Berenberg8 Sep 2023 19:54
From Berenberg this morning.
If anyone wants a full copy it's posted on the RBW telegram group
A cheap, rare earth gem with catalysts ? Rainbow Rare Earths’ (Rainbow’s) share price performance this week has confused us. The company announced the successful production of a mixed rare earth sulphate product, which we believe is a major de-risking event for its Phalaborwa project in South Africa – both in terms of technical and financial risk. The stock closed down 4.5% on the day of the announcement and we had expected a 10% positive move. Part of this may be selling into recent strength (the stock has rallied 18% over the past month and is up 62% ytd); however, at 0.36x our risked NAV, we see even more upside in the stock this year. In our view, there are four key operational/business development catalysts that we think will play out over the near to medium term and offer more upside for the shares. These are: (i) the production of a higher-value separated rare earth oxide product in Q423; (ii) an eventual resource upgrade due to more accurate density measurements below the water table, adding life of mine; (iii) a definitive feasibility study, which we expect in H124, and – potentially ahead of this – an updated feasibility study that highlights the project economics if the front end and back end of the plant are separated (a further de-risking event); and (iv) further business development activities, as well as progress at the Uberaba phosphogypsum stack in Brazil (a joint venture (JV) with Mosaic). ? Lots to like; NAV discount to unwind: We continue to think that Phalaborwa is one of the best undeveloped rare earths projects globally. It is brownfield and the nature of the deposit means that much of the processing effort and cost of traditional hard rock rare earths projects does not apply here, reducing costs and supporting a c75% operational EBITDA margin, making this, in our view, a Tier 1 asset. The strategic nature of rare earths is key for the long-term thesis and, given the link with K-Tech in the US, this offers a compelling strategic angle for the stock, with Rainbow able to deliver separated rare earths into the US market, avoiding reliance on China. Considering the importance of provenance, this is key. We also think that the company’s business development opportunities offer scope to build a meaningful, diversified, multinational rare earths business that we think will be a compelling investment opportunity. ? Investment conclusion: There is a lot to like about Rainbow’s investment case. The stock is trading on 0.36x NAV and we think that this unwinds with the demonstrable catalysts that we list above; we see further share price upside from current levels, with our risked NAV standing at GBp43 per share (de-risked: GBp57 per share).
Sign In
Follow the stocks
