Rainbow Rare Earths - Interim Results

28 March 2024

Rainbow Rare Earths Limited

("Rainbow" or "the Company")

LSE: RBW

Interim Results for the six months ended 31 December 2023

Rainbow Rare Earths is pleased to announce its unaudited results for the six months ended 31 December 2023 ("the Period").

Highlights

·    Global net zero greenhouse gas ("GHG") emissions will require unprecedented levels of critical minerals, including rare earth elements ("REEs").

·    Phalaborwa expected to be the highest margin REE project in development today due to its fundamentally different capital and operating cost profile compared to traditional projects. The project remains highly cash generative even at lower rare earth prices.

·    Phalaborwa to produce all four of the high-value magnet rare earths: neodymium and praseodymium ("NdPr"), dysprosium ("Dy") and terbium ("Tb"). Forecast CAGR of ca. 10% for rare earth permanent magnets from 2022 to 2033[1] driven by their use in electric vehicles and wind turbines.

·    Project backed by U.S. Government, with a US$50 million funding commitment from the U.S. International Development Finance Corporation ("DFC") announced at COP28, to be invested via strategic shareholder TechMet Limited ("TechMet").

·    Successful production of ca. 35kg of mixed rare earth carbonate at the front-end pilot plant in South Africa; this material is being used as feed for the back-end pilot plant in Florida, USA to produce separated rare earth oxides expected in Q2 2024.

·    Phalaborwa offers environmental advantages due to the clean-up of legacy issues and the opportunity to fully rehabilitate the site over time. The use of continuous ion exchange ("CIX") and continuous ion chromatography ("CIC") to produce separated rare earth oxides also provides cost and environmental benefits over traditional solvent exchange methods.

·    Updated bulk density calculations have increased the Phalaborwa project tonnage by ca. 16% and added over two years to project life; an update to the JORC-compliant Resource is expected in Q2 2024.

·    Letter of Intent entered into for an off-take agreement to sell ca. 400-600,000 tonnes of Phalaborwa's gypsum by-product per annum into the South African domestic and surrounding markets, which are anticipating supply shortages of gypsum, thereby providing an additional revenue stream to Rainbow.

·    Strategic supply agreement entered into with Less Common Metals ("LCM"), the only rare earth metal and alloy manufacturing facility in the UK and one of the only facilities in the Western world.

·    Memorandum of understanding ("MOU") entered into with The Mosaic Company ("Mosaic") with regards to the Uberaba phosphogypsum project in Brazil. Uberaba represents an exciting opportunity to potentially replicate Phalaborwa at a larger scale and initial test-work to date is promising.

George Bennett, CEO, commented: "Phalaborwa is a unique project in the rare earths space. Due to the fact that it is focused on the reprocessing of phosphogypsum stacks to recover rare earths, it has a fundamentally different cost profile to traditional mining projects and it is therefore expected to be the highest margin rare earth project in development today. Its potential to offer exceptional financial returns, its ability to go further down the supply chain to produce separated rare earth oxides, and its strong environmental credentials have seen the project backed by the U.S. Government during the Period, with a US$50 million funding commitment from the DFC announced at COP28, to be invested via TechMet.

We are also excited about the prospects for the Uberaba phosphogypsum project in Brazil, which is being developed in partnership with Mosaic. Initial test-work to date has been encouraging and the project is of a significantly larger scale than Phalaborwa. Furthermore, the addition of Uberaba adds geographical diversification to our portfolio and is in line with our aspiration to be a forerunner in the establishment of an independent and ethical supply chain of the rare earth elements that are driving the green energy transition."

Market Abuse Regulation ("MAR") Disclosure

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.

Rainbow H1 FY 2024 Interim Results investor presentation

CEO, George Bennett, will host a presentation and live question and answer session via the Investor Meet Company platform on 3 April 2024 at 11am GMT.  Questions can be submitted pre-event via your Investor Meet Company dashboard up until 9am the day before the meeting or at any time during the live presentation.

