RAINBOW RARE EARTHS LIMITED
ANNUAL REPORT & ACCOUNTS 2020
NdPr –
POWERING THE
GREEN
REVOLUTION.
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Overview
OUR MISSION
OUR MISSION IS TO
DEVELOP A LONG-TERM
SOURCE OF NEODYMIUM,
PRASEODYMIUM AND
ASSOCIATED RARE
EARTH ELEMENTS TO
POWER THE GREEN
REVOLUTION.
CONTENTS
Overview
Strategic Report
Corporate Governance
Financial Statements
01 Rare Earths
- Technology Metals
02 Business Model
03 Shareholder Value Creation
04 RRE at a Glance
08 Chairman’s Statement
10 Chief Executive’s Statement
14 Operational Review
16 Financial Review
18 Health & Safety
20 Corporate Social
Responsibility
24 Directors’ Report
26 Board of Directors
27 Senior Management
28 Risks & Uncertanties
30 Corporate Governance
Statement
36 Independent Auditors’ Report
40 Consolidated Statement
of Comprehensive Income
41 Consolidated Statement
of Financial Position
42 Consolidated Statement
of Changes in Equity
43 Consolidated Cash Flow
Statement
44 Notes to the Consolidated
Financial Statements
IBC Shareholder Information
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Overview
RARE EARTHS - TECHNOLOGY METALS
RARE EARTH MAGNETS
ARE ESSENTIAL BUILDING
BLOCKS FOR CLEAN
TECHNOLOGY FOR
A GREENER FUTURE.
What are Rare Earths?
The Rare earth elements are a group of seventeen chemically similar
elements that are crucial for the production and manufacturing of
various hi-tech products and industrial processes.
The principal value of rare earths comes from Neodymium (Nd)
and Praseodymium (Pr), which are the vital elements in the
manufacturing of the permanent magnets used for the motors
and turbines driving the green technology evolution. Permanent
magnet production accounted for over 90% of the total value of
rare earth oxide consumption in 2019.
Accelerated demand for NdPr is being driven by the green economic
revolution. Analysts are predicting that the widespread adoption of all
electric vehicles over the coming decade will significantly increase the
demand for permanent magnets, which are expected to be
responsible for 25% of the total demand by 2030. Alongside growth in
industrial applications and consumer electronics, total demand for
NdPr is forecast to more than double within the next 10 years.
Anticipated Global REO Magnet Demand Growth
160000
140000
120000
100000
80000
60000
40000
20000
0
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Elecytric Vehicles/Mobility
Industrial
Other
Wind Power
Consumer
Total NdPr oxide supply in 2019 totalled 61kt. With demand
predicted to reach 141kt by 2030 the ability of the industry to
grow supply to match the anticipated demand is uncertain.
Analysts have noted the challenges to bring new rare earth mines
into production, including high levels of capital required to
overcome complex processing flowsheets for many development
projects. Forecasters are expecting rare earth prices, specifically
Nd and Pr, to rise significantly to allow demand to be met.
Periodic table with the 17 rare earth element highlighted
Scandium (Sc), Yttrium (Y), Lanthanum (La), Cerium (Ce), Praseodymium (Pr),
Neodymium (Nd), Promethium (Pm), Samarium (Sm), Lutetium (Lu), Europium (Eu),
Gadolinium (Gd), Terbium (Tb), Dysprosium (Dy), Holmium (Ho), Erbium (Er), Thulium (Tm),
Ytterbium (Yb), Lutetium (Lu).
Rainbow Rare Earths Limited Annual Report & Accounts 2020
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Overview
BUSINESS MODEL
BUILDING A
SUSTAINABLE
FUTURE FOR OUR
STAKEHOLDERS
Rainbow has a clearly defined strategy to develop commercial
scale production at Gakara, targeting 10,000 - 20,000 tonnes
per annum of concentrate via modular development.
Longer term, further downstream processing will allow the
full value of the deposit to be realised for shareholders.
Concentrate
cracking
Gravity
concentrator
RE separation
Long term objective to provide Nd, Pr and Dy
feedstock to global magnet manufacturers capturing
full value of Gakara project for Rainbow shareholders.
Mining
Magnet
manufacture
Concentrate
Oxides
NdPr magnets
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Overview
SHAREHOLDER VALUE CREATION
POSITIONED FOR
GROWTH
Rainbow’s modular development strategy commenced with the
recently announced JORC Exploration Target. Trial mining and
processing carried out as part of our exploration effort
demonstrates the ability to commercialise the Gakara project.
Stage 1 - Current status
Trial mining proof of concept at Gakara
Project in Burundi.
separation from high-grade stockwork
vein system.
Producing +/- 54% TREO concentrate via
simple open pit mining and gravity
Current trial mining growing to 100+ tpm
concentrate in Q4 2020.
Stage 2 - 2021
Upgrade Gakara JORC exploration target
to inferred resources.
Expand trail mining to confirm detailed
knowledge of resources and mineralogy.
Define technical requirements for initial
commercial scale production.
Stage 3 - 2021/22
Grow JORC resource base: large
mineralised system expected to support
up to 10ktpa - 20ktpa concentrate.
Complete full technical study on modular
commercial production facility.
Stage 4 - 2022
Build commercial scale process facility for
an initial 5ktpa concentrate production
expanding to 10-20ktpa.
Capital cost not expected to exceed
US$20 million for up to 10ktpa
concentrate plant.
Stage 5 - 2023/24
Establish downstream beneficiation to
produce a cerium depleted mixed RE
carbonate.
Further downstream processing to
separated Nd and Pr oxides to supply
permanent magnet manufacturers.
Rainbow Rare Earths Limited Annual Report & Accounts 2020
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Overview
AT A GLANCE
GAKARA PROJECT
OUR ASSET REPRESENTS
A HIGH-GRADE SOURCE
OF RARE EARTHS WITH A
CLEAR PATHWAY FROM
EXISTING PILOT SCALE TO
FULL SCALE COMMERCIAL
PRODUCTION.
Gakara is located just south of
The ore has simple, benign “Green”
Bujumbura, Burundi (East Africa).
metallurgy/mineralogy – processing
which involves crushing/gravity
separation only (using no chemicals,
and with negligible Uranium/Thorium
content).
Rainbow holds a 25-year mining permit
(granted in 2015) over a 39km2 area with
10-year renewal options – trial mining and
processing are underway to further
understand the ore body and the
optimum way to deliver a future
commercial mining operation.
Rainbow’s basket is weighted towards
magnet rare earths: neodymium and
praseodymium oxides represent >80%
of the value in the concentrate.
Recently announced JORC Exploration Target
has confirmed opportunity for an average of
52,000 tonnes of high-grade concentrate
production at an average grade of ~54% rare
earth oxides. The vein hosted run-of-mine ore
averages 7-11% rare earth oxides, with additional
lower grade Breccia hosted resource potential.
The project has huge potential – recent
Geophysical survey identified 57 target
areas for exploration and confirmed the
presence of 3 large carbonatite bodies
which represent the regional source of
the rare earth mineralisation.
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Focus on incremental growth
to commercial production
Our asset
► Rainbow intends to expand current trial mining capacity
to >1,200tpa concentrate production using the current Pilot
Plant, which whilst not itself a commercial level of production,
will support the required bulk sampling and assessment of
mining techniques for an initial 5,000tpa commercial operation.
► Exploration is planned to improve confidence and expand
the resource in the high-grade, vein hosted Exploration
Targets – upgrading to Inferred Resources, including
resource drilling and ongoing trial mining/processing.
► Exploration work will also focus on identifying large scale
breccia hosted mineralisation for longer term parallel
production streams.
► Technical feasibility study planned for developing new
processing facilities for scalable commercial production,
initially focused on 5,000tpa concentrate production with
growth expected to 10,000-20,000tpa.
► Rainbow has long-term plans to develop downstream
cracking and separation capability to realise more of the
inherent rare earth value for Rainbow shareholders.
Basket Composition of
Gakara Ore
Based on average grades of rare earth oxides within Gakara
in-situ vein samples and market prices of rare earth oxides
on China FOB basis as at 25 September 2020 .
4.37%
2.2%
0.46
0.75
0.72
14.75%
30.59%
2.06
Lanthanum
Cerium
Neodymium
Praseodymium
Others
48.07%
7.57
By REO Content (Mass %)
By Value (US$/Kg TREO)
Based on average of REOs within Gakara in situ vein
samples and market prices of purified REOs on China
FOB basis as at 25 September 2020.
Rainbow Rare Earths Limited Annual Report & Accounts 2020
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Strategic Report
SUCCESS IS
FOCUSED ON
PEOPLE,
RESOURCES AND
THE MARKET.
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Strategic Report
STRATEGIC
REPORT
08 Chairman’s Statement
10 Chief Executive’s Statement
14 Operational Review
16 Financial Review
18 Health & Safety
20 Corporate Social Responsibility
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Strategic Report
CHAIRMAN’S STATEMENT
SUCCESS IS
FOCUSED ON
PEOPLE,
RESOURCES
AND THE
MARKET.
Over many years in the natural resources sector I have learned
that each mining project is unique and the road to success is
rarely straight forward. Key to investing is to understand the
elements required for success and ensure these are present.
Despite the challenges, I remain convinced that not only are
Rare Earths an exciting market due for substantial demand
growth, but that Rainbow’s Gakara Project can be an important
and low-cost source of supply for this growing market.
I believe that the elements required to develop the Gakara project
into a large-scale commercial success are focused on people,
resources and the market. Our vision of becoming a sustainable
player in the rare earth world remains in place.
The management transition in August 2019, with the appointment
of George Bennett as CEO, has delivered a new focus and drive
to the business. The Board and management initiated a strategic
review which resulted in a change of direction for the Company.
There was a recognition that a greater understanding of both the
geology and the mining methodology was required before
commercial scale operations could be developed. Accordingly,
the project took a necessary step back to the exploration phase
to allow this understanding to be developed.
In addition to George’s appointment, a number of changes
in the senior team during the year have strengthened the
company. As I look at the senior management and operational
team in place today, I see a clear vision of how to develop a
commercial mining project at Gakara, and the skills and
experience necessary to deliver that vision.
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Since first securing the licence in 2011 I have always believed
in the inherent value of the Gakara project, which has many
advantages compared to other global rare earth sources.
The grades seen in the stockwork veins are far in excess of any other
rare earth deposits anywhere in the world, with the mineralisation
present in the form of seams of almost pure bastnaesite/monazite.
We have discovered these veins outcropping at surface over almost
all of the 39km2 mining permit, which tells us that the deposit
contains a potentially vast quantity of high-grade ore.
The mining activities undertaken prior to the strategic review and
the subsequent trial mining and processing completed to date has
demonstrated that the mineralisation can be upgraded to an
extremely high export grade concentrate through simple gravity
separation. This concentrate has naturally low levels of radioactivity,
making the export for onward processing straight forward and
removing the need for a complex processing flow sheet with
associated high levels of capital and operating costs.
The project also contains many lower grade breccia hosted
resource areas which can be developed in parallel. Every area of
the licence tested to date has shown the same amenity for simple
gravity processing, with low levels of radioactivity present in the
resulting concentrate.
With the correct exploration and mining techniques Rainbow will
not only be able to define a large-scale resource, but mine this with
minimal dilution and ore loss for a low-cost operation. The simple
processing allied to the high in-situ resource grade will allow the
project to be developed in a low capital-intensive way, with the
large-scale complex processing facilities required for many rare
earth projects not needed. The high grade of our exported
concentrate also minimises the infrastructure costs associated
with exporting our concentrate and ensures that our export costs
remain a small portion of the overall project cost base.
Once a project of commercial scale is established, developing
further downstream processing to upgrade the concentrate
to a higher value product will allow Rainbow’s shareholders to
realise the true value of the project and their investment.
My belief in rare earth markets as an area of substantial growth
driven by green technologies remains undimmed. Prices have
been low during the current financial year but have picked up
strongly since 30 June 2020. The fundamentals for the growth
of both electric vehicles and green energy generation, footprinted
in ever tightening global emissions regulations, underpin the
future demand growth for rare earth permanent magnets.
Significant new sources of supply are unlikely to come online
at current rare earth prices, with many projects having the twin
challenges of low grades and complex processing requirements.
This is likely to create a supply deficit, driving up underlying prices.
Ongoing trade tensions between the US and China have fuelled
speculation about the security of supply of rare earths. In addition
to electric vehicles and turbines, rare earths are used in specialist
military and scientific applications. With China accounting for
~90% of current worldwide production of rare earths, such
concerns underline the importance of a significant non-Chinese
source such as Gakara.
The expected growth in demand for rare earth metals also lead
Rainbow to successfully apply for a number of exploration
licences in Zimbabwe during the year, expanding the Company’s
exploration portfolio beyond the Gakara licence. Detailed
exploration at these properties has not yet commenced, with the
Covid-19 pandemic making international travel more complex.
However, as an entrepreneur, I see many opportunities for
additional rare earth projects and will ensure that the best are
made available to the Rainbow shareholders.
Finally, I would like to thank the many people who have given their
support to Rainbow during the year: my fellow Board members for
their advice and counsel; the staff and management of the
Company, particularly those in Burundi who have shown
determination and resilience in challenging conditions; our wider
stakeholders including the communities in which we operate, our
suppliers, local officials and members of the Burundian ministries
of mines and finance, who have been incredibly supportive.
Adonis Pouroulis
Chairman
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Strategic Report
CHIEF EXECUTIVE’S STATEMENT
THE GLOBAL
RARE EARTH
MARKET IS
POISED FOR A
PERIOD OF
SIGNIFICANT
GROWTH.
I first invested in Rainbow at IPO as I believed then, as now, that
the global rare earth market was poised for a period of significant
growth. With ever tightening emissions regulations the growth in
electric vehicles and green energy generation, with the associated
demand for rare earth magnets, is clear.
Having invested significantly in the July 2019 placing undertaken
by the company I was intrigued when invited to visit the Gakara
project, and immediately saw not only the long term value
opportunity, but previous decisions that needed rectifying in order
to allow the project to develop into a true commercial venture.
Prior to my formal appointment as CEO I initiated a strategic
review, the results of which acknowledged that a lot more work
was required before a commercial mine could be developed at
Gakara: in order to move forward, we would first need to take a
step back to an exploration focus.
On my appointment as CEO in August 2019 no time was wasted
in making some initial changes as a result of the strategic review.
I strengthened the local team to improve the technical knowledge
base, specifically in respect of mining. With extremely high-grade
veins in an irregular stock-work system it was clear that the ability
to understand the geology and mine it effectively was core to the
projects future.
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As we begin the new financial year, we are investing in increased
capacity for our mining fleet to better utilise the capacity of our
pilot processing plant, targeting pilot production of 100 tonnes of
concentrate per month. Our expanded fleet will also allow our trial
mining to expand to new areas, delivering bulk samples and a
strong understanding of the mineralised vein intensity across new
deposits as part of our exploration program.
Our pilot processing plant continues to operate well,
demonstrating that ore sourced from different deposits across the
licence area is amenable to simple gravity processing to deliver a
high-grade concentrate with low levels of radioactivity suitable for
export. This means that we are producing the “Greenest” rare
earth concentrate in the world, using no reagents in our
processing circuit to deliver one of the highest grades of rare earth
concentrate in the world. As we increase our formal trial mining we
will continue to source ore via our exploration teams from across
the licence area and batch process this through our pilot plant to
ensure that we understand any local variations in the minerology.
Once the commercial scale operation is developed, we aim
to capitalise on the enormous value opportunity from further
downstream processing. Processing our concentrate to a mixed
rare earth carbonate or oxide will enable significantly more of the
ultimate project value to be realised for shareholders. To ensure
any decisions taken now are consistent with that long-term value
creation we are currently in the process of updating the initial
beneficiation scoping study performed by SGS in 2015.
