TIDMRBW
RNS Number : 5134S
Rainbow Rare Earths Limited
12 March 2019
12 March 2019
Rainbow Rare Earths Ltd ('Rainbow' or 'the Company') (LSE:
RBW)
Interim Results for the six months ended 31 December 2018
Rainbow, the high grade rare earth ('RE') concentrate producer,
announces its unaudited results for the six months ended 31
December 2018.
Highlights
-- Maiden JORC resource announced in December identified two
highly prospective areas within the deposit: 12,491 tonnes of
high-grade veins averaging 55% total rare earth oxides ('TREO'),
and a much larger, lower-grade area of 1.2 million tonnes averaging
2.2% TREO
-- Funds successfully raised - US$2.0 million from an equity
placing in August 2018, and an equity drawdown/convertible facility
signed shortly after period end for up to US$7.75 million with a
fund managed by Lind Partners LLC ('Lind')
-- Production ramp-up slower than expected, however concentrate
exports increased slightly to 550 tonnes in the period (six months
to 30 June 2018: 525 tonnes)
-- Customer demand very strong and all exported production was sold by period end
-- Second mining area, Murambi, entered production in December
2018 and two further mining areas planned to open during 2019
-- Loss for the six months ended 31 December 2018 of US$3.2
million (31 December 2017: US$1.1m) - commercial production
declared from 1 July 2018, all production costs now expensed
Enquiries:
Rainbow Rare Earths Ltd Martin Eales +44 (0) 20 3910 4550
Paul Shackleton
Arden Partners plc Benjamin Cryer +44 (0) 20 7614 5900
Priit Piip
St Brides Partners Ltd Isabel de Salis +44 (0) 20 7236 1177
CEO Statement
As one of only two listed RE companies that is producing
commercially outside China, and as the only RE producer in Africa,
the fundamentals of our potential world-class, high-grade asset
remain strong. Given that demand for REs (particularly those used
in the manufacture of rare earth magnets) is expected to rise in
response to the increase in production of electric vehicles
('EVs'), we are excited about the future. From a production
perspective, the six months ended 31 December 2018 were
challenging, particularly from the operation's first pit, Gasagwe,
which has provided almost all the ore mined from the Gakara project
to date. However, looking ahead, we have begun to address the
teething issues and are now focused on increasing production from
new mining areas, targeting near-term positive EBITDA and becoming
a key strategic supplier to the market.
Production and sales
Having successfully completed the construction and commissioning
of the Kabezi processing plant earlier in calendar 2018 and
demonstrated that our high grade rare earth mineral concentrate
product could be successfully sold, we had targeted the first half
of the financial year 2018-19 as a period when production of
concentrate would increase to our target run rate of approximately
400 tonnes per month by the end of December 2018.
However, the deposit at Gasagwe proved more complex and
unpredictable than initially modelled, and the ramp-up progressed
more slowly than we had planned. Quarterly production and exports
during the first half of financial year 2018-19 remained broadly
consistent with the preceding six months.
In response, we modified our near-term production strategy to
target the operation of four mining areas in parallel. The second
mining area, Murambi, began production in the second half of
December, and the next two areas (Kiyenzi and Gomvyi) are
undergoing preparatory exploration and development work with a view
to commencing operations in the second half of calendar 2019.
Demand from customers sourced by our partners, thyssenkrupp
Materials Trading ('TK'), for the Company's high-grade concentrate
product was and remains very strong. All of the tonnes exported
from Burundi during the period had been sold prior to the end of
December 2018. This strong level of demand gives us confidence in
seeking to rapidly increase the scale of our operations.
The mineralisation at Gasagwe, as well as Murambi and Gomvyi,
takes the form of a stockwork of veins. These veins have
exceptionally high grades, typically 50-60% TREO, but their shape,
thickness and direction can be difficult to predict. By operating
multiple pits and vein faces within them, we aim to moderate the
unpredictability in the supply of ore, as well as to increase the
overall levels of production to hit breakeven levels of
approximately 250 tonnes of concentrate per month, at current rare
earth prices, during the second half of calendar 2019.
Exploration
In December 2018, the Company announced its maiden JORC
resource. This study included just four prospect areas within the
Company's Mining Licence, out of a total target list of 28, and
identified the existence of two different types of
mineralisation.
For those areas where mineralisation takes the form of a
stockwork of high-grade veins (ie Gasagwe, Murambi and Gomvyi), a
total of 12,491 tonnes of resource averaging 55% was identified.
This represents sufficient ore supplies for at least the next two
years. It should also be emphasised that JORC rules limit the
extent to which identified veins can be assumed to continue along
strike or at depth; in this case, we could not assume a
continuation of more than 40 metres below surface, although we
strongly believe this to be conservative given our experience so
far of vein depths at Gasagwe.
