Interim Results for six months to 31 December 2020

RNS Number : 2490T
Rainbow Rare Earths Limited
24 March 2021
 

Rainbow Rare Earths Limited

("Rainbow" or the "Company")

(LSE: RBW)

24 March 2021

 

 

Interim Results for the six months ended 31 December 2020

Rainbow is pleased to announce its unaudited results for the six months ended 31 December 2020 ("H1 2021", "the period").

Highlights

· Strong safety performance: No lost time injuries recorded in the period; a total of 22 months production with zero lost time injuries ("LTI") now recorded.

· Effective measures to address Covid-19 remain in place and operations continue to run largely as normal.

· Key global macroeconomic trends expected to drive a strong and diversified demand for NdPr, which analysts suggest will lead to a significant supply deficit over the medium term underpinning strong pricing.

· Co-development agreement signed with Bosveld Phosphates (Pty) Ltd to develop the Phalaborwa rare earth project in South Africa, recovering rare earths from gypsum stacks resulting from historic phosphate hard rock mining.

· Phalaborwa represents an exciting, near-term growth opportunity for the business, with initial assay results indicating average in situ grade of 0.5% TREO, of which 29-30% comprises high-value NdPr.

· ANSTO Minerals are performing tests to confirm the metallurgical variability within the gypsum stacks at Phalaborwa. Metallurgical test work will then be carried out to produce an optimised process flow sheet for the preliminary economic assessment ("PEA")/scoping study.

· As a result of the unique nature of the project, it is anticipated that Phalaborwa can be brought into production far quicker and with a lower capital intensity than a traditional hard-rock rare earths mining project.

· Ongoing trial mining continues to demonstrate Gakara's considerable potential. 300 tonnes of concentrate were produced at Gakara in H1 2021 (6 months to 31 Dec 2019: 114 tonnes).

· Viability of 10,000 tonnes per annum down-stream processing plant confirmed, reinforcing the potential of Gakara's robust long-term economics.

George Bennett, CEO, said: "I believe we are now well positioned for success as London's only listed producing rare earths company with both country and project diversification.  The supply/demand fundamentals in the NdPr market present Rainbow with an exciting opportunity and we are confident in our capacity to become a globally significant producer of rare earth metals and to take advantage of the favourable market outlook."

For further information, please contact:

Rainbow Rare Earths Ltd

Company

George Bennett

Pete Gardner

+27 82 652 8526

 

SP Angel Corporate Finance LLP

Broker

Ewan Leggat

Charlie Bouverat

+44 (0) 20 3470 0470

Flagstaff Strategic and Investor Communications


Tim Thompson

Fergus Mellon

+44 (0) 207 129 1474

rainbowrareearths@flagstaffcomms.com

 

Notes to Editors:

Rainbow's strategy is to become a globally significant producer of rare earth metals. NdPr 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 NdPr into deficit.

The Company's Gakara Project ("Gakara") in Burundi, which produces one of the highest-grade concentrates in the world (typically 54% total rare earths oxides ("TREO")) through ongoing trial mining operations, is currently the only African producer of rare earths.  The Gakara basket is weighted heavily towards NdPr, which account for over approximately 19.5% of the contained TREO and >88% of the value of the concentrate.

The Phalaborwa Rare Earths Project ("Phalaborwa"), located in South Africa, comprises approximately 35 million tonnes of gypsum tailings stacked in unconsolidated dumps derived from historic phosphate hard rock mining, containing rare earth elements with an initial estimated average in situ grade of 0.5% TREO, based on previous sampling campaigns, of which +/- 30% comprises high-value NdPr. The rare earths are contained in chemical form in the gypsum dumps, which is expected to deliver a higher-value rare earth carbonate, with lower operating costs than a typical rare earth mineral project.

CEO Review

Despite the ongoing challenges being encountered around the world as a result of Covid-19, we are pleased to note that our operations have continued to run largely as normal. We implemented effective measures at the outset of the global pandemic to minimise risk and to protect the health and wellbeing of our employees, their families and our local communities.

Safety remains our number one priority and we adopt a zero-harm policy. I am pleased to report that zero LTIs occurred during H1 2021 leading to a lost time injury frequency rate ("LTIFR[1]") of 0.00 and a total period of 1.2 million hours LTI-free production since February 2019, demonstrating our commitment to this fundamental aspect of the business.

Rare earths: the critical building blocks in the green revolution

Underpinning our confidence in Rainbow's strategy is the escalating demand for rare earths metals, particularly neodymium and praseodymium ("NdPr"), which are fundamental elements used in permanent magnets for wind power technology and electric vehicles ("EVs"). We saw a surge in rare earths prices towards the end of 2020, which has continued in Q1 2021, with neodymium registering an 81% increase and praseodymium up 27% during H1 2021. Several key global macroeconomic trends are driving a strong and diversified demand for NdPr, which analysts are predicting will lead to a significant supply deficit over the medium term. Demand for these metals is being driven by the low-carbon transition and further reinforced by accelerating technological progress in the form of enhanced automation. We are also seeing evolving global emissions legislation which we expect to further support the NdPr demand outlook.

There is currently no available substitute for NdPr in permanent magnets required in wind turbines and EVs. Wind power, which could see a year-on-year capacity growth of 5.7% to 2050[2], will be a key contributor to meeting the Paris Climate Goals. Average annual NdPr demand from EVs is forecast to increase by between 4,200 - 9,600 tonnes per annum from 2020-2025[3].

