REG - Rainbow Rare Earths - Interim Results
28/03/2024 07:00
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RNS Number : 5936I Rainbow Rare Earths Limited 28 March 2024
28 March 2024
Rainbow Rare Earths Limited
("Rainbow" or "the Company")
LSE: RBW
Interim Results for the six months ended 31 December 2023
Rainbow Rare Earths is pleased to announce its unaudited results for the six
months ended 31 December 2023 ("the Period").
Highlights
· Global net zero greenhouse gas ("GHG") emissions will require
unprecedented levels of critical minerals, including rare earth elements
("REEs").
· Phalaborwa expected to be the highest margin REE project in
development today due to its fundamentally different capital and operating
cost profile compared to traditional projects. The project remains highly cash
generative even at lower rare earth prices.
· Phalaborwa to produce all four of the high-value magnet rare earths:
neodymium and praseodymium ("NdPr"), dysprosium ("Dy") and terbium ("Tb").
Forecast CAGR of ca. 10% for rare earth permanent magnets from 2022 to 2033 1
driven by their use in electric vehicles and wind turbines.
· Project backed by U.S. Government, with a US$50 million funding
commitment from the U.S. International Development Finance Corporation ("DFC")
announced at COP28, to be invested via strategic shareholder TechMet Limited
("TechMet").
· Successful production of ca. 35kg of mixed rare earth carbonate at
the front-end pilot plant in South Africa; this material is being used as feed
for the back-end pilot plant in Florida, USA to produce separated rare earth
oxides expected in Q2 2024.
· Phalaborwa offers environmental advantages due to the clean-up of
legacy issues and the opportunity to fully rehabilitate the site over time.
The use of continuous ion exchange ("CIX") and continuous ion chromatography
("CIC") to produce separated rare earth oxides also provides cost and
environmental benefits over traditional solvent exchange methods.
· Updated bulk density calculations have increased the Phalaborwa
project tonnage by ca. 16% and added over two years to project life; an update
to the JORC-compliant Resource is expected in Q2 2024.
· Letter of Intent entered into for an off-take agreement to sell ca.
400-600,000 tonnes of Phalaborwa's gypsum by-product per annum into the South
African domestic and surrounding markets, which are anticipating supply
shortages of gypsum, thereby providing an additional revenue stream to
Rainbow.
· Strategic supply agreement entered into with Less Common Metals
("LCM"), the only rare earth metal and alloy manufacturing facility in the UK
and one of the only facilities in the Western world.
· Memorandum of understanding ("MOU") entered into with The Mosaic
Company ("Mosaic") with regards to the Uberaba phosphogypsum project in
Brazil. Uberaba represents an exciting opportunity to potentially replicate
Phalaborwa at a larger scale and initial test-work to date is promising.
George Bennett, CEO, commented: "Phalaborwa is a unique project in the rare
earths space. Due to the fact that it is focused on the reprocessing of
phosphogypsum stacks to recover rare earths, it has a fundamentally different
cost profile to traditional mining projects and it is therefore expected to be
the highest margin rare earth project in development today. Its potential to
offer exceptional financial returns, its ability to go further down the supply
chain to produce separated rare earth oxides, and its strong environmental
credentials have seen the project backed by the U.S. Government during the
Period, with a US$50 million funding commitment from the DFC announced at
COP28, to be invested via TechMet.
We are also excited about the prospects for the Uberaba phosphogypsum project
in Brazil, which is being developed in partnership with Mosaic. Initial
test-work to date has been encouraging and the project is of a significantly
larger scale than Phalaborwa. Furthermore, the addition of Uberaba adds
geographical diversification to our portfolio and is in line with our
aspiration to be a forerunner in the establishment of an independent and
ethical supply chain of the rare earth elements that are driving the green
energy transition."
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.
Rainbow H1 FY 2024 Interim Results investor presentation
CEO, George Bennett, will host a presentation and live question and answer
session via the Investor Meet Company platform on 3 April 2024 at 11am GMT.
Questions can be submitted pre-event via your Investor Meet Company dashboard
up until 9am the day before the meeting or at any time during the live
presentation.
Investors can sign up to Investor Meet Company for free and add to meet
RAINBOW RARE EARTHS LIMITED via:
https://www.investormeetcompany.com/rainbow-rare-earths-limited/register-investor
(https://www.investormeetcompany.com/rainbow-rare-earths-limited/register-investor)
Investors who already follow RAINBOW RARE EARTHS LIMITED on the Investor Meet
Company platform will automatically be invited.
For further information, please contact:
Rainbow Rare Earths Ltd Company George Bennett +27 82 652 8526
Pete Gardner
IR Cathy Malins +44 7876 796 629
cathym@rainbowrareearths.com (mailto:cathym@rainbowrareearths.com)
Berenberg Broker Matthew Armitt +44 (0) 20 3207 7800
Jennifer Lee
Stifel Broker Ashton Clanfield +44 20 7710 7600
Varun Talwar
Tavistock Communications PR/IR Charles Vivian +44 (0) 20 7920 3150
Tara Vivian-Neal rainbowrareearths@tavistock.co.uk (mailto:rainbowrareearths@tavistock.co.uk)
Notes to Editors:
Rainbow Rare Earths aims to be a forerunner in the establishment of an
independent and ethical supply chain of the rare earth elements that are
driving the green energy transition. It is doing this successfully via the
identification and development of secondary rare earth deposits that can be
brought into production quicker and at a lower cost than traditional hard rock
mining projects, with a focus on the permanent magnet rare earth elements
neodymium and praseodymium, dysprosium and terbium.