Investors can sign up to Investor Meet Company for free and add to meet RAINBOW RARE EARTHS LIMITED via:

https://www.investormeetcompany.com/rainbow-rare-earths-limited/register-investor

Investors who already follow RAINBOW RARE EARTHS LIMITED on the Investor Meet Company platform will automatically be invited.

For further information, please contact:

Notes to Editors:

Rainbow Rare Earths aims to be a forerunner in the establishment of an independent and ethical supply chain of the rare earth elements that are driving the green energy transition. It is doing this successfully via the identification and development of secondary rare earth deposits that can be brought into production quicker and at a lower cost than traditional hard rock mining projects, with a focus on the permanent magnet rare earth elements neodymium and praseodymium, dysprosium and terbium.

The Company is focused on the development of the Phalaborwa Rare Earths Project in South Africa and the earlier stage Uberaba Project in Brazil. Both projects entail the recovery of rare earths from phosphogypsum stacks that occur as the by-product of phosphoric acid production, with the original source rock for both deposits being a hardrock carbonatite. Rainbow intends to use a proprietary separation technique developed by and in conjunction with its partner K-Technologies, Inc., which simplifies the process of producing separated rare earth oxides (versus traditional solvent extraction), leading to cost and environmental benefits.

The Phalaborwa Preliminary Economic Assessment ("PEA") has confirmed strong base line economics for the project, which has a base case NPV₁₀ of US$627 million[2], an average EBITDA operating margin of 75% and a payback period of < two years. Pilot plant operations commenced in 2023, with the project expected to reach commercial production in 2026, just five years after work began on the project by Rainbow.

More information is available at www.rainbowrareearths.com.

CEO Review

Market

The world is in the midst of a new industrial revolution: the green energy transition. Global net zero GHG emissions will require unprecedented levels of critical minerals, including REEs which are essential components of the permanent magnets used in the production of electric vehicles ("EVs") and wind turbines. Furthermore, REEs have many highly strategic uses in advanced technologies, including in defence applications, adding to their criticality worldwide; for example, each American F-35 Lightning II fighter jet contains over 400kg of rare earths, the Arleigh Burke DDG-51 missile destroyer contains ca. 2,300kg of rare earths and a Virginia class submarine contains ca. 4,200kg of rare earths[3].

The International Energy Agency ("IEA") estimates that the market for REEs has more than doubled over the period from 2017 to 2022, and demand for rare earth permanent magnets is forecast to continue to grow strongly by a CAGR of ca. 10% per annum to 2030, according to Argus.

While the long-term demand drivers for the market remain strong due to the electrification of our transport system, as well as the unstoppable move towards renewable energy solutions, in the short-term the market may continue to see some volatility due to the current weakness of the Chinese economy, a slow-down in the take-up of EVs and the roll-out of wind power generational projects, as well as its reliance on consumer trends worldwide.

Rare earth pricing has been notably weak in 2023 and into 2024. The current price of NdPr oxide of ca. US$50/kg is estimated to be well below the average breakeven price for the industry and is not deemed to be sustainable over the medium to long-term, with Argus expecting pricing to strengthen by the end of 2024.

Phalaborwa's rare earths basket includes the 'heavy' rare earths Dy and Tb, which are noted to be more at risk of supply disruption than that of the light rare earths due to their scarcity in economic quantities worldwide. The inclusion of Dy and Tb, as well as NdPr, improves the overall value of the Phalaborwa basket in comparison to the industry average.

Furthermore, Phalaborwa's PEA indicated a comparatively low operating cost of ca. US$34/kg of separated magnet rare earth oxides (NdPr, Dy and Tb), which provides resilience against all modelled pricing scenarios. By contrast, Canaccord Genuity estimates that the incentive pricing for greenfield ex-China projects is likely to be over US$100/kg.

Operational update

Phalaborwa - South Africa

Rainbow's primary focus is the Phalaborwa project in South Africa, which represents an exciting, near-term production opportunity of all four of the magnet rare earths required for the green energy transition.