China currently dominates rare earths production, with around 80% of the overall market. Against a backdrop of heightened national protectionism, numerous countries are looking to strengthen their access to these critical metals, supply chain security is becoming ever more important, especially given the increasing global scarcity for natural resources.

Whilst the demand outlook is strong, there are significant challenges involved in bringing most new rare earth mines into production, including high capital intensity and operating costs as a result of complex processing and low in-situ resource grades.  Analysts are therefore predicting a growing supply deficit of responsibly sourced NdPr.

With their anticipated low capital intensity and favourable operating cost requirements, we believe that both Phalaborwa and Gakara provide Rainbow with significant opportunity in light of the current market environment and longer-term supply-demand fundamentals.

Operational update

Phalaborwa

The Company's new Phalaborwa Project represents an exciting, near-term growth opportunity for the business, and we expect it to drive Rainbow's strategy to become a globally significant producer of rare earth metals.

Located in South Africa, Phalaborwa comprises approximately 35 million tonnes of gypsum in two stacks from historic phosphate hard rock mining. This gypsum contains rare earth elements with an estimated average in situ grade of 0.5% TREO, of which 29-30% comprises high-value NdPr, based on the first batch of assay results announced in February 2021 from the auger drilling programme completed by Rainbow in 2020. We believe the basket weighting to NdPr represents one of the highest of any project in the world, underlining the exciting potential of this project.

Contained in a 'cracked' chemical form in the gypsum stacks, we expect the rare earths to be capable of delivering a higher-value carbonate, with significantly lower operating costs than a typical rare earth project, without the requirement for waste stripping, hard-rock mining, or grinding. Given that the assay results received to date suggest that the gypsum stacks are homogenous in nature, the consistency of the high value NdPr content substantially de-risks the project, with minimal geological uncertainty. With the capacity to progress straight to the downstream production of a mixed rare earth carbonate, without the need to first produce a concentrate and then 'crack' it prior to beneficiation, Phalaborwa will be well suited to a simplified processing flow sheet and we anticipate relatively low capital intensity requirements to bring the project into production.

ANSTO Minerals in Australia, one of the world's leading experts in rare earths flow sheets, has recently been appointed to perform scouting leach tests on drill samples from Phalaborwa to confirm the metallurgical variability within the gypsum stacks.  Metallurgical test work will then be carried out to produce an optimised process flow sheet for the PEA/scoping study, based on the original bankable feasibility study-level flow sheet developed by Sasol, the South African integrated energy and chemical company, which produced three tonnes of mixed rare earth carbonate and an associated cerium oxide at a pilot plant directly from the gypsum.

Sasol's pilot plant remains on site alongside the associated infrastructure of the Phosphoric Acid Plant. Existing infrastructure includes a high voltage switchyard (providing access to Eskom grid power), equipped machine shops, workshops, laboratory buildings, administration offices, acid storage and ammonia tanks, boilers and rail sidings. In addition to this, the project is positioned in an established mining town, and will therefore benefit from all the associated skilled labour availability and supporting industry in place (such as the local production of sulphuric acid, which will likely be a key reagent for the project).

With extremely low levels of radioactive elements present and our potential to re-process material currently contained in gypsum stacks, thereby positively contributing to a more circular approach to resource use, we believe Phalaborwa positions Rainbow as a leading example of a 'green' rare earth Company, producing the elements required for the clean energy revolution.

Following the publication of additional assay results received from Phalaborwa shortly, we intend to publish a JORC (2012) Mineral Resource Estimate in Q2 2021.

Gakara

Ongoing trial mining operations at the Company's Gakara project in Burundi, which employ a simple, reagent-free, low capital and operating cost gravity concentration process, continue to demonstrate the considerable potential of this operation to our business. Producing one of the highest-grade concentrates in the world of 54% total rare earths oxides ("TREO"), Gakara remains Africa's only producer of rare earths.

300 tonnes of concentrate were produced at Gakara in H1 2021, representing a 163% increase on the six months to 31 Dec 2019 of 114 tonnes and a 21% increase on the previous half (H2 2020: 249 tonnes). Looking forward, US$0.5 million in additional capital has been committed to opening up further trial mining areas in Q1 2021, which is expected to drive production towards 100 tonnes of concentrate per month. Longer term, we intend to invest in further mining equipment to open further trial mining areas, enabling us to utilise the full capacity of the existing pilot processing plant and produce circa 200 tonnes of concentrate per month.

Our stated long-term strategy to develop commercial scale production at Gakara, targeting 10,000 - 20,000 tonnes per annum of concentrate via low-capital intensity, modular development was further reinforced by the recent feasibility update, announced in February 2021. In December 2020, Metallurgical Engineering Technology and Construction (Pty) Ltd ("METC") was engaged to update and optimise a preliminary economic assessment conducted in 2015 by SGS Lakefield Canada Inc ("SGS"). The study confirmed the feasibility of a 10,000 tonnes per annum rare earths element cracking plant, doubling its capacity from the originally proposed 5,000 tonnes per annum, based on the Strong Acid Agitated Bake process developed from the test work completed by SGS. According to work carried out to date, the plant demonstrates very favourable capital intensity of US$35.2 million and operating costs of US$1,279/t. We believe these to be some of the lowest in the industry and therefore viable even in the event of volatile rare earths prices.

As part of this study, METC optimised the process, incorporating newer technologies, to deliver a flow sheet capable of producing a high-grade cerium-depleted mixed rare earth carbonate, containing approximately 39% NdPr. The proposed plant location in South Africa would provide strong synergies with Phalaborwa, contribute to the local economy and facilitate a sustainable, transparent rare earths supply chain. These combined factors serve to further strengthen our resolve to confidently progress through to commercial scale production at Gakara.