The Company is focused on the development of the Phalaborwa Rare Earths
Project in South Africa and the earlier stage Uberaba Project in Brazil. Both
projects entail the recovery of rare earths from phosphogypsum stacks that
occur as the by-product of phosphoric acid production, with the original
source rock for both deposits being a hardrock carbonatite. Rainbow intends to
use a proprietary separation technique developed by and in conjunction with
its partner K-Technologies, Inc., which simplifies the process of producing
separated rare earth oxides (versus traditional solvent extraction), leading
to cost and environmental benefits.
The Phalaborwa Preliminary Economic Assessment ("PEA") has confirmed strong
base line economics for the project, which has a base case NPV(10) of US$627
million 2 , an average EBITDA operating margin of 75% and a payback period of
< two years. Pilot plant operations commenced in 2023, with the project
expected to reach commercial production in 2026, just five years after work
began on the project by Rainbow.
More information is available at www.rainbowrareearths.com
(http://www.rainbowrareearths.com/) .
CEO Review
Market
The world is in the midst of a new industrial revolution: the green energy
transition. Global net zero GHG emissions will require unprecedented levels of
critical minerals, including REEs which are essential components of the
permanent magnets used in the production of electric vehicles ("EVs") and wind
turbines. Furthermore, REEs have many highly strategic uses in advanced
technologies, including in defence applications, adding to their criticality
worldwide; for example, each American F-35 Lightning II fighter jet contains
over 400kg of rare earths, the Arleigh Burke DDG-51 missile destroyer contains
ca. 2,300kg of rare earths and a Virginia class submarine contains ca. 4,200kg
of rare earths 3 .
The International Energy Agency ("IEA") estimates that the market for REEs has
more than doubled over the period from 2017 to 2022, and demand for rare earth
permanent magnets is forecast to continue to grow strongly by a CAGR of ca.
10% per annum to 2030, according to Argus.
While the long-term demand drivers for the market remain strong due to the
electrification of our transport system, as well as the unstoppable move
towards renewable energy solutions, in the short-term the market may continue
to see some volatility due to the current weakness of the Chinese economy, a
slow-down in the take-up of EVs and the roll-out of wind power generational
projects, as well as its reliance on consumer trends worldwide.
Rare earth pricing has been notably weak in 2023 and into 2024. The current
price of NdPr oxide of ca. US$50/kg is estimated to be well below the average
breakeven price for the industry and is not deemed to be sustainable over the
medium to long-term, with Argus expecting pricing to strengthen by the end of
2024.
Phalaborwa's rare earths basket includes the 'heavy' rare earths Dy and Tb,
which are noted to be more at risk of supply disruption than that of the light
rare earths due to their scarcity in economic quantities worldwide. The
inclusion of Dy and Tb, as well as NdPr, improves the overall value of the
Phalaborwa basket in comparison to the industry average.
Furthermore, Phalaborwa's PEA indicated a comparatively low operating cost of
ca. US$34/kg of separated magnet rare earth oxides (NdPr, Dy and Tb), which
provides resilience against all modelled pricing scenarios. By contrast,
Canaccord Genuity estimates that the incentive pricing for greenfield ex-China
projects is likely to be over US$100/kg.
Operational update
Phalaborwa - South Africa
Rainbow's primary focus is the Phalaborwa project in South Africa, which
represents an exciting, near-term production opportunity of all four of the
magnet rare earths required for the green energy transition.
The operation will involve the processing of phosphogypsum stacks, which are
the by-product of historic phosphoric acid production on the site. This
resource sits at surface in a "cracked" chemical form, which is why it has a
fundamentally different cost profile to traditional rare earth development
projects.
Rainbow is using proprietary technology developed in conjunction with its
partner K-Technologies, Inc. ("K-Tech"), to allow for the material to be
processed first into a mixed rare earth carbonate, before being refined
further into separated rare earth oxides of 99.5% purity.
The Phalaborwa PEA published in October 2022 (using spot rare earth pricing of
ca. US$112/kg NdPr oxide at the time) confirmed strong base line economics for
the project, which has a base case NPV(10) of US$627 million, an average
EBITDA operating margin of 75% and a payback period of less than two years.
Recent analysis has confirmed that Phalaborwa is expected to be the highest
margin rare earth project in development today, which provides resilience
against pricing volatility.
Rainbow is currently carrying out a Definitive Feasibility Study ("DFS") at
Phalaborwa, which is on track to be completed in the last quarter of
2024/early 2025. Following completion of the DFS, a Final Investment
Decision will be made by the Board prior to construction and the expected
commencement of operations by the end of 2026.
Pilot plant
A key component of the DFS is the operation of a pilot plant to confirm and
optimise the operating parameters for the unique flowsheet developed in
conjunction with K-Tech to deliver separated rare earth oxides from the
Phalaborwa phosphogypsum.
The pilot plant comprises a front-end circuit that produces a mixed rare earth
carbonate and a back-end circuit that utilises CIX and CIC to produce
separated rare earth oxides. The innovative application of this established
technology has been pioneered by K-Tech in the rare earth space and replaces
traditional solvent extraction which uses toxic and flammable solvents and
diluents and requires more than 100 separate stages.
The front-end pilot plant is located at the Johannesburg facilities of the
Council for Mineral Technology ("Mintek"), a global leader in mineral
processing, extractive metallurgy, and related fields. The front-end piloting
programme has successfully completed all three of its planned campaigns to
date, with the integrated whole circuit 24/7 campaign completed in March 2023.
