 28,132 1,099 40 60 (20,542) 8,789 (884) 7,905
Total comprehensive expense
Total comprehensive loss - - - - (888) (888) (7) (895)
Transactions with owners
Issue of shares during the period 3,423 - - - - 3,423 - 3,423
Share placing transaction costs (85) - - - - (85) - (85)
Phalaborwa consideration to be settled in equity - 250 - - - 250 - 250
Share option exercised in period, net of costs 216 (89) - - 89 216 - 216
Warrants expired in period - - (40) - 40 - - -
Balance at 31 December 2020 (unaudited, see note 2b) 31,686 1,260 - 60 (21,301) 11,705 (891) 10,814
Total comprehensive expense
Total comprehensive loss - - - - (1,802) (1,802) (45) (1,847)
Transactions with owners
Phalaborwa consideration settled in equity 250 (250) - - - - - -
Share option exercised in period, net of costs 529 (225) - - 225 529 - 529
Fair value of employee share options in the period - 510 - - - 510 - 510
Balance at 30 June 2021 (audited) 32,465 1,295 - 60 (22,878) 10,942 (936) 10,006
Total comprehensive expense
Total comprehensive loss - - - - (2,051) (2,051) (56) (2,107)
Transactions with owners
Issue of shares during the period 8,780 - - - - 8,780 - 8,780
Share placing transaction costs (239) - - - - (239) - (239)
Shares issued as partial settlement of Pipestone loan 175 - - - - 175 - 175
Costs associated with Pipestone loan settlement shares (18) - - - - (18) - (18)
Fair value of employee share options in the period - 155 - - - 155 - 155
Share option exercised in period, net of costs 182 (75) - - 75 182 - 182
Balance at 31 December 2021 (unaudited) 41,345 1,375 - 60 (24,854) 17,926 (992) 16,934
Notes to the Condensed Financial Statements
For the six months ended 31 December 2021
1. General information
Rainbow Rare Earths Limited (the 'Company' or 'Rainbow', together with its
subsidiaries the 'Group'), is a company limited by shares domiciled in
Guernsey, incorporated on 5 August 2011 with company registration number
53831. The Company's registered office is Trafalgar Court, Admiral Park, St
Peter Port, Guernsey. The nature of the Group's operations and its principal
activities are set out in the CEO and Financial Reviews.
The financial information for the year ended 30 June 2021 does not constitute
the audited statutory accounts but has been extracted from those accounts.
The report of the auditors on those accounts was unqualified.
This Interim 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
(http://www.rainbowrareearths.com)
2. Basis of preparation
These condensed consolidated interim financial statements for the 6 months
ended 31 December 2021 have been prepared in accordance with IAS 34 'Interim
Financial Reporting'. They do not include disclosures that would otherwise be
required in a complete set of financial statements and should be read in
conjunction with the 2021 Annual Report and Accounts.
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 27 October
2021. There are no newly effective IFRS Standards which have had an impact
on the financial statements.
(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 2021 was US$6,371k (30 June 2021:
US$573k). The Board have reviewed the Group's latest cash flow forecasts for
the period to 30 June 2023, including reasonably possible downside scenarios.
This has included the following assumptions:
· Forecast expenditure of US$2.6 million for ongoing general and
administrative costs of the Group over the 18-month period from 1 January 2022
to 30 June 2023, based on the current administrative cost base. The
reasonably possible downside scenario includes a 10% contingency for
unexpected costs.
· Estimated funding requirements of US$1.7 million for Phalaborwa,
of which US$0.5 million is committed. This includes ongoing process
definition test work, upgrading the resources from inferred to the measured
and indicated categories, and delivery of a Preliminary Economic Assessment
for the project. Due to the nature of the ongoing process definition work
actual costs and the timing of expenditure may differ to estimates. The
reasonably possible downside scenario includes all currently forecast costs,
including US$1.2 million not yet committed. The additional costs required to
complete a bankable feasibility study have been excluded from management's
base case forecasts and reasonably plausible downside scenarios as these
cannot be reliably forecast until the final processing flow sheet has been
defined.
· A continuation of care and maintenance for the Group's Gakara
project in Burundi at a total cash cost of US$0.8 million, including the
scheduled repayments of the US$0.6 million term loan from FinBank. In the
event that the Gakara project returns to operations, stock of rare earth
concentrate with an estimated gross sales value of US$1.8 million would be
sold to provide the funds to re-commence trial mining and processing
operations. The forecasts show that, with the current productive capacity of
the trial mining operations, the Gakara project would not require additional
financial support from Rainbow Rare Earths Limited at current rare earth
prices.