Corporate

The first half of 2021 has been a busy period for the whole team as we entered into a co-development agreement at Phalaborwa and continued to ramp up trial mining operations at Gakara. I am very pleased by the encouraging progress we have made at both projects; particularly given the challenges we are facing around the globe as a result of Covid-19. 

We continue to be encouraged by the sustained support we have received from our shareholders and this was evidenced by the over-subscribed placing in November 2020 to raise £2.56 million in gross proceeds.

We have enhanced our senior project development team since year end and are delighted to welcome Chris le Roux and Charles Graham to Rainbow to work closely with Rainbow's Technical Director, Dave Dodd. With their combined wealth of experience, they will be instrumental in the delivery of Phalaborwa, as well as the ongoing development of Gakara.

I believe we are now well positioned for success as London's only listed rare earths producer with both country and project diversification. The supply/demand fundamentals in the NdPr market present Rainbow with an exciting opportunity and we are confident in our capacity to become a globally significant producer of rare earth metals and to take advantage of the favourable market outlook.

 

George Bennett

Chief Executive Officer

Financial Review

The six months ended 31 December 2020 have seen a transformation at Rainbow Rare Earths Limited with the completion of the earn-in agreement for the Phalaborwa asset in South Africa.

From a financial perspective, a total of US$820k has been capitalised for the Phalaborwa asset during the period, including the costs associated with the drilling programme to define the resource at the gypsum stacks.  The majority of the capitalised cost represents the US$750k total consideration for the 70% interest in the project, albeit that only US$250k was paid in cash during the period.  The remaining consideration is payable in two tranches: US$250k in shares at the then prevailing share price in June 2021 and a further US$250k in cash or shares at the then prevailing share price, at the election of the joint venture partner, Bosveld Phosphates Ltd.

At Gakara, concentrate production (and sales) from trial mining increased markedly, with a total of 300 tonnes both produced and sold in the period compared to 114 tonnes produced and 100 tonnes sold in the six months ended 31 December 2019.  As a result, cash costs associated with trial mining, net of movements in stock of available for sale concentrate, were reduced to US$195k.  In line with the trial mining status at Gakara the US$195k costs of trial mining were capitalised in the period alongside US$213k of geology and licence related expenditure and US$107k of depreciation on the trial mining fleet.

Further investment totalling US$264k was made in the six months ended 31 December 2020, as part of an ongoing upgrade in trial mining and processing capacity which is expected to allow further growth in concentrate production in the remainder of the financial year, more fully utilising the capacity of the pilot plant.  Alongside the strongly improving pricing environment for Neodymium and Praseodymium, the growth in concentrate production is expected to further limit the requirement for ongoing financial support for trial mining activities at Gakara this financial year.

As set out in the annual report for the year-ended 30 June 2020, the financial information for the six months ended 31 December 2019 has been re-stated compared to that originally presented to reflect the accounting policy for all costs relating to the trial mining and processing activities being capitalised after the strategic review concluded in July/August 2019.  The impact of this change resulted in US$873k of costs originally recognised in the income statement in the six months ended 31 December 2019 being reclassified as part of exploration and evaluation assets.

During November 2020 the Group raised US$3.3 million, net of costs, at a price of 6 pence per ordinary share, providing the necessary financing for the Phalaborwa earn-in agreement, the upgrade to the trial mining capacity at Gakara as well as ongoing administrative overheads.  In addition, US$559k was received from the previous fundraising completed in June 2020 and US$216k from an exercise of share options.  Together, this has left a closing bank balance of US$2.5 million at 31 December 2020. 

Further funding is expected to be raised in H2 2021 to allow full feasibility study to be completed at the Phalaborwa asset, and support ongoing corporate overheads.  The Directors have a reasonable expectation that the Company and the Group will be able to raise the additional finance required to allow the Company to remain a Going Concern for the foreseeable future, although acknowledge that there continues to exist a material uncertainty that may cast doubt over its ability to do so.  Nevertheless, the Directors continue to adopt the going concern basis in preparing the Condensed Consolidated Financial Statements.  For further detail refer to the detailed discussion of the assumptions outlined in note 2(a) to the Condensed Consolidated Financial Statements.

Cautionary Statement:

The business review and certain other sections of this 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.

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 28-29 of the Annual Report for the year ended 30 June 2020.  The risks and uncertainties are summarised below:

· Gakara exploration risk

The Company does not currently have a code-compliant Mineral Resource or Reserve at the Gakara project.  The variations in form and direction of the vein stockwork seen at Gakara are inherently difficult to predict with accuracy and therefore the geological information gathered to date is only sufficient to report an Exploration Target under JORC.

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.

· Phalaborwa exploration and development risk

The Company does not currently have a code-compliant Mineral Resource or Reserve at the Phalaborwa project.  Whilst the drilling results received to date show a relatively homogeneous grade of mineralisation within the gypsum stacks in line with initial expectations, future results may show lower or more varied levels of rare earth mineralisation.

To date, the Company has not completed any work on the recovery of rare earths from the gypsum stacks or the processing requirements thereof.

It is possible that the quantity of rare earths present in the gypsum stacks are less than management expectations, or that the recovery of the rare earths from the gypsum stacks cannot be achieved on a commercial scale, with resulting impacts on plans to develop a long-term commercial operation at Phalaborwa.