Throughout its duration of operation, the front-end pilot plant has produced
ca. 35kg of mixed rare earth carbonate as planned and this material is being
shipped in progressive batches to the back-end pilot plant in Florida for
separation.
During operation the following key opportunities for optimisation of the
front-end plant process were identified and are expected to result in capex
and opex savings:
· improvement in the impurity and rare earths leach temperature
conditions from the 40⁰C set out in the PEA to 30⁰C, delivering a
significant ca. 50% saving in energy requirements;
· the successful regeneration of two key reagents in the leach
solution, improving on our founding principles of circularity; and
· optimisation of the second stage acid leach circuit which has reduced
the number of counter current decantation thickeners required from 12 to six.
As part of the optimisation process, Rainbow worked with K-Tech to establish
the optimal mixed rare earth product for the back-end CIX / CIC system, which
is located at K-Tech's premises in Lakeland, Florida, USA. Having first
successfully produced a mixed rare earth sulphate, it was decided to further
beneficiate the product, removing certain unwanted elements, with the optimal
end product for separation agreed as a cerium-depleted mixed rare earth
carbonate, providing a higher-grade feedstock to the back-end separation
circuit. A summary of the progress made with the back-end flowsheet is as
follows:
· successful impurity removal in the initial ion-exchange step
providing suitable feed solution for group separation;
· successful separation of the uneconomic lanthanum and cerium group;
· successful group separation in the first step of the chromatography
stage, delivering a NdPr group, grading ca. 68%, as feed for purification in
the subsequent individual chromatography separation steps;
· considerable upgrading of the concentration of the Dy and Tb from a
combined feed grade of 0.9% to 14.6%, which requires separation from the
samarium, europium and gadolinium ("SEG") group; and
· good separation of the SEG group at a grade of ca. 63%, which
provides the strong potential for an additional valuable product line.
The current focus of the pilot plant test work at K-Tech is to optimise the
second stage of the chromatography process to produce a 99.5% NdPr product,
expected in Q2 2024. This will be followed by separation of Dy and Tb oxides.
Resource update
Phalaborwa currently has a total mineral resource estimate ("MRE") of 30.4 Mt
at 0.44% TREO, with the high-value, permanent magnet elements Nd and Pr
representing 29% of the TREO in the rare earths basket, as well as economic
quantities of Dy and Tb. The MRE is reported at a 0.2% TREO cut-off grade.
During the Period, Rainbow's technical team was focused on evaluation of the
density at depth of the two phosphogypsum stacks that make up the Resource at
Phalaborwa. On the advice of Ardaman and Associates, Inc., a Tetra Tech
Company ("Ardaman"), a revised drilling technique was used for a drilling
campaign carried out in the Period to provide representative samples from the
stacks. These were submitted to Ardaman for comprehensive bulk density testing
and the results revealed a clear corelation of higher bulk density with
increasing depth.
The increased bulk density reported by Ardaman has resulted in a significant
increase of ca. 16% in the project tonnes from 30.4 Mt to 35.1 Mt, extending
the operating life by over two years at the proposed operating rate.
Samples from the drill campaign will now be assayed for grade by SGS in South
Africa to allow for an updated JORC compliant MRE. This work is also expected
to upgrade the Inferred Resources to the Measured and Indicated categories.
Environmental
Phalaborwa is founded on the principles of circularity, reprocessing
phosphogypsum which is the by-product of historic phosphoric acid production
to produce rare earths required for global decarbonisation. With legacy
environmental issues prior to our ownership, Rainbow has the opportunity not
only to exploit a secondary source of these critical minerals, but also to
clean up the project site. This will involve neutralising the acidic solution
currently on top of the gypsum stacks for use in a closed loop process and
redepositing benign gypsum on stacks which will be lined in accordance with
International Finance Corporation ("IFC") Standards and Equator Principles.
Rainbow recognises the benefits that securing a source of low carbon energy
would bring to the project and its stakeholders and is therefore well advanced
in the evaluation of a renewable energy power agreement. It is envisaged that
renewable energy will provide the bulk of the project's power requirements,
thereby further reinforcing its green credentials. While Phalaborwa is a
relatively low energy-intensive project with draw requirements of ca. 13.3 MW
(as set out in the PEA), management are also exploring the potential for
on-site solar back-up power capacity.
As part of the DFS and as required for the permitting process, a new
Environmental and Social Impact Assessment is being carried out by WSP Golder
and all workstreams for this are on track to allow permit applications to be
lodged in 2024.
During the Period, Rainbow signed a Letter of Intent to enter into an offtake
agreement with NEXUS Intertrade (Pty) Ltd ("NEXUS"), under which NEXUS will
acquire the benign gypsum which is the by-product of the Phalaborwa process
and sell it to end users. The ability to sell down the remaining gypsum stacks
at the project is expected to allow for complete environmental rehabilitation
of the site over time, as well as providing an additional revenue stream to
Rainbow.
Supply agreement
Rainbow aims to be a forerunner in the establishment of an independent and
ethical supply chain of the rare earth elements that are driving the green
energy transition.
In accordance with this aim, the Company entered into a strategic supply
agreement in September 2023 with LCM, a world leader in the manufacture and
supply of complex alloy systems and metals. LCM occupies a unique position in
the rare earths supply chain in that it is based in Ellesmere Port, Cheshire.
As such, it is currently the only rare earth metal and alloy manufacturing
facility in the UK and one of the only facilities in the Western world.
