Rainbow Rare Earths (LON:RBW) Rainbow’s Joc Report

Rainbow (LSE:RBW) not long after it raised $2m at 12.38p, reported its 3rd Qtr Trading update which changed investor perception.

After a string of positive development reports investors were shocked that the targeted 400tpm (4,800tpa) run rate was being delayed unto 2019 and will be dependent on further mining areas being opened. This is the run rate given by directors to be cashflow positive and these expectations are being re-set.

The maiden Joc Resources estimate is due to be reported shortly. As we know the grades and a robust price therefor a value to the project can be given, which is likely to be a large number. The report will not be over the whole area of the license so should leave plenty of room for further upgrades. RBW’s Gakara project in Burundi is one of the worlds highest-grade deposits. It was decided to be trial mined and production plant was brought rather spending the time and the ‘dead’ money developing the resource estimate first.

Last year 575 tonnes of material was mined and the last QTR reported 350 tonnes were mined and sold. Sales are to thyssenkrupp as part of the 10-year off-take agreement with this multinational giant. It does presently cost more to mine at $2,852 a tonne than the net selling price which is $1,980. To achieve critical mass near $6m was invested in plant and machinery such as a 10,000 tonne per annum production plant which is processing material from just the Gakara mine. A second mine has been opened in Murambe, near enough to the first mine to share facilities which is due to start production this year.

This is delivering the (pre-sold) high grade REE ( Rare Earth Element) concentrate and the ‘basket’ comprises 19% component of Neodymium (Nd) and Praseodyium (Pr), both are exceptionally high value as there is high demand to make the powerful magnets needed in computer drives, wind turbines and mobile phones. Rainbow’s management team includes Adonis Pouroulis, a mining engineer and entrepreneur who is also the founder and Chairman of Petra Diamonds. Adonis increased his holding to 25.4% since the float and institutional selling seems to have stopped. TechMet invested $2m at 12.38p in August, strategically to focused on developing RBW’s higher margin downstream products.

Financials

The $2m from the August fund raise may stretch to the June year-end when further funding would be needed.

Trading Strategy

This recent weakness seems overdone and anticipating the Joc Report and the new mine moving into production may make this an opportune time to buy.

Rainbow (LSE:RBW)

4.75p (4.5-5p)

Mkt Cap: £9m

Next Results: Resource Report due in December

 

By  Andrew Hore & Jon Levinson 

Andrew has been writing about small companies for 25 years, following the fortunes of many companies, both successful and unsuccessful. He worked at the Investors Chronicle for 12 years, ending up as smaller companies editor. He then went on to write AIM Bulletin and he is currently editor of AIM Journal and AimMicro.com. He is a former AIM journalist of the year and was on the shortlist for the journalist of the year at the Small Cap Awards.

Jon has been an analyst, a journalist, a fund manager and is currently a corporate broker. He will strictly never write on corporate clients. His MBA dissertation was on filling the Smaller Companies Equity Gap. When writing the Penny Share Focus he learned that not all that glitters is gold.

 

 


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