Rainbow Rare Earths (LON:RBW), the Rare Earth Element mining company, has today announced its audited results for the 12 months ended 30 June 2019.
· First full year of production – 850 tonnes of concentrate sold at average grade of 57% Total Rare Earth Oxides (‘TREO’), an increase on 475 tonnes in previous year
· Adjusted EBITDA loss in the period of US$3.4 million (2018: US$2.0 million) with operating problems encountered during rainy season in particular
· Net loss for the year of US$12.3 million (2018: US$2.6 million) includes:
o Impairment of US$3.9 million in respect of initial pits at Gasagwe and Murambi, and the plant at Kabezi
o Depreciation of US$2.6 million
o US$2.5 million cost of the Lind Convertible which was settled in June and July 2019
· Production challenges underlined need to undertake additional exploration to define the ore body, and to move to more mechanised mining
· George Bennett appointed CEO in August 2019 to spearhead this new strategy
The financial information in this release does not constitute the Financial Statements. The Group’s Annual Report which includes the audit report and audited Financial Statements for the year ended 30 June 2019, will be available during October on the Company’s website at www.rainbowrareearths.com. The auditor’s report for the year ended 30 June 2019 was unqualified but included a paragraph highlighting the existence of a material uncertainty over going concern.
Chief Executive George Bennett stated:
“The results for the 12 months to 30 June 2019 reflected a tough year for Rainbow. However, while production was challenging, it would be more correct to characterise our operating methods in the year as trial mining. We have been able to learn a lot about our project in the year, and are now adapting the way we operate, and while we will continue the trial mining at Gakara, we are moving to a more mechanised, efficient operation. This experience gained in this trial mining phase will enhance our understanding of this orebody whilst we prove that we can develop the project as a low-cost mine, while at the same time focussing our efforts on developing our understanding of the orebody. We have already embarked on a programme of test work and further exploration whose aim is to define a JORC Resource sufficient to support an initial ten-year life of mine, with a first stage target production of 10,000 tonnes of concentrate a year grading at +/- 54-56% TREO.”
Rainbow’s focus is the Gakara Project in Burundi, one of the highest-grade (47%-67% Total Rare Earth Oxide) rare earths projects globally and the only African producer.
The Company began production of rare earth concentrates in Q4 2017 and has a ten-year distribution and offtake agreement with multinational thyssenkrupp Materials Trading secured for the sale of at least 5,000tpa of concentrate produced.
The Gakara basket is weighted heavily towards the magnet rare earths, including neodymium and praseodymium, which are driving demand and account for 70% of annual global REE sales due to their use in vital components in motors, generators, wind turbines, and electric vehicles.
The year to 30 June 2019 presented many challenges, particularly at the operating level, but also clearly underlined that Gakara has the potential to be a world-class mine, delivering rare earths into a market that is on the cusp of undergoing potentially explosive growth, driven by green technologies and electric vehicles.
Gakara is a unique asset. Its veins reach grades far in excess of any other rare earth deposits anywhere in the world, and the mineralisation is in the form of seams of almost pure bastnaesite/monazite.
We have discovered these veins outcropping at surface over almost all of the 39km2 mining permit, which tells us that the deposit contains a potentially vast quantity of high-grade ore. But more recent testing suggests that mineralisation exists across the deposit in lower grades too. This presents us with the possibility that we are looking at an even larger deposit than we had originally thought, and one which may be amenable to bulk mining.
The key to unlocking the value of this deposit will be in rolling out a programme of further exploration, with the objective of allowing us to model the resource in more detail. Not only will this show the full extent of the deposit, but it will allow us to develop a mining and processing plan which will allow us to realise the maximum value from it.
We have had some success in extracting targeted high-grade veins at our first two sites; however, we have learnt that we need to choose the right equipment and mining method to operate efficiently and effectively.
Nevertheless, we have successfully demonstrated that not only is there a strong demand for our concentrate, but that we can successfully export our product. We believe we are the only exporter of rare earth concentrate by sea in the world.
In August 2019, Martin Eales stepped down as Chief Executive. Martin’s leadership was invaluable as we transformed Rainbow from an early stage exploration project, through its IPO in January 2017, and into its current form. We are grateful for Martin’s input and guidance over the Company’s formative years.