LCM had been looking to partner with a supplier with similar values in order
to secure ethical supply of the feedstock required for their business and it
chose Rainbow after a lengthy evaluation process of the various rare earth
development companies globally. This decision was based on Rainbow's
capability to take its rare earth material further downstream to the separated
rare oxide stage, as well as due to its low production cost, which gives the
Phalaborwa project resilience against rare earth pricing volatility.
A framework will be set out in due course for Rainbow and LCM to negotiate a
binding offtake agreement for separated rare earth oxides from Phalaborwa,
with the ultimate customer of the rare earth permanent magnets being clearly
defined and in alignment with both LCM's existing customer base and the
positioning of both companies in an expanding Western supply chain.
Uberaba - Brazil
Following an extensive worldwide search to identify phosphogypsum projects
with similar characteristics to Phalaborwa, Rainbow entered into an MOU with
Mosaic in July 2023 with regards to the Uberaba project in Minas Gerais,
Brazil.
As at Phalaborwa, the Uberaba project will entail the processing of a
phosphogypsum stack that is the by-product of phosphoric acid production which
was originally based on a hard rock carbonatite. Mosaic's phosphoric acid
operations are ongoing, meaning that new phosphogypsum is deposited on the
stacks annually.
Due to the similarities of the feedstock, the Uberaba stack was expected to
have a similar grade and rare earth element make-up as those of Phalaborwa and
this was confirmed by initial assay analysis, which indicated an average grade
of 0.58% TREO and that the basket contains all four of the magnet rare earths
NdPr, Dy and Tb, with NdPr representing ca. 25% of the basket.
Following the co-production of a process flowsheet, Rainbow and Mosaic will
collaborate on the production of a PEA for this opportunity to extract rare
earths.
Gakara - Burundi
Gakara was placed on care and maintenance in June 2021 at the request of the
Government of Burundi.
Further to the acquisition of the Phalaborwa project in December 2020 and the
subsequent development of processing technology to recover REEs from
phosphogypsum as a by-product of phosphoric acid production, the Directors
have re-focused the business on secondary sources of REEs where they consider
higher returns are available. As such, the decision was made not to invest any
further funds in the project and Gakara was fully written down in the
Company's accounts for the year to 30 June 2023.
Corporate
Notwithstanding falling rare earth prices, coupled with a wider difficult
environment for small to medium sized resource companies on the London Stock
Exchange, Rainbow's successful development was rewarded by continued strong
backing for the Company in the market via the completion of a private
placement in September 2023 to raise ca. US$5.5 million. This placing was
carried out at a minor discount of 3% to the share price and was supported by
the majority of Rainbow's Board, as well as its major shareholder TechMet.
A major endorsement for Phalaborwa's exceptional economic and environmental
credentials was achieved via the announcement at the U.N.'s Climate Change
Conference, COP28, that the DFC had committed US$50 million for the project,
to be invested via strategic shareholder TechMet. This funding commitment
helps to de-risk the overall capital requirement of ca. US$295.5 million for
Phalaborwa and demonstrates the strategic role the project is expected to play
in the establishment of a responsible supply chain for rare earths outside of
China.
Financial Review
The financial statements for the Period are dominated by costs totalling
US$8.5 million capitalised for Phalaborwa, bringing the total balance sheet
value for the exploration and evaluation assets associated with the project to
US$13.4 million. This included US$5.7 million to increase Rainbow's economic
interests in Phalaborwa from 70% to 85%, with an option to acquire the
remaining 15% from Bosveld Phosphates (Pty) Limited via the issue of
38,873,663 new Rainbow shares. Other expenditure at Phalaborwa in the Period
included US$2.0 million relating to the ongoing pilot plant operations, US$0.4
million for other workstreams associated with the DFS, US$0.2 million for
mineral resource work and US$0.2 million for Rainbow's technical team and
associated costs. At 31 December 2023, the Group had US$4.0 million of cash
available.
The income statement showed a net loss of US$1.5 million for the Period in
line with the comparative period in FY 2023. This includes the Group's
administrative costs, business development costs associated with both the
Uberaba project in Brazil and Rainbow's wider long-term project pipeline, and
costs to maintain the Gakara asset on care and maintenance.
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
28 March 2024
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 31 December 2023
6 months ended 6 months ended
31 December 2023
31 December 2022
Notes US$'000 US$'000
Unaudited Unaudited
Revenue - -
Production and sales costs - -
Gross loss - -
Administration expenses 3 (1,461) (1,500)
Loss from operating activities (1,461) (1,500)
Finance income 130 73
Finance costs (120) (54)
Loss before tax (1,451) (1,481)
Income tax expense - -
Total loss after tax and comprehensive expense for the period (1,451) (1,481)
Total loss after tax and comprehensive expense for the period is attributable
to:
Non-controlling interest (9) (38)
Owners of parent (1,442) (1,443)
(1,451) (1,481)
Loss per share (cents)
Basic 4 (0.24) (0.27)
Diluted 4 (0.24) (0.27)
The results of each period are derived from continuing operations.
