“We’ve done four fundraisings for Rainbow Rare Earths,” says the company’s chief executive George Bennett, “since I joined.”
“Three were at a premium, and the fourth was done at the 15p bid price.”
Anyone who’s been following the junior mining sector over the past couple of years knows that that kind of track record is fairly unique. Those companies that have been able to raise money at all have generally raised at a discount, and there are a fair few who are stuck high and dry running on fumes who haven’t been able to get any money at any price.
So, what is it about Rainbow that marks it out from the crowd?
First off, there’s Bennett himself. As the former founder and chief executive of MDM Engineering (AIM:MDM) Ltd he was responsible for the design and construction of scores of mining projects and feasibility studies in Africa and around the world.
Rainbow’s Phalaborwa rare earths project in South Africa is now moving towards the construction phase and, in short, the market believes Bennett can get it built.
It is one-twelfth the size of the biggest tailings plant built by the Rainbow team, who are all ex- MDM: Mine Waste Solutions, owned by AngloGold.
This was the biggest tailings plant in the world at the time it was built and treats tailings for the removal of gold and uranium at 2.4mln tonnes per month of feed, and compares interestingly to Phalaborwa which will treat 2.2mln tonnes of feed per annum. Many of the processes used for uranium extraction are similar to those used in rare earth extraction plants.
But there’s more to it than that, of course.
There’s the quality of Phalaborwa itself.
The key thing about Phalaborwa is that it isn’t a new mine, it’s an old gypsum residue stack, the result of phosphoric acid production over 60 odd years.
That might not rock anyone’s world as far as glitz and glamour are concerned, but what we are talking about here is economics, not fashion. The grade of total rare earths oxide in the stacks is, at 0,44%, by order of magnitude six-to-ten timeshigher grade than ionic clay rare earths deposits mined in Myanmar and China.
Phalaborwa can make money in a rare earths pricing environment in which few other projects can. And if rare earths prices go high, as well they might in a world increasingly polarising into trade blocs, the margins on offer will be almost unbeatable.
Why? – because a great deal of the work required to make a saleable product has already been done, during the gypsum manufacturing state. The stacks at Phalaborwa are, in a sense, waste. But looked at another way, they are mineralised material that’s already been processed to a significant degree and they are ‘’ cracked chemical stacks’’ as a result of the phosphoric acid production process.
“Two thirds of the flow-sheet has already taken place,” is how Bennett puts it. “And at zero cost to us.”
Early estimates set annual EBITDA from Phalaborwa at between US$80mln and US$90mln, even at the current low rare earths prices of around US$70,000 per tonne of NdPr. Put another way, Phalaborwa looks set to deliver a 75% EBITDA margin. At 1st quarter pricing forecasts of some +/- US$ 100 000 - 110 000 per tonne, this EBITDA number increases to +/- US$ 190 million per annum.
Since the project is being operated by seasoned mine builders, and backed by seasoned mining investors, and since first production is now less than three years away, it’s perhaps not so surprising that Bennett has been able to avoid any of those nasty discounts in fundraisings that other companies have had to put up with.
The latest deal he’s struck is another tick in a similar box: US Government-backed Techmet has agreed to come in for a US$50mln direct stake in Phalaborwa. Quite how much of Phalaborwa Techmet will get for its money remains subject to the results of ongoing economic and feasibility studies, but official range has been set at between 15% and 33%.
The point is that a significant portion of the equity component of the capital cost is now in place, and once again Bennet avoids diluting shareholders. This in turn can create something of a virtuous circle on the market. Unsurprisingly, on news of the Techmet deal, Rainbow’s shares rose by nearly 14%, to 15.9p. That’s not quite at the level of the 12-month high hit in September, but it’s pretty close.
And longer-term, Rainbow’s shares aren’t showing the type of catastrophic cratering so many other juniors have been exhibiting in the past few years. The shares were somewhat higher than they are now for a period between 2021 and 2022, but consider that they hit lows of 1.75p in 2019 and 1.7p in 2020, and it’s pretty clear what a difference a new project and new management makes.
So, onwards and upwards from here.
The plan is to start construction at Phalaborwa in 2025 and to be in production by 2026.
A pilot plant is just now getting up and running in Florida, and should shortly be able to provide hard and fast proof that the process works at scale. And that’s something that Bennett is keen to emphasise, the point about scale.
When the full-blown project gets built, it will be significantly bigger than the pilot plant, he says, , but not to the extent that meaningful conclusions can’t be drawn now. Some projects work at pilot plants that are one hundredth or one-five hundredth of the size of the eventual operation.
Not this one. End users and financiers will get about as good a look and feel as it’s possible to get from an upcoming project, and it shouldn’t be surprising to anyone if the company’s targeted final investment decision date, of the third quarter of next year, seems to come round pretty quick.
In the meantime, there’s a new project in Brazil to keep the newsflow ticking over. Here, the opportunity is similar, though further down the line, and a major partner in the shape of Mosaic is already in place. It’s bigger too, but with Phalaborwa well on the way toward production and cash generation that ought not to be an issue.
So will any hypothetical subsequent fundraisings be at a premium or a discount?
“At Phalaborwa, we’ll be the lowest cost producer in the west,” says Bennett.
If that’s not a selling point, nothing is.