Based on management's reasonably plausible downside scenario outlined above
the Group will have US$1.0 million available at the end of the forecast
period. Accordingly, the Board are satisfied that the Group has sufficient
cash resources to continue its operations and meet its commitments for the
foreseeable future and have concluded that it is appropriate for the financial
statements to be prepared on a going concern basis.
(b) Adjustment of prior period
The unaudited interim accounts for the period ended 31 December 2020, as
originally published on 24 March 2021, indicated that US$89k was transferred
from the share-based payment reserve to share capital relating to share
options exercised in H2 2020. In the audited accounts for the year-ended 30
June 2022 the share-based payment reserve was transferred to retained
earnings, and the prior period balance sheet has been adjusted to reflect that
treatment.
In addition, the previously published interim accounts indicated that US$87k
was added to the other reserve representing a discount on the Pipestone Loan
in which George Bennett, the Company's CEO, had a beneficial interest. As
disclosed in the audited accounts for the year ended 30 June 2021 on
refinancing in December 2020 the loan bore interest and therefore a discount
was not required. The prior period balance sheet has been adjusted to
reflect that treatment.
The below table summarises the impact of the adjustment to the period ended 31
December 2019:
Original Adjustment Revised
US$'000 US$'000 US$'000
Unaudited Unaudited Unaudited
Consolidated Statement of Financial Position
Borrowings due within one year 1,088 87 1,175
Total liabilities 2,533 87 2,620
Share Capital 31,775 (89) 31,686
Other reserve 147 (87) 60
Retained earnings (21,390) 89 (21,301)
Equity attributable to the parent 11,792 (87) 11,705
(c) Dividend
The Directors do not recommend the payment of a dividend for the period (six
months ended 31 December 2020: US$nil, six months ended 30 June 2021: US$nil).
(d) Principal 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 26-28 of
the Annual Report for the year ended 30 June 2021. The risks and
uncertainties are summarised below:
· Project definition risk:
- At Phalaborwa, the Company is finalising a Preliminary Economic
Assessment which is expected to define a processing flow sheet capable of
economically extracting the permanent magnet rare earth metals from the gypsum
stacks in a low capital and low operating cost environment. However, this is
dependent on the results of future test work, which may not meet management's
expectations.
- At Gakara, the Company does not currently have a code-compliant
Mineral Resource or Reserve due to the complexity of the underlying geological
mineralisation. It is possible that the quantity of rare earths present in
the licence area is less than management expectations with resulting impacts
on plans to develop a long-term commercial operation at Gakara.
· Political risk in Burundi
- On 12 April 2021, the Government of Burundi temporarily suspended
the export of concentrate produced at Gakara. This was followed on 29 June
2021 with a suspension of all trial mining and exploration activity. All
operations remain on care and maintenance at 16 March 2022. There has been
no attempt by the Government of Burundi to remove the mining licence for the
Gakara project.
· Financing risk
- The Company currently forecasts that additional funding will be
required in order to deliver its project development plans as well as for
general working capital requirements.
- At Phalaborwa in South Africa, additional finance is expected to
be required for on-site pilot test-work ahead of a larger fundraising for
commercial scale project development.
- At Gakara in Burundi, additional financing would be required to
fund commercial scale development beyond the current trial mining and
processing operations.
· Rare earth prices
- Rainbow's strategy is to become a globally-significant and
responsible producer of rare earth metals, with a particular focus on NdPr -
the fundamental building blocks for the permanent magnets driving the global
green technology revolution.
- Whilst analysts are predicting strong growth in demand for rare
earths, prices have been volatile in the past. If the underlying rare earth
basket price of the Group's development projects fall, this reduces potential
revenue that will impact the long-term profitability of the project and could
impact the commercial viability of any development.
- The Company currently has an off-take agreement with ThyssenKrupp
for the Gakara project trial mining activities in Burundi, selling rare earth
concentrate at a discount of approximately 70% to the quoted price of the
underlying metal oxides. The Company has no off-take agreement for the
likely rare earth products from the Phalaborwa project in South Africa.
· Civil unrest
- Burundi has experienced civil unrest, including most recently in
2015. South Africa experienced some civil unrest in 2021. Any subsequent
instances of civil unrest could impact the long-term operations of the
Company's development projects, including the ability to obtain supplies,
export production and manage administrative matters.
· Currency controls in Burundi
- The Company receives proceeds from the sale of rare earth
concentrate from the Gakara project 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 including international suppliers,
servicing of international debt and repatriation of profits.
