Rainbow Rare Earths - Initiation of Coverage
Production to be rapidly ramped up at one of the highest grade REE producers globally and one of the few outside of China
Rainbow Rare Earths Ltd listed on the LSE in 2017 at 10p per share and has a 90% stake in the Gakara Rare Earths Project in Burundi. This boasts some of the highest grades of Rare Earth Elements (REEs) on the planet. A recent maiden JORC compliant resource statement outlined 1.2Mt on just a small part of this vast 39km² licence area, confirming the true scale of the deposit for the very first time. Investor excitement sent the shares to 23p, but recently the stock has been oversold due to production delays and financing concerns.
REE production being ramped up targeting break-even by H2 2019
Mining began in September 2017 and is on course to achieve break-even in H2 2019 from two mining areas. This is dependent on the opening of another two areas which are planned to allow production to increase. Demand is very strong from end customers secured by partner Thyssenkrupp under a 10-year offtake deal for up to 5,000 tpa, plus first right of refusal on the next 5,000 tpa.
Scope to capture far higher margins with downstream processing
JV partner TechMet is to fund a DFS to determine the economic feasibility of processing the concentrate into separate REEs, which could reduce the discount to metal content price considerably from the current 70%.
Escalating US-China trade war looks likely to spill over into REEs
REEs are strategic commodities with deposits outside of China becoming strategically important. Rainbow has just started to attract attention for being just one of two quoted commercial REE producers outside of China.
Highly conservative NPV suggests upside of 70%
Our conservative valuation shows the potential. We initiate coverage of Rainbow with a target price of 10.53p and Conviction buy stance.
RISK WARNING & DISCLAIMER
Rainbow Rare Earths is a research client of Align Research. Align Research owns shares in Rainbow Rare Earths. Full details of our Company & Personal Account Dealing Policy can be found on our website http://www.alignresearch.co.uk/legal/
For full disclaimer information please refer to the last page of the full document. This investment may not be suitable for your personal circumstances. If you are in any doubt as to its suitability you should seek professional advice. This note does not constitute advice and your capital is at risk. This is a marketing communication and cannot be considered independent research.
| Year to Dec | 2017A | 2018A | 2019E | 2020E |
|---|---|---|---|---|
| Revenue ($'000) | - | 992 | 1,600 | 5,900 |
| PTP ($'000) | (1,402) | (2,515) | (6,200) | (3,850) |
| EPS ($) | (0.01) | (0.02) | (0.03) | (0.01) |