TIDMRBW

RNS Number : 1114F

Rainbow Rare Earths Limited

17 March 2022

Rainbow Rare Earths Limited

("Rainbow" or the "Company")

(LSE: RBW)

17 March 2022

Interim Results for the six months ended 31 December 2021

Rainbow is pleased to announce its unaudited results for the six months ended 31 December 2021 ("H1 2022", "the period").

Highlights

-- The low-carbon technologies required to facilitate the green revolution carry an intensive demand for minerals; accelerated by evolving emissions legislation and targets, rare earths demand is expected to be driven by growing electric vehicle production and offshore wind exploitation.

-- Rainbow's rare earths basket prices have risen 80% during H1 2022, significantly outstripping forecast price rises, driven by a 94% increase in the reported price of Neodymium oxide.

-- Exclusive intellectual property licencing agreement with K-Technologies, Inc. to use its rare earths separation technology in the Southern African Development Community region, focusing on recovering separated magnet rare earth oxides from the Phalaborwa project in South Africa.

   --    Positive test work results at Phalaborwa indicate: 

o strong recoveries via a simple acid leaching process expected to allow 65-70% of the rare earths contained in the Phalaborwa gypsum stacks to be recovered in solution;

o low capital and operating costs expected compared to a traditional hard rock rare earth mining project, with hydraulic reclamation of the gypsum stacks to the processing facility eliminating costs traditionally associated with primary mining, crushing and griding of ore, and low-cost reagents available locally to the project;

o optimisation opportunities identified to further reduce capital and operating costs with trade-off studies under way;

o flexibility in terms of project development allowing a mixed rare earth carbonate to be initially produced if required at a lower up front capital cost; and

o environmental benefits identified from the very low levels of radioactive elements associated with the gypsum stacks and the ability to treat and use the existing water from the stacks as the bulk of the process water in a closed circuit.

-- Rainbow's shareholding in Phalaborwa was confirmed at 70%, removing any downside uncertainty concerning the potential to dilute the Company's Joint Venture share, as well as assuring a material share in future revenue.

-- Gross proceeds of GBP6.435 million raised through a placing and subscription from Techmet Limited and other global institutional investors.

-- Gakara remains on care and maintenance, with short-term cash requirements minimised - Rainbow looks forward to further constructive engagement with all stakeholders to allow trial mining and processing operations to recommence.

George Bennett, CEO, said: "The escalating urgency to tackle climate change is revealing a number of challenges, including a supply deficit of the raw materials required to drive the clean energy transition and a need to diversify the supply chain. With our near-term development opportunity at Phalaborwa in South Africa, we believe Rainbow is well positioned to contribute to this global effort by providing a responsible, Western source of rare earth oxides, critical minerals for the permanent magnets used in offshore wind generation, electric vehicles, mobile phones, electric scooters, bicycles, and other green technologies.

We have reached an important stage at Phalaborwa following the recent test work carried out and are working hard to explore all the optimisation opportunities and define the optimised process flow sheet. With the right team in place, I believe we are in a strong position to move forward and realise the full value of this exciting asset for our stakeholders."

Market Abuse Regulation ("MAR") Disclosure

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.

For further information, please contact:

 
 Rainbow Rare Earths                    George Bennett 
  Ltd                        Company     Pete Gardner        +27 82 652 8526 
 SP Angel Corporate                     Ewan Leggat 
  Finance LLP                Broker      Charlie Bouverat    +44 (0) 20 3470 0470 
 Tavistock Communications    PR/IR      Charles Vivian       +44 (0) 20 7920 3150 
  Limited                                Tara Vivian-Neal     rainbowrareearths@tavistock.co.uk 
 

Notes to Editors:

Rainbow's strategy is to become a globally significant producer of rare earth metals. Nd/Pr and Dy are vital components of the strongest permanent magnets used for the motors and turbines driving the green technology revolution. Analysts are predicting demand for magnet rare earth oxides will grow substantially over the coming years, driven by increasing adoption of green technology, pushing the overall market for Nd/Pr and Dy into deficit.

The Phalaborwa Rare Earths Project, located in South Africa, comprises an Inferred Mineral Resource Estimate of 38.3Mt at 0.43% TREO contained within gypsum tailings stacked in unconsolidated stacks derived from historic phosphate hard rock mining. High value NdPr oxide represents 29.1% of the total contained rare earth oxides, with economic Dysprosium and Terbium oxide credits enhancing the overall value of the rare earth basket in the stacks. The rare earths are contained in chemical form in the gypsum stacks, which is expected to allow high-value separated rare earth oxides to be produced with lower operating costs than a typical rare earth mineral project.

The Company's Gakara Project in Burundi has produced one of the highest-grade rare earth concentrates in the world (typically 54% total rare earths oxides ("TREO")) through trial mining operations. The Gakara basket is weighted heavily towards Nd/Pr, which account for approximately 19.5% of the contained TREO and 85% of the value of the concentrate. The Gakara project is currently on care and maintenance at the request of the Government of Burundi.

CEO Review

The shift away from fossil fuels toward the greater utilisation of renewable energies and widespread adoption of green technology is essential for the planet's future. However, the low-carbon technologies required to drive the green revolution carry an intensive demand for minerals.

Central to this demand are rare earth elements ("REEs") - in particular, Neodymium, Praseodymium (together "NdPr") and Dysprosium - which are used to make compact, high-strength permanent magnets employed in hybrid and electric vehicles ("EVs") and wind turbines. These permanent magnets also have specialist uses in the aerospace and defence industries. According to the International Energy Agency ("IEA"), REEs may see three to seven times higher demand by 2040 when compared to 2021.[1]

With no acceptable substitutes for NdPr in permanent magnets, we anticipate strong demand for these rare earth elements driven by increasingly ambitious government targets and evolving global emissions legislation, particularly in the wake of the United Nations Climate Change Conference ("COP26") at the end of 2021. With REE separation and refining plants predominantly located in China (accounting for a 90% market share of the rare earths refining market in 2019 ([2]) ), Rainbow is one of the few companies operating in other parts of the world.

