Rainbow Rare Earths Regulatory News (RBW)

24 October 2022

Rainbow Rare Earths Limited

("Rainbow" or "the Company")

LSE: RBW

Preliminary results for the year ended 30 June 2022

Rainbow Rare Earths is pleased to announce its preliminary results for the year ended 30 June 2022 ("FY 2022").

The financial information in this release does not constitute the Financial Statements. The Group's Annual Report, which includes the audit report and audited Financial Statements for the year ended 30 June 2022, will be available on the Company's website at www.rainbowrareearths.com.

Highlights

· Increasing demand for magnet rare earths underpinned by rising electric vehicle sales forecasts and mounting capacity acceleration in the offshore wind market.

· A major shortage of neodymium and praseodymium is predicted by 2035[1] due to a lack of rare earths sources and the inability of existing producers to increase their output.

· Rare earth prices rose substantially in FY 2022, with Phalaborwa's basket price up 82%, and long-term supply demand fundamentals support significant increases towards the second half of this decade.

· Progress made at Phalaborwa during FY 2022, culminating in the recent publication of Phalaborwa's PEA highlighting its robust economics and the significant opportunity provided by this project to provide near-term production of rare earth oxides:

o  Base case scenario establishes an NPV10 of US$627 million, an IRR of 40%, an average operating margin of 75% and a two-year payback period.

o  Using 2022 year to date average rare earth prices or long term forecast rare earth prices, the PEA delivers an NPV10 of c. US$1 billion, an average operating margin over 80%, an IRR of 51% and a payback of 1.7 years.

· By collaborating with third parties, Rainbow is working to harness value from rare earths contained within other secondary phosphogypsum sources.

· Rainbow became a member of the European Raw Material Alliance ("ERMA") in FY 2022 - an essential alliance working to accelerate the green and digital transition through securing and reinforcing rare earths supply chains.

· Continued constructive engagement with all stakeholders at Gakara in Burundi, with confidence in the Company's ability to find a resolution to allow operations to recommence.

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Market Abuse Regulation (EU) No 596/2014 ("MAR") which has been incorporated into UK law by the European Union (Withdrawal) Act 2018 until the release of this announcement.

For further information, please contact:

Notes to Editors:

Rainbow's strategy is to identify near-term, secondary rare earths production opportunities. Meeting escalating demand for critical minerals needed for global decarbonisation, we are focused on producing the magnet rare earth metals neodymium and praseodymium ("NdPr"), dysprosium and terbium. With our strong operating experience, proven project development experience, unique intellectual property and diversified portfolio, Rainbow will develop a responsible rare earths supply chain to drive the green energy transition.

The Phalaborwa Rare Earths Project, located in South Africa, comprises an Inferred Mineral Resource Estimate of 30.7Mt at 0.43% TREO contained within unconsolidated gypsum stacks derived from historic phosphate hard rock mining. High value NdPr oxide represents 29.1% of the total contained rare earth oxides, with economic Dysprosium and Terbium oxide credits enhancing the overall value of the rare earth basket in the stacks. The rare earths are contained in chemical form in the gypsum stacks, which allows high value separated rare earth oxides to be produced in a single processing plant at site with lower operating costs than a typical rare earth mineral project.

Chairman's statement

From wind turbines to EVs, clean energy is dependent on unlocking increased supplies of critical minerals, including rare earths such as neodymium, praseodymium, dysprosium and terbium which are fundamental components in permanent magnets.

Current geopolitical tensions and energy security risks serve to further highlight the urgency of the clean energy transition, which will not be possible without a reliable supply of minerals. According to the IEA, demand for rare earth elements by 2040 may rise between three and seven times from today's levels.

China currently dominates the global production of rare earth magnets; however, many major governments have now implemented critical and strategic materials policies, with a focus on creating independent rare earth supply.

Rainbow has recently become a member of the European Raw Material Alliance ("ERMA") - an essential alliance which is working to accelerate the green and digital transition through securing and reinforcing rare earths supply chains. Aiming to make Europe economically more resilient, ERMA's goal is to diversify supply chains, promote innovation, create jobs, and attract investment.