In addition, at Kiyenzi, a much larger, lower-grade deposit was
discovered. Based on a limited number of drill results, a deposit
was measured of some 1.2 million tonnes of ore grading at 2.2%
TREO, including areas of higher grade 'breccia' material which the
Company plans to commence mining in 2019. This exciting larger
scale discovery had been unexpected and further investigation is
planned to determine the scale of the deposit, as well as potential
ways to process the lower grade material.
Safety, health and community
By 31 December 2018, the Gakara project had passed the milestone
of 1.5 million LTI-free (lost time injury) man hours, an
achievement of which management is rightly proud. However, the
recent tragedies reported at mine sites around the world serve to
remind us all that safety must be an ongoing, daily priority, and
to underline the dangers of complacency.
In particular, we have identified road traffic incidents,
whether on public highways or on local access roads, and land
slippages as high priority/high risk areas. We have revisited all
of our standard operating procedures in these areas, and reinforced
messages have been disseminated throughout the organisation and,
where relevant, to local communities.
Rainbow understands its responsibilities towards the communities
local to its operations and has continued to provide support across
a broad range of areas, including providing potable water at
Kabezi, clearing and repairing public roads and storm water
culverts with its earth-moving equipment and technical crews, and
the training and development of local recruits.
Corporate
In August 2018, the Company completed an equity placing which
raised US$2.0 million before costs. In January 2019, the Company
announced that it had signed an equity drawdown/convertible loan
facility with a fund managed by Lind for up to US$7.75 million.
Both of these financings were principally for working capital
purposes, during the ramp up period before reaching break-even
production of approximately 250 tonnes per month of concentrate, as
well as to provide additional mining fleet and to finance the
opening of new mining areas (land compensation, construction of
access roads, pre-mining development etc).
Equity markets are going through a difficult period at the
present time, and along with many other junior mining companies,
Rainbow's share price has suffered. Additionally, slower than
anticipated production led to the need for the additional funding
described above.
In August 2018, we were pleased to announce the signing of a
co-operation agreement with TechMet Limited ('TechMet'), which will
accelerate our work towards developing the capability of further
processing our concentrate, in order to capture more of the
downstream value. Under the terms of this agreement, TechMet will
lead the work to complete a Definitive Feasibility Study ('DFS')
for a separation process, which is intended to be owned as a Joint
Venture between the two companies. The DFS will be funded
exclusively by TechMet on a reimbursable carry basis.
Rare earths market
The fundamentals of the RE market, particularly for the magnet
metals, Neodymium and Praseodymium, remain strong. Rare earth
magnets are a key component of the drive motors within electric
vehicles and are also used in a number of other growth applications
including wind turbines, smartphones and headphones. At the same
time, new sources of supply are limited - many new RE projects
require significant financing in order to begin construction and
often need significantly higher RE prices in order to be
economically viable. By already being in production, Rainbow is
well placed to benefit quickly from increasing prices.
Nevertheless, RE prices stagnated during the six months to 31
December 2018 with Rainbow's indicative basket price falling 12%
from US$12.87/kg to US$11.33/kg during the period, although this
has strengthened slightly in 2019. RE market commentators appear to
be consistent in their view that RE prices will increase from
present levels, and the only questions are how quickly and how
far.
Outlook
Rainbow's near-term priorities during calendar 2019 are to bring
four mining areas into production, thereby reaching cashflow
breakeven levels of production of approximately 250 tonnes of
concentrate per month (at current prices) in the second half of the
year. Thereafter, production increases will be targeted from the
development and exploitation of the numerous additional areas
across the Mining Licence.
However, the Company's longer term value creating opportunities
remain firmly in place.
Through ongoing exploration work, much of which may be
undertaken at minimal cost, the Company seeks to expand its
understanding of the extent of the numerous RE deposits within its
Mining Licence. The discovery of a large area of low-grade
mineralisation at Kiyenzi offers an exciting prospect and warrants
additional research into its scale and metallurgical
properties.
At the same time, the co-operation agreement with TechMet
continues to make progress into developing the capability to
process Rainbow's concentrate further, thereby increasing not only
the value of the product sold but also opening up the universe of
possible customers more widely.
Financial Review
Overview
The six months to 31 December 2018 represented a continuation of
the ramp-up of production at the Gakara project, which had
commenced from the time the Kabezi plant had been constructed and
fully commissioned in the second half of the previous financial
year to 30 June 2018. The slow rate of production increase, driven
mainly by operating challenges at the Gasagwe pit, meant that
operations continued to operate at a loss during the period, with
break-even production now targeted for later in calendar 2019,
specifically when production reaches approximately 250 tonnes of
concentrate per month.
Income statement
On 1 July 2018, the Directors determined that commercial
production had been reached at the Gakara project, and that
henceforth revenues and production costs from operations would be
reported through the income statement. Previously, any sales
revenues and production costs were capitalised as a part of the
mine development asset.