Condensed Consolidated Statement of Financial Position
As at 31 December 2023
As at As at As at
31 December 2023
30 June
31 December 2022
2023
Notes US$'000 US$'000 US$'000
Unaudited Audited Unaudited
Non-current assets
Exploration and evaluation assets 5 13,363 4,830 11,405
Property, plant and equipment 6 24 27 872
Right of use assets 99 37 89
Total non-current assets 13,486 4,896 12,366
Current assets
Inventory 718 718 858
Trade and other receivables 565 365 426
Cash and cash equivalents 4,002 8,107 2,146
Total current assets 5,285 9,190 3,430
Total assets 18,771 14,086 15,796
Current liabilities
Trade and other payables 7 (1,689) (1,250) (879)
Borrowings 8 (250) (201) (101)
Lease liabilities (47) (23) (34)
Total current liabilities (1,986) (1,474) (1,014)
Non-current liabilities
Borrowings 8 (283) (285) (589)
Lease liabilities (59) (21) (56)
Provisions (55) (55) (61)
Total non-current liabilities (397) (361) (706)
Total Liabilities (2,383) (1,835) (1,720)
NET ASSETS 16,388 12,251 14,076
Equity
Share capital 9 56,303 50,937 41,552
Share based payment reserve 1,634 1,719 1,588
Other reserves - - -
Retained loss (39,618) (38,483) (27,955)
Equity attributable to the parent 18,319 14,173 15,155
Non-controlling interest (1,931) (1,922) (1,079)
TOTAL EQUITY 16,388 12,251 14,076
Condensed Consolidated Cash Flow Statement
For the six months ended 31 December 2023
6 months ended 6 months ended
31 December 2023
31 December 2022
US$'000 US$'000
Unaudited Unaudited
Cash flow from operating activities
Loss from operating activities (1,461) (1,500)
Adjustments for:
Depreciation 25 189
Share-based payment charge 223 151
Operating loss before working capital changes (1.213) (1,160)
Net increase in other receivables (238) (25)
Net increase / (decrease) in trade and other payables (276) (30)
Cash used by operations (1,727) (1,215)
16
Realised foreign exchange gains 16 73
Finance costs (31) (69)
Net cash used in operating activities (1,742) (1,211)
Cash flow from investing activities
Purchase of property, plant & equipment - (2)
Exploration and evaluation costs (7,831) (817)
Net cash used in investing activities (7,831) (819)
Cash flow from financing activities
Repayment of borrowings (37) -
Payment of lease liabilities (21) (16)
Proceeds from the issuance of ordinary shares 5,501 125
Transaction costs of issuing new equity (84) (16)
Net cash generated by financing activities 5,359 93
Net decrease in cash and cash equivalents (4,214) (1,937)
Cash & cash equivalents at the beginning of the period 8,107 4,134
Foreign exchange gain / (loss) on cash & cash equivalents 109 (51)
Cash & cash equivalents at the end of the period 4,002 2,146
Condensed Consolidated Statement of Changes in Equity
For the six months ended 31 December 2023
Share capital Share- based Payments Accumulated losses Attributable Non-controlling interest Total
to the
parent
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 1 July 2022 (audited) 41,442 1,467 (26,572) 16,337 (1,041) 15,296
Total comprehensive expense
Total comprehensive loss - - (1,443) (1,443) (38) (1,481)
Transactions with owners
Fair value of employee share options in the period - 151 - 151 - 155
Share option exercised in period, net of costs 110 (60) 60 110 - 184
Balance at 31 December 2022 (unaudited) 41,552 1,558 (27,955) 15,155 (1,079) 14,076
Total comprehensive expense
Total comprehensive loss - - (10,541) (10,541) (843) (11,384)
Transactions with owners
Issue of shares during the period for cash 9,485 - - 9,485 - 9,485
Share placing transaction and other costs (100) (100) (100)
Fair value of employee share options in the period - 174 - 174 - 174
Share options cancelled in the period - (13) 13 -
Balance at 30 June 2023 (audited) 50,937 1,719 (38,483) 14,173 (1,922) 12,251
Total comprehensive expense
Total comprehensive loss - - (1,442) (1,442) (9) (1,451)
Transactions with owners
Issue of shares during the period for cash 5,501 - - 5,501 - 5,300
Share placing transaction and other costs (135) - - (135) - (135)
Fair value of employee share options in the period - 222 - 222 - 223
Share option exercised in the period - (201) 201 - - 201
Share options cancelled in the period - (106) 106 - - -
Balance at 31 December 2023 (unaudited) 56,303 1,634 (39,618) 18,319 (1,931) 16,389
Notes to the Condensed Financial Statements
For the six months ended 31 December 2023
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 Connaught House, St Julian's
Avenue, 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 period ended 31 December 2023 does not
constitute the audited statutory accounts but the comparative information 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 2023 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 2022 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
2023. 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 2023 was US$4.0 million (30 June 2023:
US$8.1 million). The Board has reviewed the Group's latest cash flow
forecasts for the period to 30 June 2025, including reasonably possible
downside scenarios. This has included the following assumptions:
· Forecast expenditure of US$4.0 million for ongoing general and
administrative costs of the Group over the 18-month period from 1 January
2024 to 30 June 2025, based on the current administrative cost base. The
reasonably possible downside scenario includes a 10% contingency for
unexpected costs.
· Estimated funding requirements of US$7.5 million for Phalaborwa,
of which US$4.0 million has been incurred to date or is committed. This
includes US$2.4 million to complete pilot plant test-work, US$3.7 million
to finalise the DFS and US$0.9 million for Rainbow's technical team and
associated costs. Due to the nature of the work, actual costs and the
timing of expenditure may differ to estimates. The forecast includes a
10% contingency for increased technical costs associated with the pilot
plant and DFS. The reasonably possible downside scenario adds a further
10% contingency for all Phalaborwa expenditure.
· A continuation of care and maintenance for the Group's Gakara
project in Burundi at a total cost of US$0.6 million for the 18-month
period from 1 January 2024 to 30 June 2025, based on the current
administrative cost base. The reasonably possible downside scenario includes
a 10% contingency for unexpected costs.
