American bank Stifel has provided positive feedback on the move by Rainbow Rare Earths Ltd (LSE:RBW, OTC:RBWRF) (Rainbow Rare Earths Ltd (LSE:RBW, OTC:RBWRF), Rainbow Rare Earths Ltd (LSE:RBW, OTC:RBWRF)) to sign an US$8.5 million royalty agreement for the Phalaborwa project in South Africa while also raising US$1.5 million through an equity subscription, both with Ecora Resources.
The royalty will see Ecora entitled to 0.85% of gross revenues, rising to 0.95% if production does not start before October 2027 and 1.1% if production is delayed until after 1 July 2028.
"We had anticipated an equity financing and, while the royalty sale presents a less dilutive alternative, the overall impact is relatively neutral to our estimates for both project economics and company valuation," said Stifel in a note reiterating its 'buy' recommendation.
"However, the forecast royalty cash flow suggests that higher rare earth prices were likely used to yield acceptable investment returns, which validates our approach to evaluating Phalaborwa and our overall investment thesis."
Rainbow said it will use the money raised to carry out its definitive feasibility study at Phalaborwa, which is scheduled to be completed in the first half of next year, 2025.
An interim report is expected in this half year to reflect optimisation work carried out during a pilot study with a final investment decision to follow the feasibility study.