This demand growth stands in contrast to a scarcity of new economic project development opportunities, which drive increasing pressure on rare earths supply. As a result, REE prices have risen considerably, with Rainbow's typical basket prices for both the Gakara and Phalaborwa projects increasing by 80% in H1 2022 and continuing to escalate after the period end. This was driven by a 94% increase in the reported price for Nd oxide and a 67% increase in the reported price of Pr oxide. Many analysts are predicting continued high prices throughout 2022 and beyond, given the tension between supply and demand.

We believe that, with its near-term development opportunity at Phalaborwa, Rainbow is in a pivotal position to provide the foundational materials required to advance this clean technology and the green revolution. Phalaborwa can be brought into production quickly, with low capital and operating expenditure, in an environmentally responsible manner to deliver a high-grade oxide.

Operational update

Phalaborwa

The Phalaborwa Rare Earths Project, located in South Africa, comprises an Inferred Mineral Resource Estimate of 38.3 million tonnes at 0.43% TREO contained within gypsum residue stacked in unconsolidated stacks derived from historic phosphate hard rock mining. In January 2022, we signed an agreement confirming Rainbow's shareholding in the Phalaborwa Joint Venture at 70%, with the remaining 30% held by Bosveld Phosphates (Pty) Ltd. This amendment removes any downside uncertainty concerning the potential to dilute the Company's share within the Joint Venture, assuring Rainbow's material share in future revenue.

High-value NdPr oxide represents 29.1% of the total contained rare earth oxides, with economic Dysprosium (Dy) and Terbium (Tb) oxide credits enhancing the overall value of the rare earth basket contained in the stacks. Phalaborwa's NdPr grade is substantially higher than a typical low-cost ionic clay rare earth project, much closer to traditional hard rock style deposits. However, due to the unique nature of the project, with the rare earths contained in a 'cracked' chemical form in the phosphogypsum, no significant costs associated with mining, crushing and grinding, or chemical cracking of the underlying rare earth minerals are required, comparing favourably with other projects.

In September 2021, we entered into an exclusive intellectual property ("IP") licencing agreement with K-Technologies, Inc. ("K-Tech"), the processing technology developer located in Lakeland, Florida, USA, to use its rare earths separation technology in the Southern African Development Community ("SADC") region. We believe that this agreement provides Rainbow with a significant competitive advantage and that the IP is ideally suited to Phalaborwa, where it would enable us to focus on the separation of only the most valuable rare earth oxides within the basket, namely NdPr, Dy and Tb, which are all critical building blocks for the green revolution.

Post year-end, positive results were received from the ongoing phased test work programme, which is being conducted in conjunction with ANSTO Minerals in Australia, a world-leading critical and strategic metals processing expert ("ANSTO"), and K-Tech. The K-Tech purification and separation desktop study has confirmed the ability to participate further downstream in the value chain and produce separated NdPr oxide, Dy oxide and Tb oxide on site with 99.5-99.9% purity from the leach solution, providing a 47% increase in revenue over the expected sales price for a mixed rare earth carbonate.

Test work has also indicated strong recoveries and optimisation opportunities and continues to underscore Phalaborwa's robust fundamentals. Potential for capital and operating cost savings have been identified, with flexibility for phased project development if required providing versatility: the K-Tech study has shown that a cerium-depleted mixed rare earth carbonate could be produced at Phalaborwa as an initial phase if required at a lower up-front capital cost.

The studies have also highlighted the significant environmental benefits of the project, which include very low levels of radioactivity (exempting Phalaborwa from radioactivity regulation) and the ability to neutralise the existing water from the stacks for reuse in a closed circuit as plant process water. In processing material from the existing gypsum stacks at Phalaborwa, we aim to deliver a clean rare earths project, removing existing environmental liabilities and redepositing benign gypsum on a new stack, built according to International Finance Corporation ("IFC") Performance Standards and Equator Principles.

The test work results are enabling us to develop an economic rare earths extraction flowsheet as part of the ongoing work on the Preliminary Economic Assessment ("PEA"). The next phase of the test work programme, which includes several trade-off and project optimisation studies, is progressing.

Despite some bottlenecks relating to covid restrictions at international laboratories, which have delayed some of our metallurgical analysis results, we have achieved considerable progress at this asset since Rainbow secured the project in December 2020. By getting this stage of process flow sheet definition right we will realise the full value of Phalaborwa and develop a responsible, independent Western rare earths supply chain.

Gakara

Rainbow's Gakara Project is one of the world's richest rare earth deposits, with trial mining and processing carried out since 2017 demonstrating the deposit's amenability to simple open pit mining and low-cost gravity separation from ore sourced from high-grade stockwork vein systems across the licence area. Gakara produces a high-value rare earth concentrate of 52-58% TREO, with low levels of radioactivity. NdPr represents approximately 85% of the overall basket value, at only 19.5% of the mass.

Gakara was placed on care and maintenance in June 2021 at the request of the Government of Burundi, with the majority of staff placed on suspension. At 31 December 2021, to comply with Burundi legislation, suspended staff contracts were terminated and short-term cash requirements minimised. Rainbow looks forward to further constructive engagement with all stakeholders to allow trial mining and processing operations to recommence.

Corporate

Rainbow successfully raised gross proceeds of GBP6.435 million through a placing and subscription of new ordinary shares of no par value each in the Company ("Ordinary Share") in October 2021 (the "Placing"), and we were delighted to welcome new institutional shareholders alongside TechMet Limited ("TechMet") in the Placing. With its stringent investment criteria and its goal to secure the critical metals for the global technology revolution, the substantial investment by TechMet, which counts the U.S. government as a major investor, represented a significant development for the Company. We also continue to be encouraged by the sustained strong support of existing shareholders.

