# Rainbow Rare Earths Q3 Ops Update & Pella Loan

- Link: https://www.directorstalkinterviews.com/rainbow-rare-earths-q3-ops-update-pella-loan/412774005
- Published: 2019-05-07T09:21:44+01:00
- Author: Charlotte Edwards

**Rainbow Rare Earths** (LON:RBW), the rare earth element mining company, today 
announced a new funding agreement with its major shareholder, Pella Ventures Limited,
comprising an unsecured loan amount of US$0.7 million to support Rainbow’s development
and operations.

In addition, Rainbow has agreed with The Lind Partners LLC (‘Lind’) to suspend any
further tranches under the existing equity drawdown facility (‘the Lind Facility’)
first announced on 28 January 2019.

Further, the Company is pleased to provide a Corporate update together with its 
latest quarterly production statistics for its Gakara Project in Burundi for the
period January to March 2019.

Terms of the Unsecured Loan

Loan Amount:

US$700,000

Loan Term:

12 months

Interest:

15%

**Conversion to Equity:**

Mandatory conversion of outstanding loan principal and any interest into ordinary
shares of the Company on same terms of next equity fundraising.

**Purpose**:

To be applied towards general working capital purposes.

> **Martin Eales, CEO of Rainbow, said:**
> “The funding agreement with Pella provides working capital whilst the Company 
> finalises its short term plans to finance the Company’s planned investment for
> growth. Pella is the Company’s founder and largest shareholder and is committed
> to supporting the Company to achieve its long term aims.
> “Our project is exceptional and is one of the highest-grade mines of its type 
> in the world. We have been working hard at developing a short-term strategy to:(
> i) maximise concentrate production from the high grade veins through the acquisition
> of new fit-for-purpose mining vehicles and the development of multiple mining 
> areas; (ii) develop the upside potential of the large lower-grade Resource at 
> Kiyenzi for future mining; and (iii) progress our investigation into the feasibility
> of further processing our concentrate, in order to significantly increase our 
> economic participation in the rare earth value chain in the future.”

> **Adonis Pouroulis, Chairman of Pella and of Rainbow said:**
> “Rare earths mining and processing remains one of the most significant medium-
> term opportunities in producing commodities for the future and in the last two
> years, Rainbow has proven that Gakara is a very special project which is deserving
> of continued support to enable it to achieve long-term sustainable positive cashflow
> at even the currently low basket price.”

Adonis Pouroulis has a beneficial interest in Pella and therefore a beneficial interest
in 23.5% of the Company’s issued share capital. Rainbow shares are listed on the
Standard segment of the Main Market of the London Stock Exchange and as such, Chapter
11 of The Listing Rules concerning Related Party Transactions does not apply to 
the Company. Notwithstanding this, Rainbow’s Board, excluding Adonis Pouroulis and
Robert Sinclair (as directors of Pella), has concluded that the terms of the loan
are fair and reasonable.

**Lind Facility**

Rainbow announced an equity drawdown facility with Lind on 28 January 2019. Rainbow
has now agreed with Lind to suspend further tranches under the Lind Facility. The
amount drawn down under the Lind Facility in three tranches so far has been a total
of US$0.3 million.

**Results for Q3 2018-19 (Three Months to 31 March 2019)**

  |   Q3 2018-19(31 Mar 2019) |  Q2 2018-19(31 Dec 2018) |  FY 2017-18(30 June 2018) |  
 |  ROM Production (tonnes) |  347 |  371 |  1,005 |  
 |  Concentrate sold (tonnes) |  100 |  300 |  475 |  
 |  Grade TREO per tonne concentrate sold |  56% |  56% |  58% |  
 |   |   |   |   |  
 |   |  US$/t |  US$/t |  US$/t |  
 |  Gross sales price |  1,780 |  1,884 |  2,263 |  
 |  Marketing and handling |  (127) |  (94) |  (175) |  
 |  Net sales price |  1,653 |  1,791 |  2,088 |  
 |  Transportation and royalty |  (322) |  (387) |  (381) |  
 |   |   |   |   |  
 |  LTIFR |  1.75 |  0.00 |  0.00 |

**Production update for quarter to 31 March 2019**

Production at the Company’s Gakara Project in Burundi in the three months to 31 
March 2019 remained challenging. Rainfall during the period disrupted mining operations
as the locally-rented haul trucks available proved incapable of performing in wet
conditions which limited waste stripping and dumping. The replacement of the inadequate
rented machines with newer more suitable models is a critical component in Rainbow’s
plans to address mining performance issues.