650 tonnes of concentrate were sold in the six months to 31
December 2018, at an average net price (after accounting for
marketing fees and handling costs deducted at source) of US$1,892
per tonne. Revenue was therefore US$1.2 million in the period,
compared with US$1.0 million for the six months to 30 June 2018
(six months to 31 December 2017: nil).
Royalty and transport costs of US$0.2 million (six months to 31
December 2017: nil) included the cost of transporting the
concentrate from the mine site to the port of Mombasa, as well as
the government royalty recorded at 4%.
Production costs totalled US$1.6 million (six months to 31
December 2017: nil), including the cost of running the processing
plant (US$0.4 million), mining costs (US$0.7 million), and local
administrative and support costs in Burundi (US$0.5 million).
Production costs of US$1.0 million reported in the year to 30
June 2018 occurred prior to the point at which the Company
determined that commercial production had been reached, and were
restricted to the amount required to eliminate the margin on
revenues from the sale of 475 tonnes of concentrate.
The gross margin on production was a loss of US$0.5 million in
the period.
Stockpile movement of US$0.2 million represents the net decrease
in the value of the ore and concentrate stocks held during the
period, as this amount is shown separately from cash production
costs.
Administration costs totalled US$0.7 million, in line with the
six months to 31 December 2017, and compared favourably with the
full year to 30 June 2018 (US$2.0 million), as discretionary
expenditure was minimised.
EBITDA in the period was a loss of US$1.4 million, compared with
a loss of US$0.8 million for the six months to 31 December 2017 and
a loss of US$2.0 million for the year to 30 June 2018.
Share based payments, which reflect the cost of employee share
options awarded in previous periods and are recorded over the
vesting period, totalled US$0.1 million in the period, compared
with US$0.5 million in the six months to 31 December 2017 and
US$0.7 million for the full year to 30 June 2018, as a result of no
new awards having been made since August 2017.
Depreciation was charged for the first time in the period at
US$1.7 million in accordance with the Company's policies.
Finance income, primarily FX gains on currency movements, was
US$0.1 million, while finance costs (including the interest on the
Finbank overdraft) amounted to US$0.1 million.
Pre-tax losses were therefore reported of US$3.1 million,
compared with losses of US$1.1 million in six months to 31 December
2017 and US$2.5 million for the year to 30 June 2018.
Income tax expenses primarily related to withholding taxes, and
were less than US$0.1 million.
Total loss after tax was US$3.2 million, compared with losses of
US$1.1 million in six months to 31 December 2017 and US$2.6 million
for the year to 30 June 2018.
Balance sheet
The Company's fixed assets increased to US$10.7 million by 31
December 2018 (30 June 2018: US$11.2 million). This reflected the
net impact of new capex, including mine development work at the new
Murambi pit, offset by US$1.7 million of depreciation.
Current assets at 31 December 2018 totalled US$0.6 million, down
from US$1.3 million at 30 June 2018, as a result of reductions in
inventory levels and trade receivables, largely due to timing of
exports and sales receipts over the period end.
Total borrowings, including trade creditors, accruals and the
Finbank overdraft, amounted to US$2.1 million, in line with the
level at 30 June 2018 of US$2.2 million.
Cash flow statement
The Company's cash balance at 31 December 2018 was US$56k (30
June 2018: US$354k), although this does not take into account the
Finbank overdraft facility of US$0.9 million.
After adjusting for non-cash items and working capital
movements, US$1.3 million of cash was used in operating activities,
compared with US$1.1 million in the six months to 31 December 2017
and US$1.8 million for the year to 30 June 2018.
Capex for the period was US$1.1 million, including the
establishment of the Murambi mine site, compensation payments for
new areas at Gasagwe, Kiyenzi and Murambi, and the cost of the
geological work necessary for the maiden JORC resource, which is
included under the Gakara mine development costs.
Funding for operating losses and the Group's capex largely came
from the equity placing in August 2018, which raised US$1.8 million
net of costs.
Going concern
The Directors have a reasonable expectation that the Company and
the Group have adequate resources to continue in operational
existence for the foreseeable future. Accordingly, they continue to
adopt the going concern basis in preparing the Condensed
Consolidated and Company Financial Statements. For further detail
refer to the detailed discussion of the assumptions outlined in
note 2(a) to the Condensed Consolidated Financial Statements.
Cautionary Statement:
The business review and certain other sections of this Half
Yearly 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.
Risks and uncertainties
There are a number of potential risks and uncertainties inherent
in the mining sector which could have a material impact on the
long-term performance of the Company and which could cause the
actual results to differ materially from expected and historical
results. The Company has taken reasonable steps to mitigate these
where possible. Full details are disclosed on page 26 of the Annual
Report for the year ended 30 June 2018. There have been no
significant changes to the risk profile during the first half of
the year. The risks and uncertainties are summarised below:
-- Production issues
- The production of rare earth mineral concentrate involves a
series of processes, from the mining of the ore at the mine sites
near Mutambu, to the processing of material at the Kabezi
plant.