With our near-term development opportunity at Phalaborwa, alongside our unique and innovative technologies and processes, we believe Rainbow is well positioned to contribute to a responsible, independent supply chain, unlocking sources of critical permanent magnet rare earths which are required to drive global decarbonisation.

According to Adamus Intelligence, a major shortage of NdPr is predicted by 2035 due to a lack of rare earths sources in the market and the inability of existing producers to increase their output. This underscores the compelling opportunity presented to Rainbow, both at Phalaborwa and from the wider application of our proprietary technology, to achieve near-term, responsible and efficient rare earths production from secondary sources.

Rare earth prices rose substantially in FY 2022, with Phalaborwa's basket price up 82% to US$173.91 per kg of magnet rare earth oxides. Whilst prices fell back after the end of the financial year, they have since moved upwards again and the long-term supply demand fundamentals support significant increases towards the second half of this decade.

We have made significant strides forward in 2022 with a number of interesting collaborations and opportunities which we believe will be central to harnessing value from rare earths contained within secondary sources. Rainbow continues to work closely with K-Technologies Inc. ("K-Tech") and is planning on jointly patenting the rare earths extraction technology we have together developed. We are also collaborating with OCP S.A. ("OCP"), the Moroccan world leading producer of phosphate products, and Mohammed VI Polytechnic University ("UM6P"), a Moroccan university, by signing a Master Agreement in August 2022 on rare earths extraction from phosphogypsum. In addition to this, we signed a Memorandum of Understanding with a major chemicals company in South Africa in June, as part of which we are investigating the opportunity to extract rare earth elements from a nitro phosphate process stream and identifying further global opportunities for our unique rare earth extraction technology.

At our Gakara project in Burundi, which has been on care and maintenance since June 2021, we continue to engage constructively with all stakeholders and remain confident in our ability to resolve the issue and allow operations to recommence.

On behalf of the Board of Directors, I would like to extend our gratitude to our shareholders for their steadfast support, and to Rainbow's management team, employees and contractors for their unwavering commitment to the business' success. We also thank our host governments for their continued productive engagement. Having contributed a considerable amount of value to the Board since we founded the Company in 2011, Robert Sinclair resigned as a Non-Executive Director due to health reasons in January 2022. The Board joins me in thanking Robert for the considerable contribution he has made to Rainbow.

Our purpose is to produce the critical rare earth products required to progress the global green technology revolution in an efficient and responsible manner and thanks to the good progress at Phalaborwa, I believe we are working well towards achieving this goal.

I am encouraged by additional opportunities to leverage our intellectual property and technology to extract rare earths from phosphogypsum. Through our processing projects, which have fundamentally different risk profiles to traditional rare earth mining projects, we see enormous potential to facilitate near-term access to sources of critical permanent magnet rare earths, which are required to decarbonise energy systems in an environmentally responsible way.

CEO's statement

This has been a year of notable progress for Rainbow, enabling us to unlock a valuable, near-term source of the rare earth permanent magnet metals required so urgently to drive the global green energy revolution. This has involved carrying out a programme of detailed test work at Phalaborwa to better understand the exciting opportunity presented by this asset, leading to the development of an economic flowsheet and the recent publication of the preliminary economic assessment ("PEA").

By concentrating on phosphogypsum opportunities, the usual, extensive resource definition period is removed, significantly reducing the long lead time and risks associated with bringing a traditional mine into production. In addition, we benefit from considerable reductions in capital ("capex") and operating costs ("opex") compared to a traditional mine, due to the absence of hard rock mining, mine waste disposal, ore crushing and milling within the overall project cost base. Because the rare earth elements are present in a 'cracked' chemical form in the phosphogypsum, Rainbow's process will deliver separated rare earth oxides in a single process flowsheet at site. This replaces the multiple stages of reagent intensive processing usually required to crack a rare earth mineral concentrate and separate out the rare earth oxides from a mixed rare earth carbonate. Rainbow's process is also expected to have a number of environmental benefits.

