Rainbow Rare Earths Limited

("Rainbow" or the "Company")

(LSE: RBW)

24 March 2021

Interim Results for the six months ended 31 December 2020

Rainbow is pleased to announce its unaudited results for the six months ended 31 December 2020 ("H1 2021", "the period").

Highlights

·    Strong safety performance: No lost time injuries recorded in the period; a total of 22 months production with zero lost time injuries ("LTI") now recorded.

·    Effective measures to address Covid-19 remain in place and operations continue to run largely as normal.

·    Key global macroeconomic trends expected to drive a strong and diversified demand for NdPr, which analysts suggest will lead to a significant supply deficit over the medium term underpinning strong pricing.

·    Co-development agreement signed with Bosveld Phosphates (Pty) Ltd to develop the Phalaborwa rare earth project in South Africa, recovering rare earths from gypsum stacks resulting from historic phosphate hard rock mining.

·    Phalaborwa represents an exciting, near-term growth opportunity for the business, with initial assay results indicating average in situ grade of 0.5% TREO, of which 29-30% comprises high-value NdPr.

·    ANSTO Minerals are performing tests to confirm the metallurgical variability within the gypsum stacks at Phalaborwa. Metallurgical test work will then be carried out to produce an optimised process flow sheet for the preliminary economic assessment ("PEA")/scoping study.

·    As a result of the unique nature of the project, it is anticipated that Phalaborwa can be brought into production far quicker and with a lower capital intensity than a traditional hard-rock rare earths mining project.

·    Ongoing trial mining continues to demonstrate Gakara's considerable potential. 300 tonnes of concentrate were produced at Gakara in H1 2021 (6 months to 31 Dec 2019: 114 tonnes).

·    Viability of 10,000 tonnes per annum down-stream processing plant confirmed, reinforcing the potential of Gakara's robust long-term economics.

George Bennett, CEO, said: "I believe we are now well positioned for success as London's only listed producing rare earths company with both country and project diversification.  The supply/demand fundamentals in the NdPr market present Rainbow with an exciting opportunity and we are confident in our capacity to become a globally significant producer of rare earth metals and to take advantage of the favourable market outlook."

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Notes to Editors:

Rainbow's strategy is to become a globally significant producer of rare earth metals. NdPr are vital components of the strongest permanent magnets used for the motors and turbines driving the green technology revolution. Analysts are predicting demand for magnet rare earth oxides will grow substantially over the coming years, driven by increasing adoption of green technology, pushing the overall market for NdPr into deficit.

The Company's Gakara Project ("Gakara") in Burundi, which produces one of the highest-grade concentrates in the world (typically 54% total rare earths oxides ("TREO")) through ongoing trial mining operations, is currently the only African producer of rare earths.  The Gakara basket is weighted heavily towards NdPr, which account for over approximately 19.5% of the contained TREO and >88% of the value of the concentrate.

The Phalaborwa Rare Earths Project ("Phalaborwa"), located in South Africa, comprises approximately 35 million tonnes of gypsum tailings stacked in unconsolidated dumps derived from historic phosphate hard rock mining, containing rare earth elements with an initial estimated average in situ grade of 0.5% TREO, based on previous sampling campaigns, of which +/- 30% comprises high-value NdPr. The rare earths are contained in chemical form in the gypsum dumps, which is expected to deliver a higher-value rare earth carbonate, with lower operating costs than a typical rare earth mineral project.

CEO Review

Despite the ongoing challenges being encountered around the world as a result of Covid-19, we are pleased to note that our operations have continued to run largely as normal. We implemented effective measures at the outset of the global pandemic to minimise risk and to protect the health and wellbeing of our employees, their families and our local communities.

Safety remains our number one priority and we adopt a zero-harm policy. I am pleased to report that zero LTIs occurred during H1 2021 leading to a lost time injury frequency rate ("LTIFR[1]") of 0.00 and a total period of 1.2 million hours LTI-free production since February 2019, demonstrating our commitment to this fundamental aspect of the business.

Rare earths: the critical building blocks in the green revolution

Underpinning our confidence in Rainbow's strategy is the escalating demand for rare earths metals, particularly neodymium and praseodymium ("NdPr"), which are fundamental elements used in permanent magnets for wind power technology and electric vehicles ("EVs"). We saw a surge in rare earths prices towards the end of 2020, which has continued in Q1 2021, with neodymium registering an 81% increase and praseodymium up 27% during H1 2021. Several key global macroeconomic trends are driving a strong and diversified demand for NdPr, which analysts are predicting will lead to a significant supply deficit over the medium term. Demand for these metals is being driven by the low-carbon transition and further reinforced by accelerating technological progress in the form of enhanced automation. We are also seeing evolving global emissions legislation which we expect to further support the NdPr demand outlook.