Mining operations continued to take place at two sites: Gasagwe and Murambi. Gasagwe,
which was the project’s first operating pit, was opened in Q1 2017-18, while production
began at Murambi in December 2018 following environmental approvals.

347 tonnes of Run of Mine ore were mined in the quarter, compared with 371 tonnes
for the previous period, which was lower than planned. However, due to the timing
of concentrate batches being completed, only 100 tonnes of concentrate were exported
and sold in the quarter, compared with 300 tonnes exported in the quarter to 31 
December 2018.

Gross sales price per tonne achieved in the quarter was approximately 9% below Q2
2018-19 at US$1,780/t compared to US$1,884/t, reflecting the fall in rare earth 
oxide prices seen during the preceding quarter which flows through to Rainbow’s 
sales contracts. Rare earth prices remained relatively flat in this quarter, with
the Company’s indicative basket price average increasing slightly from US$11.33/
kg to US$11.41/kg during the period.

**Health & Safety**

The Company is disappointed to have experienced its first Lost Time Injuries during
the quarter, when two employees suffered minor injuries following a lightning strike
near a rain shelter where mine workers were taking shelter during a storm. The Lost
Time Injury Frequency Ratio for the quarter was therefore 1.75 (6 months to 31 December
2018: 0.00, 12 months to 30 June 2018: 0.00). The Company has a commitment to zero
harm to its employees and the environment, and this incident has been taken seriously.

**Production expansion and future strategy**

As noted in the Company’s recent maiden Resource estimate and its last quarterly
update, Gakara provides Rainbow with the unique combination of extracting extremely
high grade ore, allowing for a short and foreseeable path to positive cash flows,
as well as a high volume deposit at Kiyenzi indicating significant long-term opportunity
for further exploration in our concession area. The Company therefore is developing
a dual strategy to operate additional mining areas in order to de-risk the fluctuations
caused by operating at a limited scale and to deliver profitability. Subject to 
securing the necessary financing, the Company will swiftly move to develop mining
operations at the Kiyenzi and Gomvyi Centre areas, as previously announced, and 
expects both areas to be in operation in the latter half of calendar 2019. A further
new mining area is planned to be in operation in 2020, to replace Gasagwe which,
as originally planned, is expected to reach the end of its life in the next 12 months
and it is the Company’s intention that a minimum of four pits are in operation continuously.

Cash flow breakeven on a monthly basis is therefore anticipated in the second half
of the 2019-20 financial year following commencement and ramp up of production at
the planned new sites.

In addition to near-term production increases derived from the expansion of high
grade vein mining, Rainbow sees considerable potential in seeking to develop the
resource size of the lower grade deposit at Kiyenzi and pursue its potential for
mining and beneficiation, whilst at the same time continuing to consider the options
available for further processing of the existing concentrate to a much higher value
product. Both of these elements form key parts of Rainbow’s strategy for the short
to medium term over the next 12 – 18 months, and are expected to be additional value
drivers for the Company beyond the current production of mineral concentrate.

**Outlook**

Rainbow continues to believe in the prospects for the Gakara Project and is confident
that investment in new mining machinery and new pits will serve as the foundation
for a sustainable and profitable operation, whilst the potential upside in the project
to be obtained through further exploration, metallurgical testwork and investigation
of downstream processing of Rainbow’s concentrate all remains in place.

The rare earths sector has seen considerable interest in recent weeks following 
an unsolicited bid for Australian company, Lynas Corporation, which is currently
the only other listed rare earths mining company producing commercially outside 
of China, illustrating the global strategic importance of non Chinese sources of
rare earths.

Subject to the planned investment in new fleet and pits, the Company anticipates
that both Kiyenzi and Gomvyi Centre will start contributing ore tonnes in the second
half of calendar 2019 (H1 19-20 financial year) and take the Company to at least
breakeven production following their ramp up. Concentrate production for the next
three to six months will remain dependent on tonnages from the existing pits, Gasagwe
and Murambi, and therefore the Company expects full year concentrate production 
for the year to June 2019, prior to the impact of any of the improvements mentioned
above, will be 800-900 tonnes.

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