Rainbow Rare Earths Ltd (LSE:RBW, OTC:RBWRF) has granted partner TechMet an option to take a direct stake in the Phalaborwa project in South Africa via an option costing up to US$50 million.
TechMet, which counts US agency the Development Finance Corporation (DFC) as a major backer, has concluded Phalaborwa is potentially one of the lowest-cost producers of separated rare earth oxides in development, Rainbow added.
Depending on its final investment, TechMet can take between a 15-30% stake giving Phalaborwa a value of between US$151-333 million.
Capital needed to develop the project was recently estimated at US$295 million and to be largely debt, but if TechMet exercises its option, that would account for a significant portion of the equity requirement, Rainbow added.
George Bennett, Rainbow’s chief executive, commented: "We are delighted with the confidence shown by our long-term strategic investor, TechMet, following their due diligence on Phalaborwa.
"We believe that the TechMet option is a significant de-risking for the financing requirements.
“We expect Phalaborwa to continue to attract funding, especially from US sources of capital, due to the focus on the critical role of these rare earth metals in the technology-driven industrial and clean energy age."
Brian Menell, TechMet’s chairman, added: "Phalaborwa provides a significant opportunity to fast-track production of the four most economically important rare earth elements which are essential for future supply chains for electric vehicles, wind turbines and other products.”