Phalaborwa's PEA, which establishes an NPV10[2] of US$627 million, an IRR[3] of 40%, an average operating margin of 75% and a payback period of only 2 years, corroborates our long-held view of the operation's enormous potential as a low capital intensity, high margin, near-term rare earths development project. The base case financial model presented, using near-term rare earth price forecasts well below 2022 averages, demonstrates a robust project with low sensitivity to changes in both rare earth prices and costs.

The work carried out to date at this asset demonstrates Rainbow's ability to overcome the historical technical, environmental, and economic challenges related to extracting rare earths from phosphogypsum. Importantly, whilst the configuration of the process flowsheet is innovative, each individual stage is well tested on a commercial basis, with the required equipment and reagents being readily available.

The successful completion of this PEA represents not only a breakthrough step in the development of Phalaborwa, demonstrating the viability of this opportunity, but also underscores the broader potential to use our unique IP and technology to extract rare earths from other phosphogypsum sources on a global scale. We now intend to advance to feasibility study, identify all permits required for Phalaborwa's development, engage with the relevant authorities to expedite permitting and undertake further process optimisation tests culminating in an extensive process pilot plant operation.

We are committed to responsible business practices from an environmental, social and governance perspective. As a brownfield site, the development of Phalaborwa provides us with a significant opportunity to make positive environmental, social and economic impacts. Effective stakeholder engagement will be a fundamental part of project development, concentrating on understanding key risks and integrating stakeholder considerations into project development decisions to create long-term value.

I believe Phalaborwa's PEA accurately reflects the rigour and expertise we apply to project assessment. As a team, we have led numerous projects through development and have significant experience throughout the asset lifecycle from optimisation and feasibility to plant construction and commissioning. I am exceptionally proud of the progress we have made over the past few years and am confident that we have the right people in place to take Phalaborwa's development forward. With our proven operating experience, unique phosphogypsum processing intellectual property and portfolio of opportunities, I believe that Rainbow is well positioned to develop a responsible rare earths supply chain to drive the green energy transition.

Operational review

Phalaborwa

Rainbow's Phalaborwa rare earths project in South Africa presents the Company with an exciting near-term opportunity to extract rare earths from a secondary source. Contained in phosphogypsum in two unconsolidated stacks derived from historic phosphate hard rock mining, the rare earths are in a 'cracked' chemical form allowing separated rare earth oxides to be produced at site. With no significant costs associated with mining, crushing and grinding ore, or with chemical cracking of the underlying rare earth minerals, the project economics are exceptionally strong.

Phalaborwa has an inferred mineral resource estimate of 30.7Mt at 0.43% TREO, with a rare earth basket that is weighted towards high value NdPr oxide, a critical building block for the global energy transition, which represents 29.1% of the total contained rare earth oxides. Economic Dysprosium (Dy) and Terbium (Tb) oxide credits further enhance its overall value. Phalaborwa's NdPr grade is substantially higher than a typical low-cost ionic clay rare earth project, much closer to traditional hard rock style deposits.

Fundamental to unlocking the rare earths contained within the phosphogypsum at Phalaborwa (and more widely) is the innovative processing flowsheet developed by Rainbow in parallel with K-Tech. It represents a breakthrough in allowing for the economic extraction of rare earth elements from phosphogypsum, which has historically proven to be challenging. The flowsheet will comprise the following steps:

· Phosphogypsum will be reclaimed hydraulically from the existing stacks and pumped to the processing facility removing soluble impurities prior to the leach process.

· A pre-leach regime will be employed to remove fluoride from the gypsum stream, allowing rare earth grades in the pregnant leach solution to be maximised. The extracted fluoride will produce reagents for use elsewhere in the processing circuit, reducing operating costs.

· The fluoride leached phosphogypsum progresses to a rare earth counter current sulphuric acid leach system for the extraction of the target rare earth elements. This allows for successful recycling of the various acid streams to optimise the overall processing costs.