· Covid-19
- The Covid-19 pandemic could disrupt the Company's operations,
delaying project definition works. Delays have been experienced for the
Group's Phalaborwa metallurgical test work programme at ANSTO in Australia.
There have been no significant changes to the risk profile during the first
half of the year.
3. Administrative expenses
6 months ended 6 months ended
31 December 2021
31 December 2020
US$'000 US$'000
Unaudited Unaudited
Corporate expenses 1,124 561
Burundi administration 810 268
1,934 829
The corporate cost base for the six months ended 31 December 2021 shows a
sharp increase from the extremely low base set in the comparative period in
2020. The growth, which was evident in the period from January to June 2021,
has been driven by a number of factors:
· The issue of share options in Q1 2021 has led to a share option
charge of US$155k in the period compared to US$nil in the comparative period;
· Executive and non-executive director salaries were increased, as
set out in the 2021 annual report, following an exercise to benchmark salaries
against peer companies in Q1 2021, leading to an increase in cost of US$105k;
· A bonus of US$220k was paid to executive management to reflect
the transformation of the business since the acquisition of the Phalaborwa
project in December 2020;
· Increased IR activity, group travel following the relaxation of
covid restrictions, and costs associated with the new Johannesburg head office
function have also increased costs in the period by a total of US$80k.
Burundi administrative expenses incurred in the six months ended 31 December
2021 include all costs associated with maintaining the Gakara project on care
and maintenance. These include US$128k of redundancy costs associated with the
termination of the majority of employment contracts in December 2021, required
under Burundi legislation following six months of suspension of activities,
and US$173k of depreciation for the mining and processing equipment in Burundi
which has previously been capitalised. In the comparative period costs
totalled US$1,311k, with US$516k capitalised to exploration and evaluation
costs net of US$527k export revenue.
4. Loss per ordinary share
Loss per ordinary share is calculated by dividing the net loss for the period
attributable to Ordinary equity holders of the parent by the weighted average
number of Ordinary shares outstanding during the period.
The Company was loss making for all periods presented, therefore the dilutive
effect of share options has not been taken account of in the calculation of
diluted earnings per share, since this would decrease the loss per share for
each of the period reported.
The calculation of the basic loss per share is based on the following data:
6 months ended 6 months ended
31 December
31 December 2020
2021
US$'000 US$'000
Unaudited Unaudited
The loss for the period attributable to ordinary equity holders of the parent (2,051) (888)
company
Number Number
'000 '000
Weighted average number of Ordinary shares for the purposes of basic and 493,934 428,264
diluted loss per share
Loss per Ordinary share Cents Cents
Basic and diluted (0.42) (0.21)
5. Exploration and evaluation assets
Gakara Phalaborwa Total
US$'000 US$'000 US$'000
At 1 July 2020 (audited) 7,572 - 7,572
Additions 516 821 1,337
At 31 December 2020 (unaudited) 8,088 821 8,909
Additions 586 295 881
Adjustment of rehabilitation provision (39) - (39)
At 30 June 2021 (audited) 8,635 1,116 9,751
Additions - 294 294
At 31 December 2021 (unaudited) 8,635 1,410 10,045
No additions to exploration and evaluation assets were recorded for Gakara in
the period due to the project being held on care and maintenance by order of
the Government of Burundi. Based on an assessment of both the legal and
political position, the Directors have a reasonable expectation that the
current temporary suspension does not represent a threat to the licence and
activities will be allowed to re-start. Accordingly, the Directors do not
believe this uncertainty represents an indication of impairment of the
exploration and evaluation assets at Gakara, or the associated property, plant
and equipment or inventory within the Gakara cash generating unit. The
Directors note that the current suspension of activities could result in
future losses for the Group if it is not resolved as anticipated.
In H1 2022 no amounts were capitalised to exploration and evaluation assets at
Gakara as set out in note 3. Additions in the six months ended 31 December
2020 are stated net of US$527k (six months ended 30 June 2021: US$112k)
related to gross revenues earned at Gakara during the exploration phase which
represent a contribution towards exploration costs incurred.
FinBank SA hold security over the fixed and floating assets of Rainbow Mining
Burundi SA which include US$7.3 million of exploration and evaluation assets
associated with the Gakara mining permit in Burundi as at 31 December 2021.