There is currently no available substitute for NdPr in permanent magnets required in wind turbines and EVs. Wind power, which could see a year-on-year capacity growth of 5.7% to 2050^[2], will be a key contributor to meeting the Paris Climate Goals. Average annual NdPr demand from EVs is forecast to increase by between 4,200 - 9,600 tonnes per annum from 2020-2025^[3].

China currently dominates rare earths production, with around 80% of the overall market. Against a backdrop of heightened national protectionism, numerous countries are looking to strengthen their access to these critical metals, supply chain security is becoming ever more important, especially given the increasing global scarcity for natural resources.

Whilst the demand outlook is strong, there are significant challenges involved in bringing most new rare earth mines into production, including high capital intensity and operating costs as a result of complex processing and low in-situ resource grades.  Analysts are therefore predicting a growing supply deficit of responsibly sourced NdPr.

With their anticipated low capital intensity and favourable operating cost requirements, we believe that both Phalaborwa and Gakara provide Rainbow with significant opportunity in light of the current market environment and longer-term supply-demand fundamentals.

Operational update

Phalaborwa

The Company's new Phalaborwa Project represents an exciting, near-term growth opportunity for the business, and we expect it to drive Rainbow's strategy to become a globally significant producer of rare earth metals.

Located in South Africa, Phalaborwa comprises approximately 35 million tonnes of gypsum in two stacks from historic phosphate hard rock mining. This gypsum contains rare earth elements with an estimated average in situ grade of 0.5% TREO, of which 29-30% comprises high-value NdPr, based on the first batch of assay results announced in February 2021 from the auger drilling programme completed by Rainbow in 2020. We believe the basket weighting to NdPr represents one of the highest of any project in the world, underlining the exciting potential of this project.

Contained in a 'cracked' chemical form in the gypsum stacks, we expect the rare earths to be capable of delivering a higher-value carbonate, with significantly lower operating costs than a typical rare earth project, without the requirement for waste stripping, hard-rock mining, or grinding. Given that the assay results received to date suggest that the gypsum stacks are homogenous in nature, the consistency of the high value NdPr content substantially de-risks the project, with minimal geological uncertainty. With the capacity to progress straight to the downstream production of a mixed rare earth carbonate, without the need to first produce a concentrate and then 'crack' it prior to beneficiation, Phalaborwa will be well suited to a simplified processing flow sheet and we anticipate relatively low capital intensity requirements to bring the project into production.

ANSTO Minerals in Australia, one of the world's leading experts in rare earths flow sheets, has recently been appointed to perform scouting leach tests on drill samples from Phalaborwa to confirm the metallurgical variability within the gypsum stacks.  Metallurgical test work will then be carried out to produce an optimised process flow sheet for the PEA/scoping study, based on the original bankable feasibility study-level flow sheet developed by Sasol, the South African integrated energy and chemical company, which produced three tonnes of mixed rare earth carbonate and an associated cerium oxide at a pilot plant directly from the gypsum.

Sasol's pilot plant remains on site alongside the associated infrastructure of the Phosphoric Acid Plant. Existing infrastructure includes a high voltage switchyard (providing access to Eskom grid power), equipped machine shops, workshops, laboratory buildings, administration offices, acid storage and ammonia tanks, boilers and rail sidings. In addition to this, the project is positioned in an established mining town, and will therefore benefit from all the associated skilled labour availability and supporting industry in place (such as the local production of sulphuric acid, which will likely be a key reagent for the project).

With extremely low levels of radioactive elements present and our potential to re-process material currently contained in gypsum stacks, thereby positively contributing to a more circular approach to resource use, we believe Phalaborwa positions Rainbow as a leading example of a 'green' rare earth Company, producing the elements required for the clean energy revolution.

Following the publication of additional assay results received from Phalaborwa shortly, we intend to publish a JORC (2012) Mineral Resource Estimate in Q2 2021.

Gakara

Ongoing trial mining operations at the Company's Gakara project in Burundi, which employ a simple, reagent-free, low capital and operating cost gravity concentration process, continue to demonstrate the considerable potential of this operation to our business. Producing one of the highest-grade concentrates in the world of 54% total rare earths oxides ("TREO"), Gakara remains Africa's only producer of rare earths.

300 tonnes of concentrate were produced at Gakara in H1 2021, representing a 163% increase on the six months to 31 Dec 2019 of 114 tonnes and a 21% increase on the previous half (H2 2020: 249 tonnes). Looking forward, US$0.5 million in additional capital has been committed to opening up further trial mining areas in Q1 2021, which is expected to drive production towards 100 tonnes of concentrate per month. Longer term, we intend to invest in further mining equipment to open further trial mining areas, enabling us to utilise the full capacity of the existing pilot processing plant and produce circa 200 tonnes of concentrate per month.