As we develop the business, further funding will be required
over the next 12 months for our ongoing exploration program
and to complete a feasibility study for moving to commercial
production. Our recently announced JORC Exploration Target
report set out a clear US$3.2 million programme of drilling and
other test work to upgrade the confidence in the Gakara
mineralisation and allow a JORC compliant resource to be
defined. We remain focused on ensuring that additional financing
is structured in such a way as to minimise dilution, and phased
such that it follows on the back of successful progress we have
made towards our objectives, which we believe will underline the
significant value inherent in the Gakara project.
Our belief that the Gakara deposit has enormous potential has
never been in doubt. A lot of hard work has been undertaken this
year to deliver a platform for growth. I strongly believe that Gakara
can be transformed into a profitable rare earth mine ready to
compete on the world stage. I remain fully aware that investor
confidence in the project can only be won through hard work,
and hard evidence. I look forward to updating you all on our
progress in the months to come.
George Bennett
Chief Executive Officer
Significant amounts of exploration work had been carried out
across the project area since inception, but the huge amount
of data generated needed to be organised in a systematic
exploration database by CSA Global which has taken time to
complete. The impact of the Covid-19 pandemic slowed down
our work, delaying the receipt of important assays, but I am
pleased with the understanding that has emerged from the
recently announced JORC Exploration Target report.
Our JORC Exploration Target has demonstrated that the resource
potential in the high-grade stockwork vein system is significant
and supports my initial view and statement that the Gakara
deposit is part of a very large rare earth mineralised system,
capable of supporting commercial production at an initial 5,000
tonnes per annum of concentrate using a new, larger processing
facility for an initial 10 year mine life in the nine target areas
reviewed to date. The challenge with any stockwork vein system
is defining the resource with sufficient confidence to invest given
the inherent erratic nature of the veins. The recent JORC
Exploration Target report has set out a clear vision of how to
deliver that confidence with a low-cost exploration program,
expected to take approximately 15 months to execute. I look
forward to delivering a more formal JORC compliant resource
and thereafter an associated technical feasibility study for this
next phase of growth.
These targets represent only a small portion of the known
mineralisation across the licence area, with a further seven areas
historically mined prior to the Company’s ownership that have not
yet been explored and a significant number of additional targets
identified by the recent TECT structural interpretation and surface
exploration. The licence area contains a number of lower grade
breccia hosted areas of mineralisation in addition to the high-
grade stockwork style vein systems, which could be developed in
parallel. For this reason, I intend to pursue a modular approach to
growth and believe that the Gakara project will eventually be able
to sustain between 10,000 - 20,000 tonnes per annum of rare
earth concentrate production.
In respect of our trial mining and processing operations,
significant changes have been delivered by our new Project
and Mine Manager, Chris Attwood, appointed in September 2019.
As a mining engineer, Chris has brought the skills and experience
we needed to improve efficiency, driving strengthening
production from our pilot plant through the year and, most
importantly, creating a blueprint for the mining methodology
which will eventually support commercial scale production.
Prior to his appointment vein mining was undertaken manually
and waste removal was not efficiently managed through the
wet season, restricting new sources of ore. Selective mechanical
mining of ore now delivers a grade of ~10% rare earth oxides,
amongst the highest rare earth run of mine grades in the world,
suitable for upgrade in our pilot processing plant. A greater
emphasis on waste removal through shortened haul roads
suitable for year-round use through both wet and dry seasons
and replacing expensive rented mining equipment with an owner
managed fleet has delivered us a more efficient overall trial
mining operation.
We have been fortunate that the Covid-19 pandemic has not
significantly impacted our trial mining and processing operations
at site. International travel has become more difficult, such that
my management team and I have not been able to travel to site as
regularly as usual, and our expatriate staff rosters have become
extended. However, there has been no local occurrences and
operations at site have been largely unaffected.
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Strategic Report
OPERATIONS REVIEW
IDENTIFYING A
METHODOLOGY
FOR THE
LONG-TERM
DEVELOPMENT
OF THE GAKARA
MINE.
Mining and processing operations
in the year
During July and August, during the
strategic review initiated by the CEO,
mining operations were impacted by
ore availability, with significant waste not
moved efficiently during the previous rainy
season. High grade ore being unavailable,
lower grade material was sourced from
outside the original mine plan and
processed, although overall production
was poor at just 13t of concentrate per
month on average. In addition, significant
waste material previously side cast to
access ore was moved to the waste dump.
Following the strategic review, trial mining
operations from September 2019 have
focused on identifying the most
appropriate mining methodology for the
long-term development of the Gakara mine.
During 2018-19 mining had been
undertaken with a mining fleet rented
locally in Burundi under a number of short-
term contracts. Ore was mined on a highly
selective basis by hand, with capacity
limited by the ability to strip waste to
expose ore veins. This proved uneconomic,
with high rental charges and poor fleet
availability due to regular mechanical
outages. The rented haul trucks were
unable to operate through the wet season
on the haul roads, with much of the waste
during the wet season side cast rather than
taken to the waste dumps. The processing
plant performed well in 2018-19, delivering
recovery and final concentrate grades in
line with the original expectations.
During 2019-20 the Group reduced the
rented fleet, further limiting mining capacity
but at a greatly reduced overall cost. Trial
mining was focused at the Murambi site,
with previously side-cast waste removed to
the waste dump and a more formal benched
mine plan initiated. Haul roads have been
upgraded to reduce waste cycle times and
associated haulage costs. To prepare for
year-round operations through both wet
and dry seasons a grader was purchased in
January 2020 to simplify haul road
maintenance in the wet season and reduce
expected fleet down time due to rains.
Various mining methods were trialled
as the team seeks to evaluate the optimal
mining method for a commercial scale
mine. The mineralised veins at Gakara have
a high in-situ resource grade but are
narrow and non-uniform in nature.
The original mining method used since
IPO had involved highly selective mining
of veins by hand, delivering a high-grade
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feed to the plant for upgrade with a high
strip-ratio of waste to ore of ~200:1.
This was initially replaced with bulk mining
of the veins using an excavator for a period
of 4 months in the current year, reducing
the waste:ore stripping ratio to ~20:1.
The estimated feed grade to the plant
during this period dropped to ~2% total
rare earth oxides (“TREO”), which
overloaded the processing plant’s fine
material handling capacity, leading to poor
overall recovery, but still producing an
overall concentrate grade of ~54% TREO.
The final mining method, which has the
potential to be used in a commercial scale
operation, has focused on mining of veins
with a much smaller TLB excavator to
minimise ore dilution. This delivers a
diluted run-of-mine grade of ~10% TREO
to the processing plant at a waste:ore
stripping ratio of ~100:1.
At this grade the processing plant has
performed well, delivering a consistent
~54% TREO concentrate for export from
all ore sources trialled to date. Concentrate
production has grown consistently through
the year, reaching 61.3t in June 2020.
At 30 June 2020 the Group is renting
a single bulldozer in Burundi under a short
term contract renewed weekly, with no
minimum usage requirement. The
remaining mining equipment, five haulage
trucks, a 20t excavator, two TLB excavators
and the grader are directly owned. The trial
mining fleet is the constraint for the current
operations, capable of delivering ~600t of
ore to the plant for ~60t concentrate per
month during dry conditions. A larger 34t
excavator and additional haulage trucks are
being sourced post year-end to expand trial
mining operations to better utilise the
capacity of the current pilot processing
plant as part of the exploration programme.
Health and Safety
The Company takes its health and safety
extremely seriously and is proud of having
achieved zero LTI’s in the year (2018-19:
one). The Company has achieved a total
of over 1 million hours without an LTI since
February 2019 when two employees
suffered minor injuries following a lightning
strike near a rain shelter where mine
workers were taking shelter during a storm.
Details of the Company’s safety and health
practices and policies are set out on page 18.
Mining statistics
80000
70000
60000
50000
40000
s
e
n
n
o
t
e
t
s
a
W
30000
20000
10000
Jul’19 Aug’19 Sep’19 Oct’19 Nov’19 Dec’19 Jan’20 Feb’20 Mar’20 Apr’20 May’20 Jun’20
Processing statistics
d
e
s
s
e
c
o
r
p
e
r
O
1200
1000
800
600
400
200
0
Waste (t)
Total Ore (t)
W:O ratio
Ore processed (t/wet)
Concentrate produced (t)
1200
1000
800
600
400
200
0
:
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&
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80
70
60
50
40
30
20
10
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Jul’19 Aug’19 Sep’19 Oct’19 Nov’19 Dec’19 Jan’20 Feb’20 Mar’20 Apr’20 May’20 Jun’20
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Strategic Report
OPERATIONS REVIEW
CONTINUED
EXPLORATION
STRATEGY
FOCUSED ON
UNDERSTANDING
THE VAST
AMOUNT OF
HISTORICAL DATA
COLLECTED.
Exploration
Rainbow’s exploration strategy in 2019-20
has focused on understanding the vast
amount of historical data collected across
the project area, alongside the geological
controls and settings, to re-define the
current resource base. This work included
assaying all holes from the 2018 drilling
programme completed at the Kiyenzi
breccia hosted target and developing
3D models of high grade stockwork vein
style mineralisation in areas of current and
historical mining. All historical exploration
data has been captured by CSA Global in
a single database to assist this process.
Mechanised trial mining of the high
grade stockwork style vein systems
is an important element of the overall
exploration activity, as it generates
detailed mapping of the veins and bulk
samples to demonstrate the grade and
metallurgical characteristics of the target
areas. Two areas have so far been subject
to mechanised trial mining, with high
grade vein material from a number of the
other high priority targets collected by
hand and processed through the current
pilot plant.
An updated JORC statement setting
out the current resource target and the
further exploration required to upgrade
this to a formal JORC resource
classification was released on 8 October
2020, which is the culmination of this
work. The Exploration Targets cover nine
high grade stockwork style vein targets
and one lower grade breccia target.
The Company currently has a pipeline
comprising of an additional 24 Targets
confirmed to be made of high-grade
stockwork style mineralisation similar
to the nine Exploration Targets modelled
in the JORC Exploration Target report.
Completion of the drill programme set out
in the JORC Exploration Target report,
together with ongoing mechanised and
manual trial mining, is expected to improve
the confidence in the stockwork style
resource target areas to allow a technical
study to be completed on the expansion
of the trial mining activities to a commercial
scale. The initial objective is to produce
5,000 tonnes of high-grade rare earth
concentrate per annum and understand the
opportunities for further expansion from
both high grade stockwork style targets and
lower grade breccia hosted targets for an
increase to a minimum of 10,000 tonnes
per annum of concentrate production.
The Company also completed a
reinterpretation of high-resolution
geophysical data by TECT Geological
Consulting in March and April 2020 as
part of a structural and lithological review
which confirmed the presence of three
large carbonatite bodies at Gakara, which
represent the regional source of rare earth
elements. This work defined a total of 36
Tier-1 and Tier-2 targets and 21 Tier-3
targets. Follow up work has been
performed for the Tier-1 targets, further
defining the highest priority areas for
ongoing exploration activity.
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Rare earths prices
Rare Earth Elements comprise a group
of 17 chemical elements. The primary value
of Rainbow’s Gakara project is delivered
from two of these elements: Neodymium
and Praseodymium (NdPr), which are
critical elements for permanent magnets
required for the motors and turbines that
will drive the green electrical revolution.
Rainbow’s operation produces a consistent
high grade rare earth concentrate with
~54% TREO, of which ~19% relates to
Neodymium and Praseodymium oxide,
accounting for ~80% of the typical total
value of Rainbow’s exported concentrate.
Rainbow Basket Price History
Demand for NdPr magnets is forecast
to grow significantly with the transition
to electric vehicles and green power
generation from direct drive wind turbines,
alongside other industrial and strategic
defence uses. The supply of rare earths
globally has been dominated by China,
but the US and other countries are now
focusing on strengthening supply chains
outside of China. Environmental legislation
in China is also expected to restrict
Chinese supply.
Zimbabwe licences
In November 2019 the Company acquired
a portfolio of 10 exploration licences in
Zimbabwe. The licences were acquired
via Benzu Resources Limited, a company
associated with Cesare Morelli, the Group’s
Chief Geologist, for a total cost of
US$18,000 including company formation
costs. No detailed exploration work has
been carried out at these licences to date.
The licences contain no formal exploration
expenditure commitments.
During 2019-20 the basket price
of Rainbow’s typical concentrate fell from
US$12.74/kg to a low of US$9.67/kg in May
2020 driven by falls in the price of
Neodymium oxide from US$49.70/kg to
US$39.50/kg and Praseodymium oxide
from US$57.60/kg to US$41.45/kg.
Subsequently the average basket price
has rebounded strongly to average
US$11.10/kg in September 2020.
8
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10
5
JORC compliant Exploration Target announced 8 October 2020
Lower estimate Upper estimate
Tonnes TREO % Tonnes TREO %
Vein Hosted Mineralisation
Murambi South 36,000 7.0% 52,000 12.0%
Gasagwe 27,000 7.0% 39,000 12.0%
Rusutama 23,000 7.0% 33,000 12.0%
Gakara 61,000 7.0% 87,000 12.0%
Gomvyi Central 15,000 7.0% 22,000 12.0%
Gashirwe West and East 45,000 7.0% 64,000 12.0%
Bigugo 8,000 7.0% 11,000 12.0%
Gasenyi 47,000 7.0% 67,000 12.0%
Vein Hosted Exploration Target 262,000 7.0% 375,000 12.0%
Breccia Hosted Mineralisation
Kiyenzi grade tonnage model 98,000 1.0% 132,000 1.5%
Kiyenzi depth extension 60,000 1.0% 82,000 1.5%
Kiyenzi lateral extension 94,000 1.0% 128,000 1.5%
Breccia Hosted Exploration Target 252,000 1.0% 342,000 1.5%
Note:
The potential quantity and grade of the Exploration Target is conceptual in nature, there being insufficient exploration
to estimate a Mineral Resource and that it is uncertain if further exploration will result in the estimation of a Mineral
Resource. Numbers are rounded to appropriate levels commensurate with the level of accuracy of an Exploration Target.
The Exploration Target was estimated as a range as required by the JORC Code (2012) and is based on data of varying
quantity and quality, although is based largely on actual exploration, mining and processing results.
Rainbow Rare Earths Limited Annual Report & Accounts 2020
15
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Strategic Report
FINANCIAL REVIEW
Following the end of 2018-19 year-end and the strategic review
which was completed in August 2020, the board took the decision
to focus on exploration activity to better understand the Gakara
deposit and prepare a JORC compliant Exploration Target.
Alongside this further work was needed to trial and identify
appropriate mining methods and processing options for a planned
initial 5,000tpa commercial scale operation to capitalise on the full
opportunity of the Gakara project.
A full impairment of the historical costs of the previously mined
pits and the plant at Kabezi was recognised at the end of 2018-19,
reflecting the issues encountered with the previous strategy.
However, the mine development costs that remained reflect
valuable data and knowledge in respect of the wider Gakara
licence area that was integral to the new exploration activities. As
such, on 1 September 2019, these mine development costs have
been transferred to exploration and evaluation assets reflecting
the redeployment of the exploration data to support the new
exploration activity. The ongoing costs of trial mining and
processing from the date of the strategic change, net of margin
on associated revenue earned, have been capitalised as part of
the exploration and evaluation assets for the year-ended 30 June
2020. The trialling of different mining methods and bulk sample
processing is integral to building a full understanding of both the
geology and mine design required for the planned commercial
scale operation. Importantly, the trial mining has also enabled the
Company to maintain local employment and helps support our
social licence to operate now and for the future.