I firmly believe that we have the right people in place at Rainbow to take Phalaborwa's development forward, with significant experience throughout the asset lifecycle from optimisation, feasibility and development to plant construction and commissioning. As a team, we have led numerous projects through this vital phase and recognise the enormous benefits of implementing the correct trade-offs and optimising to the greatest extent possible to deliver a successful result.

With our near-term development opportunity at Phalaborwa, we believe Rainbow is ideally positioned to contribute to a responsible, Western source of rare earths to drive the global green energy transition.

George Bennett

Chief Executive Officer

Financial Review

The six months ended 31 December 2021 have seen a focus on the definition of the Phalaborwa project processing flowsheet. Exploration and Evaluation expenditure totalling US$294k was capitalised in the period primarily relating to test work undertaken at international laboratories and the management thereof by the Rainbow team to understand the optimal economic methodology for the extraction of separated rare earth oxides from the gypsum residue.

At Gakara, operations remained on care and maintenance throughout the period at the direction of the Government of Burundi. As a result, no costs have been capitalised relating to the project in the period, with expenditure totalling US$810k recognised on the income statement for H1 2022. In the comparative period in H1 2021, Burundi costs totalled US$1,311k, with US$268k of administration costs recognised in the income statement, and a further US$516k capitalised to exploration and evaluation assets net of US$527k export revenue. Costs in the current period include US$128k recognised for the retrenchment of staff following a period of employment contract suspension since July 2021. With these retrenchments, the care and maintenance costs at Gakara have now been minimised, with a small team remaining to ensure the equipment at the site remains in good order and to manage the ongoing administration. In line with the International Financial Reporting Standards requirements, depreciation totalling US$173k has been recognised for the idle mining and processing equipment during the period.

The Group's corporate costs grew in the six months ended 30 June 2021 from a low base. With the expected fast track development of Phalaborwa, the administrative structures for the Group are being strengthened, and a new head office function is being set up in South Africa. Total expenditure of US$970k (excluding US$154k share option costs) in the six months ended 31 December 2021 is significantly higher than US$561k in the period ended 31 December 2020, as set out in note 3 to the interim financial statements. However, it was in line with the costs incurred in the period from 1 January to 30 June 2021 (US$971k excluding US$554k share option costs).

During the period, the Group significantly strengthened its balance sheet, raising US$8.5 million, net of costs, at a price of 15 pence per new Ordinary Share. This funding has allowed the Pipestone loan to be fully repaid, including accrued interest, via US$886k cash and US$175k equity at 15p per new Ordinary Share. This has left a closing bank balance of US$6.4 million at 31 December 2021, with the sole remaining long-term financial liability being the US$0.6 million FinBank loan in Burundi, on which capital repayments are currently being deferred. The current cash balance is expected to allow the Preliminary Economic Assessment for the Phalaborwa project to be delivered following a period of process flow sheet definition and optimisation. Once this phase of work is completed at Phalaborwa, a timetable and budget for the Definitive Feasibility Study, including necessary on-site pilot test work, will be prepared, allowing the longer-term financing strategy for the Group to be set out with greater precision.

Cautionary Statement:

The business review and certain other sections of this interim report contain forward looking statements that have been made by the Directors in good faith based on the information available to them up to the time of their approval of this report. However, they should be treated with caution due to inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information and no statement should be construed as a profit forecast.

Directors' Responsibility Statement

We confirm that to the best of our knowledge:

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

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

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

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

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

George Bennett

Chief Executive Officer

16 March 2022

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 31 December 2021

 
                                                                                     6 months ended     6 months ended 
                                                                                   31 December 2021   31 December 2020 
                                                                                            US$'000            US$'000 
                                                                           Notes          Unaudited          Unaudited 
 
Revenue                                                                                           -                527 
Production and sales costs                                                                        -              (527) 
                                                                                  -----------------  ----------------- 
Gross loss                                                                                        -                  - 
Administration expenses                                                      3              (1,934)              (829) 
Loss from operating activities                                                              (1,934)              (829) 
                                                                                  -----------------  ----------------- 
 
Finance income                                                                                    -                249 
Finance costs                                                                                 (168)              (310) 
 
Loss before tax                                                                             (2,102)              (890) 
                                                                                  -----------------  ----------------- 
 
Income tax expense                                                                              (5)                (5) 
 
Total loss after tax and comprehensive expense for the period                               (2,107)              (895) 
                                                                                  =================  ================= 
 
Total loss after tax and comprehensive expense for the period is 
attributable to: 
Non-controlling interest                                                                       (56)                (7) 
Owners of parent                                                                            (2,051)              (888) 
                                                                                            (2,107)              (895) 
                                                                                  =================  ================= 
Loss per share (cents) 
Basic                                                                        4               (0.42)             (0.21) 
Diluted                                                                      4               (0.42)             (0.21) 
                                                                                  -----------------  ----------------- 
 
 

The results of each period are derived from continuing operations.

Condensed Consolidated Statement of Financial Position

As at 31 December 2021

 
                                                  As at     As at         As at 
                                            31 December   30 June   31 December 
                                                   2021      2021          2020 
                                                US$'000   US$'000       US$'000 
                                    Notes     Unaudited   Audited     Unaudited 
Non-current assets 
Exploration and evaluation assets     5          10,045     9,751         8,909 
Property, plant and equipment         6           1,220     1,354         1,081 
Right of use assets                                  68        70            93 
                                           ------------ 
Total non-current assets                         11,333    11,175        10,083 
 
Current assets 
Inventory                                           864       863           227 
Trade and other receivables                         414       441           630 
Cash and cash equivalents                         6,371       573         2,494 
                                           ------------  --------  ------------ 
Total current assets                              7,649     1,877         3,351 
 
Total assets                                     18,982    13,052        13,434 
                                           ------------  --------  ------------ 
 
Current liabilities 
Trade and other payables              7           (990)   (1,009)         (610) 
Borrowings                          8, 2b         (178)   (1,231)       (1,175) 
Lease liabilities                                  (18)      (14)          (27) 
Total current liabilities                       (1,186)   (2,254)       (1,812) 
                                           ------------  --------  ------------ 
 
