Rainbow Rare Earths (LON:RBW) Placing to raise up to £2.8 million

Rainbow, the high grade rare earth producer, today announces a proposed placing by way of an accelerated bookbuild to raise between £2.6 million and £2.8 million before expenses.

Transaction highlights

· The Company intends to raise between £2.6 million and £2.8 million (before expenses) through a Placing of new Ordinary Shares arranged by Arden Partners plc and Hannam & Partners (Advisory) Limited with new and existing investors at a price of not less than 14p per Placing Share

· The Placing will allow the Company to bring forward its growth plans at its producing Gakara Rare Earth Project in Burundi (“Gakara” or “Gakara Project”), including an exploration campaign and the expansion of the mining fleet, which the Board believes will generate further Shareholder value

· Funding will strengthen the Company’s balance sheet, which will de-risk its expansion plans during the ramp-up of production from Gakara over the coming months

· Net proceeds will be applied in the following principal areas:

o Acceleration of production ramp-up by fast-tracking the development of new mining areas at Gakara

o Purchase of additional mining fleet

o Drilling campaign to investigate recently identified anomalies at Gakara

o Strengthening balance sheet during sales ramp up

Further details of the Placing

Arden Partners and Hannam & Partners are acting as joint brokers, joint bookrunners and joint global co-ordinators in connection with the Placing.

The Placing, which will be undertaken by way of an accelerated bookbuild, will be launched immediately following the release of this Announcement and will be made available to eligible existing institutional shareholders and new institutional investors. The timing of the closing of the Bookbuilding Process will be at the sole discretion of Arden Partners and Hannam & Partners. The completion of the Bookbuilding Process containing details of the Placing Price and the number of Placing Shares will be announced as soon as practicable.

The Placing is subject to the terms and satisfaction of certain conditions set out in the appendix (the “Appendix”) to this Announcement. The Placing is not underwritten.

Under the terms of the Placing, the Company intends to place the Placing Shares with eligible existing institutional shareholders and new institutional investors. Members of the public are not entitled to participate in the Placing.

By choosing to participate in the Placing and by making an oral legally binding offer to acquire Placing Shares, investors will be deemed to have read and understood this Announcement in its entirety, including the Appendix, and to be making such offer on the terms and subject to the conditions contained herein and to be making the representations, warranties, undertakings and acknowledgements contained in the Appendix.

The Placing Shares, when issued, will be fully paid and will rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after the date of issue.

Application will be made for the Placing Shares to be admitted to the standard listing segment of the Official List and to trading on the main market for listed securities of the London Stock Exchange plc.

Admission is expected to take place on or around 8.00 a.m. on 19 December 2017 and settlement is expected to occur on or around 19 December 2017. The Placing is conditional on, inter alia, the Placing Agreement becoming unconditional in all respects and not being terminated and Admission becoming effective on or before 8.00 a.m. on 19 December 2017 (or such later time and/or date as the Company, Arden Partners and Hannam & Partners may agree).

The Appendix sets out further information relating to the Placing and the terms and conditions of the Placing.

This Announcement should be read in its entirety. In particular, you should read and understand the information provided in the “Important Notices” section of this Announcement and the detailed terms, conditions and additional information relating to the Placing described in the Appendix.

Background to and reasons for the Capital Raising

Rainbow’s focus is the Gakara Project, one of the highest-grade (47%-67% total rare earth oxide) rare earths projects globally. The Company listed on the London Stock Exchange in January 2017 with the intention to fast-track the fully permitted Gakara Project to production ahead of targeted first sales of concentrate by the end of 2017, which has now been achieved. Rainbow has a ten-year distribution and offtake agreement with multinational thyssenkrupp Raw Materials secured for the sale of up to 10,000tpa concentrate produced.

The Gakara basket is weighted heavily towards the magnet rare earths, including neodymium and praseodymium, which are driving demand and account for approximately 70% of annual global rare earth element sales due to their use in vital components in motors, generators, wind turbines, and electric vehicles.

On 5 December 2017, the Company announced that it had successfully exported its first shipment of high grade rare earths mineral concentrate from Burundi and had commenced final commissioning of its processing plant. This achievement marked the culmination of the Company’s strategy outlined in its IPO in January 2017.

Rainbow now intends to increase production from the initial mining area at Gasagwe and from the next targeted area at Gashirwe in order to reach a targeted production run rate of 5,000 tonnes per annum before the end of 2018. Following discussions with its distribution and offtake partner, thyssenkrupp Raw Materials, Rainbow is confident that there is strong demand for its product and has therefore examined ways to accelerate the planned ramp-up in production. This will involve rapid deployment of funds for development work at the new mining areas such as Gashirwe and, potentially, Kiyenzi where the Company is encouraged by the results of its recent exploration work, and purchase of additional new mining equipment.