16
Rainbow Rare Earths Limited Annual Report & Accounts 2020
Profit and loss
With the return to an exploration focus the loss for 2019-20 is
significantly lower than in 2018-19.
Revenue from the year of US$0.4 million is lower than
US$1.5 million recognised in 2018-19 as the project moved into
an exploration focused phase, trialling a number of different
mining methodologies to determine the most effective way to
commercialise the deposit. Total concentrate exports fell from
850t to 275t and realised prices fell from US$1,949/t to
US$1,535/t driven by lower rare earth metal market prices.
Revenue in the year was realised after the completion of the
strategic review and has reduced the net costs associated
with trial mining and processing capitalised during the year.
Production and sales costs in July and August 2019, prior to
the completion of the strategic review, totalled US$0.5 million.
In addition, a further US$1.1 million of costs associated with trial
mining and processing, net of associated revenue and
movements in the stockpile of finished concentrate, have been
capitalised in 2019-20.
Administration expenses in 2019-20 totalled US$2.1 million
compared to US$1.4 million in 2018-19. The increase in the current
year relates to Burundi support costs, totalling US$0.6 million,
which are not suitable for capitalisation under IFRS 6 as they do not
relate entirely to work furthering the understanding of the ore body.
Adjusted EBITDA for the year, reflecting the above items, was a
loss of US$2.6 million compared to US$3.4 million in 2018-19,
reflecting the capitalisation of trial mining costs.
Share-based payments totalled only US$7,000 in 2019-20 (2018-
19: US$62,000) reflecting the fact that no new employee share
options have been awarded since 2017. The costs associated with
all issued share options have been fully expensed at 30 June
2020 based on vesting.
Significant depreciation (US$2.6 million) and impairment
(US$3.9 million) expenses for the mine development asset in
2018-19 were not repeated in 2019-20, reducing reported losses.
In 2019-20 US$0.2 million of depreciation relating to the trial
mining fleet and site infrastructure has been capitalised as part
of exploration and evaluation assets. A further US$0.3 million of
depreciation included in the income statement relates to the
mine development costs during July and August 2019, prior to
the completion of the strategic review, alongside office
equipment and right of use assets.
Finance income of US$0.9 million (2018-19: US$0.4 million) relates
primarily to foreign exchange gains on movements between the
Burundian Franc (“BIF”) and US dollars, the functional currency of
the Group. Finance costs of US$0.2 million relate to a loan with the
Group’s bank in Burundi, FinBank, and the imputed interest
associated with both lease liabilities and a US$1.0 million loan note
issued to Pipestone Capital Inc during the year. The cost was
significantly higher in 2018-19 due to costs associated with the
Group’s financing with Lind Partners.
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Balance sheet
A written down value of US$5.4 million was transferred from mine
development costs to exploration and evaluation costs during the
year relating to the Gakara Project in Burundi as noted above.
An additional US$2.2 million of costs, including US$1.2 million of
operating costs associated with trial mining, net of US$0.4 million
margin on revenue, US$0.2 million of associated depreciation and
US$0.8 million of direct exploration costs, were capitalised during
the year.
As a result of the transfer to exploration and evaluation
assets, property, plant and equipment at 30 June 2020 totalled
US$0.9 million, including mining vehicles with a net book value of
US$0.8 million (2019: US$0.6 million). The US$0.4 million additions
to the trial mining fleet, including a grader and five tipper trucks,
were the only material additions to fixed assets in the year.
Inventory at 30 June 2020 totalled US$0.2 million (2018-19:
US$0.1 million), primarily relating to 131t of available for sale
concentrate in Burundi stated at net realisable value.
Subsequent to the year end 100t has been shipped at a
provisional price of US$170,000.
Trade and other receivables (including prepayments) increased
by US$0.4 million to US$0.9 million at 30 June 2020 driven by the
receipt after the year end of proceeds from the placing undertaken
in June 2020. A total of US$0.6 million was included in debtors
at 30 June 2020. Trade and other receivables also include
US$0.3 million (2019: US$0.3 million) in respect of royalty
receivables due to the royalty payments up to 30 June 2020
being paid based on the total basket price of exports, rather than
on the discounted price received from the Company’s customer,
ThyssenKrupp. Subsequent to the year end the Government of
Burundi has agreed to repay this following confirmation of their
agreement with a report by SRK consultants commissioned by
the World Bank.
Trade and other payables of US$0.7 million are substantially
reduced from US$2.1 million reflecting stretched trading terms at
30 June 2019 ahead of a placing in July 2019, with many supplier
payments settled in July and August 2019. Amounts due to staff
and management have also been reduced with accrued bonuses
and non-executive director fees settled via equity in the July 2019
and June 2020 placings as set out in note 19.
The Company had borrowings of US$1.7 million at 30 June 2020
(2019: US$1.6 million). A US$0.8 million loan with Finbank in
Burundi was converted from an overdraft at 30 June 2019 of
which US$0.2 million is repayable within 12 months. In addition,
the Company received a US$1.0 million interest free loan from
Pipestone Capital Inc, a Company associated with George
Bennett, CEO, of which US$0.9 million remains outstanding
at 30 June 2020.
Cashflow
Net cash in the 12 months to 30 June 2020 increased by
US$0.7 million (2018-9: decrease of US$0.2 million). Financing
inflows totalled US$5.9 million (2018-19: US$3.5 million), as set
out below. These were invested US$2.8 million (2018-19:
US$1.6 million) in tangible and intangible assets associated with
the Gakara Project and US$2.8 million (2018-19: US$2.1 million)
in operating activities.
Financing
In order to fund ongoing capital and operating cost requirements,
the Company raised a net US$5.1 million (2018-19 US$2.1 million)
via the issue of new equity during the year. In addition, shares
were issued to settle liabilities as set out below:
•
•
•
•
•
In June 2020 an equity placing raised net proceeds of
US$1.4 million with new and existing shareholders at a price
of 3 pence per share via the issue of 37,138,284 shares.
In addition, 1,993,779 shares were allotted to satisfy
US$0.1 million of the loan received from Pipestone Capital
and 2,534,604 shares were issued to settle outstanding
remuneration for non-executive directors.
In February 2020 an interest free loan of US$1 million was
received from Pipestone Capital Inc, a company beneficially
owned by George Bennett, CEO, of which US$0.1 million was
repaid in equity as part of the placing concluded in June
2020. A new loan was put in place for the US$0.9 million
balance which remains outstanding at 30 June 2020.
In July 2019, an equity placing raised net proceeds of
US$4.2 million with new and existing shareholders at a price
of 3 pence per share via the issue of 121,207,778 shares.
In addition, 37,908,503 shares were allotted to satisfy the
convertible loans with Pella Ventures Limited and Lind
Partners LLC, and 4,859,603 shares were issued to settle
outstanding remuneration.
In January 2019, the Company had entered into a financing
facility with Lind Partners. This included a convertible loan
of US$0.75 million, as well as an equity facility, of which three
tranches of US$100,000 each were drawn during the prior
financial year. Proceeds from the convertible amounted to
US$0.75 million, with gross proceeds from the three equity
tranches amounting to US$0.3 million, which, after deduction
of fees in connection with these transactions, resulted in net
cash received of US$0.9 million. The loan note was settled
through the placing concluded in July 2019.
In May 2019, the Company entered into a bridging loan with
Pella Ventures Ltd, whose beneficiary is Adonis Pouroulis,
for US$0.7 million, which was repaid in equity as part of the
placing concluded in July 2019.
At 30 June 2020 the Group had US$788,000 of available cash
plus a further US$559,000 received from the placing concluded
in June 2020 after the balance sheet date. The Group’s cash flow
forecasts demonstrate that additional funding estimated at
US$2.8 million will be required for the period ending 31 December
2021. In addition, the recently announced JORC Exploration Target
has further defined US$3.2 million for exploration requirements to
upgrade the confidence in the mineralisation at the Gakara project
to a level which will allow a formal JORC resource to be defined.
The Company will work to ensure that these funds are raised in
such a way as to minimise dilution and appropriately phased.
Taxation
The corporation tax rate in Burundi is 30%, however no taxable
profits were earned during the period. In the absence of taxable
profit a minimum tax is charged calculated as 1% of revenue, with
quarterly payments on account based on the tax paid in the prior
year. The corporation tax charge for 2019-20 totalled US$9,000
(2018-19: US$23,000). Quarterly payments made in 2019-20
exceeded the year-end tax charge such that US$9,000 was
recoverable at 30 June 2020 and no quarterly payments are
being made for 2020-21.
Including corporate tax, the Company paid a total of US$478,000
in direct and indirect taxation in Burundi in 2019-20 (2018-19:
US$605,000).
Rainbow Rare Earths Limited Annual Report & Accounts 2020
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Strategic Report
HEALTH & SAFETY
THE COMPANY
ADOPTS A
ZERO-HARM
POLICY.
Rainbow is committed to ensuring that all its staff, as well as
contractors and other visitors to its sites, are kept healthy and
safe from harm. The Company adopts a zero-harm policy.
Throughout the organisation, individuals are held responsible for
their own and everyone else’s safety and wellbeing, while managers
and supervisors are responsible for ensuring standards and that
the relevant policies are always adhered to.
The Safety, Health and Environment Committee (“SHEC”), a sub-
committee of the Board of Directors (chaired by Shawn McCormick),
is ultimately responsible for making sure appropriate policies are in
place, and that those policies are being enacted.
Reporting
Safety statistics are collected on a monthly basis and reported to
senior management. These statistics include any Lost Time Injuries
(“LTIs”), plus any incidents requiring first aid, near misses, damage
to property, or environmental damage.
During the year, no lost time injuries were reported. Two minor
incidents were recorded over the period to 30 June 2020, both
relating to minor property damage.
Policies and procedures
The Company has implemented an Operating Health and Safety
(“OHS”) system that includes policies and standard operating
procedures in a number of key areas including the following:
Environmental management
•
• Hazard identification and risk assessment
•
• Malaria policy
Personal Protective Equipment (“PPE”) Policy
18
Rainbow Rare Earths Limited Annual Report & Accounts 2020
• HIV/AIDS policy
•
•
•
Incident management
Substance abuse policy
Vehicle and machinery maintenance
Management procedures are available to all staff in French,
English and Kirundi where appropriate.
The Company also has an Anti-Bribery policy which
is communicated to employees.
Training
The training of workers is a requirement of Burundi legislation,
and is a key priority of the Company, as it results in not only safer,
but more efficient and effective working practices.
Training is considered particularly important given the bulk
of the work at either the Gakara mine site or the Kabezi plant
site is undertaken by local recruits, who typically have had little
experience of mining prior to working with Rainbow.
All staff and contractors are required to undergo an induction
programme before commencing activity. This induction serves
to set out the rules with which all employees and visitors must
comply on site, but also covers training in use of tools and
equipment, as well as ensuring all staff are provided with the
requisite PPE.
As well as induction, workers are required to hold routine “toolbox”
meetings to discuss safety issues and are encouraged to consider
risks of each activity for themselves. The principle of each
individual taking responsibility for his/her own safety, as well
as that of colleagues, is entrenched in the training process.
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SOCIAL
DISTANCING &
ENHANCED
PERSONAL
HYGIENE
PRACTICES ARE
BEING
FOLLOWED BY
ALL STAFF.
Health
The Covid-19 pandemic has not impacted the Gakara Project
to date. No staff have missed work as a result of the pandemic.
Covid-19 remains a health risk for the project and medical advice
to increase social distancing and follow enhanced personal
hygiene practices is being followed by all staff.
In addition to Covid-19, a number of illnesses have been identified
as risks under the OHS system, notably malaria, HIV/AIDS, and
gastric infections. The OHS policies and guidelines provide
guidance on how to reduce the risks from these and other
illnesses.
Gastric illnesses remain an ongoing risk in Burundi, and hygiene
standards are enforced in particular where food is prepared.
Potable water was also identified as a priority, in view of the
absence of reliable sources at operating locations. Accordingly,
potable water is made available at all sites.
In the event of illnesses and accidents, employees are offered
medical and accident insurance which substantially covers the
cost of medical care. In addition, supervisors have been provided
with first aid training from a reputable international organisation.
Other health and safety
All staff are made aware of the potential risks not only to
themselves and colleagues, but also to local communities.
Potential risks and risk awareness training includes training in task
specific hazard identification and risk assessment, continuous risk
assessments (also known as a Daily Safe Task Instruction – “DSTI”)
undertaken by the responsible supervisor prior to the start of any
work in a specific work area, and standard operating procedures
applicable to a specific task or work.
Rainbow’s operational sites are cordoned off and it is not
permitted for any persons without the appropriate training
or induction, and PPE, to enter.
On public roads, Rainbow staff and contractors are required to
drive with care and attention, particularly on quieter rural roads
frequently used by local communities. Safety signage is employed
extensively to warn of the relevant risks and to provide reminders
as to each and everyone’s obligations.
Rainbow Rare Earths Limited Annual Report & Accounts 2020
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Strategic Report
CORPORATE &
SOCIAL RESPONSIBILITY
THE LOCAL
COMMUNITY IS
OUR PARTNER
IN THIS
ENDEAVOUR.
•
•
•
•
•
Rainbow has made donations to several projects in the
town closest to its mining area, including participation in
the construction of the Mutambu Football stadium and
Mutambu Church.
Land ownerships and population records have always been
recognised along with a compensation formula for any families
that have been moved or agricultural land appropriated.
Rainbow supplies clean fresh water to the community from
a tank outside its plant at Kabezi, fed from Rainbow’s own
borehole supply. Approximately 10,000 litres of water per
day are drawn from this tank by the local community.
Rainbow is committed to adhering to the strictest
international health and safety practices. In line with this,
the Company employs a fully qualified OHS Manager and has
incorporated stringent health and safety measures into day
to day practice as well as establishing a formal committee
comprised of members of the Board.
All employees are equipped with full PPE and rigorous safety
assessments are compiled prior to any activity.
The Burundi mining industry is in its infancy, and so far there has
been strong support for the Gakara Project at both a local and
governmental level. As the sector is in the early stages of growth,
Rainbow can play a defining role in the development of the
industry in Burundi and accordingly, is committed to continuing
close liaison with workers and the local community to ensure the
project is run for the benefit of all stakeholders.
Rainbow is committed to the highest standards of Corporate Social
Responsibility (“CSR”) and strives to ensure that the local community
shares in the benefits of its Gakara Rare Earth Project in Burundi. The
local community is our partner in this endeavour, and our progress to
date would not have been possible without their continued support.
As a result, our present CSR and community outreach initiatives are
reflective of the value we place on this partnership.
To date, this has included a variety of activities:
•
•
•
•
•
As at 30 June 2020 Rainbow directly employed 251 Burundian
staff, in addition to 21 local sub-contractors.
Rainbow has also sought to provide local people with business
opportunities, such as catering for the workforce, and
purchases local produce wherever possible.
Rainbow continues to undertake road infrastructure improvements
to public roads which benefit the local community and uses its
mining fleet to help maintain local roads, including clearing up after
landslips associated with the heavy local rains experienced each year.
All Rainbow mining and production employees can be
registered for mobile banking and payment of salaries, whilst
permanent employment contracts are now offered at all levels
of the company, which minimises temporary labour.
The state of Burundi has a non-dilutable 10% shareholding in the
project and will benefit from any dividends generated, together
with normal payroll taxes, corporation taxes and a royalty of 4% on
all sales revenue. Following the acceptance of a report by SRK
commissioned by the World Bank, the Government of Burundi has
accepted that the royalty will be based on the net revenue
received subject to a maximum discount for downstream
processing equal to 67% of the published price of the underlying
contained rare earth metal oxides.
