Rainbow Rare Earths Ltd listed on the LSE in 2017 at 10p per share and has a 90% stake in the Gakara Rare Earths Project in Burundi. This boasts some of the highest grades of Rare Earth Elements (REEs) on the planet. A recent maiden JORC compliant resource statement outlined 1.2Mt on just a small part of this vast 39km² licence area, confirming the true scale of the deposit for the very first time. Investor excitement sent the shares to 23p, but recently the stock has been oversold due to production delays and financing concerns.
Mining began in September 2017 and is on course to achieve break-even in H2 2019 from two mining areas. This is dependent on the opening of another two areas which are planned to allow production to increase. Demand is very strong from end customers secured by partner Thyssenkrupp under a 10-year offtake deal for up to 5,000 tpa, plus first right of refusal on the next 5,000 tpa.
JV partner TechMet is to fund a DFS to determine the economic feasibility of processing the concentrate into separate REEs, which could reduce the discount to metal content price considerably from the current 70%.
REEs are strategic commodities with deposits outside of China becoming strategically important. Rainbow has just started to attract attention for being just one of two quoted commercial REE producers outside of China.
Our conservative valuation shows the potential. We initiate coverage of Rainbow with a target price of 10.53p and Conviction buy stance.