Our stated long-term strategy to develop commercial scale production at Gakara, targeting 10,000 - 20,000 tonnes per annum of concentrate via low-capital intensity, modular development was further reinforced by the recent feasibility update, announced in February 2021. In December 2020, Metallurgical Engineering Technology and Construction (Pty) Ltd ("METC") was engaged to update and optimise a preliminary economic assessment conducted in 2015 by SGS Lakefield Canada Inc ("SGS"). The study confirmed the feasibility of a 10,000 tonnes per annum rare earths element cracking plant, doubling its capacity from the originally proposed 5,000 tonnes per annum, based on the Strong Acid Agitated Bake process developed from the test work completed by SGS. According to work carried out to date, the plant demonstrates very favourable capital intensity of US$35.2 million and operating costs of US$1,279/t. We believe these to be some of the lowest in the industry and therefore viable even in the event of volatile rare earths prices.

As part of this study, METC optimised the process, incorporating newer technologies, to deliver a flow sheet capable of producing a high-grade cerium-depleted mixed rare earth carbonate, containing approximately 39% NdPr. The proposed plant location in South Africa would provide strong synergies with Phalaborwa, contribute to the local economy and facilitate a sustainable, transparent rare earths supply chain. These combined factors serve to further strengthen our resolve to confidently progress through to commercial scale production at Gakara.

Corporate

The first half of 2021 has been a busy period for the whole team as we entered into a co-development agreement at Phalaborwa and continued to ramp up trial mining operations at Gakara. I am very pleased by the encouraging progress we have made at both projects; particularly given the challenges we are facing around the globe as a result of Covid-19. 

We continue to be encouraged by the sustained support we have received from our shareholders and this was evidenced by the over-subscribed placing in November 2020 to raise £2.56 million in gross proceeds.

We have enhanced our senior project development team since year end and are delighted to welcome Chris le Roux and Charles Graham to Rainbow to work closely with Rainbow's Technical Director, Dave Dodd. With their combined wealth of experience, they will be instrumental in the delivery of Phalaborwa, as well as the ongoing development of Gakara.

I believe we are now well positioned for success as London's only listed rare earths producer with both country and project diversification. The supply/demand fundamentals in the NdPr market present Rainbow with an exciting opportunity and we are confident in our capacity to become a globally significant producer of rare earth metals and to take advantage of the favourable market outlook.

George Bennett

Chief Executive Officer

Financial Review

The six months ended 31 December 2020 have seen a transformation at Rainbow Rare Earths Limited with the completion of the earn-in agreement for the Phalaborwa asset in South Africa.

From a financial perspective, a total of US$820k has been capitalised for the Phalaborwa asset during the period, including the costs associated with the drilling programme to define the resource at the gypsum stacks.  The majority of the capitalised cost represents the US$750k total consideration for the 70% interest in the project, albeit that only US$250k was paid in cash during the period.  The remaining consideration is payable in two tranches: US$250k in shares at the then prevailing share price in June 2021 and a further US$250k in cash or shares at the then prevailing share price, at the election of the joint venture partner, Bosveld Phosphates Ltd.

At Gakara, concentrate production (and sales) from trial mining increased markedly, with a total of 300 tonnes both produced and sold in the period compared to 114 tonnes produced and 100 tonnes sold in the six months ended 31 December 2019.  As a result, cash costs associated with trial mining, net of movements in stock of available for sale concentrate, were reduced to US$195k.  In line with the trial mining status at Gakara the US$195k costs of trial mining were capitalised in the period alongside US$213k of geology and licence related expenditure and US$107k of depreciation on the trial mining fleet.

Further investment totalling US$264k was made in the six months ended 31 December 2020, as part of an ongoing upgrade in trial mining and processing capacity which is expected to allow further growth in concentrate production in the remainder of the financial year, more fully utilising the capacity of the pilot plant.  Alongside the strongly improving pricing environment for Neodymium and Praseodymium, the growth in concentrate production is expected to further limit the requirement for ongoing financial support for trial mining activities at Gakara this financial year.

As set out in the annual report for the year-ended 30 June 2020, the financial information for the six months ended 31 December 2019 has been re-stated compared to that originally presented to reflect the accounting policy for all costs relating to the trial mining and processing activities being capitalised after the strategic review concluded in July/August 2019.  The impact of this change resulted in US$873k of costs originally recognised in the income statement in the six months ended 31 December 2019 being reclassified as part of exploration and evaluation assets.

During November 2020 the Group raised US$3.3 million, net of costs, at a price of 6 pence per ordinary share, providing the necessary financing for the Phalaborwa earn-in agreement, the upgrade to the trial mining capacity at Gakara as well as ongoing administrative overheads.  In addition, US$559k was received from the previous fundraising completed in June 2020 and US$216k from an exercise of share options.  Together, this has left a closing bank balance of US$2.5 million at 31 December 2020. 

