Actions in Rainbow Rare Earths They are on the move and, unlike most companies in the mining sector at the moment, the overall trajectory is upward.
Three key factors support this superior performance: a high-quality project, high-quality management, and high-quality sponsors and partners.
The project is Phalaborwa, a rare earth opportunity in South Africa.
Management comes from one of the leading mine engineering and construction companies in the mining industry.
And among the sponsors and partners is the United States government.
An image of a mine in Phalaborwa, South Africa.
So far, so good.
So what’s the backstory?
“We’ve raised four funds for Rainbow Rare Earths since I joined,” says Rainbow CEO George Bennett. “Three were at a premium and the fourth was made at the bargain price of 15p.”
Bennett was founder of MDM Engineering and as such was responsible for the design and construction of dozens of mining projects and feasibility studies in Africa and around the world.
And, at only one-twelfth the size of the largest tailings plant built by MDM, Phalaborwa shouldn’t be too much of a stretch.
The key to Phalaborwa is that it is not a new mine, it is an old pile of gypsum waste, created after 60 years of phosphoric acid production.
That may not change anyone’s world when it comes to glitz and glamour, but what we’re talking about here is economics, not fashion.
The total grade of rare earth oxides in the chimneys is 0.44%, an order of magnitude six to ten times higher than the grade in ionic clay rare earth deposits mined in Myanmar and China, and which is the source of most of the world’s production.
That means Phalaborwa can make money in a rare earth price environment where few other development projects can.
And if rare earth prices rise, as they could in a world increasingly polarized into trading blocs, the margins offered will be almost unbeatable.
Because? – because much of the work necessary to make a marketable product has already been done during the plaster manufacturing process.
Phalaborwa batteries are, in a sense, waste. But looked at another way, they are mineralized material that has already been processed to a significant degree.
“Two-thirds of the flowchart is done,” is how Bennett puts it. “And at no cost to us.”
Early estimates peg annual underlying earnings [EBITDA] from Phalaborwa to between $80 and $90 million, even at current low rare earth prices of around $70,000 per tonne of NdPr (neodymium and praseodymium).
Put another way, Phalaborwa looks set to generate an EBITDA margin of 75%. And according to some forecasts, EBITDA could increase by up to $190 million a year.
But it’s not just about profits. It’s also about location.
This rare earth project is very far from China. And that’s where the Americans come in.
The latest deal reached by Bennett gives US government-backed Techmet a $50 million direct stake in Phalaborwa.
The amount Phalaborwa Techmet will get for its money is subject to the results of ongoing economic and feasibility studies, but the official range has been set between 15% and 33%.
The point is that a significant portion of the equity component of the cost of capital is already in place, and once again Bennet avoids diluting shareholders. This, in turn, can create a kind of virtuous circle in the market. Unsurprisingly, following news of the Techmet deal, Rainbow shares rose almost 14% to 15.9p. This is not quite at the level of the 12-month high reached in September, but it is pretty close.
So onwards and upwards from here.
The plan is to begin construction in Phalaborwa in 2025 and be in production in 2026.
A pilot plant is just coming online in Florida and should soon be able to provide strong and rapid evidence that the process works at scale.
When the full project is built, it will be significantly larger than the pilot plant, Bennett says, but not to the point that meaningful conclusions cannot be drawn now.
Some projects operate with pilot plants that are one-hundredth or one-fifth the size of the final operation.
This not.
End users and financiers will get the best possible look from an upcoming project, and it shouldn’t surprise anyone if the company’s anticipated final investment decision date, the third quarter of next year, appears to bounce back fairly quickly.
Meanwhile, there’s a new project in Brazil to keep the news flowing.
Here, the opportunity is similar, albeit further down the road, and there is already a major partner in the form of Mosaic. It’s also bigger, but with Phalaborwa on the path to production and cash generation, that shouldn’t be a problem.
So will any subsequent hypothetical fundraisers be at a premium or discount?
“At Phalaborwa, we will be the lowest cost producer in the west,” Bennett says.
If that’s not a selling point, nothing is.
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