Rainbow Rare Earths Phalaborwa project shaping up to be one of the lowest cost producers globally. Watch the video here.
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One aspect that frustrates me about GEEC is that they have not made progress in securing an offtake agreement with GAIL. The upside of waiting is that they can now maybe lock in a much higher price for any offtake signed in the next few months given the guidance in the interim results of expectations for substantially higher realised gas prices for cbm in the market.
So with the benefit of any doubt given to the management for this master stroke of strategic thinking, we can now read the more energised wording in the interim results to get on with expanding production and the explicit reference of farm in as a source of finance as possibly hinting that the management have started some initial conversations.
So who might be in the frame? Essar Oil and Gas operate the raniganj east field adjacent to geec’s raniganj south and have a very significant balance sheet at their disposal.
Essar is already connected to the Urja Ganga pipeline, which is connected to the national grid since May 2021. The company has an agreement with Gail to supply the CBM through the gas pipeline.
Given the drilling synergies that must be significant between the two companies my money would be on a farm in with Essar and maybe also an overseas technical partner to bring shale gas specialism to this opportunity.
While such a move would dilute the massive upside potential for the share price of geec, it would also expedite the roll out of hundreds of new wells. Once largely complete and derailed I also wouldn’t be surprised if Essar then buy out geec and other shareholders (from farm in).
Essar are moving on this now and so if I’m right an announcement won’t be far off. Geec can’t finance their ambition from debt despite the strong balance sheet. It just isn’t big enough. They could issue a significant amount of new equity and combine with a London main market listing. I wonder though if that would get away at a high enough price for management to accept the dilution. So maybe the more attractive option is the farm in where synergies and a better understanding of the true value of the raniganj asset that Essar would bring is the option that lands?
As always time will tell but the tone and wording of the last update imply that we are not far away now in my opinion. Vital to DYOR though
Hi Troyto, I can't argue with your logic on this. There is a slowly, slowly catchy monkey approach to GEEC's growth and while the pipeline will improve price and profitability the prohibitive cost of debt means even a $20m drill program seems ambitious. A farm in does solve the problem.