· A rapid consolidation process for the rare earths in the pregnant leach solution allows the rare earths to be concentrated with primary impurity rejection. This process replaces the originally anticipated nano filtration system, which significantly improves the overall acid recycling, thereby reducing operating costs.

· The rapid consolidation process feeds the downstream continuous ion exchange and continuous ion chromatography processes to deliver separated rare earth oxides. The flow rates to these processes are considerably lower than originally anticipated using nano filtration techniques resulting in significant capital and operating cost savings.

Phalaborwa PEA

Rainbow is earning a 70% interest in the Phalaborwa project by delivering a pre-feasibility study, which is now in planning having published the strong economic outcome from the PEA.

Robust base case economics

The PEA was based on processing 2.2 million tonnes per annum of phosphogypsum over a 15-year project life to deliver 26,208 tonnes of separated rare earth magnet oxides at an average cost of US$33.86/kg. This delivers an exceptional 75% operating margin at the base case basket price of US$137.92 per kg for the rare earth oxides, based on near term forecasts well below both 2022 year to date average prices and long-term market forecasts.

The base case financial model set out in the PEA delivered exceptionally robust economic returns including:

· Post-tax NPV10 of US$627.4 million, representing 212% of the US$295.5 million total capital cost1;

· Post-tax IRR of 40%; and

· Post-tax payback of upfront capital costs after 2.0 years of operations.

NPV upside using year-to-date prices

Using 2022 year to date average rare earth prices or long term forecast rare earth prices the PEA delivers an EBITDA operating margin over 80%, with an NPV10 of c. US$1 billion and a payback of 1.7 years.

Minimal sensitivities to cost

The project is insensitive to changes in costs, including an overall low energy intensity at just 20% of annual operating costs. Against a backdrop of the expected demand strength and supply constraints for permanent magnet rare earths forecast over the next decade and beyond, Phalaborwa is expected to deliver an independent source of responsibly sourced rare earth oxides for the green revolution.

Environmental benefits

Studies at Phalaborwa have highlighted the environmental benefits of the project, which include very low levels of radioactivity (exempting Phalaborwa from radioactivity regulation) and the ability to neutralise the existing water from the stacks for reuse in a closed circuit as plant process water. In processing material from the existing gypsum stacks at Phalaborwa, we aim to remove existing environmental liabilities and redeposit benign gypsum on a new stack, built according to International Finance Corporation ("IFC") Performance Standards and Equator Principles.

Next steps

Following the publication of the PEA Rainbow intends to advance the project to feasibility study, identify all permits required for the Project to be developed, engage with the relevant authorities to expedite permitting and undertake further process optimisation tests culminating in an extensive process pilot plant operation. A resource update is also expected for Phalaborwa following drilling work undertaken in June 2022.

Gakara

The Gakara rare earths project is located in Western Burundi covering an area of approximately 135km². The project benefits from good infrastructure, with road links to Dar es Salaam, Tanzania and Mombasa, Kenya. Trial mining and processing has demonstrated that a high-grade rare earth mineral concentrate, with a 19-20% NdPr content, can be consistently produced via simple gravity separation from the narrow high-grade rare earth veins found across the Gakara license area.

Gakara was placed on care and maintenance in June 2021 at the request of the Government of Burundi, with the majority of staff placed on suspension and short-term cash requirements minimised. Rainbow continues to engage constructively with all stakeholders to resolve the issue and allow trial mining to recommence. On the expected restart of operations, Rainbow will assess the available options to move the project to commercial production

Developing sources of phosphogypsum

The successful global transition to clean energy is reliant on a considerable increase in supply of critical materials. Rainbow is focused on identifying the optimal way of producing rare earths responsibly from secondary sources, removing significant time, risk and cost from the overall project timeline.

Phosphate rock is mined all over the world, with over three quarters of global reserves located in Northern Africa. Given the prevalence of phosphate mining, phosphogypsum is available throughout the world in large volumes. This makes it an attractive secondary source of rare earth elements.