Non-current liabilities 
Borrowings                            8           (749)     (662)         (622) 
Lease liabilities                                  (52)      (69)          (86) 
Provisions                                         (61)      (61)         (100) 
                                           ------------  --------  ------------ 
Total non-current liabilities                     (862)     (792)         (808) 
                                           ------------  --------  ------------ 
 
Total Liabilities                    2b         (2,048)   (3,046)       (2,620) 
                                           ------------  --------  ------------ 
 
NET ASSETS                                       16,934    10,006        10,814 
                                           ============  ========  ============ 
 
Equity 
Share capital                       9, 2b        41,345    32,465        31,686 
Share based payment reserve                       1,375     1,295         1,260 
Other reserves                       2b              60        60            60 
Retained loss                        2b        (24,854)  (22,878)      (21,301) 
                                           ------------  --------  ------------ 
Equity attributable to the parent    2b          17,926    10,942        11,705 
Non-controlling interest                          (992)     (936)         (891) 
                                           ------------ 
TOTAL EQUITY                                     16,934    10,006        10,814 
                                           ============  ========  ============ 
 
 

Condensed Consolidated Cash Flow Statement

For the six months ended 31 December 2021

 
                                                              6 months ended     6 months ended 
                                                            31 December 2021   31 December 2020 
                                                                     US$'000            US$'000 
                                                                   Unaudited          Unaudited 
 
Cash flow from operating activities 
Loss from operating activities                                       (1,934)              (829) 
Adjustments for: 
Depreciation                                                             187                 28 
Share-based payment charge                                               154                  - 
Operating loss before working capital changes                        (1,593)              (801) 
 
Net (increase)/decrease in inventory                                     (1)                  7 
Net decrease/(increase) in other receivables                              27              (251) 
Net (decrease) in trade and other payables                              (16)              (338) 
                                                           -----------------  ----------------- 
Cash used by operations                                              (1,583)            (1,383) 
 
Realised foreign exchange gains                                           76                219 
Finance costs                                                           (43)                (8) 
Taxes paid                                                               (2)                (5) 
                                                           -----------------  ----------------- 
Net cash used in operating activities                                (1,552)            (1,177) 
                                                           -----------------  ----------------- 
 
Cash flow from investing activities 
Purchase of property, plant & equipment                                 (44)              (264) 
Exploration and evaluation costs                                       (294)              (797) 
Net cash used in investing activities                                  (338)            (1,061) 
                                                           -----------------  ----------------- 
 
Cash flow from financing activities 
Proceeds of new borrowings                                                 -                275 
Repayment of borrowings                                                (885)              (390) 
Interest payments on borrowings                                         (43)               (70) 
Payment of lease liabilities                                            (17)               (14) 
Proceeds from the issuance of ordinary shares                          8,962              4,198 
Transaction costs of issuing new equity                                (257)               (85) 
Net cash generated by financing activities                             7,760              3,914 
                                                           -----------------  ----------------- 
 
Net increase in cash and cash equivalents                              5,870              1,676 
 
Cash & cash equivalents at the beginning of the period                   573                788 
Foreign exchange (loss)/gain on cash & cash equivalents                 (72)                 30 
                                                           ----------------- 
Cash & cash equivalents at the end of the period                       6,371              2,494 
                                                           =================  ================= 
 

Condensed Consolidated Statement of Changes in Equity

For the six months ended 31 December 2021

 
                      Share      Share-        Share        Other  Accumulated  Attributable  Non-controlling    Total 
                    capital       based      warrant     reserves       losses        to the         interest 
                               Payments      reserve                                  parent 
                    US$'000     US$'000      US$'000      US$'000      US$'000       US$'000          US$'000  US$'000 
 
Balance at 1 
 July 2020 
 (audited)           28,132       1,099           40           60     (20,542)         8,789            (884)    7,905 
 
Total 
comprehensive 
expense 
Total 
 comprehensive 
 loss                     -           -            -            -        (888)         (888)              (7)    (895) 
 
Transactions 
with owners 
Issue of 
 shares during 
 the period           3,423           -            -            -            -         3,423                -    3,423 
Share placing 
 transaction 
 costs                 (85)           -            -            -            -          (85)                -     (85) 
Phalaborwa 
 consideration 
 to be settled 
 in equity                -         250            -            -            -           250                -      250 
Share option 
 exercised in 
 period, net 
 of costs               216        (89)            -            -           89           216                -      216 
Warrants 
 expired in 
 period                   -           -         (40)            -           40             -                -        - 
Balance at 31 
 December 2020 
 (unaudited , 
 see note 2b )       31,686       1,260            -           60     (21,301)        11,705            (891)   10,814 
                -----------  ----------  -----------  -----------  -----------  ------------  ---------------  ------- 
 
Total 
comprehensive 
expense 
Total 
 comprehensive 
 loss                     -           -            -            -      (1,802)       (1,802)             (45)  (1,847) 
 
Transactions 
with owners 
Phalaborwa 
 consideration 
 settled in 
 equity                 250       (250)            -            -            -             -                -        - 
Share option 
 exercised in 
 period, net 
 of costs               529       (225)            -            -          225           529                -      529 
Fair value of 
 employee 
 share options 
 in the period            -         510            -            -            -           510                -      510 
Balance at 30 
 June 2021 
 (audited)           32,465       1,295            -           60     (22,878)        10,942            (936)   10,006 
                -----------  ----------  -----------  -----------  -----------  ------------  ---------------  ------- 
 
Total 
comprehensive 
expense 
Total 
 comprehensive 
 loss                     -           -            -            -      (2,051)       (2,051)             (56)  (2,107) 
 