Based on management's reasonably plausible downside scenario outlined above,
the Group will need to raise additional finance of at least US$9.2 million for
the period ending 30 June 2025, along with any funds required to progress the
Uberaba opportunity in Brazil. Based on the robust economic prospects for
the Phalaborwa project, the Board is confident that additional funding will be
secured as required. However, the Board accepts that these circumstances
indicate the existence of a material uncertainty which may cast significant
doubt about the Group's ability to continue as a going concern and therefore
it may be unable to realise its assets and discharge its liabilities in the
normal course of business. The financial statements do not include the
adjustments that would result if the Group was unable to continue as a going
concern.
(b) Dividend
The Directors do not recommend the payment of a dividend for the period (six
months ended 31 December 2023: US$Nil, six months ended 31 December 2022:
US$Nil).
(c) Principal Risks and uncertainties
There are a number of potential risks and uncertainties inherent in the mining
and metals 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 46-47 of the Annual Report for the year ended 30 June 2023. The
risks and uncertainties are summarised below:
· Project definition risk (High):
- At Phalaborwa, the PEA published in October 2022 confirmed a processing
flowsheet capable of economically extracting the magnet rare earth metals from
the gypsum stacks in a low capital and low operating cost environment. The
Group's technical team has designed and commissioned numerous commercial
plants in Africa, including completion of feasibility studies for rare earth
projects, and are therefore familiar with alternative technical options that
may need to be deployed if the original strategies prove uneconomic.
- Pilot test work to confirm the efficacy of the processing flowsheet
is underway with the production of a mixed rare earth carbonate in South
Africa which has been shipped for pilot testing of the final separation
process in the USA. As a result of the pilot test work, changes may be
required to the proposed processing flowsheet which could have a detrimental
impact on the economics of the project as set out in the PEA. The results of
the pilot test work programme to date have been in line with the PEA.
- A DFS will need to be completed to provide sufficient confidence
for project development, which may not deliver results in line with the PEA.
· Permitting risk (High):
- New and updated permits and licences will be required to develop the
Phalaborwa project including, but not limited to, a water use licence, waste
management licence and air emissions licence. Rainbow is working with
specialist consultants to compile the technical reports required for the
permitting process and is aiming to make the relevant applications in parallel
with work on the DFS.
- Whilst the timeframe for the issuance of permits is difficult to
predict, the Phalaborwa project will clean up legacy environmental issues at
the site, including treating the acid water currently associated with the
unlined gypsum stacks and re-stacking the processed gypsum on new lined stacks
designed in accordance with IFC Performance Standards and the Equator
Principles. Accordingly, the Group is confident that the relevant permits will
be issued to allow the project to proceed.
· Financing risk (High):
- The Group's ability to continue to develop the Phalaborwa project and
other new business opportunities will rely upon its continued ability to
access financing, both at the corporate and project level. The strong economic
returns set out in the PEA for Phalaborwa are expected to ensure funding is
available to deliver the DFS and, ultimately, the development of the
Phalaborwa project.
- Management maintains strong relationships with key sources of
finance. Rainbow has a history of securing funding required for the Group's
growth plans, including support from its cornerstone investors, and management
expects to be able to secure additional funding as required.
· Rare earth prices (High):
- Rainbow is focused on the identification and development of secondary
rare earth deposits that can be brought into production quicker and at a lower
cost than traditional hard rock mining projects, with a focus on the permanent
magnet rare earth elements neodymium and praseodymium, dysprosium and terbium.
- Whilst analysts are predicting strong growth in demand for rare
earths, prices have been volatile in the past and are currently at levels
substantially below the base case set out in the Phalaborwa PEA. Whilst the
Phalaborwa PEA confirmed a low-cost operation that has resilient economics in
lower rare earth price environments, if the underlying rare earth basket price
falls or remains at low prices for the long term, this reduces potential
revenue that will impact the long-term profitability of the project and could
impact the commercial viability of any development.
· Co-development risk (Medium):
- The Group's assets include projects that will be conducted in joint
arrangements or with associates, which reduces the Group's ability to control
and manage risk and places reliance on partners not controlled by the Group.
For the earlier stage projects, Rainbow's rare earths processing expertise and
ownership, directly or under licence in the relevant territories, of the IP
rights to develop an economic processing flow sheet similar to Phalaborwa is
expected to ensure that suitable commercial terms can be agreed for the long
term development of these assets.
- At Phalaborwa, Bosveld Phosphates (Pty) Limited ("Bosveld") has a 15%
interest in the project and, as current owner of the site, their assistance is
required to ensure the assets necessary for the project development are
transferred at the necessary time into the joint venture vehicle and they
remain liable for the historic environmental liabilities associated with the
project site. Rainbow has the option to acquire the 15% minority interest from
Bosveld by issuing 38,873,663 ordinary shares of no par value in Rainbow Rare
Earths Limited. This will enable the Group to fully control that project and
creates a strong incentive for Bosveld to ensure it takes the necessary steps
to allow the project to be developed.
- The Group's development pipeline, including the Uberaba property in
Brazil and the opportunity with OCP in Morocco, are at a much earlier stage of
development. The legal framework for the development of a commercial operation
for these opportunities has not been fully defined and terms may not be agreed
with the owners of these assets to allow a development to occur.
· Country and Political (Medium):
- Rainbow's operations are located in South Africa, Brazil and Burundi.
Emerging market economies are generally subject to greater risks, including
legal, regulatory, tax, economic and political risks, and these risks are
potentially subject to rapid change.