- Mining operations are subject to a number of risks, including
mechanical outages, supply issues (eg fuel), interruptions due to
weather and soil conditions, among many others.
-- Geological risk
- The Company does not currently have a code-compliant Mineral
Reserve, and its JORC Resource (published in December 2018) covers
a limited area - just 4 of 28 exploration targets, and even those
were limited in scope. The scale of its mineral deposit therefore
cannot be stated with certainty.
- It is possible that the quantity of rare earths present in the
licence area is less than management expectations with resulting
impacts on production in the short and longer term.
-- Rare earth prices
- The Company produces rare earth mineral concentrate which is
sold to TK on market price less a deductions and a discount
(negotiated by TK with each end customer).
- Rare earth prices have been volatile in the past. If the
underlying rare earth basket price falls, this reduces revenue and
will impact the profitability of the mine.
- The current discount rate is approximately 70%, however may
vary depending on the arrangements TK negotiates with any new
customers or as terms are renegotiated.
-- Soil instability in mining areas and/or access routes
- Heavy rains during the rainy season (Oct-May) can lead to land
slippages, which could lead to production interruption in the event
that these impacted the mining areas or access routes
-- Civil unrest
- Burundi has experienced civil unrest, most recently in 2015.
Any subsequent instances of civil unrest could impact the operation
of the mine, including its ability to obtain supplies or export its
material, or even access its bank accounts in country.
-- Financing risk
- The Company currently forecasts that it will have adequate
headroom to continue in operations. However, in the event that one
or more negative scenarios come to pass (such as commodity prices,
or production problems), then additional financing may be
necessary.
-- Currency controls
- The Company receives proceeds in US dollars, which, are
repatriated to an account in the Burundi Central Bank.
- Burundi has experienced shortages of foreign currency reserves
in the past, and it is therefore possible that access to US dollars
held in country might be difficult. This would affect the Company's
ability to meet ongoing foreign currency obligations (eg corporate
costs, and any debt payments in US dollars).
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 Half Yearly Report has been approved by the Board and
signed on its behalf by:
Martin Eales
Chief Executive Officer
12 March 2019
Condensed Consolidated Statement of Comprehensive Income
Six months ended 31 December 2018
6 months to 31 December 6 months to 31 December 12 months to 30 June 2018
2018 2017
US$'000 US$'000 US$'000
Notes Unaudited Unaudited Audited
Revenue 2b 1,230 - 992
Royalty and transport
costs 2b (208) - -
Production costs 2b (1,557) - (992)
Gross margin (535) - -
Stockpile movement 5 (188) - -
Administration expenses (651) (752) (2,044)
EBITDA(1) (1,374) (752) (2,044)
Share based payments (128) (461) (709)
Depreciation 4 (1,688) - -
------------------------- -------------------------
Loss from operating
activities (3,190) (1,213) (2,753)
Finance income 131 160 317
Finance costs (79) (18) (79)
Loss before tax (3,138) (1,071) (2,515)
------------------------- ------------------------- -------------------------
Income tax expense (58) - (96)
Total loss after tax and
comprehensive expense for
the period (3,196) (1,071) (2,611)
========================= ========================= =========================
Total loss after tax and
comprehensive expense for
the period is attributable
to:
Non-controlling interest (217) (28) (45)
Owners of parent (2,979) (1,043) (2,566)
(3,196) (1,071) (2,611)
========================= ========================= =========================
The results of each period are derived from continuing
operations.
Loss per share (cents)
Basic 3(1.61) (0.67) (1.55)
------ ------ ------
Diluted 3(1.61) (0.67) (1.55)
------ ------ ------
_________
(1) EBITDA represents earnings before finance items,
depreciation, amortisation, taxation, share based payments and any
exceptional items.