Further funding is expected to be raised in H2 2021 to allow full feasibility study to be completed at the Phalaborwa asset, and support ongoing corporate overheads.  The Directors have a reasonable expectation that the Company and the Group will be able to raise the additional finance required to allow the Company to remain a Going Concern for the foreseeable future, although acknowledge that there continues to exist a material uncertainty that may cast doubt over its ability to do so.  Nevertheless, the Directors continue to adopt the going concern basis in preparing the Condensed Consolidated Financial Statements.  For further detail refer to the detailed discussion of the assumptions outlined in note 2(a) to the Condensed Consolidated Financial Statements.

Cautionary Statement:

The business review and certain other sections of this interim report contain forward looking statements that have been made by the Directors in good faith based on the information available to them up to the time of their approval of this report. However, they should be treated with caution due to inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information and no statement should be construed as a profit forecast.

Risks and uncertainties

There are a number of potential risks and uncertainties inherent in the mining sector which could have a material impact on the long-term performance of the Company and which could cause the actual results to differ materially from expected and historical results.  The Company has taken reasonable steps to mitigate these where possible. Full details are disclosed on pages 28-29 of the Annual Report for the year ended 30 June 2020.  The risks and uncertainties are summarised below:

·      Gakara exploration risk

-      The Company does not currently have a code-compliant Mineral Resource or Reserve at the Gakara project.  The variations in form and direction of the vein stockwork seen at Gakara are inherently difficult to predict with accuracy and therefore the geological information gathered to date is only sufficient to report an Exploration Target under JORC.

-      It is possible that the quantity of rare earths present in the licence area is less than management expectations with resulting impacts on plans to develop a long-term commercial operation at Gakara.

·      Phalaborwa exploration and development risk

-      The Company does not currently have a code-compliant Mineral Resource or Reserve at the Phalaborwa project.  Whilst the drilling results received to date show a relatively homogeneous grade of mineralisation within the gypsum stacks in line with initial expectations, future results may show lower or more varied levels of rare earth mineralisation.

-      To date, the Company has not completed any work on the recovery of rare earths from the gypsum stacks or the processing requirements thereof.

-      It is possible that the quantity of rare earths present in the gypsum stacks are less than management expectations, or that the recovery of the rare earths from the gypsum stacks cannot be achieved on a commercial scale, with resulting impacts on plans to develop a long-term commercial operation at Phalaborwa.

·      Rare earth prices

-      The Company is focused on developing a commercial scale operation at both the Gakara and Phalaborwa projects to produce rare earth concentrates and, ultimately, separated rare earth oxides.  The Company currently has an off-take agreement with ThyssenKrupp, selling rare earth concentrate from trial mining at Gakara at a discount of approximately 70% to the quoted price of the underlying metal oxides.  The Company has no off-take agreement for the potential rare earth concentrate from the Phalaborwa project.

-      Rare earth prices have been volatile in the past.  If the underlying rare earth basket price falls, this reduces potential revenue that will impact the long-term profitability of both the Gakara and Phalaborwa projects and could impact the commercial viability of any commercial scale development.

·      Financing risk

-      The Company currently forecasts that additional funding will be required in order to deliver its exploration and project development plans as well as for general working capital requirements.

·      Civil unrest

-      Burundi has experienced civil unrest, including most recently in 2015.  Any subsequent instances of civil unrest could impact the operation of the Gakara project, including its ability to obtain supplies, export its material, or access its bank accounts in country.

·      Currency controls

-      The Company receives proceeds from the sale of rare earth concentrate from the Gakara project in US dollars, which, are repatriated to an account in the Burundi Central Bank.

-      Burundi has experienced shortages of foreign currency reserves in the past, and it is therefore possible that access to US dollars held in country might be difficult.  This could affect the Company's ability to meet ongoing foreign currency obligations including corporate costs and any debt repayments in US dollars.

·      Covid-19

-      The Covid-19 pandemic could disrupt the Company's operations, delaying exploration and development works and interrupting trial mining activities at the Gakara Project in Burundi.

There have been no significant changes to the risk profile during the first half of the year.

Directors' Responsibility Statement

We confirm that to the best of our knowledge:

a)    the Condensed set of Interim Financial Statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

b)    the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year);

c)    the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein); and

d)    the condensed set of interim financial statements, which has been prepared in accordance with the applicable set of accounting standards, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer, or the undertakings included in the consolidation as a whole as required by DTR 4.2.4R.

This Half Yearly Report has been approved by the Board and signed on its behalf by:

George Bennett

Chief Executive Officer

23 March 2021

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 31 December 2020

The results of each period are derived from continuing operations.

Condensed Consolidated Statement of Financial Position

As at 31 December 2020

Condensed Consolidated Cash Flow Statement

For the six months ended 31 December 2020