6. Property, plant and equipment
US$'000 Mine development costs Plant & machinery Vehicles Office equipment Total
Cost
At 1 July 2020 (audited) 183 2,665 1,074 45 3,967
Additions - 22 242 - 264
At 31 December 2020 (unaudited) 183 2,687 1,316 45 4,231
Additions - 160 266 - 426
At 30 June 2021 (audited) 183 2,847 1,582 45 4,657
Additions - 44 - - 44
At 31 December 2021 (unaudited) 183 2,891 1,582 45 4,701
Depreciation
At 1 July 2020 (audited) 47 2,665 298 15 3,025
Charge for period 13 - 107 5 125
At 31 December 2020 (unaudited) 60 2,665 405 20 3,150
Charge for period 13 2 134 4 153
At 30 June 2021 (audited) 73 2,667 539 24 3,303
Charge for period 13 2 158 5 178
At 31 December 2021 (unaudited) 86 2,669 697 29 3,481
Net Book Value at 31 December 2021 (unaudited) 97 222 885 16 1,220
Net Book Value at 30 June 2021 (audited) 110 180 1,043 21 1,354
Net Book Value at 31 December 2020 (unaudited) 123 22 911 25 1,081
Depreciation of US$nil (six months ended 31 December 2020: US$107k, six months
ended 30 June 2021: US$162k) relating to mining vehicles, plant &
machinery and site infrastructure was capitalised in the period as part of
Exploration and Evaluation costs.
FinBank SA hold security over the fixed and floating assets of Rainbow Mining
Burundi SA which include US$1.2 million of tangible fixed assets in Burundi.
As set out in note 5 the Directors recognise the uncertainty relating to the
temporary suspension of trial mining and processing activities in Burundi
which could impact the carrying value of the property, plant and equipment
within the Gakara cash generating unit, which comprises the entire net book
value at the balance sheet date.
7. Trade and other payables
As at As at As at
31 December 2021
31 December 2020
30 June
2021
US$'000 US$'000 US$'000
Unaudited Unaudited Audited
Trade payable 142 135 71
Accrued expenses 73 157 233
Taxes and social security 364 25 363
Amounts due to staff and management 351 - 60
Pension contributions - 3 -
Other payables 60 290 250
Total trade and other payables 990 610 1,009
The Directors consider that the carrying value of trade and other payables
approximate to their fair value.
8. Borrowings
As at As at As at
31 December 2021
31 December 2020
30 June
2021
US$'000 US$'000 US$'000
Unaudited Unaudited Audited
Finbank Loan 574 647 579
Pipestone Loan - 935 1,008
Warrant liability 353 215 306
Total borrowings 927 1,797 1,893
Payable within 12 months 178 1,175 1,231
Payable after more than 12 months 749 622 662
927 1,797 1,893
FinBank Loan
The FinBank loan facility is expressed in Burundian Francs 'BIF' and carries
an interest rate of 15%. Interest has been paid throughout the period.
Capital repayments have been suspended since April 2021 as a result of the
export ban imposed in Burundi on the Group's rare earth concentrate from trial
mining and processing activities. This is not a substantial modification of
the loan.
Under the terms of this loan, Finbank has security over the fixed and floating
assets of Rainbow Mining Burundi SA ('RMB', the local operating company in
Burundi which owns the Gakara project and mining permit), the shares of RMB,
and the cash held in RMB's Finbank bank accounts.
Pipestone Loan
On 21 February 2020, Pipestone Capital Inc, in which George Bennett, the
Company's CEO, has a beneficial interest, provided a US$1 million unsecured
bridging loan to the Company. The loan did not bear interest, with the finance
cost provided by the issue of 2 million warrants with a 4-year life over the
Company's shares at a strike price of 4.55p/share (a 30% premium to the 20-day
VWAP and a 1.25p premium to the 3.3p/share closing mid-market price on the
date of the loan).
In June 2020, the original Pipestone loan was re-financed, with US$75k repaid
via the issue of 1,993,779 new Ordinary Shares as part of the equity placing
announced on 22 June 2020 at a price of £0.03 per share. The remaining
US$925k was extinguished and replaced with a new, interest free, unsecured
bridging loan of US$925k pending a larger capital raise. No further warrants
were issued.
The loan was further refinanced following an equity raise in November 2020,
which triggered a repayment obligation for the loan. The Company had no
headroom under the prospectus directive regulations to issue shares at the
price of the November 2020 equity raise to repay the loan and had insufficient
funds to allow for repayment in cash. As a result, the US$925k interest-free
liability was extinguished and replaced with a new unsecured bridge loan from
1 December 2020 which bears interest at a rate of 15% per annum. The loan was
fully repaid in December 2021, including accrued interest, via the issue of
875,389 new Ordinary Shares (representing US$175k at £0.15/share) plus
US$886k cash.