Recognising this enormous potential, our team is concentrated on securing opportunities for both collaboration and expertise sharing, as well as gaining access to new supply.

In June, Rainbow entered into a Memorandum of Understanding with a diversified chemicals group based in South Africa to investigate the opportunity of extracting rare earth elements from a nitro phosphate process stream at its phosphoric acid production plant near Johannesburg in South Africa.

Under the terms of the MoU, Rainbow is conducting a rare earths extraction pilot study with the chemicals group, involving initial grade test work on processing stream material. This will be followed by a technical programme to confirm a flowsheet using Rainbow's unique knowledge and IP.

The feedstock for the phosphoric acid production plant originates from the same ore originally mined by Foskor that generated the two gypsum stacks at Phalaborwa. Preliminary sampling of the processing stream indicates a grade of 0.81% TREO, with a circa 27% weighting to high-value NdPr, alongside economic levels of terbium and dysprosium, similar to Phalaborwa.

Direct costs associated with the pilot study utilising Rainbow's exclusive IP and technology will be financed by the chemicals group. Subject to a successful outcome, the parties intend to negotiate terms for a potential joint venture agreement to extract value from the rare earths present in the phosphoric acid processing stream.

Post Year-end, in August 2022, Rainbow entered into a Master Agreement with OCP, the Moroccan world leading producer of phosphate products, and UM6P, a Moroccan university with a strong focus on science, technology and innovation, to further investigate and develop the optimal technique for the extraction of rare earth elements from phosphogypsum.

Together with the innovative research carried out by UM6P, OCP has built up significant IP assets and expertise in the field of phosphogypsum processing. This provides a synergistic opportunity for joint development with Rainbow, given Rainbow's expertise and intellectual property on rare earths extraction and processing gained from work carried out to date at Phalaborwa. OCP and UM6P will contribute with their respective expertise, including adapted complementary separation technologies. The Parties intend to develop the optimal route for the extraction of rare earths from phosphogypsum, and the development of pilot and industrial-scale extraction of rare earths from phosphogypsum.

The recovery of rare earths from phosphogypsum arising as a residue from phosphoric acid production has been the subject of international research for many years. However, the process has proven technically, environmentally and economically challenging.

In 2022, following a robust international test work programme, Rainbow confirmed the successful development of a process flowsheet to extract rare earth elements efficiently from the phosphogypsum stacks at Phalaborwa using an innovative process developed in collaboration with K-Tech. Rainbow and K-Tech and are now in the process of jointly patenting this breakthrough.

The process flowsheet utilises existing technology, proven at a commercial scale across a number of industries, in a novel way to overcome the technical challenges associated with economically recovering the rare earth elements from the phosphogypsum. The process includes a number of simple steps to remove impurities from the phosphogypsum before leaching the rare earth elements into a high-grade pregnant leach solution. Efficient recycling of leach streams ensures reagent costs are optimised.

The high grade mixed rare earth solution is ultimately fed into a patented continuous ion exchange and continuous ion chromatography system to allow for the recovery of high purity separated magnet rare earth oxides with far fewer steps than a traditional solvent exchange process. Unlike traditional separation techniques, the process does not require the costly separation of low value products, such as cerium and lanthanum, before the high value magnet rare earth oxides can be targeted.

The production of separated magnet rare earth oxides in a single processing facility, without the need to ship significant volumes of low value or waste material between a mine, cracking plant and separation facility, also provide significant environmental and cost benefits when compared to traditional methods.

Financial Review

PROFIT AND LOSS

With Rainbow's strategic focus on processing rare earths from secondary sources, predominantly at Phalaborwa in South Africa, and the Gakara project remaining on care and maintenance throughout the year, the income statement represents the administrative costs for the Group for the year.