· Rare earth prices

The Company is focused on developing a commercial scale operation at both the Gakara and Phalaborwa projects to produce rare earth concentrates and, ultimately, separated rare earth oxides.  The Company currently has an off-take agreement with ThyssenKrupp, selling rare earth concentrate from trial mining at Gakara at a discount of approximately 70% to the quoted price of the underlying metal oxides.  The Company has no off-take agreement for the potential rare earth concentrate from the Phalaborwa project.

Rare earth prices have been volatile in the past.  If the underlying rare earth basket price falls, this reduces potential revenue that will impact the long-term profitability of both the Gakara and Phalaborwa projects and could impact the commercial viability of any commercial scale development.

· Financing risk

The Company currently forecasts that additional funding will be required in order to deliver its exploration and project development plans as well as for general working capital requirements.

· Civil unrest

Burundi has experienced civil unrest, including most recently in 2015.  Any subsequent instances of civil unrest could impact the operation of the Gakara project, including its ability to obtain supplies, export its material, or access its bank accounts in country.

· Currency controls

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 could affect the Company's ability to meet ongoing foreign currency obligations including corporate costs and any debt repayments in US dollars.

· Covid-19

The Covid-19 pandemic could disrupt the Company's operations, delaying exploration and development works and interrupting trial mining activities at the Gakara Project in Burundi.

There have been no significant changes to the risk profile during the first half of the year.

Directors' Responsibility Statement

We confirm that to the best of our knowledge:

a)  the Condensed set of Interim Financial Statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

b)  the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year);

c)  the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein); and

d)  the condensed set of interim financial statements, which has been prepared in accordance with the applicable set of accounting standards, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer, or the undertakings included in the consolidation as a whole as required by DTR 4.2.4R.

This Half Yearly Report has been approved by the Board and signed on its behalf by:

 

 

George Bennett

Chief Executive Officer

23 March 2021



 

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 31 December 2020



6 months ended
31 December 2020

6 months ended
31 December 2019
(re-stated)[4]

Year ended
 30 June
2020


Notes

US$'000

Unaudited

US$'000

Unaudited

US$'000

Audited






Revenue


527

156

422

Production and sales costs


(527)

(639)

(905)

Administration expenses


(801)

(875)

(2,103)

Adjusted EBITDA[5]


(801)

(1,358)

(2,586)

Share based payments


-

(7)

(7)

Depreciation


(28)

(245)

(279)



(1,356)

(1,766)

(3,294)






Loss from operating activities


(829)

(1,610)

(2,872)






Finance income


249

627

856

Finance costs


(310)

(74)

(209)






Loss before tax


(890)

(1,057)

(2,225)






Income tax expense


(5)

(1)

(9)






Total loss after tax and comprehensive expense for the period


(895)

(1,058)

(2,234)






Total loss after tax and comprehensive expense for the period is attributable to:





Non-controlling interest


(7)

(12)

(60)

Owners of parent


(888)

(1,046)

(2,174)



(895)

(1,058)

(2,234)

Loss per share (cents)





Basic


(0.21)

(0.29)

(0.58)

Diluted


(0.21)

(0.29)

(0.58)






 

The results of each period are derived from continuing operations.



 

Condensed Consolidated Statement of Financial Position

As at 31 December 2020



As at
31 December 2020

As at
31 December 2019

(re-stated)[6]

As at
30 June
2020


Notes

US$'000

Unaudited

US$'000

Unaudited

US$'000

Audited

Non-current assets





Exploration and evaluation assets


8,909

6,881

7,572

Property, plant and equipment


1,081

678

942

Right of use assets


93

-

104

Total non-current assets


10,083

7,559

8,618






Current assets





Inventory


227

78

167

Trade and other receivables


630

795

938

Cash and cash equivalents


2,494

553

788

Total current assets


3,351

1,426

1,893






Total assets


13,434

8,985

10,511






Current liabilities





Borrowings


(1,088)

(131)

(1,093)

Lease liabilities


(27)

-

(33)

Trade and other payables


(610)

(563)

(698)

Total current liabilities


(1,725)

(694)

(1,824)






Non-current liabilities





Borrowings


(622)

(686)

(587)

Lease liabilities


(86)

-

(95)

Provisions


(100)

(100)

(100)

Total non-current liabilities


(808)

(786)

(782)






Total Liabilities


(2,533)

(1,480)

(2,606)






NET ASSETS


10,901

7,505

7,905






Equity





Share capital 


31,775

26,613

28,132

Share based payment reserve


1,260

1,771

1,099

Share warrant reserve


-

40

40

Other reserves


147

3

60

Retained loss


(21,390)

(20,086)

(20,542)

Equity attributable to the parent


11,792

8,341

8,789

Non-controlling interest


(891)

(836)

(884)

TOTAL EQUITY


10,901

7,505

7,905






 



 

Condensed Consolidated Cash Flow Statement

For the six months ended 31 December 2020



6 months ended
31 December 2020

6 months ended
31 December 2019
(re-stated)[7]

Year ended
 30 June
2020


Notes

US$'000

Unaudited

US$'000

Unaudited

US$'000

Audited






Cash flow from operating activities





Loss after tax for the year


(895)

(1,058)

(2,234)

Adjustments for:





Depreciation


28

245

279

Profit on disposal of fixed assets


-

-

4

Share-based payment charge


-

7

7

Directors' fees settled in shares


-

-

96

Finance income


(249)

(627)

(856)

Finance costs


310

74

209

Tax expense


5

1

9

Operating loss before working capital changes


(801)

(1,358)

(2,486)






Net decrease/(increase) in inventory


7

(2)

(22)

Net (increase)/decrease in other receivables


(251)