Transactions 
with owners 
Issue of 
 shares during 
 the period           8,780           -            -            -            -         8,780                -    8,780 
Share placing 
 transaction 
 costs                (239)           -            -            -            -         (239)                -    (239) 
Shares issued 
 as partial 
 settlement of 
 Pipestone 
 loan                   175           -            -            -            -           175                -      175 
Costs 
 associated 
 with 
 Pipestone 
 loan 
 settlement 
 shares                (18)           -            -            -            -          (18)                -     (18) 
Fair value of 
 employee 
 share options 
 in the period            -         155            -            -            -           155                -      155 
Share option 
 exercised in 
 period, net 
 of costs               182        (75)            -            -           75           182                -      182 
Balance at 31 
 December 2021 
 (unaudited)         41,345       1,375            -           60     (24,854)        17,926            (992)   16,934 
                ===========  ==========  ===========  ===========  ===========  ============  ===============  ======= 
 

Notes to the Condensed Financial Statements

For the six months ended 31 December 2021

   1.    General information 

Rainbow Rare Earths Limited (the 'Company' or 'Rainbow', together with its subsidiaries the 'Group'), is a company limited by shares domiciled in Guernsey, incorporated on 5 August 2011 with company registration number 53831. The Company's registered office is Trafalgar Court, Admiral Park, St Peter Port, Guernsey. The nature of the Group's operations and its principal activities are set out in the CEO and Financial Reviews.

The financial information for the year ended 30 June 2021 does not constitute the audited statutory accounts but has been extracted from those accounts. The report of the auditors on those accounts was unqualified.

This Interim Report has not been audited or reviewed.

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

   2.    Basis of preparation 

These condensed consolidated interim financial statements for the 6 months ended 31 December 2021 have been prepared in accordance with IAS 34 'Interim Financial Reporting'. They do not include disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 2021 Annual Report and Accounts.

The same accounting policies and methods of computation are followed in the condensed interim financial statements as were followed in the most recent annual financial statements of the Group, which were published on 27 October 2021. There are no newly effective IFRS Standards which have had an impact on the financial statements.

(a) Going concern

The Directors have continued to use the going concern basis in preparing these condensed financial statements. The Group's business activities, together with the factors likely to affect future development, performance and position are set out in the CEO Statement. The financial position of the Group, its cash flow and liquidity position are described in the Financial Review.

The Group's cash balance at 31 December 2021 was US$6,371k (30 June 2021: US$573k). The Board have reviewed the Group's latest cash flow forecasts for the period to 30 June 2023, including reasonably possible downside scenarios. This has included the following assumptions:

-- Forecast expenditure of US$2.6 million for ongoing general and administrative costs of the Group over the 18-month period from 1 January 2022 to 30 June 2023, based on the current administrative cost base. The reasonably possible downside scenario includes a 10% contingency for unexpected costs.

-- Estimated funding requirements of US$1.7 million for Phalaborwa, of which US$0.5 million is committed. This includes ongoing process definition test work, upgrading the resources from inferred to the measured and indicated categories, and delivery of a Preliminary Economic Assessment for the project. Due to the nature of the ongoing process definition work actual costs and the timing of expenditure may differ to estimates. The reasonably possible downside scenario includes all currently forecast costs, including US$1.2 million not yet committed. The additional costs required to complete a bankable feasibility study have been excluded from management's base case forecasts and reasonably plausible downside scenarios as these cannot be reliably forecast until the final processing flow sheet has been defined.

-- A continuation of care and maintenance for the Group's Gakara project in Burundi at a total cash cost of US$0.8 million, including the scheduled repayments of the US$0.6 million term loan from FinBank. In the event that the Gakara project returns to operations, stock of rare earth concentrate with an estimated gross sales value of US$1.8 million would be sold to provide the funds to re-commence trial mining and processing operations. The forecasts show that, with the current productive capacity of the trial mining operations, the Gakara project would not require additional financial support from Rainbow Rare Earths Limited at current rare earth prices.

Based on management's reasonably plausible downside scenario outlined above the Group will have US$1.0 million available at the end of the forecast period. Accordingly, the Board are satisfied that the Group has sufficient cash resources to continue its operations and meet its commitments for the foreseeable future and have concluded that it is appropriate for the financial statements to be prepared on a going concern basis.

(b) Adjustment of prior period

The unaudited interim accounts for the period ended 31 December 2020, as originally published on 24 March 2021, indicated that US$89k was transferred from the share-based payment reserve to share capital relating to share options exercised in H2 2020. In the audited accounts for the year-ended 30 June 2022 the share-based payment reserve was transferred to retained earnings, and the prior period balance sheet has been adjusted to reflect that treatment.

In addition, the previously published interim accounts indicated that US$87k was added to the other reserve representing a discount on the Pipestone Loan in which George Bennett, the Company's CEO, had a beneficial interest. As disclosed in the audited accounts for the year ended 30 June 2021 on refinancing in December 2020 the loan bore interest and therefore a discount was not required. The prior period balance sheet has been adjusted to reflect that treatment.

The below table summarises the impact of the adjustment to the period ended 31 December 2019:

 
                                                 Original  Adjustment     Revised 
                                                  US$'000     US$'000     US$'000 
                                                Unaudited   Unaudited   Unaudited 
 
Consolidated Statement of Financial Position 
Borrowings due within one year                      1,088          87       1,175 
Total liabilities                                   2,533          87       2,620 
                                               ----------  ----------  ---------- 
 
Share Capital                                      31,775        (89)      31,686 
Other reserve                                         147        (87)          60 
Retained earnings                                (21,390)          89    (21,301) 
Equity attributable to the parent                  11,792        (87)      11,705 
                                               ----------  ----------  ---------- 
 

(c) Dividend

The Directors do not recommend the payment of a dividend for the period (six months ended 31 December 2020: US$nil, six months ended 30 June 2021: US$nil).