Condensed Consolidated Statement of Financial Position
31 December 31 December 30 June 2018
2018 2017
US$'000 US$'000 US$'000
Notes Unaudited Unaudited Audited
Non-current assets
Property, plant and equipment 4 10,715 8,603 11,249
Prepayments 6 - 145 -
-----------
Total non-current assets 10,715 8,748 11,249
Current assets
Inventory 5 92 369 280
Prepayments 6 294 139 209
Trade and other receivables 159 329 461
Cash and cash equivalents 56 2,724 354
----------- ----------- ------------
Total current assets 601 3,561 1,304
Total assets 11,316 12,309 12,553
----------- ----------- ------------
Current liabilities
Trade and other payables 7 (1,178) (365) (1,415)
Borrowings 8 (945) (298) (760)
----------- ----------- ------------
Total current liabilities (2,123) (663) (2,175)
Total Liabilities (2,123) (663) (2,175)
----------- ----------- ------------
NET ASSETS 9,193 11,646 10,378
=========== =========== ============
Equity
Share capital 9 18,598 16,703 16,722
Share based payment reserve 1,201 955 1,203
Other reserves 47 35 40
Retained loss (10,397) (6,025) (7,548)
----------- ----------- ------------
Equity attributable to the parent 9,449 11,668 10,417
Non-controlling interest (256) (22) (39)
-----------
TOTAL EQUITY 9,193 11,646 10,378
=========== =========== ============
Condensed Consolidated Cash Flow Statement
Six months ended 31 December 2018
6 months to 6 months to 12 months to
31 December 31 December 30 June 2018
2018 2017
US$'000 US$'000 US$'000
Notes Unaudited Unaudited Audited
Cash flow from operating activities
Loss after tax for the period (3,196) (1,071) (2,611)
Depreciation 4 1,688 - -
Share based payment charge 128 461 709
Finance income (131) (160) (317)
Finance costs 79 18 79
Tax expense 58 - 96
------------ ------------ -------------
Operating loss before working
capital changes (1,374) (752) (2,044)
Net decrease/(increase) in inventory 5 188 (369) (280)
Net decrease/(increase) in other
receivables 217 65 (648)
Net (decrease)/increase in other
payables (328) (221) 938
------------ ------------ -------------
Cash used by operations (1,297) (1,277) (2,034)
Realised foreign exchange gains 121 159 294
Finance income 1 1 3
Finance costs (13) (9) (19)
Taxes paid (55) - (81)
------------ ------------ -------------
Net cash used in operating activities (1,243) (1,126) (1,837)
------------ ------------ -------------
Cash flow from investing activities
Purchase of property, plant and
equipment 4 (1,060) (2,812) (5,231)
Net cash used in investing activities (1,060) (2,812) (5,231)
------------ ------------ -------------
Cash flow from financing activities
Proceeds of new borrowings 185 268 740
Interest charge on borrowings (63) - (52)
Payment of finance lease liabilities (9) - (19)
Proceeds from the issuance of
ordinary shares 9 2,049 3,421 3,770
Costs of issuing new shares 9 (173) (222) (234)
Net cash generated by financing
activities 1,989 3,467 4,205
------------ ------------ -------------
Net decrease in cash and cash
equivalents (314) (471) (2,863)
Cash & cash equivalents at the
beginning of the period 354 3,198 3,198
Foreign exchange gain/(loss) on
cash & cash equivalents 16 (3) 19
------------
Cash & cash equivalents at the
end of the period 56 2,724 354
============ ============ =============
Condensed Consolidated Statement of Changes in Equity
Six months ended 31 December 2018
US$'000 Share capital Share based Other reserves Retained Attributable Non- Total
payment Earnings to the controlling
reserve parent interest
Balance at 1
July 2017 13,186 494 40 (4,982) 8,738 6 8,744
------------- -------------- -------------- --------------- ------------ -------------- -------
Total
comprehensive
expense
Total
comprehensive
loss - - - (1,043) (1,043) (28) (1,071)
Transactions
with owners
Issue of shares
during the
period 3,750 - - - 3,750 - 3,750
Share placing
transaction
costs (233) - - - (233) - (233)
Share based
payment
reserve - 461 - - 461 - 461
FX on
translation - - (5) - (5) - (5)
Balance at 31
December 2017
(unaudited) 16,703 955 35 (6,025) 11,668 (22) 11,646
------------- -------------- -------------- --------------- ------------ -------------- -------
Total
comprehensive
expense
Total
comprehensive
loss - - - (1,523) (1,523) (17) (1,540)
Transactions
with owners
Issue of shares
during the
period 19 - - - 19 - 19
Share placing - - - - - - -
transaction
costs
Share based
payment
reserve 248 - - 248 - 248
FX on
translation - - 5 - 5 - 5
Balance at 30
June 2018
(audited) 16,722 1,203 40 (7,548) 10,417 (39) 10,378
------------- -------------- -------------- --------------- ------------ -------------- -------
Total
comprehensive
expense
Total
comprehensive
loss - - - (2,979) (2,979) (217) (3,196)
Transactions
with owners
Issue of shares
during the
period 2,049 - - - 2,049 - 2,049
Share placing
transaction
costs (173) - - - (173) - (173)
Share based
payment
reserve - (2) - 130 128 - 128
FX on
translation - - 7 - 7 - 7
Balance at 31
December 2018
(unaudited) 18,598 1,201 47 (10,397) 9,449 (256) 9,193
============= ============== ============== =============== ============ ============== =======
Notes to the Condensed Financial Statements
Six months ended 31 December 2018
1. General information
Rainbow Rare Earths Limited (the 'Company', together with its
subsidiaries the 'Group'), is incorporated in Guernsey as a
non-cellular company limited by shares. The address of the
registered office is c/o Trafalgar Court, Admiral Park, St Peter
Port, Guernsey GY1 3EL. The nature of the Group's operations and
its principal activities are set out in the CEO Statement and the
Financial Review.