99

126

Net (decrease)/increase in trade and other payables


(103)

(1,644)

(1,188)

Cash used by operations


(1,148)

(2,905)

(3,570)






Realised foreign exchange gains


219

656

855

Finance income


-

2

2

Finance costs


(8)

(11)

(5)

Taxes paid


(5)

(1)

(41)

Net cash used in operating activities


(942)

(2,259)

(2,759)






Cash flow from investing activities





Purchase of property, plant & equipment


(264)

(7)

(378)

Exploration and evaluation costs


(797)

(1,464)

(2,045)

Proceeds from sale of property, plant & equipment


-

-

3

Net cash used in investing activities







Cash flow from financing activities





Proceeds of new borrowings


275

-

1,000

Repayment of borrowings


(390)

(8)

(74)

Interest payments on borrowings


(70)

(63)

(137)

Payment of lease liabilities


(14)

(7)

(22)

Proceeds from the issuance of ordinary shares


4,198

4,582

5,390

Transaction costs of issuing new equity


(85)

(309)

(309)

Net cash generated by financing activities







Net increase/(decrease) in cash and cash equivalents


1,911

465

669






Cash & cash equivalents at the beginning of the period


553

119

119

Foreign exchange (loss)/gain on cash & cash equivalents


30

(31)

-

Cash & cash equivalents at the end of the period


2,494

553

788


Condensed Consolidated Statement of Changes in Equity

For the six months ended 31 December 2020


Share capital

Shares to be issued

Share- based Payments

Share warrant reserve

Other reserves

Accumulated losses

Attributable

to the

parent

Non-controlling interest

Total


US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000











Balance at 1 July 2019 (audited)

20,056

1,375

1,764

40

-

(19,040)

4,195

(824)

3,371











Total comprehensive expense










Total comprehensive loss (re-stated1)

-

-

-

-

-

(1,046)

(1,046)

(12)

(1,058)











Transactions with owners










Issue of shares during the period

6,878

(1,375)

-

-

-

-

5,503

-

5,503

Share placing transaction costs

(321)

-

-

-

-

-

(321)

-

(321)

Fair value of employee share options

-

-

7

-

-

-

7

-

7

Translation differences

-

-

-

-

3

-

3

-

3

Balance at 31 December 2019 (unaudited, re-stated [8] )

26,613

-

1,771

40

3

(20,086)

8,341

(836)

7,505











Total comprehensive expense










Total comprehensive loss

-

-

-

-

-

(1,128)

(1,128)

(48)

(1,176)











Transactions with owners










Issue of shares during the period

1,519

-

-

-

-

-

1,519

-

1,519

Discount on interest free bridge loan provided by shareholder

-

-

-

-

60

-

60

-

60

Employee share options exercised, lapsed or cancelled following vesting

-

-

(672)

-

-

672

-

-

-

Translation differences

-

-

-

-

(3)

-

(3)

-

(3)

Balance at 30 June 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 exercise proceeds received

216

-

-

-

-

-

216

-

216

Fair value associated with options exercised in period

89

-

(89)

-

-

-

-

-

-

Discount on interest free bridge loan provided by shareholder

-

-

-

-

87

-

87

-

87

Warrants expired in period

-

-

-

(40)

-

40

-

-

-

Balance at 31 December 2020 (unaudited)

31,775

-

1,260

-

147

(21,390)

11,792

(891)

10,901

 


Notes to the Condensed Financial Statements

For the six months ended 31 December 2020

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 Statement and the Financial Review.

The financial information for the year ended 30 June 2020 does not constitute the audited statutory accounts, but has been extracted from those accounts.  The auditors' report included a paragraph highlighting the material uncertainty in respect of going concern.

This Half Yearly Report has not been audited or reviewed.

A copy of this Half Yearly Report has been published and may be found on the Company's website at www.rainbowrareearths.com

2.  Basis of preparation

The annual financial statements of the Group are prepared in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.  These Condensed Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting.

The same accounting policies and methods of computation are followed in the condensed interim financial statements as were followed in the most recent annual financial statements of the Group, which were published on 27 October 2020.  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 2020 was US$2,494k (30 June 2020: US$788k).  The Board have reviewed the Group's latest cash flow forecasts, including corporate overheads and repayment of borrowings to 31 December 2022, which indicate that the Group will need to raise additional finance of at least US$2.7 million in H2 2021.

The cash flow forecasts assume a continuation of trial mining activities in Burundi which, further to an investment programme to enhance mining capacity, are expected to produce ~100t of concentrate per month during 2021.  Subject to continuing strength in underlying rare earth prices and trial mining production levels in Burundi meeting target, the additional finance required set out above will primarily be to meet corporate overheads.

Whilst the cash flow forecasts include day to day exploration and evaluation activities in Burundi, they exclude costs associated with a large-scale resource definition programme to upgrade the current resource target to a JORC complaint resource, for which further funding may be raised in H2 2021.  An estimated cost of US$3.2 million for this work was set out with the JORC Exploration Target announced on 8 October 2020.

The cash flow forecasts include the costs for the preparation of a scoping study for the Group's Phalaborwa asset in South Africa, together with the remaining amounts due to be paid under the earn-in agreement.  The total capital requirements for completing a feasibility study on the Phalaborwa asset are expected to be refined during H1 2021 following receipt of the remaining assay results from the drilling programme completed in December 2020 and initial metallurgical test-work results.  The current cash flow forecasts, and the estimated additional finance requirement set out above, exclude the cost of completing a full bankable feasibility study for Phalaborwa and additional finance is expected to be raised in H2 2021 to allow that work to be completed.