The operation will involve the processing of phosphogypsum stacks, which are the by-product of historic phosphoric acid production on the site. This resource sits at surface in a "cracked" chemical form, which is why it has a fundamentally different cost profile to traditional rare earth development projects.

Rainbow is using proprietary technology developed in conjunction with its partner K-Technologies, Inc. ("K-Tech"), to allow for the material to be processed first into a mixed rare earth carbonate, before being refined further into separated rare earth oxides of 99.5% purity.

The Phalaborwa PEA published in October 2022 (using spot rare earth pricing of ca. US$112/kg NdPr oxide at the time) confirmed strong base line economics for the project, which has a base case NPV₁₀ of US$627 million, an average EBITDA operating margin of 75% and a payback period of less than two years. Recent analysis has confirmed that Phalaborwa is expected to be the highest margin rare earth project in development today, which provides resilience against pricing volatility.

Rainbow is currently carrying out a Definitive Feasibility Study ("DFS") at Phalaborwa, which is on track to be completed in the last quarter of 2024/early 2025.  Following completion of the DFS, a Final Investment Decision will be made by the Board prior to construction and the expected commencement of operations by the end of 2026.

Pilot plant

A key component of the DFS is the operation of a pilot plant to confirm and optimise the operating parameters for the unique flowsheet developed in conjunction with K-Tech to deliver separated rare earth oxides from the Phalaborwa phosphogypsum.

The pilot plant comprises a front-end circuit that produces a mixed rare earth carbonate and a back-end circuit that utilises CIX and CIC to produce separated rare earth oxides. The innovative application of this established technology has been pioneered by K-Tech in the rare earth space and replaces traditional solvent extraction which uses toxic and flammable solvents and diluents and requires more than 100 separate stages.

The front-end pilot plant is located at the Johannesburg facilities of the Council for Mineral Technology ("Mintek"), a global leader in mineral processing, extractive metallurgy, and related fields. The front-end piloting programme has successfully completed all three of its planned campaigns to date, with the integrated whole circuit 24/7 campaign completed in March 2023. Throughout its duration of operation, the front-end pilot plant has produced ca. 35kg of mixed rare earth carbonate as planned and this material is being shipped in progressive batches to the back-end pilot plant in Florida for separation.

During operation the following key opportunities for optimisation of the front-end plant process were identified and are expected to result in capex and opex savings:

·    improvement in the impurity and rare earths leach temperature conditions from the 40⁰C set out in the PEA to 30⁰C, delivering a significant ca. 50% saving in energy requirements;

·    the successful regeneration of two key reagents in the leach solution, improving on our founding principles of circularity; and

·    optimisation of the second stage acid leach circuit which has reduced the number of counter current decantation thickeners required from 12 to six.

As part of the optimisation process, Rainbow worked with K-Tech to establish the optimal mixed rare earth product for the back-end CIX / CIC system, which is located at K-Tech's premises in Lakeland, Florida, USA. Having first successfully produced a mixed rare earth sulphate, it was decided to further beneficiate the product, removing certain unwanted elements, with the optimal end product for separation agreed as a cerium-depleted mixed rare earth carbonate, providing a higher-grade feedstock to the back-end separation circuit. A summary of the progress made with the back-end flowsheet is as follows:

·    successful impurity removal in the initial ion-exchange step providing suitable feed solution for group separation;

·    successful separation of the uneconomic lanthanum and cerium group;

·    successful group separation in the first step of the chromatography stage, delivering a NdPr group, grading ca. 68%, as feed for purification in the subsequent individual chromatography separation steps;

·    considerable upgrading of the concentration of the Dy and Tb from a combined feed grade of 0.9% to 14.6%, which requires separation from the samarium, europium and gadolinium ("SEG") group; and

·    good separation of the SEG group at a grade of ca. 63%, which provides the strong potential for an additional valuable product line.