(d) Principal Risks and uncertainties

There are a number of potential risks and uncertainties inherent in the mining sector which could have a material impact on the long-term performance of the Company, and which could cause the actual results to differ materially from expected and historical results. The Company has taken reasonable steps to mitigate these where possible. Full details are disclosed on pages 26-28 of the Annual Report for the year ended 30 June 2021. The risks and uncertainties are summarised below:

   --      Project definition risk: 

- At Phalaborwa, the Company is finalising a Preliminary Economic Assessment which is expected to define a processing flow sheet capable of economically extracting the permanent magnet rare earth metals from the gypsum stacks in a low capital and low operating cost environment. However, this is dependent on the results of future test work, which may not meet management's expectations.

- At Gakara, the Company does not currently have a code-compliant Mineral Resource or Reserve due to the complexity of the underlying geological mineralisation. It is possible that the quantity of rare earths present in the licence area is less than management expectations with resulting impacts on plans to develop a long-term commercial operation at Gakara.

   --      Political risk in Burundi 

- On 12 April 2021, the Government of Burundi temporarily suspended the export of concentrate produced at Gakara. This was followed on 29 June 2021 with a suspension of all trial mining and exploration activity. All operations remain on care and maintenance at 16 March 2022. There has been no attempt by the Government of Burundi to remove the mining licence for the Gakara project.

   --      Financing risk 

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

- At Phalaborwa in South Africa, additional finance is expected to be required for on-site pilot test-work ahead of a larger fundraising for commercial scale project development.

- At Gakara in Burundi, additional financing would be required to fund commercial scale development beyond the current trial mining and processing operations.

   --      Rare earth prices 

- Rainbow's strategy is to become a globally-significant and responsible producer of rare earth metals, with a particular focus on NdPr - the fundamental building blocks for the permanent magnets driving the global green technology revolution.

- Whilst analysts are predicting strong growth in demand for rare earths, prices have been volatile in the past. If the underlying rare earth basket price of the Group's development projects fall, this reduces potential revenue that will impact the long-term profitability of the project and could impact the commercial viability of any development.

- The Company currently has an off-take agreement with ThyssenKrupp for the Gakara project trial mining activities in Burundi, selling rare earth concentrate at a discount of approximately 70% to the quoted price of the underlying metal oxides. The Company has no off-take agreement for the likely rare earth products from the Phalaborwa project in South Africa.

   --      Civil unrest 

- Burundi has experienced civil unrest, including most recently in 2015. South Africa experienced some civil unrest in 2021. Any subsequent instances of civil unrest could impact the long-term operations of the Company's development projects, including the ability to obtain supplies, export production and manage administrative matters.

   --      Currency controls in Burundi 

- The Company receives proceeds from the sale of rare earth concentrate from the Gakara project in US dollars, which, are repatriated to an account in the Burundi Central Bank.

- Burundi has experienced shortages of foreign currency reserves in the past, and it is therefore possible that access to US dollars held in country might be difficult. This would affect the Company's ability to meet ongoing foreign currency obligations including international suppliers, servicing of international debt and repatriation of profits.

   --      Covid-19 

- The Covid-19 pandemic could disrupt the Company's operations, delaying project definition works. Delays have been experienced for the Group's Phalaborwa metallurgical test work programme at ANSTO in Australia.

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

   3.    Administrative expenses 
 
                            6 months ended     6 months ended 
                          31 December 2021   31 December 2020 
                                   US$'000            US$'000 
                                 Unaudited          Unaudited 
Corporate expenses                   1,124                561 
Burundi administration                 810                268 
                                     1,934                829 
                         -----------------  ----------------- 
 

The corporate cost base for the six months ended 31 December 2021 shows a sharp increase from the extremely low base set in the comparative period in 2020. The growth, which was evident in the period from January to June 2021, has been driven by a number of factors:

-- The issue of share options in Q1 2021 has led to a share option charge of US$155k in the period compared to US$nil in the comparative period;

-- Executive and non-executive director salaries were increased, as set out in the 2021 annual report, following an exercise to benchmark salaries against peer companies in Q1 2021, leading to an increase in cost of US$105k;

-- A bonus of US$220k was paid to executive management to reflect the transformation of the business since the acquisition of the Phalaborwa project in December 2020;

-- Increased IR activity, group travel following the relaxation of covid restrictions, and costs associated with the new Johannesburg head office function have also increased costs in the period by a total of US$80k.

Burundi administrative expenses incurred in the six months ended 31 December 2021 include all costs associated with maintaining the Gakara project on care and maintenance. These include US$128k of redundancy costs associated with the termination of the majority of employment contracts in December 2021, required under Burundi legislation following six months of suspension of activities, and US$173k of depreciation for the mining and processing equipment in Burundi which has previously been capitalised. In the comparative period costs totalled US$1,311k, with US$516k capitalised to exploration and evaluation costs net of US$527k export revenue.

   4.    Loss per ordinary share 

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

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

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

 
                                                                                     6 months ended     6 months ended 
                                                                                        31 December   31 December 2020 
                                                                                               2021 
                                                                                            US$'000            US$'000 
                                                                                          Unaudited          Unaudited 
The loss for the period attributable to ordinary equity holders of the parent 
 company                                                                                    (2,051)              (888) 
 
                                                                                             Number             Number 
                                                                                               '000               '000 
Weighted average number of Ordinary shares for the purposes of basic and diluted 
 loss per 
 share                                                                                      493,934            428,264 
 
Loss per Ordinary share                                                                       Cents              Cents 
Basic and diluted                                                                            (0.42)             (0.21) 
 
   5.    Exploration and evaluation assets 
 
                                             Gakara  Phalaborwa    Total 
                                            US$'000     US$'000  US$'000 
  At 1 July 2020 (audited)                    7,572           -    7,572 
  Additions                                     516         821    1,337 
                                            -------  ----------  ------- 
  At 31 December 2020 (unaudited)             8,088         821    8,909 
  Additions                                     586         295      881 
  Adjustment of rehabilitation provision       (39)           -     (39) 
                                            -------  ----------  ------- 
  At 30 June 2021 (audited)                   8,635       1,116    9,751 
  Additions                                       -         294      294 
                                            -------  ----------  ------- 
  At 31 December 2021 (unaudited)             8,635       1,410   10,045 
                                            -------  ----------  ------- 
 

No additions to exploration and evaluation assets were recorded for Gakara in the period due to the project being held on care and maintenance by order of the Government of Burundi. Based on an assessment of both the legal and political position, the Directors have a reasonable expectation that the current temporary suspension does not represent a threat to the licence and activities will be allowed to re-start. Accordingly, the Directors do not believe this uncertainty represents an indication of impairment of the exploration and evaluation assets at Gakara, or the associated property, plant and equipment or inventory within the Gakara cash generating unit. The Directors note that the current suspension of activities could result in future losses for the Group if it is not resolved as anticipated.

