Rainbow Rare Earths Ltd (RBW) is a London, United Kingdom-headquartered mining company focused on generating significant value from the extraction from Gakara Rare Earth Project in Burundi, East Africa. The Gakara Rare Earth Project covers a combined area of approximately 135km and is one of the world's richest rare earth deposits, with in-situ grades in the range of 47-67% Total Rare Earth Oxide (TREO). It is the only mine producing rare earths in Africa, and the company extracts high grade, high-quality Rare Earth Oxides (REOs) from it. Rainbow was granted a mining licence with 90% interest in March 2015 with a validity of 25 years and has a 10-year agreement with thyssenkrupp Raw Materials for exclusive sale of at least 5,000 tonnes per annum of concentrate. Martin Eales is the CEO of the group.
What are Rare Earth Elements
Rare Earth Elements (REEs) are a group of seventeen chemical elements, often referred to as the rare earth metals, that are known for their unique magnetic and electrochemical properties. They are usually in low concentrations and are difficult and expensive to mine and are vital in the production of cancer treatment drugs, smartphones, renewable energy technologies, and many others. The US Geological Survey has designated these elements as "critical."
Recent Surge in the Share Price
After Chinese President Xi Jinping's visit to a rare earth processing firm in southern China and Chinese newspapers signalled that its next move could be the restriction of rare earths, rising tensions sparked worries that Beijing could use its dominant position as a supplier of these metals for leverage in the trade war. China is by far the world's largest producer of rare earths and, between 2014 and 2017, the US relied on China for about 80% of its rare-earth imports. Amid the possibility of restricted Chinese supply, markets anticipate a surge in demand and higher prices, resulting in soaring share prices of several rare-earths companies.
Key Financial Highlights (H1 FY 2019, in $m)
The company’s reported revenue for the period was $1.2 million as compared with $1.0 million in H2 FY 2018, as 650 tonnes of concentrate was sold at an average net price of $1,892 per tonne. The gross loss on production stood at $0.5 million in the period, while EBITDA in the period was a loss of $1.4 million. Compared with losses of $1.1 million H1 FY 2018, pre-tax losses were $3.1 million in H1 FY19. Net loss was reported at $3.2 million, versus a loss of $1.1 million in H1 FY2018.
Share Price Commentary
Daily Chart as at May-31-19, before the market closed (Source: Thomson Reuters)
On 31st May 2019, at the time of writing (before the market closed, GMT 11:25 am), RBW shares were trading at GBX 5.90, up by 28.3 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 19.90/GBX 1.55. Total outstanding market capitalisation was around £9.58 million.
Recent trade tensions have given a push to earth metals, and hence to companies specialising in it like Rainbow Rare Earths Ltd. Moreover, many other countries might start productions of rare metals to insulate themselves from future arm-twisting by China, raising prospects of increased supply in future. Nevertheless, the fundamentals of the market remain strong as it is used in a wide range of growth applications, ranging from consumer discretionary to national security. At the same time, new sources of supply are limited, reinforcing the belief that prices will increase from present levels.
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