- In South Africa, general elections will be held in May 2024, which
could lead to an increase in political and social instability. The
well-publicised challenges for state energy provider Eskom mean there are
ongoing requirements for load-shedding / power outages in the country, albeit
the power requirements for the industrial sectors are prioritised versus other
sectors. South Africa's stance on geopolitical matters is at times
contrarian to Western interests.
- On 12 April 2021, the Government of Burundi suspended the export of
concentrate produced at Gakara. This was followed on 29 June 2021 with a
suspension of all mining and exploration activity. All operations remain on
care and maintenance. Due to the re-focus of Rainbow's business on the
Phalaborwa asset and growth opportunities from the associated processing
technology, the Directors do not envisage investing significant amounts in
Burundi to develop a formal mineral resource and therefore the net assets of
the Gakara cash generating unit were impaired to nil in the 2023 Annual Report
and Accounts.
3. Administrative expenses
6 months ended 6 months ended
31 December 2023
31 December 2022
US$'000 US$'000
Unaudited Unaudited
Corporate expenses 1,254 1,171
Burundi administration 207 329
1,461 1,500
Burundi administrative expenses incurred in the six months ended 31 December
2023 include all costs associated with maintaining the Gakara project on care
and maintenance.
4. Loss per ordinary share
Loss per ordinary share is calculated by dividing the net loss for the period
attributable to ordinary equity holders of the parent by the weighted average
number of ordinary shares outstanding during the period.
The Company was loss making for all periods presented, therefore the dilutive
effect of share options has not been taken account of in the calculation of
diluted earnings per share, since this would decrease the loss per share for
each of the period reported.
The calculation of the basic loss per share is based on the following data:
6 months ended 6 months ended
31 December 2023
31 December 2022
US$'000 US$'000
Unaudited Unaudited
The loss for the period attributable to ordinary equity holders of the parent (1,442) (1,443)
company
Number Number
'000 '000
Weighted average number of Ordinary shares for the purposes of basic and 607,767 524,963
diluted loss per share
Loss per Ordinary share Cents Cents
Basic and diluted (0.24) (0.27)
5. Exploration and evaluation assets
Gakara Phalaborwa Total
US$'000 US$'000 US$'000
At 1 July 2022 (audited) 8,635 1,953 10,588
Additions - 817 817
At 31 December 2022(unaudited) 8,635 2,770 11,405
Additions - 2,060 2,060
Impairment (8,635) - (8,635)
At 30 June 2023 (audited) - 4,830 4,830
Additions - 8,533 8,533
At 31 December 2023 (unaudited) - 13,363 13,363
Costs relating to the Phalaborwa project were capitalised during the Period.
The Gakara project has been under care and maintenance throughout the Period
and, accordingly, none of the costs meet the requirements under the Group's
accounting policy for capitalisation.
The Phalaborwa project represents an opportunity to extract rare earth
elements from the chemical re-treatment of gypsum stacks and therefore the
costs of establishing the commercial viability of development for the project
are being capitalised as exploration and evaluation assets under IFRS 6.
Additions in the Period include the costs relating to resource testing,
building and operating pilot plants in South Africa and USA, and acquiring a
further 15% economic interest in the project from Bosveld.
Since acquiring the Phalaborwa project and the subsequent development of
processing technology to recover rare earth elements from phosphogypsum as a
by-product of phosphoric acid production, the Directors have re-focused the
business on secondary sources of rare earth elements where they consider
higher returns are available. As such, the Directors no longer intend to
invest significant amounts at Gakara to convert the existing resource target
to a reserve capable of supporting long term commercial production, resulting
in an impairment review being carried out for the Gakara exploration and
evaluation assets in the year ended 30 June 2023. Based on an assessment of
both the legal and political position in Burundi, the Directors consider that
the fair value of the Gakara exploration and evaluation assets calculated in
accordance with IAS 36 is nil and an impairment loss has been recognised.
FinBank SA hold security over the fixed and floating assets of Rainbow Mining
Burundi SM ("RMB") which include the impaired exploration and evaluation
assets associated with the Gakara mining permit in Burundi.
6. Property, plant and equipment
US$'000 Mine development costs Plant & machinery Vehicles Office equipment Total
Cost
At 1 July 2022 (audited) 183 2,889 1,582 45 4,699
Additions - - - 2 2
At 31 December 2022 (unaudited) 183 2,889 1,582 47 4,701
Additions - - 24 2 26
At 30 June 2023 (audited) 183 2,889 1,606 49 4,727
Additions - - - - -
At 31 December 2023 (unaudited) 183 2,889 1,606 49 4,727
Depreciation
At 1 July 2022 (audited) 99 2,668 855 34 3,656
Charge for period 13 2 158 - 173
At 31 December 2022 (unaudited) 112 2,670 1,013 34 3,829
Charge for period 12 3 159 2 176
Impairment 59 216 410 10 695
At 30 June 2023 (audited) 183 2,889 1,582 46 4,700
Charge for period - - 2 1 3
At 31 December 2023 (unaudited) 183 2,889 1,584 47 4,703
Net Book Value at 31 December 2023 (unaudited) - - 22 2 24
Net Book Value at 30 June 2023 (audited) - - 24 3 27
Net Book Value at 31 December 2022 (unaudited) 71 219 569 13 872
As set out in note 5 the Directors recognise that the ongoing suspension of
all activities of RMB in Burundi and the subsequent decision not to commit
investment for the conversion of the Gakara resource target to reserves
requires an impairment review for the tangible fixed assets relating to the
project in accordance with IAS36. Based on an assessment of both the legal
and political position in Burundi, the Directors consider that the fair value
of the property, plant and equipment associated with the Gakara project
calculated in accordance with IAS 36 is nil and an impairment loss has been
recognised.