In H1 2022 no amounts were capitalised to exploration and evaluation assets at Gakara as set out in note 3. Additions in the six months ended 31 December 2020 are stated net of US$527k (six months ended 30 June 2021: US$112k) related to gross revenues earned at Gakara during the exploration phase which represent a contribution towards exploration costs incurred.

FinBank SA hold security over the fixed and floating assets of Rainbow Mining Burundi SA which include US$7.3 million of exploration and evaluation assets associated with the Gakara mining permit in Burundi as at 31 December 2021.

   6.    Property, plant and equipment 
 
US$'000                                   Mine development costs  Plant & machinery  Vehicles  Office equipment  Total 
----------------------------------------  ----------------------  -----------------  --------  ----------------  ----- 
Cost 
At 1 July 2020 (audited)                                     183              2,665     1,074                45  3,967 
Additions                                                      -                 22       242                 -    264 
At 31 December 2020 (unaudited)                              183              2,687     1,316                45  4,231 
Additions                                                      -                160       266                 -    426 
At 30 June 2021 (audited)                                    183              2,847     1,582                45  4,657 
Additions                                                      -                 44         -                 -     44 
At 31 December 2021 (unaudited)                              183              2,891     1,582                45  4,701 
----------------------------------------  ----------------------  -----------------  --------  ----------------  ----- 
Depreciation 
At 1 July 2020 (audited)                                      47              2,665       298                15  3,025 
Charge for period                                             13                  -       107                 5    125 
At 31 December 2020 (unaudited)                               60              2,665       405                20  3,150 
Charge for period                                             13                  2       134                 4    153 
At 30 June 2021 (audited)                                     73              2,667       539                24  3,303 
Charge for period                                             13                  2       158                 5    178 
At 31 December 2021 (unaudited)                               86              2,669       697                29  3,481 
----------------------------------------  ----------------------  -----------------  --------  ----------------  ----- 
 
Net Book Value at 31 December 2021 
 (unaudited)                                                  97                222       885                16  1,220 
----------------------------------------  ----------------------  -----------------  --------  ----------------  ----- 
Net Book Value at 30 June 2021 (audited)                     110                180     1,043                21  1,354 
----------------------------------------  ----------------------  -----------------  --------  ----------------  ----- 
Net Book Value at 31 December 2020 
 (unaudited)                                                 123                 22       911                25  1,081 
----------------------------------------  ----------------------  -----------------  --------  ----------------  ----- 
 

Depreciation of US$nil (six months ended 31 December 2020: US$107k, six months ended 30 June 2021: US$162k) relating to mining vehicles, plant & machinery and site infrastructure was capitalised in the period as part of Exploration and Evaluation costs.

FinBank SA hold security over the fixed and floating assets of Rainbow Mining Burundi SA which include US$1.2 million of tangible fixed assets in Burundi.

As set out in note 5 the Directors recognise the uncertainty relating to the temporary suspension of trial mining and processing activities in Burundi which could impact the carrying value of the property, plant and equipment within the Gakara cash generating unit, which comprises the entire net book value at the balance sheet date.

   7.    Trade and other payables 
 
                                                  As at              As at     As at 
                                       31 December 2021   31 December 2020   30 June 
                                                                                2021 
                                                US$'000            US$'000   US$'000 
                                              Unaudited          Unaudited   Audited 
Trade payable                                       142                135        71 
Accrued expenses                                     73                157       233 
Taxes and social security                           364                 25       363 
Amounts due to staff and management                 351                  -        60 
Pension contributions                                 -                  3         - 
Other payables                                       60                290       250 
Total trade and other payables                      990                610     1,009 
                                      -----------------  -----------------  -------- 
 

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

   8.    Borrowings 
 
                                                As at              As at     As at 
                                     31 December 2021   31 December 2020   30 June 
                                                                              2021 
                                              US$'000            US$'000   US$'000 
                                            Unaudited          Unaudited   Audited 
Finbank Loan                                      574                647       579 
Pipestone Loan                                      -                935     1,008 
Warrant liability                                 353                215       306 
Total borrowings                                  927              1,797     1,893 
                                    -----------------  -----------------  -------- 
 
Payable within 12 months                          178              1,175     1,231 
Payable after more than 12 months                 749                622       662 
                                    -----------------  -----------------  -------- 
                                                  927              1,797     1,893 
                                    -----------------  -----------------  -------- 
 

FinBank Loan

The FinBank loan facility is expressed in Burundian Francs 'BIF' and carries an interest rate of 15%. Interest has been paid throughout the period. Capital repayments have been suspended since April 2021 as a result of the export ban imposed in Burundi on the Group's rare earth concentrate from trial mining and processing activities. This is not a substantial modification of the loan.

Under the terms of this loan, Finbank has security over the fixed and floating assets of Rainbow Mining Burundi SA ('RMB', the local operating company in Burundi which owns the Gakara project and mining permit), the shares of RMB, and the cash held in RMB's Finbank bank accounts.

Pipestone Loan

On 21 February 2020, Pipestone Capital Inc, in which George Bennett, the Company's CEO, has a beneficial interest, provided a US$1 million unsecured bridging loan to the Company. The loan did not bear interest, with the finance cost provided by the issue of 2 million warrants with a 4-year life over the Company's shares at a strike price of 4.55p/share (a 30% premium to the 20-day VWAP and a 1.25p premium to the 3.3p/share closing mid-market price on the date of the loan).