Income statement costs associated with maintaining the Gakara project on care and maintenance totalled US$1.3 million (FY 2021: US$0.8 million). The increase is due to the change in treatment of costs previously capitalised within exploration and evaluation assets. In FY 2021 a total of US$1.9 million was spent at Gakara, of which US$1.1 million was capitalised comprising US$0.4 million of net costs associated with trial mining and processing, US$0.3 million of depreciation on the mining fleet and US$0.4 million of direct exploration costs. With the project on care and maintenance throughout FY 2022, all costs associated with Gakara are recognised within the income statement as they do represent costs incurred to evaluate the commercial viability of extracting the mineral resource at the Gakara project. The reduced overall cost base at Gakara in FY 2022 includes costs associated with suspending staff contracts up to 31 December 2021, following which the team was reduced to a core of 22 staff to safeguard the assets and maintain the administration in country. All staff with terminated employment contracts received redundancy payments in accordance with Burundi law.

The Group's corporate costs grew in FY 2022. With the expected fast track development of Phalaborwa, the administrative structures for the Group are being strengthened, and a new administrative hub has been established in South Africa. FY 2022 costs totalled US$2.3 million, increasing from US$1.9 million in FY 2021, predominantly driven by staff costs.

Net finance costs of US$0.3 million (FY 2021: US$Nil) relate primarily to foreign exchange differences. Gains on movements between the Burundian Franc ('BIF') and US dollars, the functional currency of the Group, were offset in FY 2022 by losses on movements between GB Pounds, which the Group holds to match future expected costs, and US dollars. Finance costs also include US$0.1 million (FY 2021: US$0.1 million) associated with the FinBank loan in Burundi.

The corporation tax rate in Burundi is 30%. In the absence of taxable profit, a minimum tax is charged calculated as 1% of revenue. The tax charge in the year represents an adjustment to minimum tax from prior periods.

BALANCE SHEET

The Group balance sheet includes US$9.8 million of non-current assets at 30 June 2022 relating to Gakara, including US$8.6 million of exploration and evaluation costs and tangible fixed assets with a net book value of US$1.0 million. The Gakara cash generating unit also includes US$0.9 million of inventory, carried at cost, primarily relating to the stock of available for sale rare earth concentrate in Burundi. Whilst the Gakara project remains on care and maintenance, the Directors are confident that the issues with the Government of Burundi will be resolved, allowing the asset to recommence operations.

A total of US$0.8 million of exploration and evaluation assets were capitalised in the year relating to Phalaborwa, leaving a closing capitalised cost of US$1.9 million. The Group is earning a 70% interest in the Phalaborwa project by completing a pre-feasibility study and at the balance sheet date has no tangible fixed assets and no obligations for environmental closure at the Phalaborwa site.

The Group balance sheet includes US$0.3 million of tax receivables relating to the historic overpayment of royalties and VAT recoverable in Burundi, both measured at expected recoverable value. There are also US$0.5 million of tax and government liabilities in Burundi.

During the year, the Group significantly strengthened its balance sheet, raising US$8.5 million, net of costs, at a price of 15 pence per new Ordinary Share in October 2021. This funding allowed the Pipestone loan to be fully repaid, including accrued interest, via US$0.9 million cash and US$0.2 million equity at 15p per new Ordinary Share. The sole remaining long-term financial liability is the US$0.6 million FinBank loan in Burundi, on which capital repayments are currently being deferred. At 30 June 2022, the Group has US$4.1 million of cash which is predominantly held with Barclays Bank in London.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 June 2022

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2022

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 June 2022

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 30 June 2022

NOTES:

1. BASIS OF PREPARATION

The financial information set out herein does not constitute the Group's statutory financial statements for the year ended 30 June 2022, but is derived from the Group's audited financial statements. The auditors have reported on the FY 2022 financial statements and their reports were unqualified. The financial information in this statement is audited but does not have the status of statutory accounts.

The financial statements and the information contained in this announcement have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), including International Accounting Standards and Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC). This is consistent with the accounting policies in the 30 June 2021 financial statements.

2. GOING CONCERN

As at 30 September 2022, the Group had total cash of US$2.9 million.