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Rainbow Rare Earths Limited Annual Report & Accounts 2020
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Government Payments
Rainbow is committed to full payment of its tax and fiscal
obligations wherever it operates, as this supports the social licence
to operate, and ensures a fair contribution to local economies.
The table below sets out the key payments to government, as
direct taxes (such as land taxes, duties etc) as well as indirect
taxes arising as a result of Rainbow’s activity (such as payroll
taxes, withholding tax, and net VAT paid in the period).
Royalty payments relate to the government royalty of 4% charged
on the value of exports. During the year to 30 June 2020, as with
the previous year, the Burundian authorities applied the 4% royalty
rate to the gross basket price value of concentrate exported,
rather than the discounted price actually received. The application
of the royalty rate to the higher price was implemented as a
temporary arrangement with the Burundian authorities, pending
the recommendation by a World Bank representative as to
whether the discount to the market price of separated oxides,
which has been applied to Rainbow’s concentrate to take into
account the considerable additional separation processing
that remains to be undertaken by the end user, is reasonable and
equitable. Of the US$59,000 spent in respect of royalty payments
in the year, US$42,000 related to the additional payments in
respect of the application of the 4% royalty to the higher amount.
Subsequent to the year-end the government has agreed to repay
this difference after accepting the recommendations of a report
from SRK, commissioned by the World Bank. See note 14 to the
Financial Statements for further information.
Permits and land taxes include annual taxes payable to the
Government of Burundi under the terms of the Mining Convention
for the Mining Permit at Gakara. Corporation Tax in Burundi relates
to a minimum charge incurred during the year as set out in note 9
to the Financial Statements. No taxable profits were reported in the
local entity during the year. Payroll taxes, withholding tax, and VAT
(net of recovered amounts) are included as they represent funds
paid by the Group to the government either directly or via suppliers.
US$’000
Royalties
Permit and land taxes
Corporation tax
Duties & other
Total tax borne
Payroll tax
Withholding tax
Net VAT
Total net payments to government
UK
-
-
-
-
-
228
-
2
230
2020
Burundi
59
20
41
23
143
89
92
(77)
247
Total
59
20
41
23
143
317
92
(75)
477
UK
-
-
-
1
1
218
-
(7)
212
2019
Burundi
185
-
1
6
192
99
88
14
393
Total
185
-
1
7
193
317
88
7
605
Rainbow Rare Earths Limited Annual Report & Accounts 2020
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Corporate Governance
PAGE TITLE
WE ARE COMMITTED
TO THE HIGHEST
STANDARDS OF
CORPORATE SOCIAL
RESPONSIBILITY.
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Corporate Governance
PAGE TITLE
CORPORATE
GOVERNANCE
24 Directors’ Report
26 Board of Directors
27 Senior Management
28 Risks & Uncertanties
30 Corporate Governance Statement
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Corporate Governance
DIRECTORS’ REPORT
The Directors present their annual report and the financial
statements of the Group for the year ended 30 June 2020.
General
Rainbow Rare Earths Limited, the parent company of the Group,
was established in Guernsey on 5 August 2011. On 30 January
2017, its shares were listed on the Standard segment of the
Main Market of the London Stock Exchange.
Principal Activity
The Company’s principal activity is the mining and exploration
of rare earth minerals at its Gakara Project in Burundi.
Business Model
The basis on which the Company seeks to preserve and generate
value is through the investment of its funds in the development
of exploration assets and mines, which in turn allow for the
production of rare earth concentrates which are then sold at
a profit. The net cash generated from these activities is used
to service the Company’s financing, re-invested in further
exploration activity or in capex, or (where appropriate) repaid
to investors in the form of dividends.
Business Review
A review of the business during the year is included in the
Chairman’s statement, the CEO’s statement, and in the Operating
and Financial Reviews. The Group’s business and operations and
the results thereof are reflected in the attached financial
statements.
Business Risks
A review of the key risks to the Company is set out on pages 28 to 29.
Advisers
The Company’s advisers are set out on inside back cover.
Financial Results
During the 12 months ended 30 June 2020, the Company
reported a net loss of US$2,234,000 (year to 30 June 2019: net
loss of US$12,277,000).
No dividends have been declared in respect of the years ending
30 June 2020 or 2019.
Directors
A list of the Directors of the Company is set out on page 26.
In the short term, this strategy is focused around the development
of the Gakara Project in Burundi, where exploration activities are
currently focused on improving the knowledge of the geology and
mineralisation, and the most appropriate way to mine and process
the material to develop a commercial scale mine.
No Director shall be requested to vacate his office at any time by
reason of the fact that he has attained any specific age. The Board
considers that there is a balance of skills within the Board and that
each of the Directors contributes effectively.
Directors’ Remuneration
Compensation
Salary/fees Benefits Pension for loss of office Total
(US$’000) (US$’000) (US$’000) (US$’000) (US$’000)
June June June June June June June June June June
2019 2020 2019 2020 2019 2020 2019 2020 2019 2020
Executive Directors
George Bennett - 229 - - - - - - - 229
Martin Eales 225 13 9 7 19 1 - 164 253 185
Non-Executive Chairman
Adonis Pouroulis 55 53 - - - - - - 55 53
Non-Executive Directors
Robert Sinclair 36 35 - - - - - - 36 35
Alexander Lowrie 36 35 - - - - - - 36 35
Shawn McCormick 36 35 - - - - - - 36 35
Atul Bali 36 35 - - - - - - 36 35
424 435 9 7 19 1 - 164 452 607
Total
George Bennett was appointed on 27 August 2019, replacing
Martin Eales as Chief Executive Officer. George Bennett’s salary
was agreed by the Remuneration Committee at a rate of
US$250,000 per annum. He is not entitled to any other benefits.
George Bennett was paid for services provided as part of the
preparation for his role for the period from 1 August 2019 to his
appointment and those fees are included in the amounts
disclosed above.
Martin Eales stood down on 27 August 2019. On departure Martin
Eales received a termination payment totalling £130,000. His
benefits including healthcare and life insurance continued until
the expiration of the annual policies in place. All other payments
ceased on the date of termination. In accordance with the scheme
rules, 2,916,666 share options with an exercise price of 10p per
share became immediately exercisable on 27 August 2019 and,
having not been exercised, lapsed after a period of 90 days.
Non-executive Directors’ fees remained unchanged in the year at
£42,500 per annum for Adonis Pouroulis as Chair, and £27,500 per
annum for the other Non-executive Directors. Half of all non-
executive director fees for the year ended 30 June 2020 were
settled by the issuance of a combined total of 2,534,604 shares at a
value of 3 pence per share as part of the placing announced in June
2020. In addition, fees accrued between March and June 2019
totalling US$54,000 payable to Adonis Pouroulis, Robert Sinclair,
Shawn McCormick and Atul Bali were settled in shares at value of 3
pence per share at the time of the July 2019 equity placing.
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Directors’ Responsibility Statement
The Companies (Guernsey) Law, 2008 requires the Directors to
prepare financial statements for each financial period, which give
a true and fair view of the state of affairs of the Group for that
period and of the profit or loss of the Group for that period. Under
that law they have elected to prepare the financial statements in
accordance with International Financial Reporting Standards as
adopted by the EU and applicable law. In preparing those financial
statements the Directors are required to:
•
Select suitable accounting policies and then apply
them consistently;
• Make judgments and estimates that are reasonable
•
•
and prudent;
State whether applicable accounting standards have
been followed, subject to any material departures
disclosed and explained in the financial statements; and
Prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the Group
will continue in business.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Group and to enable them to ensure that
the financial statements have been properly prepared in
accordance with the Companies (Guernsey) Law, 2008. They are
also responsible for safeguarding the assets of the Group and
hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors confirm that they have complied with the above
requirements in preparing the financial statements.
So far as each of the Directors are aware, there is no relevant audit
information of which the Group’s auditor is unaware; having taken
all the steps the Directors ought to have taken to make themselves
aware of any relevant audit information and to establish that the
Group’s auditor is aware of that information.
Principal shareholders
A list of shareholders who beneficially hold more than 5% of the
Company’s shares at 27 October 2020 is as follows:
Number % of
of Ordinary Share
Name of Shareholder Shares Capital
Pella Group
(beneficially owned by Adonis Pouroulis) 76,478,864 18.1%
Pipestone Capital Inc
(beneficially owned by George Bennett) 34,726,294 8.2%
Robert Kampf 28,753,578 6.8%
Interests of directors and senior managers
The interests (all of which are beneficial and include related
parties) of the Directors and Senior Managers in the Company’s
issued share capital 27 October 2020 are as follows:
Number of % of
Position Ordinary Shares Share Capital
Adonis Pouroulis
Non-executive chairman 76,478,864 18.1%
George Bennett
Chief Executive Officer 34,726,294 8.2%
Shawn McCormick
Non-executive director 9,316,571 2.2%
Alexander Lowrie
Non-executive director 5,755,124 1.4%
Robert Sinclair
Non-executive director 5,026,757 1.2%
Atul Bali
Non-executive director 3,657,992 0.9%
Gilbert Midende
Senior manager 1,930,492 0.5%
Cesare Morelli
Senior manager 1,889,995 0.5%
Total 138,782,089 33.0%
Adonis Pouroulis, as the largest shareholder, additionally entered
into an agreement with the Company such that, provided his
interest remains greater than 20 per cent, he will not undertake
any activity that might prejudice the normal and independent
operation of the Board and the Company. On 29 July 2019 his
shareholding fell to 17.44% and this agreement no longer applied.
Website Publication
The Directors are responsible for ensuring that the annual report
and the financial statements are made available on a website.
Financial statements are published on the Company’s website
(www.rainbowrareearths.com) in accordance with applicable
legislation in Guernsey governing the preparation and
dissemination of financial statements, which may vary from
legislation in other jurisdictions. The maintenance and integrity
of the Company’s website is the responsibility of the Directors.
The Directors’ responsibility also extends to the ongoing integrity
of the financial statements contained therein.
Going Concern
The Directors have reviewed the Group’s cash flow forecasts for at
least 12 months following the reporting date including sensitivities
and mitigating actions. After taking into account available cash,
and forecast cash flow from operations and fundraising activities,
the Directors consider that the Group will have adequate resources
to continue its operational existence for the foreseeable future.
However, the cash flow forecast includes additional fundraising
which is not yet in place. The Directors believe that the need to
raise further funds represents a material uncertainty that casts
doubt on this assumption. Nevertheless, the Directors have a
reasonable expectation that this funding will be obtained and
accordingly continue to adopt the going concern basis in preparing
the financial statements. The basis for this assessment is set out in
full in Note 2 to the Financial Statements.
Auditor
BDO LLP has expressed its willingness to continue in office as
auditors and a resolution to re-appoint BDO LLP will be proposed
at the forthcoming annual general meeting.
Signed on behalf of the Board of Directors on 27 October 2020.
George Bennett
Chief Executive Officer
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Corporate Governance
BOARD OF DIRECTORS
Adonis Pouroulis
Non-Executive Chairman
Robert Sinclair
Non-Executive Director
Adonis is an entrepreneur whose expertise lies in the discovery,
exploration and development of natural resources across Africa.
Having worked in the sector for over 25 years he has extensive
experience and a wide network of industry relationships across
the continent. Adonis is the acting Chief Executive Officer of
Chariot Oil & Gas (AIM:CHAR) and the founder and chairman
of the Pella Resources Group. Adonis holds a Bachelor of Science
Degree (Honours).
Robert has over 48 years’ experience in finance and accountancy
of which 38 years have been spent in the Guernsey financial
services industry. He is a director and chairman of the Audit
Committee of Chariot Oil & Gas Limited, a fellow of the Institute
of Chartered Accountants in England & Wales, and a member of
the Institute of Chartered Accountants of Scotland. Robert is a
resident of Guernsey.
Shawn McCormick
Non-Executive Director
Shawn is an International Affairs specialist with more than
20 years’ political and extractive industries sector experience
having served in The White House as Director for African Affairs
on the National Security Council (Washington), Political Affairs
Director of BP (London) and Vice President of TNK-BP (Moscow).
He is currently Managing Director of Connaught Strategies Ltd.
Alexander Lowrie
Non-Executive Director
Alex is the co-founder of Telemark Capital LLP, a partnership
focusing on capital advisory and asset management. Through
its consulting subsidiary, Alex is also involved in providing
governance services as an independent investment committee
member to a variety of advisory panels. Prior to this Alex worked
for 13 years in investment banking. He was a director at Deutsche
Bank and then RBS from 2004 to 2012, having started his banking
career in 1998 at ABN AMRO. Through these positions he has
gained extensive market experience in primary and secondary
equity offerings including bringing companies to market through
IPOs (including structuring, marketing and distribution).
Atul Bali
Non-Executive Director
Atul is a corporate CEO with extensive experience in tech,
government contracting and regulated industries operating on six
continents. Over more than 20 years he has led more than 50 M&A
and JV transactions in more than 25 countries and both managed
and served on the boards of several highly regulated businesses.
Currently he serves as a consultant to several technology
companies, including and as Chairman of Meridian Gaming,
regulated and operating in more than 30 countries, with a large
footprint in Africa, Central and South America and Central and
Eastern Europe. He has previously held divisional CEO or President
positions with IGT (NYSE), Aristocrat (ASX), and Real Networks
(NASDAQ), as well as a venture capital firm. He previously trained
as a Chartered Accountant with KPMG in the UK.
George Bennett
Chief Executive Officer (appointed 27 August 2019)
With over 25 years’ experience in mining, finance and
management, George has led a number of mining and energy
companies, including Shanta Gold Ltd (which he successfully
listed on the London Stock Exchange in 2005), OreCorp Ltd,
Argentum (Pty) Energy, and most recently Karo Power (Pvt) Ltd.
In 2006, George established MDM Engineering Ltd, which he
successfully listed on the London Stock Exchange in 2008.
MDM Engineering Ltd is a mining engineering company building
mineral process plants and mining infrastructure throughout
Africa. In 2014, George was instrumental in selling the business
to Foster Wheeler Limited for US$120 million.
In addition, George has been a partner and director with a
number of leading financial, broking and advisory businesses
including Fergusson Bros, Simpson Mckie, and HSBC Securities
Africa (Pty) Ltd.
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Corporate Governance
SENIOR MANAGEMENT
Dave Dodd
Technical Director (appointed February 2020)
Cesare Morelli
Chief Geologist
Cesare Morelli has over 30 years’ experience in minerals
exploration in Africa including 18 years in diamond exploration
with De Beers managing projects in south, west and central
Africa. Following his time with De Beers, he spent four years with
BHP Billiton as Minerals Exploration Manager for Africa. At BHP
Billiton he directed exploration projects in a variety of
commodities, namely iron ore, aluminium bauxite, manganese,
copper and base metals, nickel and potash. Cesare has been
affiliated with Rainbow since its inception and has been
responsible for project managing all of Rainbow’s exploration work
to date. He is a Director of Benzu Minerals (Pty) Ltd, a consulting
company based in South Africa. Cesare is a member of the South
African Geological Society and the South African Council for
Natural Scientific Professions and is a Competent Person as
defined by the JORC Code 2012 Edition, having ten (10) years’
experience in REE mineralisation and REE deposits.
Pete Gardner
Chief Financial Officer (appointed May 2020)
Pete is a qualified Chartered Accountant with a breadth of
experience in financial management and corporate finance in the
natural resources sector. He was the Finance Director of Amara
Mining plc from October 2009 managing the corporate and
financial development of the company culminating in its
acquisition by Perseus Mining, and former Chief Finance Officer for
Piran Resources, Chaarat Gold Holdings and Alexander Mining plc.
