Align Research - Rainbow Rare Earths - Initiation of Coverage
Paul Kettle
Align Research Research Note -3 min read
10:37, 7th June 2019

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.

Table: financial overview
Year to Dec 2017A 2018A 2019E 2020E
Revenue (
#39;000)
- 992 1,600 5,900
PTP (
#39;000)
(1,402) (2,515) (6,200) (3,850)
EPS ($) (0.01) (0.02) (0.03) (0.01)

 

CONVICTION BUY

Rainbow Rare Earths

Key data

EPIC RBW
Share price 6.2p
52 week high/low 19.10p/1.50p
Listing Full List LSE
Shares in issue 207.89m
Market Cap £12.9m

12 month share price

Analyst details

Dr. Michael Green
michael.green@alignresearch.co.uk

Important: Disclaimer information can be found on the last page of this document

Disclaimer & Declaration of Interest

The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. Vox Markets may receive payment from companies mentioned for enhanced profiling or publication presence. The writer may or may not hold investments in the companies under discussion.

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