The Board have reviewed a range of potential cash flow forecasts for the period to 31 December 2023, including reasonable possible downside scenarios. This has included the following assumptions:

Corporate:

The forecast includes US$2.5 million of ongoing general and administrative costs of the Group over the 18-month period from 1 July 2022 to 31 December 2023, based on the current administrative costs of the Group. The budget excludes any significant expenditure on new business opportunities beyond early costs totalling US$39k over the 18-month period.

Management's reasonably plausible downside scenario includes a 10% contingency for unexpected costs plus a further US$500k for business development costs.

Phalaborwa:

This forecast includes all costs required for the completion of the Phalaborwa PEA (announced in October 2022) and the ongoing resource update, estimated at US$583k. The forecast also includes salary and consultant costs of US$623k for the core project team tasked with advancing the project.  A budget for the further work required to deliver a feasibility study at Phalaborwa, including pilot test work, has not yet been defined. Management's reasonably plausible downside scenario includes US$7.6 million for further work at Phalaborwa during the 18-month forecast period.

Gakara:

The cash flow forecasts assume ongoing care and maintenance costs totalling US$746k. Further, in the event that the Gakara project returns to operations, stock of rare earth concentrates with an estimated gross sales value of US$1.6 million would be sold to provide the funds to re-commence operations. The forecasts show that, with the current productive capacity of the operations, the Gakara project would not require additional financial support from Rainbow Rare Earths Limited at current rare earth prices. At 30 June 2022 the Group has US$557k of undiscounted financing liabilities relating to a term loan from FinBank in Burundi. Capital repayment of this loan is formally suspended until 31 December 2022, with interest of US$7k per month being paid in cash. Whilst operations at Gakara remain suspended management expect the repayment of principal to remain suspended. Notwithstanding, the forecast includes repayment at a rate of US$21k per month from 1 January 2023, including interest, within the care and maintenance costs for the Gakara project.

Conclusion

The base case forecast includes a total cash outflow over the Period of US$4,735k, compared to a cash balance at 1 July 2022 of US$4,134k, which confirms that the Group will need to raise additional finance before 31 December 2023. Management's reasonably plausible downside scenario, which includes the discretionary costs to progress a feasibility study at the Phalaborwa project and an allowance for other business development opportunities, suggests that a total of US$9.2 million will need to be raised.

The Board is confident that this funding will be secured, based on its history of successful fundraising. However, it also acknowledges that this funding is not, at the present time, in place. Accordingly, the Board acknowledges that the need for additional funding represents a material uncertainty which may cast significant doubt on the ability of the Company to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include any adjustments that would result if the Group was unable to continue as a going concern.

3. LOSS PER SHARE

The earnings per share calculations for 30 June 2022 reflect the changes to the number of ordinary shares during the period.

At the start of the year, 476,411,434 shares were in issue. During the year, a total of 9,598,875 new shares were allotted (see note 6 Share Capital) and on 30 June 2022, 524,405,810 shares were in issue. The weighted average of shares in issue in the year was 508,566,911.

The loss per share has been calculated using the weighted average number of ordinary shares in issue. The Company was loss making for all periods presented, therefore the dilutive effect of share options has not been accounted for in the calculation of diluted earnings per share, since this would decrease the loss per share for each reporting period.

4. EXPLORATION AND EVALUATION ASSETS

Only costs relating to the Phalaborwa Project were capitalised during the financial year. The Burundi Project has been under care & maintenance throughout the year and, accordingly, none of the costs meet the requirements under the Group's accounting policy for capitalisation.

The Phalaborwa project represents an opportunity to extract rare earth elements from the chemical re-treatment of gypsum stacks. A JORC compliant rare earth resource was declared on 17 June 2021 and the costs of establishing the commercial viability of development for the project are being capitalised as exploration and evaluation assets under IFRS 6. Additions in the year include costs associated with process development to deliver an economic and technically viable route to recovering rare earths. Additions in 2021 included US$750k consideration payable under the earn-in agreement payable in cash and shares together with costs associated with the definition of the inferred mineral resource, metallurgical test work and technical support.