The current focus of the pilot plant test work at K-Tech is to optimise the second stage of the chromatography process to produce a 99.5% NdPr product, expected in Q2 2024. This will be followed by separation of Dy and Tb oxides.

Resource update

Phalaborwa currently has a total mineral resource estimate ("MRE") of 30.4 Mt at 0.44% TREO, with the high-value, permanent magnet elements Nd and Pr representing 29% of the TREO in the rare earths basket, as well as economic quantities of Dy and Tb. The MRE is reported at a 0.2% TREO cut-off grade.

During the Period, Rainbow's technical team was focused on evaluation of the density at depth of the two phosphogypsum stacks that make up the Resource at Phalaborwa. On the advice of Ardaman and Associates, Inc., a Tetra Tech Company ("Ardaman"), a revised drilling technique was used for a drilling campaign carried out in the Period to provide representative samples from the stacks. These were submitted to Ardaman for comprehensive bulk density testing and the results revealed a clear corelation of higher bulk density with increasing depth.

The increased bulk density reported by Ardaman has resulted in a significant increase of ca. 16% in the project tonnes from 30.4 Mt to 35.1 Mt, extending the operating life by over two years at the proposed operating rate.

Samples from the drill campaign will now be assayed for grade by SGS in South Africa to allow for an updated JORC compliant MRE. This work is also expected to upgrade the Inferred Resources to the Measured and Indicated categories.

Environmental

Phalaborwa is founded on the principles of circularity, reprocessing phosphogypsum which is the by-product of historic phosphoric acid production to produce rare earths required for global decarbonisation. With legacy environmental issues prior to our ownership, Rainbow has the opportunity not only to exploit a secondary source of these critical minerals, but also to clean up the project site. This will involve neutralising the acidic solution currently on top of the gypsum stacks for use in a closed loop process and redepositing benign gypsum on stacks which will be lined in accordance with International Finance Corporation ("IFC") Standards and Equator Principles.

Rainbow recognises the benefits that securing a source of low carbon energy would bring to the project and its stakeholders and is therefore well advanced in the evaluation of a renewable energy power agreement. It is envisaged that renewable energy will provide the bulk of the project's power requirements, thereby further reinforcing its green credentials. While Phalaborwa is a relatively low energy-intensive project with draw requirements of ca. 13.3 MW (as set out in the PEA), management are also exploring the potential for on-site solar back-up power capacity.

As part of the DFS and as required for the permitting process, a new Environmental and Social Impact Assessment is being carried out by WSP Golder and all workstreams for this are on track to allow permit applications to be lodged in 2024.

During the Period, Rainbow signed a Letter of Intent to enter into an offtake agreement with NEXUS Intertrade (Pty) Ltd ("NEXUS"), under which NEXUS will acquire the benign gypsum which is the by-product of the Phalaborwa process and sell it to end users. The ability to sell down the remaining gypsum stacks at the project is expected to allow for complete environmental rehabilitation of the site over time, as well as providing an additional revenue stream to Rainbow.

Supply agreement

Rainbow aims to be a forerunner in the establishment of an independent and ethical supply chain of the rare earth elements that are driving the green energy transition.

In accordance with this aim, the Company entered into a strategic supply agreement in September 2023 with LCM, a world leader in the manufacture and supply of complex alloy systems and metals. LCM occupies a unique position in the rare earths supply chain in that it is based in Ellesmere Port, Cheshire. As such, it is currently the only rare earth metal and alloy manufacturing facility in the UK and one of the only facilities in the Western world.

LCM had been looking to partner with a supplier with similar values in order to secure ethical supply of the feedstock required for their business and it chose Rainbow after a lengthy evaluation process of the various rare earth development companies globally. This decision was based on Rainbow's capability to take its rare earth material further downstream to the separated rare oxide stage, as well as due to its low production cost, which gives the Phalaborwa project resilience against rare earth pricing volatility.