The financial information for the year ended 30 June 2018 does
not constitute the audited statutory accounts, but has been
extracted from those accounts. The report did not include reference
to matters to which the auditors drew attention by way of
emphasis.
This Half Yearly Report has not been audited or reviewed.
A copy of this Half Yearly Report has been published and may be
found on the Company's website at www.rainbowrareearths.com
2. Basis of preparation
The annual financial statements of the Group are prepared in
accordance with International Financial Reporting Standards
('IFRS') as issued by the International Accounting Standards Board
('IASB') and as adopted by the European Union ('EU'). These
Condensed Financial Statements have been prepared in accordance
with IAS 34 Interim Financial Reporting.
The same accounting policies and methods of computation are
followed in the condensed interim financial statements as were
followed in the most recent annual financial statements of the
Group, which were published on 10 October 2018.
The Group has reviewed newly effective IFRS Standards and notes
that:
-- IFRS 9 Financial Instruments has been implemented but has no
material effect on the financial statements
-- IFRS 15 Revenue Recognition was early adopted for the audited
financial statements for the year ended 30 June 2018
-- IFRS 16 Leases has been adopted, however as the Company has
no material leases other than short-term, the impact of this
standard is immaterial.
(a) Going concern
The Directors have continued to use the going concern basis in
preparing these condensed financial statements. The Group's
business activities, together with the factors likely to affect
future development, performance and position are set out in the
Operations Review. The financial position of the Group, its cash
flow and liquidity position are described in the Financial
Review.
The Group's cash balance at 31 December 2018 was US$56k (30 June
2018: US$354k).
The Directors believe that when production reaches approximately
250 tonnes of concentrate per month at prevailing commodity prices,
the Gakara project will generate sufficient cashflows to fund all
of the Group's ongoing operating activities.
During the six months to 31 December 2018, production fell well
below this level, largely as a result of the lower quantity of ore
mined from the Gasagwe pit. In order to address this issue,
management has accelerated plans to bring additional pits into
production, including the Murambi pit (which commenced in late
December 2018), as well as two further pits expected to commence
production in the second half of calendar 2019.
In January 2019, the Company announced that it had entered into
an agreement with a subsidiary of Lind Partners LLC ('Lind'), which
would provide funding for up to US$7.75 million over a 24-month
period (of which US$850k before costs was drawn during January
2019). In addition, the Company is actively engaged in discussions
with asset financiers and existing lenders to fund the augmentation
of the mine fleet and to cover the compensation costs of bringing
new areas into production.
The Directors believe that the existing facilities with Lind, as
well as its local Burundian bankers Finbank, will provide adequate
funding for at least the 12 months following publication of these
interim accounts. In the event of unforeseen adverse scenarios (eg
lower than expected production, or a fall in Rare Earth prices),
the Board believes that it has established a pattern of additional
equity financing from a supportive shareholder and investor base on
which it would draw, if required.
After considering the scenarios described above, the Directors
have a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for a
period not less than 12 months from the date of this report and
consider the going concern basis of accounting to be appropriate
and, thus, they continue to adopt the going concern basis of
accounting in preparing the financial statements.
(b) Commercial production at Gakara
In July 2018, the Board reviewed the operation of the Gakara
mine and determined that commercial production had been reached at
the project.
In reaching this conclusion, management considered factors
including the completion of construction and commissioning of the
treatment plant (as well as the passing of performance tests), the
rate of ore extraction from the Gasagwe pit in the month (which was
in line with targets at that time), and the fact that a number of
export and sales cycles had been successfully completed.
As a result, all production and sales costs with effect from the
start of the period were expensed as incurred, and all revenues
reported through the income statement in accordance with Group
policies.
(c) Depreciation
Property, plant and equipment is depreciated over the shorter of
the estimated useful life of the asset using the straight-line
method, or the life of mine using the unit of production method and
life of mine tonnes. Residual values and useful lives are reviewed
on an annual basis and changes are accounted for over the remaining
lives.
The applicable depreciation rates are as follows:
Description Useful life
Mine development and restoration costs Infrastructure depreciated on a life of
mine unit of production basis. Mining
costs depreciated
on a unit of production based on the
tonnes mined and estimates of tonnes
contained in a specific
mining area.
------------------------------------------------------------
Plant and machinery Life of mine unit of production basis
------------------------------------------------------------
Vehicles 5 years
------------------------------------------------------------
Computer equipment 3 years
------------------------------------------------------------
Office furniture and fittings 7 years
------------------------------------------------------------
(d) Foreign currencies
The consolidated financial statements are presented in US
dollars, which is also the functional currency of the company and
its subsidiaries, with the exception of Rainbow Rare Earths UK
Limited, whose functional currency is GBP.