In June 2020, the original Pipestone loan was re-financed, with US$75k repaid via the issue of 1,993,779 new Ordinary Shares as part of the equity placing announced on 22 June 2020 at a price of GBP0.03 per share. The remaining US$925k was extinguished and replaced with a new, interest free, unsecured bridging loan of US$925k pending a larger capital raise. No further warrants were issued.

The loan was further refinanced following an equity raise in November 2020, which triggered a repayment obligation for the loan. The Company had no headroom under the prospectus directive regulations to issue shares at the price of the November 2020 equity raise to repay the loan and had insufficient funds to allow for repayment in cash. As a result, the US$925k interest-free liability was extinguished and replaced with a new unsecured bridge loan from 1 December 2020 which bears interest at a rate of 15% per annum. The loan was fully repaid in December 2021, including accrued interest, via the issue of 875,389 new Ordinary Shares (representing US$175k at GBP0.15/share) plus US$886k cash.

   9.    Share capital 
 
                                                           As at              As at     As at 
                                                31 December 2021   31 December 2020   30 June 
                                                                                         2021 
                                                       Unaudited          Unaudited   Audited 
Issued share capital (nil par value) US$'000              41,345             31,686    32,465 
Number of shares in issue ('000)                         522,687            467,682   476,411 
 

The table below shows a reconciliation of share capital movements:

 
                                                                       Number of shares  US$'000 
At 1 July 2020                                                              421,981,551   28,132 
December 2020 - share placing - cash receipts net of costs                   42,700,000    3,338 
December 2020 -options exercised                                              3,000,000      216 
At 31 December 2020                                                         467,681,551   31,686 
January 2021 to April 2021 - options exercised                                7,500,000      529 
June 2021 - Phalaborwa consideration shares                                   1,229,883      250 
At 30 June 2021                                                             476,411,434   32,465 
July 2021 - options exercised                                                 2,500,000      182 
October 2021 - share placing - cash receipts net of costs                    32,900,000    6,559 
November 2021 - share placing - cash receipts net of costs                   10,000,000    1,982 
December 2021 - shares issued as partial repayment of Pipestone loan            875,389      157 
At 31 December 2021                                                         522,686,823   41,345 
                                                                       ----------------  ------- 
 

On 27 November 2020 the Company issued 42.7 million new ordinary shares at a price of 6 pence per share, raising gross cash proceeds of US$3.4 million (before costs of $85k). No related parties were involved in the placing.

Between December 2020 and April 2021 Australian Special Opportunity Fund, LP exercised options over 10.5 million shares at an exercise price of 5.28p per share, raising gross cash proceeds of US$763k (before costs of US$18k).

On 25 June 2021 1,229,882 shares were issued to Bosveld Phosphates (Pty) Limited to settle US$250,000 consideration due under the Phalaborwa co-development agreement originally announced on 3 November 2020.

On 13 July 2021 Australian Special Opportunity Fund, LP exercised options over 2.5 million shares at an exercise price of 5.28p per share, raising gross cash proceeds of US$182k.

On 13 October 2021 the Company issued 32.9 million shares at a price of 15 pence per share, raising gross cash proceeds of US$6.8 million (before costs of $221k). No related parties were involved in the placing.

On 15 November 2021 the Company issued a further 10.0 million shares at a price of 15 pence per share, raising gross cash proceeds of US$2.0 million (before costs of $18k). No related parties were involved in the placing.

10. Related party transactions

 
US$'000               Six months to 31 Dec 2021                         Six months to 31 Dec 2020 
                     Charged in      Settled in  Closing Balance      Charged in       Settled in  Closing Balance 
                         period          period                           period           period 
Pipestone 
 Capital Inc(1)              52         (1,061)                -             153            (153)              925 
Robert 
 Sinclair(2)                  -               -                -              26             (26)                - 
Alex Lowrie(2)                -               -                -              26             (26)                - 
Atul Bali(2)                  -               -                -              26             (26)                - 
Shawn 
 McCormick(2)                 -               -                -              26             (26)                - 
Pete Gardner(2)               -               -                -              26             (26)                - 
MPD Consulting 
 Limited(3)                   9             (9)                -               -                -                - 
                             61         (1,070)                -             302            (302)              925 
                 --------------  --------------  ---------------  --------------  ---------------  --------------- 
 
 

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

1. Pipestone Capital Inc, in which George Bennett, the Company's CEO, has a beneficial interest, provided a US$1 million bridging loan to the Group in February 2020 as explained in note 8, of which US$75k was settled in June 2020 and the balance settled in December 2021. In addition, in October 2020 Pipestone Capital Inc provided an additional bridging loan of US$150k in October 2020 which was settled in cash together with US$3k interest in December 2020.

2. Robert Sinclair, Alex Lowrie, Atul Bali, Shawn McCormick (all non-executive directors of the Company), together with Pete Gardner (CFO and a PDMR) each provided a bridge loan of US$25k in October 2020 which were settled in cash along with accrued interest in December 2020.

3. MPD Consulting Limited, in which Pete Gardner, the Company's CFO has a beneficial interest, has recharged certain costs relating to travel to Burundi and UK support incurred on behalf of the Group.

11. Post balance sheet events

Subsequent to 31 December 2021:

   --      On 18 January 2022 Robert Sinclair retired as a director of Rainbow Rare Earths Limited. 

-- On 3 February 2022 the Company issued 2.5 million share options to senior management under the existing share option plan with an exercise price of 15 pence per new Ordinary Share.

   --      On 8 February 2022 Rainbow Rare Earths (UK) Limited was formally dissolved. 

-- On 3 March 2022 a new subsidiary, Rainbow Rare Earths PTY Limited was incorporated in South Africa.

[1] IEA, The Role of Critical Minerals in Clean Energy Transitions

[2] IEA, The Role of Critical Minerals in Clean Energy Transitions

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March 17, 2022 03:06 ET (07:06 GMT)

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