Dave has 45 years of extractive metallurgy experience covering
research and development, technical sales and predominantly
metallurgical project development and execution. He was
Technical Director and co-founder of MDM Engineering between
1987-2014. Dave has designed and commissioned plants across
Africa and the rest of the world, covering minerals from REEs to
gold, platinum, diamonds, copper, zinc, phosphate, cobalt and
many others.
Gilbert Midende
General Manager, Burundi
Gilbert has a doctorate in Geological Science, which he obtained
in 1984 at the Université Libre de Bruxelles, Belgium. He was
appointed Director General of Geology and Mines for Burundi in
1987 and was Minister of Mines between 1988 and 1993. He has
been a consultant to the World Bank since 2007. From 1996 to
2001, he was Principal of the University of Burundi and Minister of
Higher Education and is currently Professor in Economic Geology
at the University of Burundi. Gilbert is responsible for all of the
Group’s administration and Government relations in Burundi.
Chris Attwood
Project Manager
Chris graduated in 1993 from Camborne School of Mines (UK) with
an honours degree in Mining Engineering. He has spent over 25
years in extractive industries in Africa, Asia and Europe where he
has specialised in developing and expanding small to medium sized
mining operations. Over the last 10 years he has focused on Africa,
and his experience includes Bisha Mine (Eritrea), where he was
Mine Manager from start of commercial gold production, expansion
through to the start of copper. He also recently worked as project
manager on a greenfield start up in Tanzania. His production
experience includes gold, copper, tin, zinc, coal and industrial
minerals using both bulk and narrow vein extraction methods.
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The above names have been designated as Persons Discharging
Managerial Responsibility (“PDMRs”) along with Martin Eales, the
previous CEO who stepped down in August 2019 and Jim Wynn, the
previous CFO, who stepped down in May 2020.
Rainbow Rare Earths Limited Annual Report & Accounts 2020
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Corporate Governance
RISKS & UNCERTANTIES
The Directors regularly assess and discuss the principal risks facing the company, including those that would threaten its
business model, future performance, solvency or liquidity.
The key risks affecting the Company are set out below:
R
Risk Comment
Business impact Mitigation
Exploration risk The Company does not currently have
a code-compliant Mineral Resource or
Reserve. The variations in form and
direction of the vein stockwork seen at
Gakara are inherently difficult to predict
with accuracy and therefore the geological
information gathered to date is only
sufficient to report an Exploration Target
under JORC.
It is possible that the quantity of rare earths
present in the licence area is less than
management expectations with resulting
impacts on plans to develop a long term
commercial operation at Gakara.
High The Company continues to undertake
exploration activities on the Gakara deposit
to gain a better understanding of the
resource.
Ongoing trial mining of ore sourced via both
mechanical and manual mining methods
from across the licence area continues to
confirm near vein continuity and quality.
Batch processing of this material
demonstrates the ability to produce a high-
grade rare earth concentrate via simple
gravity separation for all ore sources
identified to date.
The Company has defined a comprehensive
exploration programme to convert
exploration targets to inferred resources.
Rare earth prices The Company is focused on developing a
commercial scale operation at the Gakara
Project to produce rare earth concentrates
and, ultimately, separated rare earth oxides.
Rare earth prices have been volatile in the
High In the event of lower market prices,
the Company would seek to defend its
margins by reviewing its operating cost
base, where possible, and cut back on
discretionary expenditure.
past. If the underlying rare earth basket
price falls, this reduces potential revenue
that will impact the long-term profitability
of the project and could impact the
commercial viability of any development.
The Company currently has an off-take
agreement with ThyssenKrupp, selling
rare earth concentrate at a discount of
approximately 70% to the quoted price
of the underlying metal oxides.
The Company will have the flexibility to
increase the scale of the targeted initial
commercial development of 5,000 tonnes
of concentrate production per annum to
off-set lower margins in the knowledge that
the simple gravity processing requirements
have a low capital intensity.
The Company will aim to re-negotiate the
current off-take arrangements if required
to ensure a commercial development is
viable in the interests of all stakeholders.
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Risk Comment
Business impact Mitigation
Financing risk The Company currently forecasts that
High The Company has recently invested
additional funding will be required in order
to deliver its exploration and project
development plans as well as for general
working capital requirements.
Civil unrest Burundi has experienced civil unrest,
including 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.
in increased mining capacity and minor
processing plant improvements designed
to better utilise the pilot processing plant
as part of the exploration program, whilst
also minimising ongoing losses from the
trial mining activities.
In addition, management maintains strong
relationships with key sources of finance,
including its bankers Finbank, its existing
shareholders and the wider equity markets
in the UK and beyond. The Company has a
history of securing funding required for the
Company’s growth plans, including support
from its cornerstone investors, and
management expect to be able to bring
in additional funding as required.
Medium Although civil unrest is beyond the control
of management, the Company maintains
strict political neutrality in order to minimise
the risk of association with any party.
In the event of unrest, management would
prioritise the safety of its staff, and if it were
deemed safe to continue in operation,
would work to ensure the security of
its assets and supplies.
Currency controls The Company receives proceeds in US
Medium The Company has the right, under its Mining
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).
Convention with the Burundian
Government, to have unfettered access
to its foreign currencies.
The Company will continue to monitor
currency issues in country, and will
negotiate flexible terms with the
Government as far as possible.
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Covid-19 The Covid-19 pandemic could disrupt
Low Activity in Burundi remains largely
the Company’s operations, delaying
exploration works.
unaffected beyond increased travel
restrictions for international visitors.
The Company is increasing the use of digital
meetings and adapting expatriate workers
rotation cycles to maintain operational
efficiency.
Rainbow Rare Earths Limited Annual Report & Accounts 2020
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Corporate Governance
CORPORATE GOVERNANCE
STATEMENT
As a Guernsey-registered Company trading on the Standard List
of the Main Market of the London Stock Exchange, the UK
Corporate Governance Code published by the Financial Reporting
Council does not apply to the Company. However, whilst the
Company does not apply the UK Corporate Governance Code the
Directors recognise the importance of good corporate governance
and have implemented corporate governance practices having
consideration to the recommendations and principles of the UK
Corporate Governance Code as far as is appropriate having regard
to the size and nature of the Company.
The Board oversees the performance of the Group’s activities.
It comprises experienced board members who have held senior
positions in a number of public and private companies. The Board
is responsible to Shareholders for the proper management of the
Group. The Non-Executive Directors have particular responsibility
to ensure that the strategies proposed by the Executive Director
are carefully considered.
The Board meets regularly and met seven times in the year to
30 June 2020. Prior to such meetings taking place, an agenda
and board papers are circulated to the Directors so that they
are adequately prepared for the meetings.
To enable the Board to discharge its duties, all Directors have
full and timely access to all relevant information.
There is no agreed formal procedure for the Board (or members
thereof) to seek independent professional advice but, pursuant
to their letters of appointment, the Non-Executive Directors may,
where appropriate, take independent professional advice at the
Group’s expense.
In accordance with the Company’s Articles of Associations, the
directors submit themselves for re-election every three years at
the Company’s Annual General Meeting.
The composition of the Board will be reviewed regularly to
ensure that the Board has the appropriate mix of expertise and
experience. The Articles provide that the number of directors
that may be appointed cannot be fewer than two. Two directors
present at a board meeting will constitute a quorum.
The Board ensures it is aware of the views of major shareholders
through regular meetings in person (where appropriate), as well as
through discussions with the Company’s brokers and market
analysts. Where such information has been obtained by the CEO, this
information is fed back to the rest of the Board in a timely manner.
Review of Internal Control and Risk Management systems
The Board has reviewed the Company’s internal control and risk
management systems.
Rainbow Rare Earths Limited has a relatively small team of
management and financial staff and is therefore able to retain
a tight control over its financial reporting activities. The Board
does not consider it appropriate to have a separate internal audit
function, however a number of internal controls and reviews have
been put in place to provide the Board (and the Audit Committee)
with assurance that the risks inherent to operating a mining
company in more than one jurisdiction are managed appropriately.
These controls include the following:
•
•
•
•
•
•
Budgets and forecasts are prepared by finance staff in
conjunction with operating teams and are reviewed and
approved by senior management (and in the case of the
Budget, by the Board).
Actual results are reported against Budget and forecast,
and variances examined.
Banking transactions must be initiated and authorised by at
least two staff members, one of whom is a senior manager.
For payments in Burundi the senior manager is normally the
General Manager. For international payments the senior
manager is normally the CFO.
Financial operations in Burundi are reviewed regularly by the
CFO, both on visits to Burundi and on-line. During the Covid-
19 pandemic with international travel reduced reviews have
been conducted in an on-line environment.
The Group uses a central financial reporting system (Xero)
which records all transactions, capturing third party
documents (eg invoices) which are reviewed by head office
on a monthly basis.
Senior management regularly discuss material developments
(normally weekly) and consider financial and reporting
implications of any matters arising.
In addition to formal Audit Committee meetings, the CFO has
regular interaction with the Audit Committee chairman to discuss
control and reporting matters in more detail.
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Board of Directors
The Company had one Executive Director and five Non-Executive Directors at 30 June 2020. All major decisions relating to the Group are
made by the Board as a whole. Operations are conducted by the subsidiaries of the Company (principally Rainbow Mining Burundi SM)
under the direction of the Board of Directors of each of the subsidiary companies. The Company is represented on the board of Rainbow
Mining Burundi SM by Cesare Morelli and Gilbert Midende.
The Board reviews key business risks regularly, including the financial risks facing the Group in the operation of its business.
These matters include, but are not limited to, the following:
Determining the strategy for the Company
Approving the annual Budget
Discussing and approving financing, including new debt and equity
Setting the Dividend policy
•
•
•
•
• Mergers and acquisitions activity and significant transactions
•
•
Risk management
Considering and, if appropriate, approving the recommendations of Board Committees
The following table lists the names, positions and ages of the Directors, the year they were appointed, and current committee
memberships:
Name
Adonis Pouroulis
Shawn McCormick
Alexander Lowrie
Robert Sinclair
Atul Bali
George Bennett
Ages at 30 June 2020
Age
50
53
45
70
49
59
Position
Chairman
Non-exec
Non-exec
Non-exec
Non-exec
CEO
Appointed
5 Aug 2011
4 Feb 2016
16 Nov 2016
5 Aug 2011
29 Mar 2017
27 Aug 2019
Audit Remuneration
Member
Chair
-
Member
-
-
-
-
Member
Chair
Member
-
Nomination
Chair
-
Member
-
Member
-
SHEC
-
Chair
Member
-
-
Member
The Company does not consider Adonis Pouroulis to be independent by virtue of being a significant shareholder. The other non-
executive directors are considered to be independent, in terms of character and judgment, notwithstanding the following:
•
•
All the non-executives are shareholders in the Company (see Directors’ Report for details).
All the non-executives held share options during the year ended 30 June 2020 (see Note 20 for details).
The table below shows the attendance at board and committee meetings during the year to 30 June 2020:
Name
Adonis Pouroulis
Shawn McCormick
Alexander Lowrie
Robert Sinclair
Atul Bali
George Bennett
Martin Eales
Board
5/7
4/7
6/7
7/7
7/7
4/5
2/2
Audit Remuneration
1/1
1/1
N/A
1/1
N/A
N/A
N/A
N/A
N/A
2/2
2/2
2/2
N/A
N/A
Nomination
1/1
N/A
1/1
N/A
1/1
N/A
N/A
SHEC
N/A
0/0
0/0
N/A
N/A
0/0
0/0
A number of the Board meetings during the year were formal meetings to approve single items of business – notably in connection with the
equity placing in July 2019 and June 2020, and the Pipestone Loan Facility in February 2020. These matters were fully discussed with all
Board members ahead of the meetings, and their thoughts and challenges were communicated in advance to the chair of those meetings.
The Board are regularly informed of developments outside formal board meetings, through update calls and meetings, reports and
one-to-one discussions with the CEO and other management.
The deliberations of the various committees referred to below, do not reduce the individual and collective responsibilities of Board
members with regard to their fiduciary duties and responsibilities, and they must continue to exercise due care and judgment in
accordance with their statutory obligations.
These terms of reference are subject to the provisions of the Articles and any other applicable law or regulatory provision in force
in Guernsey, and the Listings Rules.
In addition to the Audit, Remuneration, Nomination and Safety, Health and Environment Committees which have formally delegated
duties and responsibilities within written terms of reference, the Board may set up additional Committees as appropriate.
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Corporate Governance
CORPORATE GOVERNANCE
STATEMENT CONTINUED
Audit Committee
The Board has established an Audit Committee with formally
delegated duties and responsibilities. The Audit Committee is
chaired by Robert Sinclair and its other members are
Alexander Lowrie and Atul Bali.
The Company considers Robert Sinclair to have recent and
relevant financial experience, by virtue of his role as a financial
adviser and his experience as Audit Committee Chairman with
other public companies.
Nomination Committee
The Nomination Committee is chaired by Adonis Pouroulis
and its other members are Alexander Lowrie and Atul Bali.
The Nomination Committee is normally expected to meet only
as required. The Nomination Committee is responsible for
reviewing, within the agreed terms of reference, the structure,
size and composition of the Board, undertaking succession
planning, leading the process for new Board appointments and
making recommendations to the Board on all new appointments
and re-appointments of existing directors.
The Nomination Committee met once during 2019/20 to consider
the appointment of George Bennett to the Board as Chief
Executive Officer.
Remuneration Committee
The Remuneration Committee is chaired by Shawn McCormick
and its other members are Adonis Pouroulis and Robert Sinclair.
It is normally expected to meet at least once a year.
The Remuneration Committee has responsibility for determining,
within agreed terms of reference, the Group’s policy on the
remuneration of senior executives and specific remuneration
packages for executive directors and the non-executive
chairman. The remuneration of non-executive directors is
a matter for the Board. No director may be involved in any
discussions as to their own remuneration.
The Remuneration Committee met once during 2019/20 to
discuss the remuneration package of George Bennett on his
appointment as CEO and the payments to Marin Eales on the
cessation of his contract.
Safety, Health, and Environment Committee (“SHEC”)
The SHEC is responsible for developing and reviewing the
Group’s framework, policies and guidelines on safety, health
and environmental management, monitoring key indicators
on accidents and incidents within the Group’s operations
and considering developments in relevant safety, health
and environmental practices and regulations.
The SHEC Committee is chaired by Shawn McCormick. The other
members of the committee are George Bennett and Alexander Lowrie.
Although no formal meetings were held in the year, a number
of informal discussions were held to discuss SHEC matters,
in addition to these matters being raised and duly considered
at Board meetings.
Share dealing policy
The Company has a share dealing policy requiring all Directors and
senior executives to obtain prior written clearance from either the
Chairman or the Chief Executive Officer to deal in linked shares.
The Chairman requires prior written clearance from the Chairman
of the Audit Committee. Close periods (as defined in the share
dealing policy) are observed as required by Market Abuse
Regulations and other rules that apply to the Company by virtue
of the market on which its shares are listed. During these periods,
the Company’s directors, executives and inside employees are not
permitted to deal in the Company’s securities. Additional close
periods are enforced when the Company or its applicable
employees are in possession of inside information.
The Audit Committee should meet not less than two times a year
and is responsible for ensuring the financial performance of the
Company is properly reported on and monitored, including reviews
of the annual and interim accounts, results announcements,
internal control systems and procedures and accounting policies.
It is also responsible for keeping the categorisation, monitoring
and overall effectiveness of the Company’s risk assessment and
internal control processes under review.
The Audit Committee was formally established in January 2017
and met two times during 2019/20. During these meetings, the
following matters were considered:
•
The audit of the year ended 30 June 2019 was considered,
and key areas of audit risk were discussed with the auditors
and with management on 7 October 2019.