Exploration results from the Company’s ground gravity survey at Kiyenzi and the recent airborne magnetic survey of the entire Exploration Licence area, as announced on 23 November 2017, have identified a number of highly prospective geological anomalies that could potentially be locations of a carbonatite source for Gakara’s high grade rare earth veins. These anomalies have starting depths from 20m to 67m and therefore require drilling in order to be fully understood. The Company intends to commence its first drilling campaign, the results of which could provide a basis for a maiden JORC Resource calculation.

To date, the Company has successfully delivered its stated strategy using only the net proceeds of its IPO, and had intended to use internally-generated cashflows in order to finance its growth programme. However the strength of the Company’s share price, and the keen interest from investors, has presented the opportunity to raise immediate funds through an equity placement, which will not only allow the acceleration of the Company’s growth plans, but will also strengthen the balance sheet and working capital position during the ramp-up period at Gakara.

Furthermore, the Placing provides the opportunity for the Company to welcome a range of new long term institutional shareholders to the register.

The Board therefore believes this placement will deliver value for existing and new Shareholders.

Current trading and prospects

The Company’s annual results to 30 June 2017 were released on 4 October 2017. Since this date the Company announced on 5 December 2107 that it had successfully exported its first shipment of rare earth mineral concentrate and it intends to gradually increase production and shipments of concentrate for the remainder of the financial year to June 2018.

As at 11 December 2107 the ‘basket price’ for Rainbow’s concentrate was estimated to be US$12.16/kg, which has increased 22% since 1 January 2017.

Use of proceeds

The net proceeds of the Placing, if fully subscribed, are expected to be approximately £2.6 million (US$3.5 million) and it is proposed that such proceeds shall be used as follows:

· Approximately US$0.75 million to be deployed towards an expanded exploration programme:

o The Company will embark on its first ever drilling campaign, designed to investigate the geological anomalies identified by the recent the airborne survey (including Kiyenzi), as well as providing the foundation for the calculation of a potential maiden JORC Resource; and

o Additional ground based gravity surveys and geochemical analysis will also be undertaken.

· Approximately US$1 million to be deployed towards the development and establishment costs of new mining areas:

o The funding will accelerate the development of both Gashirwe and one other new area, potentially Kiyenzi, which would otherwise need to wait until sufficient funds were available from the gradual increase in production and sales from Gasagwe; and

o The bulk of the development and establishment costs at each new mining area, as with Gasagwe, relate to access road construction, site preparation and land compensation payments to local landowners.

· Approximately US$0.75 million to be deployed towards the purchase of additional mining fleet and vehicles:

o This funding will enable the Company to acquire machinery which will increase the efficiency and rate of production from the mine site, and which, in some cases, will replace similar equipment that is currently being rented, thereby reducing operating costs.

· Up to US$1.0 million to provide working capital during the Company’s sales ramp up and to strengthen the balance sheet.

The Capital Raising

The Placing Agreement

Pursuant to the Placing Agreement, Arden Partners and Hannam & Partners have agreed to use their respective reasonable endeavours as the placing agents of the Company to procure subscribers for the Placing Shares at the Placing Price.

The Placing Agreement provides, inter alia, for payment by the Company to Arden Partners and Hannam & Partners of commissions based on the number of Placing Shares placed by Arden Partners and Hannam & Partners multiplied by the Placing Price.

The Company will bear all other expenses of, and incidental to, the Placing including the fees of the London Stock Exchange, Registrars’ fees, all legal and accounting fees incurred by the Company and Arden Partners and Hannam & Partners and all relevant stamp duty and other taxes and duties payable.

The Placing is subject to the terms and conditions set out in the Appendix.

Expected Timetable of Events

  • Announcement of the Placing and Bookbuild commences: 12 December 2017
  • Announcement of the closing of the Placing and Bookbuild: 13 December 2017
  • Admission and commencement of dealings in the Placing Shares on the Official List: 8.00 a.m. on 19 December 2017
  • Placing Shares credited to CREST members’ accounts: 19 December 2017
  • Despatch of definitive share certificates in certificated form: within 10 business days of Admission

Each of the times and dates above refer to London time and are subject to change by the Company. Any such change will be notified to Shareholders by an announcement through a Regulatory Information Service.

Capitalised terms used but not defined in this Announcement shall have the meanings given to such terms in the section headed “Definitions” below save that any capitalised term defined in the Appendix shall have such meaning in the Appendix to the exclusion, in the Appendix only, of any definition of such term elsewhere in this Announcement.

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