At 31 December 2020 the Group had US$1.6 million of undiscounted financing liabilities including:

· US$0.9 million in an unsecured loan from Pipestone Capital, a Company associated with George Bennett, CEO, which will need to be repaid at the time of the next significant fundraising or 31 December 2021, whichever is earlier.  Repayment of this amount in cash is not included in the Group's cash flow forecasts as it is anticipated to be settled as part of the next significant fundraising prior to 31 December 2021.

· US$0.7 million in a term loan from FinBank in Burundi.  Repayment of this loan is ongoing at a rate of US$21k per month (including interest), which is included in the Group's cash flow forecasts.

Based on the current outlook for rare earth prices and the Group's continuing growth prospects, 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) Adjustment of prior period

The unaudited interim accounts for the period ended 31 December 2019, as originally published on 30 March 2020, indicated that US$6.2 million was transferred from property, plant and equipment to exploration and evaluation asset on 1 July 2019 with no depreciation recognised prior to transfer.  The unaudited income statement for H1 2020 included all costs and revenues relating to the trial mining and processing activities, resulting in a reported loss before tax of US$1.8 million.

In preparing the financial statements for the year-end 30 June 2020 the assessments inherent in the unaudited interim accounts relating to the date of transfer and the nature of the ongoing trial mining and processing activities, and the relevant accounting treatment thereof, were reassessed and concluded to have been incorrect.  As disclosed in note 3 to the audited financial statements published on 27 October 2020, a review of the Group's strategy in July and August 2019 resulted in management concluding that the existing operations did not constitute commercial mining operations and that a focus on exploration and evaluation of the wider Gakara licence was required to deliver a larger scale commercial operation.  Accordingly, the date of transfer of the mine development costs to exploration and evaluation assets was determined to be 1 September 2019, with depreciation of the asset recognised for the period of the strategic review.  In addition, all costs associated with trial mining and processing operations, net of margin on associated revenue earned, have been capitalised as part of exploration and evaluation assets with effect from September 2019.  As a result, the transfer from property, plant and equipment to exploration and evaluation costs was reduced by US$0.8 million to US$5.4 million and US$0.7 million of costs and revenues relating to trial mining and processing in October to December 2019 were capitalised rather than being recognised in the income statement.

The comparative data presented in the unaudited interim financial statements relating to the period ending 31 December 2019 has been updated to reflect the treatment adopted in the audited financial statements for the year ended 30 June 2020.  The below table summarises the impact of the adjustment to the period ended 31 December 2019:


Original

US$'000

Unaudited

Adjustment

US$'000

Unaudited

Revised

US$'000

Unaudited

Consolidated Statement of Comprehensive Income




Production and sales costs

(1,682)

1,043

(639)

Administration expenses1

(765)

(110)

(875)

Depreciation

(76)

(169)

(245)

Income tax expense1

(111)

110

(1)

Total loss after tax

(1,932)

874

(1,058)





Consolidated Statement of Financial Position




Exploration and evaluation assets

6,150

731

6,881

Property, plant and equipment

536

142

678

Total net assets

6,632

873

7,505





Consolidated Cash Flow Statement




Loss after tax for the year

(1,932)

874

(1,058)

Depreciation

76

169

245

Tax expense

111

(110)

1

Net decrease/(increase) in inventory

20

(22)

(2)

Net (decrease)/increase in trade and other payables

(1,334)

(310)

(1,644)

Taxes paid

(111)

110

(1)

Purchase of property, plant & equipment

(689)

682

(7)

Exploration and evaluation costs

(59)

(1,405)

(1,464)

Transaction costs of issuing new equity

(321)

12

(309)

 

1.  US$110k of indirect taxes have been moved for corporation tax to administrative expenses for presentation purposes.

 

(c) Dividend

The Directors do not recommend the payment of a dividend for the period (six months ended 31 December 2019: US$nil, six months ended 30 June 2020: US$nil).

3.  Loss per ordinary share

Loss per ordinary share is calculated by dividing the net loss for the period attributable to Ordinary equity holders of the parent by the weighted average number of Ordinary shares outstanding during the period.

The Company was loss making for all periods presented, therefore the dilutive effect of share options has not been taken account of in the calculation of diluted earnings per share, since this would decrease the loss per share for each of the period reported.

The calculation of the basic loss per share is based on the following data:


6 months ended
31 December
 2020

6 months ended
31 December 2019
(re-stated)

Year ended
 30 June
2020


US$'000

Unaudited

US$'000

Unaudited

US$'000

Audited

The loss for the period attributable to ordinary equity holders of the parent company

(890)

(1,046)

(2,174)






Number

Number

Number


'000

'000

'000

Weighted average number of Ordinary shares for the purposes of basic and diluted loss per share

428,264

366,874

377,142





Loss per Ordinary share

Cents

Cents

Cents

Basic and diluted

(0.21)

(0.29)

(0.58)

 

4.  Exploration and evaluation assets



US$'000




At 1 July 2019 (audited)


-

Transferred from Property, Plant & Equipment


5,417

Additions


1,464

At 31 December 2019 (unaudited, restated)


6,881

Additions


691

At 30 June 2020 (audited)


7,572

Additions


1,337

At 31 December 2020 (unaudited)


8,909

 

 

Included within additions is US$527k (six months ended 31 December 2019: US$156k, six months ended 30 June 2020: US$266k) related to gross revenues earned 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$6.9 million of exploration and evaluation assets associated with the Gakara mining permit in Burundi as at 31 December 2020.