A framework will be set out in due course for Rainbow and LCM to negotiate a binding offtake agreement for separated rare earth oxides from Phalaborwa, with the ultimate customer of the rare earth permanent magnets being clearly defined and in alignment with both LCM's existing customer base and the positioning of both companies in an expanding Western supply chain.

Uberaba - Brazil

Following an extensive worldwide search to identify phosphogypsum projects with similar characteristics to Phalaborwa, Rainbow entered into an MOU with Mosaic in July 2023 with regards to the Uberaba project in Minas Gerais, Brazil.

As at Phalaborwa, the Uberaba project will entail the processing of a phosphogypsum stack that is the by-product of phosphoric acid production which was originally based on a hard rock carbonatite. Mosaic's phosphoric acid operations are ongoing, meaning that new phosphogypsum is deposited on the stacks annually.

Due to the similarities of the feedstock, the Uberaba stack was expected to have a similar grade and rare earth element make-up as those of Phalaborwa and this was confirmed by initial assay analysis, which indicated an average grade of 0.58% TREO and that the basket contains all four of the magnet rare earths NdPr, Dy and Tb, with NdPr representing ca. 25% of the basket.

Following the co-production of a process flowsheet, Rainbow and Mosaic will collaborate on the production of a PEA for this opportunity to extract rare earths.

Gakara - Burundi

Gakara was placed on care and maintenance in June 2021 at the request of the Government of Burundi.

Further to the acquisition of the Phalaborwa project in December 2020 and the subsequent development of processing technology to recover REEs from phosphogypsum as a by-product of phosphoric acid production, the Directors have re-focused the business on secondary sources of REEs where they consider higher returns are available. As such, the decision was made not to invest any further funds in the project and Gakara was fully written down in the Company's accounts for the year to 30 June 2023.

Corporate

Notwithstanding falling rare earth prices, coupled with a wider difficult environment for small to medium sized resource companies on the London Stock Exchange, Rainbow's successful development was rewarded by continued strong backing for the Company in the market via the completion of a private placement in September 2023 to raise ca. US$5.5 million. This placing was carried out at a minor discount of 3% to the share price and was supported by the majority of Rainbow's Board, as well as its major shareholder TechMet.

A major endorsement for Phalaborwa's exceptional economic and environmental credentials was achieved via the announcement at the U.N.'s Climate Change Conference, COP28, that the DFC had committed US$50 million for the project, to be invested via strategic shareholder TechMet. This funding commitment helps to de-risk the overall capital requirement of ca. US$295.5 million for Phalaborwa and demonstrates the strategic role the project is expected to play in the establishment of a responsible supply chain for rare earths outside of China.

Financial Review

The financial statements for the Period are dominated by costs totalling US$8.5 million capitalised for Phalaborwa, bringing the total balance sheet value for the exploration and evaluation assets associated with the project to US$13.4 million. This included US$5.7 million to increase Rainbow's economic interests in Phalaborwa from 70% to 85%, with an option to acquire the remaining 15% from Bosveld Phosphates (Pty) Limited via the issue of 38,873,663 new Rainbow shares. Other expenditure at Phalaborwa in the Period included US$2.0 million relating to the ongoing pilot plant operations, US$0.4 million for other workstreams associated with the DFS, US$0.2 million for mineral resource work and US$0.2 million for Rainbow's technical team and associated costs. At 31 December 2023, the Group had US$4.0 million of cash available.

The income statement showed a net loss of US$1.5 million for the Period in line with the comparative period in FY 2023.  This includes the Group's administrative costs, business development costs associated with both the Uberaba project in Brazil and Rainbow's wider long-term project pipeline, and costs to maintain the Gakara asset on care and maintenance.

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.

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 Interim Report has been approved by the Board and signed on its behalf by:

George Bennett

Chief Executive Officer

28 March 2024

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 31 December 2023

The results of each period are derived from continuing operations.

Condensed Consolidated Statement of Financial Position

As at 31 December 2023

Condensed Consolidated Cash Flow Statement

For the six months ended 31 December 2023