The financial statements for the year ended 30 June 2019,
and the interim financial statements for the six months ended
31 December 2019, were reviewed. Following due
consideration, the Audit Committee recommended to the
Board that these Financial Statements be approved
•
The Audit Committee also considered the conduct of the
external audit by BDO LLP, which was considered to be
appropriate. The Committee therefore resolved to propose BDO
LLP for reappointment at the next AGM for a period of 12 months.
It was noted that BDO LLP had been auditors of the Company
since October 2016.
The Audit Committee also considered the independence and
objectivity of BDO LLP. The Committee considered the
composition of the BDO audit team, together with the duration
of service of the partner and senior audit team members on the
Company’s audit and concluded that BDO LLP was sufficiently
independent to conduct the audit. The only non-audit service
during the year was the review of the interim financial statements
for the six months to 31 December 2019.
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Anti-bribery policy
The Company has adopted an Anti-bribery policy and procedures,
which applies to the Group, its officers and staff anywhere in the
world. The policy and procedures have been developed following
an assessment of the risks applicable to the Group’s business and
include a process for reporting suspicious conduct, financial limits
on gifts and hospitality, procedures for financial record-keeping
and for dealing with contracts with third parties, and a prohibition
on charitable or political donations without Board approval.
Pete Gardner has been appointed as the Group’s Anti-Bribery
Officer to replace Jim Wynn with effect from May 2020. The Anti-
Bribery Officer oversees the day-to-day operation of the Anti-
Bribery Policy and procedures. The Board also regularly reviews
the operation of the Anti-Bribery Policy and procedures and the
Anti-Bribery Officer reports to the Board on any specific issues
that may arise.
All personnel are required to receive guidance and training in
relation to the Group’s Anti-Bribery Policy and procedures. Senior
staff have already received this training, and training for junior
staff continues as an ongoing process.
The Anti-Bribery Officer also undertakes due diligence on third
parties as appropriate that are to be engaged by the Group to do
business on its behalf. The Group requires third parties to take
account of the Anti-bribery policy and to act in accordance with
its provisions.
Signed on behalf of the Board of Directors on 27 October 2020.
George Bennett
Chief Executive Officer
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Financial Statements
WE AIM TO
CAPITALISE ON THE
ENORMOUS VALUE
OPPORTUNITY FROM
FURTHER
DOWNSTREAM
PROCESSING.
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Financial Statements
FINANCIAL
STATEMENTS
36 Independent Auditors’ Report
40 Consolidated Statement
of Comprehensive Income
41 Consolidated Statement
of Financial Position
42 Consolidated Statement
of Changes in Equity
43 Consolidated Cash Flow
Statement
44 Notes to the Consolidated
Financial Statements
IBC Shareholder Information
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Financial Statements
INDEPENDENT AUDITORS’
REPORT
To the members of Rainbow Rare Earths Limited
Opinion
We have audited the financial statements of Rainbow Rare Earths Limited (the “Group”) for the year ended 30 June 2020 which comprise
the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of
changes in equity, the consolidated cashflow statement and notes to the financial statements, including a summary of significant
accounting policies.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union.
In our opinion the financial statements:
•
•
•
give a true and fair view of the state of the Group’s affairs as at 30 June 2020 and of the Group’s loss for the year then ended;
have been properly prepared in accordance with IFRSs as adopted by the European Union; and
have been prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our
report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Material uncertainty related to going concern
We draw attention to Note 2 to the financial statements concerning the Group’s ability to continue as a going concern. The matters
explained indicate that the Group will require additional funding in order to enable it to meet its liabilities as they fall due for a period
of at least the next twelve months. These conditions, along with the other matters set out in Note 2 indicate the existence of a material
uncertainty which may cast significant doubt over the Group’s ability to continue as a going concern. Our opinion is not modified in
respect of this matter.
We identified going concern as a key audit matter based on our assessment of the significance of the risk and the effect
on our audit strategy.
Our audit procedures in response to this key audit matter included:
• We critically assessed management’s cash flow forecast and the underlying assumptions which have been approved by the Board.
Our testing included a comparison of forecast rare earth basket prices to spot prices and historic trends and comparison of customer
discount estimates to the offtake agreement and historic actuals.
• We compared the forecast trial mining production levels and costs to historical actuals and contracts where applicable and evaluated
consistency of the forecast capital and exploration expenditure with the Group’s strategic plans.
• We confirmed the receipt in July 2020 and September 2020 of the US$559,000 receivable at year end in respect of the equity placing.
• We reviewed loan agreements and ensured the repayments were appropriately included in the forecasts.
• We critically assessed management’s sensitivity analysis and performed our own sensitivity analysis in respect of the key
assumptions underpinning the forecasts including rare earth basket prices and production.
• We obtained the signed October bridge financing agreements to support the US$275,000 additional financing and ensured
the repayment terms were appropriately included in the forecasts.
• We have made enquiries of management and the Audit Committee regarding the anticipated source of additional funding
and reviewed documentation relating to ongoing activities in respect of financing options.
• We have reviewed the disclosure regarding going concern in the financial statements.
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Key audit matters
In addition to the matter described in the material uncertainty related to going concern section, key audit matters are those matters that,
in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the
most significant assessed risks of material misstatement (whether or not due to fraud) that we identified including those which had the
greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
Key Audit Matter
Classification and carrying value of the Gakara Project
Following the change to the Group’s strategy to focus on further exploration of the Gakara Project area, management transferred
US$5.4m of mine development costs related to historic exploration work over the licence area to exploration and evaluation assets
on 31 August 2019 as detailed in notes 3 and 11. Management applied judgement in determining that the transfer was appropriate
based on the nature of the underlying costs and their contribution to the new exploration activities.
Management have capitalised exploration costs in the period, including trial mining operating costs, net of the margin on revenue
generated, associated with the exploration and evaluation activity in the period as detailed in note 3 and 11. Judgment was exercised
by management in determining the appropriateness of its cost capitalisation policy.
Management are required to assess at each reporting date whether there are indicators of impairment. As detailed in note 3 and 11,
management identified no impairment indicators and this assessment required judgment.
Given the judgments required to be exercised by Management in this area we considered this to be a significant risk for our audit.
How we addressed the key audit matter in the audit
How we addressed the audit risk:
• We challenged and considered management’s judgment regarding the transfer of mine development costs to the exploration
and evaluation asset. In doing so, we evaluated the underlying nature of the mine development costs transferred and the
relevance of the historical exploration data and knowledge to the Group’s exploration plan. We assessed the date of the transfer,
considering public announcements and our own understanding of the timing of the change in strategy. We tested the cut-off of
costs and depreciation to confirm they were included in the income statement up to the date of transfer appropriately.
• We evaluated management’s accounting policy for the capitalisation of costs in to the exploration and evaluation asset and
confirmed they were in line with generally accepted accounting practices. We evaluated whether costs were appropriately
capitalised in line with the accounting policy.
In doing so, we agreed costs to supporting documents such as contracts and invoices to understand and confirm the nature of the
work which was being undertaken. We made inquiries of management and the Board to understand the nature of the trial mining
and processing activities to evaluate management’s conclusion that they contributed to the exploration and evaluation activities.
• We evaluated Management’s impairment indicator assessment and formed our own assessment of impairment indicators
against the requirements of IFRS 6.
•
In doing so we confirmed that the Group continues to hold valid title to the Gakara Project, reviewed budgets and considered the
Group’s strategic plans for further exploration. We obtained and considered the 2020 Competent Person’s exploration target
report which confirmed the prospectivity of the Gakara Project, made inquiries of management regarding the exploration plans
and considered public announcements regarding the Group’s strategy.
In utilising the Competent Person’s exploration target report to form our assessment on the carrying value of the Gakara Project,
we performed procedures to assess their objectivity and independence, considered the scope and findings of their report and
held discussions with the expert.
• We evaluated the accounting policy and disclosures in note 3 and 11 based on our audit procedures.
Key Observation
Based on the work performed we consider management’s accounting treatment to be acceptable and their conclusion that there
are no indicators of impairment to be appropriate. We found the disclosures in the financial statements to be appropriate.
Rainbow Rare Earths Limited Annual Report & Accounts 2020
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Financial Statements
INDEPENDENT AUDITORS’
REPORT CONTINUED
To the members of Rainbow Rare Earths Limited
Our application of materiality
Group materiality
Basis for determining materiality
Group performance materiality
Basis for performance materiality
US$120,000 (2019: US$106,000)
1.5% of total assets (2019: 1.5% of total assets)
US$90,000 (2019: US$79,500)
75% of Group materiality (2019: 75% of Group materiality)
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements.
We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions
of reasonable users that are taken on the basis of the financial statements. Importantly, misstatements below these levels will not
necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular
circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
We consider total assets to be the most significant determinant of the Group’s financial performance used by members, given the Group’s
exploration and evaluation focus.
In performing the audit we applied a lower level of performance materiality based on past experience and our overall assessment of the
control environment in order to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds financial statement materiality.
Whilst materiality for the financial statements as a whole was US$120,000 (2019: US$106,000), each significant component of the
Group was audited to a lower level of materiality ranging from US$50,000 to US$67,500 (2019: US$42,000 to US$79,500).
We agreed with the Audit Committee that we would report to the Committee all individual audit differences identified during the course
of our audit in excess of US$7,500 (2019: US$5,300). We also agreed to report differences below these thresholds that, in our view
warranted reporting on qualitative grounds.
An overview of the scope of our audit
Whilst Rainbow Rare Earths Limited is a Company registered in Guernsey and listed on the Standard Segment of the London Stock
Exchange in the UK, the Group’s principal operations are located in Burundi. In approaching the audit we considered how the Group is
organised and managed. We assessed the business as being principally a single project comprising of the Burundian subsidiaries that
operate the Gakara Mine, and a corporate head office function.
Our Group audit scope focused on the Group’s significant components which comprised the Burundian operating subsidiary and the
parent company. The significant components accounted for 89% of total assets and were subject to full scope audits conducted by
BDO LLP using a team with experience of auditing in the mining industry, in Africa and with publically listed entities. The remaining four
non-significant components were principally subject to analytical review procedures with specific procedures for any significant
balances impacting the Group results.
We set out above the risks that had the greatest impact on our audit strategy and scope.
Other information
The Directors are responsible for the other information. The other information comprises the information included in the Directors Report
and financial statements, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements
does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are
required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude that there is a material misstatement of the other information,
we are required to report that fact.
We have nothing to report in this regard.
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Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies (Guernsey) Law, 2008 requires
us to report to you if, in our opinion:
•
•
• We have failed to obtain all the information and explanations which, to the best of our knowledge and belief, are necessary
Proper accounting records have not been kept by the Company, or
The financial statements are not in agreement with the accounting records and returns; or
for the purposes of our audit.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either
intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including fraud is detailed below:
We considered the laws and regulations of the UK, Guernsey and Burundi to be of significance in the context of the audit. As part of our
audit strategy an assessment was performed on the extent of the compliance with the relevant local and regulatory framework. In doing
so, we held meetings with relevant internal management to form our own opinion on the extent of compliance. In addition our tests
included, but were not limited to agreement of the financial statement disclosures to underlying supporting documentation, performing
substantive testing on accounts balances which were considered to be at a greater risk of susceptibility to fraud and reviewed
correspondence with regulators in so far as the correspondence related to the financial statements. There are inherent limitations
in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and
transactions reflected in the financial statements, the less likely we would become aware of it.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, 2008.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in
an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Ryan Ferguson
For and on behalf of BDO LLP,
Recognised Auditor, London, United Kingdom
27 October 2020
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
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Financial Statements
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
For the year ended 30 June 2020
Revenue
Production and sales costs
Administration expenses
Adjusted EBITDA 1
Share-based payments
Depreciation
Impairment of fixed assets
Total operating expense
Loss from operating activities
Finance income
Finance costs
Loss before tax
Income tax expense
Total loss after tax and comprehensive expense for the year
Total loss after tax and comprehensive expense for the year is attributable to:
Non-controlling interest
Owners of parent
The results of each year are derived from continuing operations
Loss per share (cents)
Basic
Diluted
Notes
20
4, 12
4, 12
30 June 2020 30 June 2019
US$’000
1,541
(3,479)
(1,433)
(3,371)
(62)
(2,570)
(3,854)
(11,398)
US$’000
422
(905)
(2,103)
(2,586)
(7)
(279)
-
(3,294)
4
5
6
9
22
10
10
(2,872)
(9,857)
856
(209)
355
(2,644)
(2,225)
(12,146)
(9)
(131)
(2,234)
(12,277)
(60)
(2,174)
(2,234)
(785)
(11,492)
(12,277)
(0.58)
(0.58)
(5.93)
(5.93)
1
Adjusted EBITDA represents earnings before finance items, depreciation, amortisation, taxation, share-based payments and impairments.
Notes on pages 44 to 66 form part of these financial statements.
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Financial Statements
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
As at 30 June 2020
Non-current assets
Exploration and evaluation assets
Property, plant, and equipment
Right of use assets
Total non-current assets
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Borrowings
Lease liabilities
Trade and other payables
Total current liabilities
Non-current liabilities
Borrowings
Lease liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Shares to be issued
Share-based payment reserve
Share warrant reserve
Other reserves
Retained loss
Equity attributable to the parent
Non-controlling interest
Total equity
These financial statements were approved and authorised for issue by the Board of Directors
on 27 October 2020 and signed on its behalf by:
George Bennett
Director
30 June 2020 30 June 2019
US$’000
US$’000
Notes
11
12
23
13
14
15
17
17, 23
16
17
17,23
18
19
21, 31
21
21
21
22
7,572
942
104
8,618
167
938
788
1,893
-
6,408
-
6,408
98
505
119
722
10,511
7,130
(1,093)
(33)
(698)
(1,824)
(587)
(95)
(100)
(782)
(1,562)
-
(2,097)
(3,659)
-
-
(100)
(100)
(2,606)
(3,759)
7,905
3,371
28,132
-
1,099
40
60
(20,542)
8,789
(884)
7,905
20,056
1,375
1,764
40
-
(19,040)
4,195
(824)
3,371
Notes on pages 44 to 66 form part of these financial statements.
Rainbow Rare Earths Limited Annual Report & Accounts 2020
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Financial Statements
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
For the year ended 30 June 2020
Balance at 1 July 2018
Total comprehensive expense
Loss and total comprehensive
loss for year
Transactions with owners
Issue of shares during the year
Share placing transaction costs
Shares issued to settle convertibles
Shares to be issued to settle
convertibles
Share options issued as cost
of convertible
Fair value of employee share
options in year
Balance at 30 June 2019
Total comprehensive expense
Loss and total comprehensive
loss for year
Transactions with owners
Issue of shares during the year
Share placing transaction costs
Discount on interest free bridge
loan provided by shareholder
Fair value of employee share
options in year
Employee share options exercised,
lapsed or cancelled following vesting
Balance at 30 June 2020
Share
capital
Shares
Share-
Share
Attributable
Non-
to be
based
warrant
Other Accumulated
to the
controlling
issued
payments
reserve
reserves
losses
parent
interest
Note
US$’000
16,722
US$’000
-
US$’000
1,203
US$’000
40
US$’000
-
US$’000
(7,548)
US$’000
10,417
US$’000
Total
US$’000
(39) 10,378
-
2,350
(215)
1,199
-
-
-
-
-
-
1,375
-
-
-
-
-
-
499
-
-
-
-
-
-
-
-
-
-
-
-
(11,492)
(11,492)
(785)
(12,277)
-
-
-
-
-
2,350
(215)
1,199
1,375
499
-
-
-
-
-
2,350
(215)
1,199
1,375
499
-
20,056
-
1,375
62
1,764
-
40
-
-
- (19,040)
62
4,195
-
(824)
62
3,371
19
19
31
31
31
10
-
-
19,31
19
8,385
(309)
(1,375)
-
17
20
20
-
-
-
28,132
-
-
-
-
-
-
-
-
7
-
-
-
-
-
-
-
-
60
-
(2,174)
(2,174)
(60)
(2,234)
-
-
-
-
7,010
(309)
60
7
-
-
-
-
7,010
(309)
60
7
(672)
1,099
-
40
-
672
60 (20,542)
-
8,789
-
(884)
-
7,905
Notes on pages 44 to 66 form part of these financial statements.