5.  Property, plant and equipment

US$'000

Mine development costs

Plant & machinery

Vehicles

Office equipment

Mine restoration

Total

Cost







At 1 July 2019 (audited)

9,317

2,665

709

41

100

12,832

Transferred to exploration and evaluation assets

(9,134)

-

-

-

(100)

(9,234)

Disposals

-

-

(5)

-

-

(5)

Additions

-

-

-

7

-

7

At 31 December 2019 (Unaudited, re-stated)

183

2,665

704

48

-

3,600

Additions

-

-

370

1

-

371

Disposals

-

-

-

(4)

-

(4)

At 30 June 2020

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

Depreciation







At 1 July 2019 (audited)

3,510

2,665

142

7

100

6,424

Charge for period

241

-

71

4

-

316

Eliminated on disposals

-

-

(1)

-

-

(1)

Transferred to exploration and evaluation assets

(3,717)

-

-

-

(100)

(3,816)

At 31 December 2019 (Unaudited, restated)

34

2,665

212

11

-

2,922

Charge for period

13

-

86

5

-

104

Eliminated on disposals

-

-

-

(1)

-

(1)

At 30 June 2020

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








Net Book Value at 31 December 2020 (unaudited)

123

22

911

25

-

1,081

Net Book Value at 30 June 2020

136

-

776

30

-

942

Net Book Value at 31 December 2019 (unaudited)

149

-

492

37

-

678

 

Depreciation of US$107k (six months ended 31 December 2019: US$71k, six months ended 30 June 2020: US$86k) relating to mining vehicles and site infrastructure was capitalised in the year 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$1,079k of tangible fixed assets in Burundi.

 

6.  Trade and other payables


As at
31 December 2020

As at
31 December 2019

As at
30 June
2020


US$'000

Unaudited

US$'000

Unaudited

US$'000

Audited

Trade payable

135

251

261

Accrued expenses

157

236

233

Taxes and social security

25

6

22

Amounts due to staff and management

-

27

133

Pension contributions

3

-

3

Other payables1

290

43

46

Total trade and other payables

610

563

698

 

1.  Other payables include US$250,000 consideration payable under the Phalaborwa co-development agreement, which is payable in cash or shares (at the then prevailing share price) at the election of the joint venture partner, Bosveld Phosphates Ltd.

 

The Directors consider that the carrying value of trade and other payables approximate to their fair value.

 

7.  Borrowings


As at
31 December 2020

As at
31 December 2019

As at
30 June
2020


US$'000

Unaudited

US$'000

Unaudited

US$'000

Audited

Finbank Loan

647

795

762

Pipestone Loan

848

-

868

Warrant liability

215

-

50

Other borrowings

-

22

-

Total borrowings

1,710

817

1,680





Payable within 12 months

1,088

131

1,093

Payable after more than 12 months

622

686

587


1,710

817

1,680

 

FinBank Loan

The FinBank loan facility is expressed in Burundian Francs 'BIF' and carries an interest rate of 15%.  The loan is being repaid in cash via a fixed monthly payment of BIF52 million, including interest, and is due to be repaid in full in May 2023.  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

The Pipestone loan, provided by Pipestone Capital Inc, in which George Bennett, the Company's CEO, has a beneficial interest, is a US$925,000 unsecured, interest free loan.  The finance cost for the loan was originally provided in February 2020 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).  The warrants were originally valued at US$50k which equates to an interest rate of 15.0% over the original expected life of the loan, which is recognised as a separate liability with a maturity in 2-5 years, with the full interest charge recognised in the year ended 30 June 2020.  At 31 December this was revalued to US$215k based on the closing share price on 31st December 2020.

The loan has been re-financed in June 2020 and is now repayable on the earlier of 31st December 2021 or the date of a fundraising by the Company to raise a minimum of US$3 million in new equity.  As the loan was provided by an entity connected with a director of the Company on preferential terms it has been discounted since June 2020 at an effective interest rate of 15% representing an arms-length short term loan with the discount recognised in an equity reserve.  At 30 June 2020 the loan was expected to be repaid by December 2020.  During the period the expected repayment date has been amended to July 2021 with the equity reserve totalling US$147k at 31st December 2020.

8.  Share capital


As at
31 December 2020

As at
31 December 2019

As at
30 June
2020


Unaudited

Unaudited

Audited

Issued share capital (nil par value) US$'000

31,775

26,613

28,132

Number of shares in issue ('000)

467,682

380,315

421,982

 

The table below shows a reconciliation of share capital movements:


Number of shares

US$'000

At 1 July 2019

216,339,000

20,056

July 2019 - share placing - cash receipts net of costs

121,207,779

4,292

July 2019 - share placing - employee bonuses and fees

4,859,603

185

July 2019 - Pella Convertible

18,636,040

704

July 2019 - Lind1 Convertible

19,272,462

1,376

At 31 December 2019

380,314,884

26,613

June 2020 - share placing - cash receipts net of costs

37,138,284

1,349

June 2020 - share placing - non-executive director fees

2,534,604

95

June 2020 - partial repayment of Pipestone loan

1,993,779

75

At 30 June 2020

421,981,551

28,132

December 2020 - share placing - cash receipts net of costs

42,700,000

3,338

December 2020 - Lind1 options exercised

3,000,000

305

At 31 December 2020

467,681,551

31,775

 

On 3 July 2019 the Company issued 121.2 million new ordinary shares at a price of 3 pence per share, raising gross cash proceeds of approximately US$4.6 million (before costs of US$0.3 million).  At the same time the Company issued:

· 4.9 million new ordinary shares at a price of 3 pence per share as settlement of employee bonuses and non-executive director fees

· 18.6 million new ordinary shares at a price of 3 pence per share representing the settlement of a loan from Pella Ventures Limited, a Company associated with Adonis Pouroulis, a director of the Company.