Transactions in foreign currencies are translated to the
functional currency of the Group entity at the rates of exchange
prevailing on the dates of the transactions. At each reporting
date, monetary assets and liabilities that are denominated in
foreign currencies are retranslated to the functional currency at
the rates prevailing on the reporting date. Exchange gains and
losses on short-term borrowings and deposits are included within
finance costs. Exchange differences on all other transactions are
recognised within the operating loss.
(e) Dividend
The Directors do not recommend the payment of a dividend for the
period (31 December 2017: US$nil; 30 June 2018: US$nil).
(f) Segment Reporting
Operating segments are reported in a manner consistent with
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker has been identified as the Chief
Executive Officer ('CEO'). It is considered that there is only one
segment of the Group being the exploration and production of rare
earths.
3. Loss per ordinary share
Loss per ordinary share is calculated by dividing the net loss
for the period attributable to Ordinary equity holders of the
parent by the weighted average number of Ordinary shares
outstanding during the period.
Earnings per share have been calculated using the weighted
average of ordinary shares, adjusted for the effect of the share
subdivision at the time of the IPO.
At 31 December 2018, there were 12,480,038 (30 June 2018:
12,614,038) potentially dilutive shares in issue through warrants
and options. However, the Company was loss making for all periods
presented, therefore the dilutive effect of share options has not
been taken account of in the calculation of diluted earnings per
share, since this would decrease the loss per share for each of the
period reported.
The calculation of the basic loss per share is based on the
following data:
Six months to 31 December Six months to 31 December
2018 2017 12 months to 30 June 2018
Unaudited Unaudited Audited
Loss attributable to the
owners of the Company US$'000 US$'000 US$'000
The loss for the period
attributable to ordinary
equity holders of the parent
company (2,979) (1,043) (2,566)
Number Number Number
Number of Shares '000 '000 '000
Weighted average number of
Ordinary shares for the
purposes of basic and
diluted loss per
share 184,603 155,938 165,258
Loss per Ordinary share Cents Cents Cents
Basic (1.61) (0.67) (1.55)
Diluted (1.61) (0.67) (1.55)
4. Property, plant, and equipment
US$'000 Mine development Plant & machinery Vehicles Office equipment Mine restoration Total
costs
Cost
At 1 July 2018 7,791 2,665 709 24 60 11,249
Additions 1,136 2 - 17 - 1,155
At 30 December 2018 8,927 2,667 709 41 60 12,404
--------------------- --------------------- ----------------- -------- ---------------- ---------------- -------
Depreciation
At 1 July 2018 - - - - - -
Charge for period (1,329) (279) (71) (3) (7) (1,689)
At 30 December 2018 (1,329) (279) (71) (3) (7) (1,689)
--------------------- --------------------- ----------------- -------- ---------------- ---------------- -------
Net Book Value at 31
December 2018 7,598 2,388 638 38 53 10,715
--------------------- --------------------- ----------------- -------- ---------------- ---------------- -------
Net Book Value at 30
June 2018 7,791 2,665 709 24 60 11,249
--------------------- --------------------- ----------------- -------- ---------------- ---------------- -------
US$'000 Mine development costs Plant & machinery Vehicles Office equipment Mine restoration Total
Cost
At 1 July 2017 4,603 1,016 169 3 - 5,791
Additions 1,285 1,204 305 18 - 2,812
At 30 December 2017 5,888 2,220 474 21 - 8,603
---------------------- ---------------------- ----------------- -------- ---------------- ---------------- -----
Depreciation
At 1 July 2017 - - - - - -
Charge for period - - - - - -
At 30 December 2017 - - - - - -
---------------------- ---------------------- ----------------- -------- ---------------- ---------------- -----
Net Book Value at 31
December 2017 5,888 2,220 474 21 - 8,603
---------------------- ---------------------- ----------------- -------- ---------------- ---------------- -----
Net Book Value at 30
June 2017 4,603 1,016 169 3 - 5,791
---------------------- ---------------------- ----------------- -------- ---------------- ---------------- -----
5. Inventory
US$'000 Balance at 31 December 2018 Balance at 31 December 2017 Balance at 30 June 2018
Unaudited Unaudited Audited
WIP 60 175 71
Finished goods - 194 177
Consumables 32 - 32
--------------------------- --------------------------- -----------------------
Total inventory 92 369 280
WIP (Work in Progress) represents approximately 46 tonnes of ore
undergoing treatment at the Kabezi processing plant at 31 December
2018.
Finished Goods in prior periods related to concentrate that had
been produced but not yet sold at period end. In accordance with
accounting policies, both WIP and Finished Goods are valued at the
lower of cost of production and net realisable value.
Consumables mainly relates to fuel stocks at 31 December 2018
and 30 June 2018.