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Rainbow Rare Earths Limited Annual Report & Accounts 2020
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Financial Statements
CONSOLIDATED CASH FLOW
STATEMENT
For the year ended 30 June 2020
Cash flow from operating activities
Loss after tax for the year
Adjustments for:
Depreciation
Impairment of property, plant and equipment
Profit on disposal of fixed assets
Share-based payment charge
Directors fees settled in shares
Finance income
Finance costs
Tax expense
Provisions
Operating loss before working capital changes
Net decrease/(increase) in inventory
Net decrease/(increase) in other receivables
Net (decrease)/increase in trade and other payables
Cash used by operations
Realised foreign exchange gains
Finance income
Finance costs
Taxes paid
Net cash used in operating activities
Cash flow from investing activities
Purchase of property, plant & equipment
Exploration and evaluation costs
Proceeds from sale of property, plant & equipment
Net cash used in investing activities
Cash flow from financing activities
Proceeds of new borrowings
Repayment of borrowings
Interest payments on borrowings
Payment of lease liabilities
Proceeds of Lind convertible
Cost of issuing Lind convertible
Proceeds from the issuance of ordinary shares
Transaction costs of issuing new equity
Net cash generated by financing activities
Net increase/(decrease) in cash and cash equivalents
Cash & cash equivalents at the beginning of the year
Foreign exchange gains on cash and cash equivalents
Cash & cash equivalents at the end of the year
30 June 2020 30 June 2019
US$’000
US$’000
Notes
(2,234)
(12,277)
4, 12
12
20
5
6
9
18
13
14
16
5
6
9
12
11
12
17
17
17
17, 23
31
31
19
19
15
279
-
4
7
96
(856)
209
9
-
(2,486)
(22)
126
(1,188)
(3,570)
855
2
(5)
(41)
(2,759)
(378)
(2,045)
3
(2,420)
1,000
(74)
(137)
(22)
-
-
5,390
(309)
5,848
669
119
-
788
2,570
3,854
-
62
-
(355)
2,644
131
40
(3,331)
182
165
679
(2,305)
352
1
(22)
(131)
(2,105)
(1,583)
-
-
(1,583)
798
-
(139)
(18)
750
(75)
2,350
(215)
3,451
(237)
354
2
119
Notes on pages 44 to 66 form part of these financial statements.
Rainbow Rare Earths Limited Annual Report & Accounts 2020
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Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS
For the year ended 30 June 2020
1. GENERAL INFORMATION
Reporting entity
Rainbow Rare Earths Limited (“the Company” or “Rainbow”) is a company domiciled in Guernsey and incorporated on 5 August 2011,
with company registration number 53831, and is a company limited by shares. The Company’s registered office is Trafalgar Court,
Admiral Park, St Peter Port, Guernsey. The consolidated financial statements of the Company for the years ended 30 June 2020 and
30 June 2019 comprise the Company and its subsidiaries together referred to as the “Group”.
2. ACCOUNTING POLICIES
Basis of preparation
The Financial Statements of the Company and its subsidiaries (“the Group”) are prepared in accordance with International Financial
Reporting Standards (“IFRS”) (IFRS and IFRIC Interpretations) issued by the International Accounting Standards Board (“IASB”),
as adopted by the European Union.
Going Concern
As at 27 October 2020, the last practicable date before the publication of these accounts, the Company had total cash of US$0.2 million
excluding US$275,000 from a recent bridge finance facility as set out in note 28.
The Board have reviewed the Group’s cash flow forecasts for the period to 31 December 2021. This forecast assumes a continuation of
current trial mining activities alongside limited works focused on surface assessment of targets defined from the recently announced
geophysical survey and other previously defined exploration targets across the licence area. Any new exploration programmes arising from
the recently announced JORC resource statement will require additional funding, although such programmes are currently uncommitted.
At 30 June 2020 the Group has US$1.7 million of undiscounted financing liabilities including:
• US$0.9 million in an unsecured loan from Pipestone Capital, a Company associated with George Bennett, CEO, which will need
to be repaid at the time of the next significant fundraising or 31 December 2021, whichever is earlier. Repayment of this amount
in cash is not included in the Group’s cash flow forecasts as it is anticipated to be settled as part of the next significant fundraising
prior to 31 December 2021.
• US$ 0.8 million in a term loan from FinBank in Burundi. Repayment of this loan is ongoing at a rate of US$21,000 per month (including
interest), which is included in the Group’s cash flow forecasts.
The Board have reviewed forecasts covering a period to 31 December 2021. Based on the Group’s cash flow forecasts the Board
estimates a total funding requirement of at least US$2.8 million for the period ending 31 December 2021, with funding required from
December 2020 onwards.
The Company is currently in the process of investing in additional capital equipment to enhance the scale of the current trial mining
as part of its exploration activities, including ancillary mining and processing equipment. An additional excavator has already been
purchased and is currently being shipped to Burundi. The Board has earmarked a further budget of US$250,000, which is expected
to be financed from the receipt of historically overpaid royalties (US$306,000 recoverable at 30 June 2020) and the sale of some surplus
equipment. This additional equipment is expected to significantly increase the trial mining capacity for the Group’s operations at Gakara
as part of the exploration programme, allowing 100t of rare earth concentrate to be produced per month as a by-product of the
exploration program. At current rare earth prices that additional production could reduce the total funding requirement of at least
US$2.8 million for the period ending 31 December 2021 although a funding requirement would remain.
The Board is confident that this funding would be secured, based on its history of successful fundraising. However, it also acknowledges
that this funding is not, at the present time, in place, which has been a deliberate decision in order to avoid unnecessary dilution at the
current share price, which the Board believes will rise in the coming months. Accordingly, the Board accepts that the need for additional
funding represents a material uncertainty which may cast significant doubt on the ability of the Company to continue as a going concern
and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business.
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Standards in issue but not effective
The standards which were issued and effective for periods starting on or after 1 July 2019 have been adopted in the year. These include
“IFRIC 23: Uncertainty Over Income Tax Treatments”, “Amendments to IAS 28: Long-Term Interests in Associates and Joint Ventures”,
“Amendments to IAS 19: Plan Amendment, Curtailment or Settlement”, “Amendments to IFRS 9: Prepayment Features with Negative
Compensation”, IFRS 16 “Leases”, and “Annual Improvements to IFRS Standards 2015-2017 Cycle”.
The adoption of “IFRS 16: Leases” from 1 July 2019 provides for a new model of lessee accounting in which all leases, other than short-
term and small-ticket-item leases, are accounted for by the recognition on the balance sheet of a right-to-use asset and an associated
lease liability, with the subsequent amortisation of the right-to-use asset over the lease term. The Group undertook an assessment
exercise on its active lease agreements as part of the transition to IFRS 16. The Group recognised a right to use asset in respect of the
lease for a house used to accommodate workers and an office in Burundi. The lease for the Group’s processing plant land in Burundi had
historically been accounted for as a finance lease under the requirements of IAS 17. None of the Group’s other agreements have terms
that require an amended accounting treatment under IFRS 16.
The Group applied the exemptions not to recognise leases which had a term of less than 12 months remaining at the date of transition
which related to short term mining equipment leases, which were rented on a weekly basis. The majority of these arrangements were
terminated during the year as the Group acquired its own vehicles. At 30 June 2020 the Group retains a single bulldozer rented on a
short term lease, which it intends to replace with a purchased unit as soon as funding allows.
The Group has reviewed and considered all other new available standards, amendments and interpretations and the adoption of these
new accounting standards had no material impact on the previously reported results or financial position of the Group.
The Group has elected not to early adopt the following revised and amended standards.
Standard Description Effective date
Amendments to IAS 1 and IAS 8 “Presentation of Financial Statements” and “Accounting Policies,
Changes in Accounting Estimates and Errors” 1 January 2020
Conceptual Framework Amendments to References to the Conceptual Framework in IFRS Standards 1 January 2020
Amendments to IAS 16 “Property, Plant & Equipment” 1 January 2022
Amendment to IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” 1 January 2022
Amendments to IFRS 3 “Business Combinations“ 1 January 2022
IFRS 17 Insurance contracts 1 January 2023
The Company has reviewed and considered these new standards and interpretations and none of these are expected to have a material
effect on the reported results or financial position of the Company.
Basis of consolidation
Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the
following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor
to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a
change in any of these elements of control.
The consolidated financial statements present the results of the Company and its subsidiaries as if they formed a single entity.
Intercompany transactions and balances between Group companies are therefore eliminated in full.
The results of undertakings acquired or disposed of are consolidated from or to the date when control passes to or from the Group.
The results of subsidiaries acquired or disposed of during the year are included in the Consolidated Statement of Comprehensive
Income from the date that control commences until the date that control ceases.
Where necessary, adjustments are made to the results of subsidiaries to bring the accounting policies they use into line with those
used by the Group.
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity. Non-controlling
interests consist of the non-controlling shareholder’s share of changes in equity. The non-controlling interests’ share of losses, where
applicable, are attributed to the non-controlling interests irrespective of whether the non-controlling shareholders have a binding
obligation and are able to make an additional investment to cover the losses. On acquisition of a non-controlling interest the relevant
non-controlling interest share of equity is extinguished and the difference between the fair value of consideration paid and the relevant
carrying value of the non-controlling interest is recorded in retained earnings.
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Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS CONTINUED
For the year ended 30 June 2020
2. ACCOUNTING POLICIES CONTINUED
Foreign currency
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). The Group’s strategy is focused
on developing a rare earth project in the Republic of Burundi which will generate revenues in United States Dollars and is funded by
shareholder equity and other financial liabilities which are principally denominated in United States Dollars.
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 differences on all transactions
are recognised in the consolidated statement of comprehensive income in the year in which they arise.
Revenue recognition
The Company produces and sells rare earth concentrate from its Gakara project in Burundi. Once concentrate has been produced at the
Kabezi plant in Burundi, it is bagged, sampled, and loaded into containers for transportation to a port, normally in East Africa, for shipment.
The Company currently has a 10-year distribution and offtake agreement with its customer, ThyssenKrupp, which commenced in
January 2018, and under which production is sold. Under the terms of the contract, the Company’s performance obligation is considered
to be the delivery of concentrate meeting agreed criteria.
The performance obligation is satisfied and associated revenue from customers is recorded when the title for a shipment is transferred
to ThyssenKrupp, normally at a port in East Africa. On transfer of title, control is considered to have passed to the customer with the
Company having right to payment, but no ongoing physical possession or involvement with the concentrate, legal title and insurance
risk having transferred.
The price for each shipment is established in accordance with the terms of the offtake agreement, by reference to the market price and
quantities of rare earth oxides in each shipment, and the shipping and fees deducted from net proceeds by ThyssenKrupp. The Company
is entitled to payment for 90% of the shipment on transfer of title with 10% payable subsequently net of any adjustments to reflect
quality testing. The Company recognises 100% of the revenue on transfer of title where it is considered highly probable there will be
no reversals, having consideration of the independent quality tests performed prior to shipment.
Rare earth exploration and evaluation assets
All exploration and evaluation costs incurred are accumulated in respect of each identifiable project area. Costs which are classified as
intangible fixed assets are only carried forward to the extent that they are expected to be recovered through the successful development
of the area or where activities in the area have not yet reached a stage which permits reasonable assessment as to whether the deposit
is commercially viable and technically feasible for extraction. Costs associated with exploration and evaluation include costs related to
trial mining and processing, when such activity is focused on improving the understanding of the ore body. Such costs include the cost
of mining, processing and sales costs for concentrate produced as a result of trial mining activities. An adjustment is recorded to cost of
sales to eliminate the margin generated on revenue during this period with a corresponding reduction in capitalised costs.
Pre-licence/project costs are written off immediately. Other costs are also written off unless the Board has determined that the project
is commercially viable and technically feasible for extraction, or the determination process has not been completed. Accumulated cost
in relation to an abandoned area are written off in full to the statement of comprehensive income in the year in which the decision to
abandon the area is made.
Exploration and evaluation assets associated with an identifiable project area are transferred from intangible fixed assets to tangible
fixed assets as “mine development costs” when the commercial viability and technical feasibility of extracting the deposit has been
established. This includes consideration of a variety of factors such as whether the requisite permits have been awarded, whether
funding required for development is sufficiently certain of being secured, whether an appropriate mining method and mine
development plan is established and the results of exploration data including internal and external assessments.
Property, plant and equipment
Property, plant and equipment consists of plant and machinery, mine development costs, motor vehicles, computer equipment,
and office furniture and fittings.
Property, plant and equipment is initially recognised at cost and subsequently stated at cost less accumulated depreciation and any
impairment. The cost of acquisition is the purchase price and any directly attributable costs of acquisition or construction required to
bring the asset to the location and condition necessary for the asset to be capable of operating in the manner intended by management.
The Company assesses the stage of a mine development project to determine when it has reached commercial production, at which
point the relevant assets begin to be depreciated. The criteria used to assess the date at which commercial production is achieved, being
the point at which the mine is ready for its intended use and operating in the manner intended by management, include: completion of a
reasonable period of testing, the ability to sustain commercial levels of production, and engineering sign off on the plant performance. In
the case of new mining sites, commercial production is deemed to have been met when the site has received all necessary permits and
approvals (including a certificate of environmental conformity) and is in operation as a mine. Prior to this period, any costs associated
with the mine site are capitalised.
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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
Depreciation incurred on equipment used in exploration is capitalised to exploration and evaluation costs.
Impairment of exploration and evaluation assets
Exploration and evaluation assets are reviewed regularly for indicators of impairment following the guidance in IFRS 6 “Exploration
for and Evaluation of Mineral Resources” and tested for impairment where such indicators exist. In addition, these assets are tested
for impairment prior to transfer to mine development costs.
In accordance with IFRS 6 the Group considers the following facts and circumstances in their assessment of whether the Group’s
exploration and evaluation assets may be impaired:
• whether the period for which the Group has the right to explore in a specific area has expired during the period or will expire
in the near future, and is not expected to be renewed;
• whether substantive expenditure on further exploration for and evaluation of mineral resources in a specific area is neither budgeted
nor planned;
• whether exploration for and evaluation of reserves in a specific area have not led to the discovery of commercially viable quantities
of mineable material and the Group has decided to discontinue such activities in the specific area; and
• whether sufficient data exists to indicate that although a development in a specific area is likely to proceed, the carrying amount
of the exploration and evaluation assets is unlikely to be recovered in full from successful development or by sale.
If any such facts or circumstances are noted, the Group, as a next step, perform an impairment test in accordance with the provisions
of IAS 36. In such circumstances the aggregate carrying value of the exploration and evaluation asset is compared against the expected
recoverable amount of the cash generating unit. The recoverable amount is the higher of value in use and the fair value less costs to sell.
Any impairment arising is recognised in the income statement for the year.