FinBank SA hold security over the fixed and floating assets of RMB which
include the impaired property, plant, and equipment in Burundi.
7. Trade and other payables
As at As at As at
31 December
30 June
31 December 2022
2023
2023
US$'000 US$'000 US$'000
Unaudited Audited Unaudited
Trade payable 818 124 43
Accrued expenses 357 736 316
Taxes and social security 380 290 361
Burundi land taxes payable 100 100 80
Amounts due to staff and management 34 - 11
Provision for employment disputes - - 68
Total trade and other payables 1,689 1,250 879
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 2023
30 June
31 December 2022
2023
US$'000 US$'000 US$'000
Unaudited Audited Unaudited
Finbank Loan 324 363 557
Warrant liability 209 123 133
Total borrowings 533 486 690
Payable within 12 months 250 201 101
Payable after more than 12 months 283 285 589
533 486 690
FinBank Loan
The FinBank loan facility in Burundi is expressed in BIF and carries an
interest rate of 15%. Repayment terms agreed from February 2023 require
payments of BIF30 million per month until April 2027 covering both principal
and interest on a reducing balance basis. During 2023 the devaluation of the
BIF to US$1:BIF2,840.54 at 30 June 2023 reduced the US dollar value of the
liability by US$133k.
Under the terms of this loan, FinBank has security over the fixed and floating
assets of RMB, the shares of RMB, and the cash held in RMB's FinBank bank
accounts. Interest on the loan amounted to US$26k (2022: US$42k).
Warrant Liability
On 21 February 2020, 2,000,000 warrants were issued to Pipestone Capital Inc,
in which George Bennett, the Company's CEO, has a beneficial interest. The
warrants were issued in lieu of interest on a US$1 million bridging loan
provided to the Company, which was repaid in full in December 2021. The
warrants have a contractual life of four years at an exercise price of 4.55
pence per warrant. The Pipestone warrants are recognised as a financial
liability at fair value through profit and loss with changes in value included
under finance costs/income. Subsequent to the balance sheet date the
contractual term of the warrants has been extended by a further two years.
9. Share capital
As at As at As at
31 December 2023
31 December
30 June
2023
2022
Unaudited Unaudited Audited
Issued share capital (nil par value) US$'000 56,303 41,552 50,937
Number of shares in issue ('000) 630,317 526,406 598,859
The table below shows a reconciliation of share capital movements:
Number of shares US$'000
At 1 July 2022 524,405,810 41,442
November 2022 - Options exercised (Cash receipts) 2,000,000 110
At 31 December 2022 526,405,810 41,552
May 2023 - Share placing (Cash receipts) 72,452,846 9,386
At 30 June 2023 598,858,656 50,937
November 2023-share placing (Cash receipts) 30,000,000 5,366
November 2023-Options exercised (nil value options) 1,458,000 -
At 31 December 2023 630,316,656 56,303
On 26 September 2023, the Company agreed conditionally to issue 30 million
shares at a price of 15 pence per share, raising gross cash proceeds of US$5.5
million (before costs of $135k).
The first tranche of 25,786,541 ordinary shares was issued on 5 October 2023.
The second tranche of 4,213,459 ordinary shares was issued on 6 December 2023
following shareholder approval at the Company's Annual General Meeting held on
21 November 2023.
In addition, George Bennett, Rainbow's CEO, has exercised 1,458,000 nil priced
share options originally issued in January 2021.
10. Related party transactions
US$'000 Six months to 31 Dec 2023 Six months to 31 Dec 2022
Charged in period Settled in period Closing Balance Charged in period Settled in period Closing Balance
Benzu Minerals (Proprietary) Limited(1) - - - 1 (1) -
MPD Consulting Limited(2) 2 (3) 1 3 (1) 2
Magna Capital (Guernsey) Limited(3) 647 (647) - 10 - 10
649 (650) 1 13 (1) 12
The above table does not include remuneration of Directors and senior
management.
1. Benzu Minerals (Proprietary) Limited is connected to Cesare Morelli who
is currently engaged as the acting General Manager of RMB. In addition to the
comparative amounts disclosed, which relate to costs associated with the
drilling programme at Phalaborwa in 2022, salary was paid to Cesare Morelli
via Benzu Minerals (Proprietary) Limited.
2. MPD Consulting Limited, in which Pete Gardner, the Company's CFO, has a
beneficial interest, has recharged certain costs relating to UK support
incurred on behalf of the Group.
3. Magna Capital (Guernsey) Limited ("Magna"), in which Adonis Pouroulis,
the non-executive Chairman of the Board of Directors, has a beneficial
interest, was engaged in December 2022 to assist the Company with its strategy
to consolidate ownership of the Phalaborwa project and lift the notarial bonds
in South Africa issued in favour of third parties which may have impacted the
ability of Bosveld to transfer the rights to the Phalaborwa project to a new
entity as envisaged. The transaction was concluded in July 2023 and a success
fee of £500k was paid to Magna.
11. Post balance sheet events
No events after the reporting date were identified that would affect the group
of companies significantly or cause its financial results to be materially
misstated.
1 Source: Argus Media Ltd ("Argus"), October 2023
2 Net present value using a 10% forward discount rate
3 Source: U.S. Department of Defense, March 2024
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