At the same time, I was pleased to announce the appointment of George Bennett to the Board of Rainbow as Chief Executive Officer. Not only does George share the ambition of myself and my fellow Board members regarding the future of Rainbow, but he brings with him considerable experience in the natural resources sector, and, crucially, a track record of delivering shareholder value.
In the short time since his appointment, he has initiated a number of changes in strategy which we believe will pave the way for the Company to become the second largest rare earth mine outside China. Much work remains to be done, but George’s vision, energy, and determination, together with that of the management team and the Board, give me every confidence that we are firmly on the right track.
The rare earth market has received a considerable amount of attention during 2019, with trade tensions between the US and China leading to speculation about the security of supply of REs, many of which are critical not only to vital sectors such as technology, electric vehicles, and turbines, but also are used in military and scientific applications. China accounts for 90% of world production of REs, and such concerns underline the importance of a significant non-Chinese source such as Gakara.
However, we believe the wider fundamentals to be even more important. REs such as Neodymium and Praseodymium are used in high-growth industries, and as a result, demand is expected to increase dramatically in the coming years. Yet at the same time, very few new sources are likely to come online, which will create a supply shortfall which is likely to push prices up significantly from current levels.
Although 2019 was undoubtedly a challenging year for Rainbow and its shareholders, the Company is now embarking on a new, much more ambitious direction under new leadership, and will be perfectly placed to benefit from the increased demand for REs in the coming years.
Finally, I would like to thank the many people who have given their support to Rainbow during the year: my fellow Board members for their advice and counsel; the staff and management of the Company, particularly those in Burundi who have shown determination and resilience in challenging conditions; our wider stakeholders including the communities in which we operate, our suppliers, local officials and members of the Burundian ministries of mines and finance, who have been incredibly supportive.
CHIEF EXECUTIVE OFFICER’S REVIEW
Before I took on the role as Chief Executive Officer in August 2019, I took the opportunity to visit Burundi to see for myself the Gakara mine. This visit confirmed my initial impressions of the project: that the deposit has the potential to be a genuinely world-class rare earth deposit; but that the mining and processing of the orebody, up until that point, had not employed a conventional approach for a new mining project.
The mining permit extends over 39km2, and to date well over 1,000 rare earth occurrences at surface have been identified, from all over the licence area. There are over 30 RE targets, many of which were mined by the Belgians 40-60 years ago. In mineralogical terms, these occurrences are strikingly homogeneous, which tells us they are part of the same mineralisation. In fact, we now believe that the permit area is not only pervaded with high grade veins of varying thickness, but that mineralisation also exists in between the veins, which suggests that the area contains a very much larger deposit of rare earths that needs to be confirmed by our revised exploration strategy.
Of course, the precise scale and nature of the orebody can only be determined with confidence through exploration work, which is the foundation for any mining project. A modest drilling programme was completed in 2018, which was mainly focussed on the Kiyenzi deposit. Only a relatively small number of drill cores were selected for analysis, and the cores chosen were those showing areas of visible mineralisation. As a first step, we are now sending all drill cores for analysis, which should quickly give us a much better understanding of the deposit at Kiyenzi in particular. The initial two diamond drill cores, fully analysed from Kiyenzi, appear to confirm our belief that mineralisation exists between the high-grade veins.
In addition, we are developing a programme of exploration work designed to confirm, as a first step, a deposit sufficient to support a 10-year mine life, with concentrate production targeted at 10,000 tonnes per annum. These levels are more ambitious than previous targets, but we believe they are achievable as a result of a change in the approach to defining the resource within our mining permit and a change in the mining method.
Until September 2019, mining focused exclusively on high-grade veins, which were extracted by hand, with all other materials considered waste. Once we have defined a larger orebody to JORC standards, we will develop a mine plan that will extract ore in bulk, by mechanical means. This will allow us to extract a far greater quantity of material at a much quicker rate, and will mean a far larger tonnage of RoM material but with a lower overall grade of mineralisation.
The mining of lower grade material will, we believe, be most efficiently handled by introducing a simple pre-concentration step possibly involving a scrubber, DMS and spirals, to be confirmed by the ongoing test work. This is likely to be most economical and practical if undertaken nearer the mechanical mining activity.
I am fully aware that investor confidence in the project can only be won through hard work, and hard evidence. I intend to deliver such information to the market as and when it becomes available to us.