On 12 April 2021 RMB received notification from the Ministry of Hydraulics, Energy and Mines of the Republic of Burundi of a temporary suspension on the export of concentrate produced from the trial mining and processing operations at the Gakara Project. On 29 June 2021 a further notification was received suspending all trial mining and processing operations pending negotiations on the terms of the Gakara mining convention signed in 2015.

Following face to face meetings in Burundi in April 2022 the Company presented a detailed plan to the Government for the export of the current stock of rare earth concentrate along with responses to all questions raised by the Government relating to the Company's operations in Burundi. The Company is awaiting a formal response to this export plan, noting increased engagement following significant changes in the political landscape in Burundi in September 2022. The Directors have also received confirmation from independent legal advisors that the mining convention in place between RMB and the Government of Burundi remains legally binding on both parties, and that the actions of the Government of Burundi have not been in accordance with that legally binding agreement.

Based on an assessment of both the legal and political position, the Directors have a reasonable expectation that the current temporary suspension does not represent a threat to the licence and activities will be allowed to re-start. Accordingly, the Directors do not believe this uncertainty represents an indication of impairment of the exploration and evaluation assets at Gakara, or the associated property, plant and equipment or inventory within the Gakara cash generating unit. The royalty recoverable, which also forms part of the Gakara cash generating unit, is considered separately. The Directors do not consider there to be any indicators of impairment for the Gakara cash generating unit, however they note that the current suspension of activities could result in future losses for the Group if it is not resolved as anticipated.

FinBank SA hold security over the fixed and floating assets of Rainbow Mining Burundi SM ('RMB') which include US$7.3 million of exploration and evaluation assets associated with the Gakara mining permit in Burundi.

5. PROPERTY, PLANT AND EQUIPMENT

Depreciation of US$Nil (2021: US$269k) relating to mining vehicles, plant & machinery and site infrastructure was capitalised in the year as part of Exploration and Evaluation costs.

FinBank SA hold security over the fixed and floating assets of Rainbow Mining Burundi SA which include US$1,042k (2021: US$1,353k) of property, plant, and equipment in Burundi.

As set out in note 4 the Directors recognise the uncertainty relating to the temporary suspension of trial mining and processing activities in Burundi which could impact the carrying value of the property, plant and equipment within the Gakara cash generating unit, which comprises US$1,042k of the net book value at the balance sheet date.

6. SHARE CAPITAL

The table below shows a reconciliation of share capital movements:

On 27 November 2020 the Company issued 42.7 million new ordinary shares at a price of 6 pence per share, raising gross cash proceeds of US$3.4 million (before costs of $85k).

Between December 2020 and April 2021 Australian Special Opportunity Fund, LP exercised options over 10.5 million shares at an exercise price of 5.28p per share, raising gross cash proceeds of US$763k (before costs of US$18k).

On 25 June 2021 1,229,882 shares were issued to Bosveld Phosphates (Pty) Limited to settle US$250,000 consideration due under the Phalaborwa co-development agreement originally announced on 3 November 2020.

On 13 July 2021 Australian Special Opportunity Fund, LP exercised options over 2.5 million shares at an exercise price of 5.28p per share, raising gross cash proceeds of US$182k.

On 13 October 2021 the Company issued 32.9 million shares at a price of 15 pence per share, raising gross cash proceeds of US$6.8 million (before costs of $221k). 

On 15 November 2021 the Company issued a further 10.0 million shares at a price of 15 pence per share, raising gross cash proceeds of US$2.0 million (before costs of $18k). 

On 25 April 2022 Australian Special Opportunity Fund, LP exercised options over 1,718,987 million shares at an exercise price of 5.28p per share, raising gross cash proceeds of US$116k.

7. POST BALANCE SHEET EVENTS

No events after the reporting date were identified that would affect the group of companies significantly or cause its financial results to be materially misstated.