· 19.3 million new ordinary shares representing the conversion of the Lind1 facility announced on 10th June at a conversion price of 2.69 pence per share.

 

1.  In 2019 the Company entered a financing arrangement with the Australian Special Opportunity Fund, LP (managed by The Lind Partners LLC "Lind") which included a convertible loan instrument, converted to equity in July 2019, and the issue of 16.7 million share options with an exercise price of 5.28p per ordinary share.

 

On 22 June 2020 the Company issued 37.1 million new ordinary shares at a price of 3 pence per share, raising gross cash proceeds of approximately US$1.4 million (before costs of US$38k).  At the same time the Company issued:

· 2.5 million new ordinary shares at a price of 3 pence per share as settlement of non-executive director fees

· 2.0 million new ordinary shares at a price of 3 pence per share representing the partial settlement of the Pipestone loan.

 

These allotments included the following related parties:


Placing July 2019

Placing June 2020


No of shares

US$'000

No of shares

US$'000

Adonis Pouroulis (Director)

19,108,262

722

3,359,648

126

George Bennett (Director)

26,455,026

1,000

1,993,779

75

Alex Lowrie (Director)

-

-

458,332

17

Atul Bali (Director)

305,555

12

1,783,332

67

Robert Sinclair (Director)

305,555

12

458,332

17

Shawn McCormick (Director)

305,555

12

1,787,518

67

Martin Eales (Director at time of placing)

1,182,563

45

-

-

Jim Wynn (PDMR at time of placing)

844,688

32

-

-

Cesare Morelli (PDMR at time of placing)

640,315

24

-

-

Gilbert Midende (PDMR at time of placing)

803,150

30

-

-

Others (not related parties)

94,752,753

3,275

31,825,726

1,167

Total

144,703,422

5,164

41,666,667

1,536

 

On 3 December 2020 the Company issued 42.7 million new ordinary shares at a price of 6 pence per share, raising gross cash proceeds of approximately US$3.4 million (before costs of US$0.1 million).  No related parties were involved in the placing.

 

On 30 December 2020 the Company allotted 3 million new ordinary shares at a price of 5.28 pence per share further to the exercise of share options granted to Lind in January 2019.  The increase in share capital associated with these shares includes US$89k representing the fair value of the original options, which was recognised as a cost in the year ended 30 June 2019.

 

9.  Related party transactions

US$'000

Six months to 31 Dec 2020

Six months to 31 Dec 2019

Year to 30 June 2020

 


Charged in period

Settled in period

Closing Balance

Charged in period

Settled in period

Closing Balance

Charged in year

Settled in period

Closing Balance

Gilbert Midende1

19

(19)

-

20

(40)

-

38

(53)

35

Pella Ventures Limited2

-

-

-

-

(704)

-

-

(704)

-

Pipestone Capital Inc3

153

(153)

925

-

-

-

1,000

(75)

925

Robert Sinclair4

26

(26)

-

-

-

-

-

-

-

Alex Lowrie4

26

(26)

-

-

-

-

-

-

-

Atul Bali4

26

(26)

-

-

-

-

-

-

-

Shawn McCormick4

26

(26)

-

-

-

-

-

-

-

Pete Gardner4

26

(26)

-

-

-

-

-

-

-

Benzu Minerals (Pty) Ltd5

-

-

-

105

(140)

-

56

(91)

-


302

(302)

925

125

(884)

-

1,094

(923)

960

 

The above table does not include remuneration of Directors and senior management.

1.  In addition to his salary, US$10k was charged by Gilbert Midende in the period ended 31 December 2020 in respect of leases.  The balances shown relate to amounts contractually due under leases rather than the lease liability recognised including expectations of future renewals.

2.  Pella Ventures Limited, of which Adonis Pouroulis is the ultimate beneficial owner, provided a US$0.7 million bridge loan in June 2019 that was settled by the issue of shares in July 2019.

3.  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.  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.

4.  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.

5.  Benzu Minerals (Pty) Ltd is connected to Cesare Morelli, through which exploration services are provided to the Group.  Benzu Minerals (Pty) Ltd is no longer considered a related party.

10.  Post balance sheet events

Subsequent to 31st December 2020 the Company has issued a further 6.7 million shares raising gross proceeds of approximately US$0.5 million subject to the exercise of share options by Lind at an exercise price of 5.28 pence per ordinary share.  Subsequent to these option exercises Lind holds a further 7,018,987 share options with an exercise price of 5.28 pence per ordinary share.



[1] LTIFR calculated per 200,000 hours worked.

[2] Bloomberg NEF New Energy Outlook 2020 5. NDRC-ERI "Aggressive Scenario".

[3] SP Angel

[4] Refer to note 2 for details of the re-statement of the unaudited income statement for the period ended 31 December 2019.

[5] Adjusted EBITDA represents earnings before finance items, depreciation, amortisation, taxation, share-based payments and impairments.

[6] Refer to note 2 for details of the re-statement of the unaudited balance sheet as at 31 December 2019.

[7] Refer to note 2 for details of the re-statement of the unaudited cash flow statement for the period ended 31 December 2019.

[8] Refer to note 2 for details of the re-statement of the unaudited statement of changes in equity for the period ended 31 December 2019.

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