In parallel with this exploration and test work programme, we are investing in new mining fleet, which will deliver significant cost savings compared with the rented fleet currently in use, and which will be far better suited to the terrain (particularly in wet conditions). We will continue to mine at the Murambi pit only, which we believe will provide sufficient ore for at least a year, but in a more efficient way than before – the ore extraction will be mechanised, and we will therefore be able to operate with a reduced workforce, delivering further cost savings, while still maintaining our social licence within Burundi. The objective of operations is to reach breakeven profitability at the mine site level by January 2020, which will allow us to deploy our cash resources to develop the resource into a much larger proven target with the ultimate aim of achieving 10,000 tonnes per annum of concentrate.
A more realistic assessment of production over the coming 12 months, combined with the additional focus on expanded exploration, and a metallurgical and mineralogical test work programme as the first phase in developing a much larger project in terms of production and Life of Mine (‘LoM’), will mean that further funding will be required over the next 12 months. However, we are also determined to ensure that additional financing is structured in such a way as to minimise dilution, and phased such that it follows on the back of successful progress we have made towards our objectives, which we believe will underline the huge value in our project and thus improve our valuation.
The Company announced an initial JORC Resource in December 2018, but on a limited scope. We are now testing all the samples collected during the 2018 drilling programme (rather than those that only showed visible mineralisation), and are planning to undertake further drilling in key areas. As a result, I am confident we can deliver a JORC resource in early 2020, supporting our target production levels, and I am equally confident that a bulk mining approach will be far more efficient and scalable than we have seen to date.
But I am also encouraged by the mineralogy of the ore at Gakara. The Kabezi process plant is small in scale and simple in scope – it includes crushing and gravity separation only – and yet the trial mining to date has been able to consistently produce a concentrate of 54-58% TREO, from even lower-grade material we have tested to support my initial impressions of the project. This underlines how simple the mineralogy and metallurgy of the ore is, and is a major differentiating factor compared with other RE projects, many of which include large and complex beneficiation steps and yet still cannot reach concentrate grades close to those of Gakara.
It should also be mentioned that the levels of Uranium and Thorium in the deposit are negligible which demonstrates how benign our ore is and how environmental impact of mining and processing is very low for a RE project, which is hugely advantageous. In most RE deposits around the world Uranium and Thorium are key elements that require extra steps in the process flow sheet for extraction and add huge opex and capex costs to any project. Rainbow has exported concentrate to China, which has very strict limits of radioactivity – imposing limits of less than 0.2µSv/hr (roughly equivalent to background radiation in a granitic area) – without any problems to date.
I mentioned that our target is to define a JORC-compliant Resource sufficient to support the production of 10,000 tonnes of concentrate over a 10-year mine life – which is more than double our previous target. However, this represents just the first stage for the Gakara project and is likely to be based on just one or two individual deposits. Around 30 potential targets have been identified for further exploration many of which were mined by the Belgians, and once we have achieved the first stage, we will undoubtedly continue to drill further areas to grow the project even further. I would point out that over the last 30 years, the vast majority of large-scale modern mines built in Africa, have been developed from the initial colonial mines rediscovered by their respective mining companies.
In the past, we have also mentioned our interest in developing a down-stream separation/beneficiation capability, which would enable us to process our concentrate into a mixed rare earth carbonate or oxide, or possibly down to individual RE oxides. This would allow us to capture significantly more of the value of our concentrate, and remains firmly in our plans. However, the first step is defining a source of feedstock for such a plant – and our plans in this area will emerge once we have a better understanding of the orebody.
A lot of hard work has gone into developing the Gakara project to date. The deposit is truly unique in its scale and nature, and it was perhaps inevitable that some of the early decisions needed to be revisited. It was clear that before any detailed production plan could be formulated, a far better understanding of the ore body was necessary, and that subsequent mining and processing methods were likely to be much more efficient if mechanised and with larger quantities of ore.
That the Gakara deposit had enormous potential was never in doubt. But I would not have taken on the role as Chief Executive, nor would I have invested personally in the project, had I not believed that the Company could be grown significantly in scale, and would thus be transformed into a RE mine that could compete on the world stage, and be hugely profitable in the process.
I look forward to updating you all on our progress in the months to come.
Chief Executive Officer