9. Share capital
As at As at As at
31 December 2021
31 December 2020
30 June
2021
Unaudited Unaudited Audited
Issued share capital (nil par value) US$'000 41,345 31,686 32,465
Number of shares in issue ('000) 522,687 467,682 476,411
The table below shows a reconciliation of share capital movements:
Number of shares US$'000
At 1 July 2020 421,981,551 28,132
December 2020 - share placing - cash receipts net of costs 42,700,000 3,338
December 2020 -options exercised 3,000,000 216
At 31 December 2020 467,681,551 31,686
January 2021 to April 2021 - options exercised 7,500,000 529
June 2021 - Phalaborwa consideration shares 1,229,883 250
At 30 June 2021 476,411,434 32,465
July 2021 - options exercised 2,500,000 182
October 2021 - share placing - cash receipts net of costs 32,900,000 6,559
November 2021 - share placing - cash receipts net of costs 10,000,000 1,982
December 2021 - shares issued as partial repayment of Pipestone loan 875,389 157
At 31 December 2021 522,686,823 41,345
On 27 November 2020 the Company issued 42.7 million new ordinary shares at a
price of 6 pence per share, raising gross cash proceeds of US$3.4 million
(before costs of $85k). No related parties were involved in the placing.
Between December 2020 and April 2021 Australian Special Opportunity Fund, LP
exercised options over 10.5 million shares at an exercise price of 5.28p per
share, raising gross cash proceeds of US$763k (before costs of US$18k).
On 25 June 2021 1,229,882 shares were issued to Bosveld Phosphates (Pty)
Limited to settle US$250,000 consideration due under the Phalaborwa
co-development agreement originally announced on 3 November 2020.
On 13 July 2021 Australian Special Opportunity Fund, LP exercised options over
2.5 million shares at an exercise price of 5.28p per share, raising gross cash
proceeds of US$182k.
On 13 October 2021 the Company issued 32.9 million shares at a price of 15
pence per share, raising gross cash proceeds of US$6.8 million (before costs
of $221k). No related parties were involved in the placing.
On 15 November 2021 the Company issued a further 10.0 million shares at a
price of 15 pence per share, raising gross cash proceeds of US$2.0 million
(before costs of $18k). No related parties were involved in the placing.
10. Related party transactions
US$'000 Six months to 31 Dec 2021 Six months to 31 Dec 2020
Charged in period Settled in period Closing Balance Charged in period Settled in period Closing Balance
Pipestone Capital Inc(1) 52 (1,061) - 153 (153) 925
Robert Sinclair(2) - - - 26 (26) -
Alex Lowrie(2) - - - 26 (26) -
Atul Bali(2) - - - 26 (26) -
Shawn McCormick(2) - - - 26 (26) -
Pete Gardner(2) - - - 26 (26) -
MPD Consulting Limited(3) 9 (9) - - - -
61 (1,070) - 302 (302) 925
The above table does not include remuneration of Directors and senior
management.
1. Pipestone Capital Inc, in which George Bennett, the Company's CEO,
has a beneficial interest, provided a US$1 million bridging loan to the Group
in February 2020 as explained in note 8, of which US$75k was settled in June
2020 and the balance settled in December 2021. In addition, in October 2020
Pipestone Capital Inc provided an additional bridging loan of US$150k in
October 2020 which was settled in cash together with US$3k interest in
December 2020.
2. Robert Sinclair, Alex Lowrie, Atul Bali, Shawn McCormick (all
non-executive directors of the Company), together with Pete Gardner (CFO and a
PDMR) each provided a bridge loan of US$25k in October 2020 which were settled
in cash along with accrued interest in December 2020.
3. MPD Consulting Limited, in which Pete Gardner, the Company's CFO
has a beneficial interest, has recharged certain costs relating to travel to
Burundi and UK support incurred on behalf of the Group.
11. Post balance sheet events
Subsequent to 31 December 2021:
· On 18 January 2022 Robert Sinclair retired as a director of
Rainbow Rare Earths Limited.
· On 3 February 2022 the Company issued 2.5 million share options
to senior management under the existing share option plan with an exercise
price of 15 pence per new Ordinary Share.
· On 8 February 2022 Rainbow Rare Earths (UK) Limited was formally
dissolved.
· On 3 March 2022 a new subsidiary, Rainbow Rare Earths PTY Limited
was incorporated in South Africa.
1 IEA, The Role of Critical Minerals in Clean Energy Transitions
2 IEA, The Role of Critical Minerals in Clean Energy Transitions
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