6. Prepayments
US$'000 Balance at 31 December 2018 Balance at 31 December 2017 Balance at 30 June 2018
Unaudited Unaudited Audited
Non-current prepayments - 145 -
Current prepayments 294 139 209
--------------------------- --------------------------- -----------------------
Total prepayments 294 284 209
Current prepayments relate to prepaid operating expenses and
include US$219k in respect of government royalty payments of 4%
which have been paid based on the total basket price of exports,
rather than on the discounted price received from the Company's
customer TK. These amounts have been recorded as prepayments on the
basis that Rainbow believes that they will be offset against future
royalty payments, pending the conclusion of a report commissioned
by the World Bank into the reasonableness of the discount received
by Rainbow.
Non-current prepayments in prior periods related to advance
payments on equipment for the Gakara project.
7. Trade and other payables
US$'000 Balance at 31 December 2018 Balance at 31 December 2017 Balance at 30 June 2018
Unaudited Unaudited Audited
Trade payable 495 285 535
Accrued expenses 240 68 355
Payroll and other taxes 34 7 31
Amounts due to staff and management 294 4 368
Pension contributions - - 3
Rehabilitation provision 60 - 60
Other payables 55 1 63
Total trade and other payables 1,178 365 1,415
The average terms for trade and other payables are 30 days.
8. Short-term borrowings
Short-term borrowings of US$0.9 million (30 June 2018: US$0.8
million, and 31 December 2017: US$0.3 million) was predominantly
made up of a US$0.9 million (1.5 billion BIF) overdraft with
Finbank Ltd, the Company's bankers in Burundi. This short-term
facility is denominated in Burundian Francs (BIF), and is secured
over the mining and plant assets of the Gakara project. Interest on
this facility is charged at 14%.
9. Share capital
On 8 August 2018, the Company allotted 13.1 million new ordinary
shares at a price of 12 pence per share, raising gross proceeds of
approximately US$2.0 million (before costs of US$0.2 million).
On 16 April 2018, 134k shares were allotted to satisfy the
exercise of employee share options.
On 19 December 2017, the Company issued 20.0 million ordinary
shares as part of an equity placing at 14 pence per share. Net
proceeds for this equity raise amounted to US$3.5 million, after
accounting for US$0.2 million of transaction costs.
10. Related party transactions
6 months to 6 months to 12 months
31 December 31 December 2017 to 30 June
2018 2018
US$'000 Charged Paid Balance Charged Paid Balance Charged Balance Related Description
in period in period at 31 in period in period at 31 in year at 30 party
Dec Dec Jun
Company
Artemis secretarial
Trustees R services to
Limited 16 (8) 8 13 (89) - 31 - Sinclair the Group
Rental of
accommodation
for staff
plus
acquisition
of land for
Gilbert the Kabezi
Midende 21 (14) 9 24 (22) 4 44 2 G Midende plant site
Settlement
for waiver
of
Martin profit-share
Eales - - - - (122) - - - M Eales agreement
Pella
Resources A London office
Limited - - - - (43) - - - Pouroulis rental
Uvumbuzi Exploration
Resources activity at
Limited 38 (38) - 52 (60) - 110 - C Morelli Gakara
Benzu Exploration
Minerals 45 (30) 15 - - - 18 - C Morelli activity
--------- --------- ------- --------- ---------- ------- -------- ------- --------- -------------
120 (90) 32 89 (336) 24 203 2
--------- --------- ------- --------- ---------- ------- -------- ------- --------- -------------
The above table does not include remuneration of Directors and
senior management
Artemis Trustees Limited, in which R Sinclair holds an interest,
provided company secretarial services, which were settled in cash,
together with balances due in respect of historic invoices, during
the period.
G Midende provided accommodation for staff as well as land at
Kabezi for the plant site.
Uvumbuzi Resources Limited and Benzu Minerals, in which C
Morelli holds an interest, provided exploration services to the
Company during the period of US$83k.
All of the balances due to related parties at the period end are
intended to be settled in cash. All amounts due to related parties
are unsecured.
11. Post balance sheet events
On 28 January 2019, the Company announced that it had entered
into a financing agreement for up to US$7.75 million over a
24-month period with an entity managed by the Lind Partners
LLC.
This facility consists of an unsecured convertible loan note of
US$750k, an equity drawdown facility whereby the Company has the
right to draw between US$100k and US$300k per month over a 24-month
period in return for new ordinary shares issued at a 10% discount
to the prevailing market price.
In January 2019, US$775k in funds were advanced, consisting of
the US$750k unsecured convertible loan and US$100k as the first
equity drawdown, before deducting US$75k of transaction costs.
Under the terms of the agreement, the Company has issued 7.5
million ordinary shares to Lind as collateral, which may be used to
satisfy the Company's share obligations during the course of the
facility (either the conversion of the loan note, or the allotment
of new equity under the drawdown), as well as 16,718,987 share
options at an exercise price of 5.28 pence, with a vesting term of
48 months.
12. Capital commitments
The Company has no capital commitments
13. Contingent liabilities
There were no contingent liabilities at 31 December 2018 (30
June 2018: nil, and 31 December 2017: nil).
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR EAXDFFDKNEFF
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