Impairment of property, plant and equipment
A review is carried out at each balance sheet date to determine whether there is any indication that tangible fixed assets should be
impaired. Assets are assessed for indicators of impairment (and subsequently tested for impairment if an indicator exists) at the level of
a Cash Generating Unit (“CGU”). A CGU is the smallest group of assets that generates cash inflows from continuing use. If an indication
of impairment exists, the recoverable amount of the asset or CGU is determined. The recoverable amount is the higher of value in use
and the fair value less cost to sell. In assessing the value in use the expected future cash flows from the assets are determined based
on estimates of the life of mine production plans together with estimates of future rare earth prices, capital expenditure necessary to
extract the deposit included in the life of mine plan, cash costs and applying a discount rate to the anticipated risk adjusted future
cash flows.
An impairment is recognised immediately as an expense to the extent that the carrying amount exceeds the assets’ recoverable amount.
Where there is a reversal of the conditions leading to an impairment, the impairment is reversed through the income statement.
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Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS CONTINUED
For the year ended 30 June 2020
2. ACCOUNTING POLICIES CONTINUED
Leases
For leases from the IFRS 16 transition date of 1 July 2019, at inception of a contract, the Group assesses whether a contract is, or
contains a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset, for a period
of time, in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group
assesses whether:
•
the contract involves the use of an identified asset. This may be specified explicitly or implicitly and should be physically distinct or
represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the
asset is not identified;
the Group has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and
the Group has the right to direct the use of the asset. The Group has the right when it has the decision-making rights that are most
relevant to changing how and for what purposes the asset is used. In rare cases where the decision about how and for what purpose
the assets is used is predetermined, the Group has the right to direct the use of the asset if either:
-
-
the Group has the right to operate the asset; or
the Group designed the asset in a way that predetermines how and for what purpose it will be used.
•
•
At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract
to each lease component on the basis of their relative stand-alone prices.
The right-of-use asset is initially measured at the present value of the remaining lease payments, discounted using the incremental
borrowing rate.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease
term. In addition, impairment indictors for the right-of-use asset is assessed annually and will be adjusted for certain remeasurements of
the lease liability.
The lease liability is initially measured at the present value of the remaining lease payments, discounted using the incremental borrowing
rate. The liability is subsequently measured at amortised cost using the effective interest method. Lease payments are apportioned
between the finance charges and reduction of the lease liability using the incremental borrowing rate implicit in the lease to achieve
a constant rate of interest on the remaining balance of the liability.
For leases prior to transition of 1 July 2019 where assets are financed by leasing agreements that give rights approximating to ownership
(finance leases), the assets are treated as if they had been purchased outright. The amount capitalised is the present value of the
minimum lease payments payable over the term of the lease. The corresponding leasing commitments are shown as amounts payable to
the lessor. Depreciation on the relevant assets is charged to profit or loss over the shorter of estimated useful economic life and the term
of the lease.
Lease payments are analysed between capital and interest components so that the interest element of the payment is charged to profit
or loss over the term of the lease and is calculated so that it represents a constant proportion of the balance of capital repayments
outstanding. The capital part reduces the amounts payable to the lessor.
All other leases are treated as operating leases. Their annual rentals are charged to profit or loss on a straight-line basis over the term
of the lease.
Environmental rehabilitation costs
An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the
development or ongoing production of a mining property. Such costs arising from the decommissioning of plant and other site
preparation work, discounted to their net present values, are provided for in full as soon as the obligation to incur such costs arises and
can be quantified. On recognition of a full provision, an addition is made to property, plant and equipment of the same amount; this
addition is then charged against profits on a unit of production basis over the life of the mine. Closure provisions are updated annually
for changes in cost estimates as well as for changes to life of mine, with the resulting adjustments made to both the provision balance
and the net book value of the associated non-current asset.
Inventory
Stockpiles of ore (whether Run of Mine “RoM” ore, concentrate stockpiles pre-shipment, or concentrate in transit but not yet sold) are
valued at the lower of historic cost and net realisable value. Historic cost is based on an allocation of mining costs and (in the case of
concentrates) processing costs incurred in bringing the stockpiles to their finished condition for transportation at the period end
(including plant running costs, haulage costs from the mine site to the plant, and transportation costs to the port of sale). Realisable
value is based on an estimate of selling price less shipment costs, royalties, and other fees to be incurred in the course of the sales
process. Inventory stockpile costs do not include an allocation of support costs.
Inventory spares (including tools, parts for equipment, and stocks of consumables) are also valued at the lower of historic cost and
realisable value, where material. Spares are reviewed at each period end for obsolescence, with provisions applied to those stock lines
whose value in use and re-sale value is uncertain.
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Taxation
Current tax is based on the estimated taxable profit for the period. Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never
taxable or deductible. When no taxable profit arises, current tax includes a minimum tax charge in Burundi calculated as 1% of revenue.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the corresponding tax bases used in the computation of taxable profit. It is accounted for using the
balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be
utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Convertible loan notes
Upon issue of a new convertible loan, where the convertible option involves the receipt of a fixed amount of proceeds for a fixed
number of shares to be issued on any conversion, the net proceeds received from the issue of convertible loan notes are split between
a liability element and an equity component at the date of issue. The fair value of the liability component is estimated by discounting the
contractual future cash flows at the prevailing market interest rate for similar non-convertible debt. The difference between the
proceeds of issue of the convertible loan notes and the fair value assigned to the liability component, representing the embedded option
to convert the liability into equity of the Group, is included in equity and is not re-measured.
Subsequent to the initial recognition the liability component is measured at amortised cost using the effective interest method.
On conversion, the liability is reclassified to equity and no gain or loss is recognised in profit or loss. The finance costs recognised
in respect of the convertible borrowings includes the accretion of the liability.
When the terms of a new convertible loan arrangement are such that the option will not be settled by the Company in exchange for
a fixed number of its own equity instruments for a fixed amount of cash, the convertible loan (the host contract) is either accounted for
as a hybrid financial instrument and the option to convert is an embedded derivative or the whole instrument is designated at fair value
through profit and loss.
Where the instrument is bifurcated, the embedded derivative, where material, is separated from the host contract as its risks and
characteristics are not closely related to those of the host contract. At each reporting date, the embedded derivative is measured at fair
value with changes in fair value recognised in the income statement as they arise. The host contract carrying value on initial recognition
is based on the net proceeds of issuance of the convertible loan reduced by the fair value of the embedded derivative and is
subsequently carried at each reporting date at amortised cost. The embedded derivative and host contract are presented under separate
headings in the statement of financial position. Where the instrument as a whole is designated at fair value the instrument is measured at
fair value subsequent to initial recognition and changes in fair value recorded in finance costs.
Prior to conversion the embedded derivative or fair value through profit and loss instrument is revalued at fair value. Upon conversion of
the loan, the liability, including the derivative liability where applicable, is derecognised in the statement of financial position. At the same
time, an amount equal to the redemption value is recognised within equity. Any resulting difference is recognised in retained earnings.
In respect of transaction costs, where transaction costs arise in respect of instruments recorded at fair value through profit and loss they
are expensed as incurred. Where costs relate to an instrument containing a host liability and derivative the portion attributable to the host is
treated as a deduction against the liability and amortised over the term whilst the portion related to the derivative is expensed immediately.
Where loan notes are entered into with shareholders and the terms of the arrangement are considered to reflect the holder is acting
in their capacity as a shareholder rather than a lender the effect of discounting the loan liability component at a market rate of interest
versus the coupon is recorded in equity. Where a loan note is extinguished and replaced with an amended loan note, the difference in
fair value of the new loan note and the extinguished instrument is recorded in equity.
Equity facilities
Where the Company enters into equity drawdown facilities, whereby funds are drawn down initially and settled in shares at a later
date, those shares are recorded initially as issued at fair value based on management’s best estimation, with a subsequent revaluation
recorded based on the final value of the instrument at the date the shares are issued or allocated. Where the value of the shares is fixed
but the amount is determined later, the fair value of the shares to be issued is deemed to be the value of the amount drawn down, less
any transaction and listing costs.
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Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS CONTINUED
For the year ended 30 June 2020
2. ACCOUNTING POLICIES CONTINUED
Financial instruments
Financial assets and financial liabilities are recognised on the statement of financial position when the Group becomes a party to the
contractual provisions of the instrument.
•
Financial assets
Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with a maturity of three months or less.
Trade and other receivables are measured at initial recognition at fair value and are subsequently measured at amortised cost using the
effective interest method. A provision is established when there is objective evidence that the Group will not be able to collect all amounts due.
The Group assesses on a forward-looking basis the expected credit losses, defined as the difference between the contractual cash flows
and the cash flows that are expected to be received, associated with its assets carried at amortised cost. The impairment methodology
applied depends on whether there has been a significant increase in credit risk. For trade receivables only, the simplified approach permitted
by IFRS 9 is applied, which requires expected lifetime losses to be recognised from initial recognition of the receivables.
Losses are recognised in the income statement. When a subsequent event causes the amount of impairment loss to decrease,
the decrease in impairment loss is reversed through the income statement
•
Financial liabilities
Loans, borrowings and trade and other payables are initially measured at fair value and are subsequently measured at amortised
cost using the effective interest rate method. They are classified as current liabilities unless the company has an unconditional
right to defer settlement of the liability for at least 12 months after the statements of financial position date.
Convertible loan notes are recorded in line with the policy above.
Equity instruments issued to a creditor to extinguish all or part of a financial liability are initially recognised at their fair value. If their fair
value cannot be determined, the equity instruments are measured to reflect the fair value of the financial liability extinguished. The
difference between the carrying amount of the financial liability extinguished and the consideration paid is recognised in profit or loss.
Share capital
Ordinary shares are classified as equity and are recorded at the proceeds received, net of any direct issue costs.
The nature of the Company’s reserves is set out in note 21.
Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker.
The chief operating decision maker has been identified as the Chief Executive Officer. It is considered that there is only one segment of
the Group being its rare earths project. All revenues from the project are generated in Burundi and sales are exclusively made to a single
customer, Thyssenkrupp Materials Trading GmbH, with whom the Company has a 10-year offtake agreement signed in 2014.
Share options
Equity-settled share-based payments to employees and Directors are measured at the fair value of the equity instrument. The fair value
of the equity-settled transactions with employees and Directors is recognised as an expense over the vesting period. The fair values of
the equity instruments are determined at the date of grant, taking into account market based vesting conditions.
The fair values of share options are measured using the Black Scholes model. The expected life used in the models is adjusted, based
on management’s best estimate of the effects of non-transferability, exercise restrictions and behavioural considerations.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the
performance and/or service conditions are fulfilled, ending on the date on which the relevant employees (or other beneficiaries) become
fully entitled to the award (“the vesting date”).
The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent
to which the vesting period has expired and the Company’s best estimate of the number of equity instruments that will ultimately vest.
The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning
and end of that period.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition,
which are treated as vesting irrespective of whether the market condition is satisfied, provided that all other performance and/or service
conditions are satisfied.
Warrants
Warrants issued are recognised at fair value at the date of grant. The fair value is measured using the Black-Scholes model. Where
warrants are issued in respect of services provided, the fair value is expensed on a straight-line basis over the vesting period (if
applicable). Where warrants are considered to represent a transaction cost attributable to a liability recorded at amortised cost the fair
value is deducted from the liability and amortised subsequently through the effective interest rate. Where a fixed number of warrants are
issued and the exercise price is in the functional currency of the issuer the warrant fair value is credited to equity. Where the number of
warrants are fixed but the exercise price is in a currency other than the functional currency of the issuer the instrument fails the “fixed-
for-fixed” criteria and is recognised as a financial liability at fair value through profit and loss.
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3. ACCOUNTING JUDGMENTS AND ESTIMATIONS
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions
that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated
assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances,
the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision affects both current and future periods. Key sources of judgment are:
Transfer of mine development costs to exploration and evaluation assets (note 11 and 12)
A review of the Group’s strategy in July and August 2019 resulted in a strategic change in the business, to focus on exploration and
evaluation of the wider Gakara licence to target a larger scale mining operation, initially focused on producing 5,000tpa rare earth
concentrate with modular growth envisaged to an ultimate 20,000tpa scale, rather than the previous small scale mining by hand of high
grade veins. The strategic review concluded that, while the deposit has considerable potential, more extensive exploration work aimed at
understanding and defining the orebody, together with trial mining and processing work to provide data on the mineralised portions of
the stockwork vein systems across the licence and determine the optimal mining and processing methods for a larger operation, was
required. Such activities are intended to support an eventual JORC Resource Statement and feasibility study for the scale operation.
Management determined that it was appropriate to transfer US$5.4 million of mine development costs to exploration and evaluation
assets with effect from 1 September 2019 as the assets would contribute to the exploration activities being undertaken on the wider
licence area under the revised strategy. In doing so, management applied judgment based on the specific facts and circumstances and
considered the underlying nature of the assets which included data and knowledge from historical exploration activities that would be
integral to the exploration program under the revised strategy.
Costs associated with the trial mining and processing operations, net of margin on associated revenue earned, have been capitalised
as part of the exploration and evaluation assets with effect from 1 September 2019 along with costs associated with the ongoing
exploration activity across the licence in accordance with the Group accounting policy. Judgment was required in determining the date
at which such cost capitalisation commenced considering the timing of the strategic review being sufficiently concluded. In concluding
that the costs met the cost capitalisation criteria under the Group’s accounting policy for exploration and evaluation assets management
considered the nature of the trial mining and processing activities, its objective and contribution to the exploration and evaluation
activities.
Impairment indicator assessment for exploration and evaluation assets (note 11)
Judgment was required in determining whether indicators of impairment existed at 30 June 2020 for the Group’s exploration and
evaluation assets. The Board assessed factors including the remaining licence term, the plans for future exploration and the results
of activities to date together with the strategic plans for the asset and concluded no impairment indicators applied.
Going concern (note 2)
Refer to note 2 for judgments in respect of the going concern basis of preparation.
Key sources of estimation uncertainty are:
Impairment to the carrying value of plant, property and equipment at 30 June 2019 (note 12)
The Group assessed at 30 June 2019 whether an indication existed that suggests the Company’s fixed assets may need to be impaired.
In accordance with accounting policies, should such an indication exist, then the Company would estimate the recoverable amount of
the asset or, where applicable, the cash generating unit to which it belongs. The recoverable amount is assessed by reference to the
higher of “value in use” (being the net present value of expected future cash flows of the relevant cash generating unit) and “fair value
less cost to sell”.
At 30 June 2019, the carrying value of the Company’s PP&E in respect of the Gakara project was US$11.2 million.
The review of production strategy shortly after year-end indicated that the previous method of focussing on high-grade veins
was unlikely to be profitable in the foreseeable future.
Management thus considered this change in outlook to be an indicator of potential impairment at 30 June 2019 in respect of the
carrying values of the processing plant at Kabezi, and the Gasagwe and Murambi pits, whose profitability was predicated on mining and
processing high grade ores. As the future profitability of high-grade ore mining and processing could not be determined with reasonable
confidence, management judged that the carrying value of these assets should be fully written down, and a charge of US$3.9 million was
recorded in the accounts at 30 June 2019.
Management considered whether impairment was required in respect of the remaining assets associated with the Gakara licence,
primarily related to equipment and historic costs associated with the exploration of the wider licence area. Shortly after the year end,
the Company concluded a placing at a share price of 3 pence per share, at which level the Company had a market capitalisation in excess
of US$13 million, and on this basis, together with consideration of the plans for the revised exploration strategy, management concluded
that no further impairment of the remaining assets at the Gakara level was required.
Rainbow Rare Earths Limited Annual Report & Accounts 2020
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Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS CONTINUED
For the year ended 30 June 2020
3. ACCOUNTING JUDGMENTS AND ESTIMATIONS CONTINUED
Pipestone loan (note 17)
Warrants were issued by the Company in lieu of interest on the first Pipestone loan as set out in note 17. The fair value of the warrants
was calculated using a Black-Scholes model whose input assumptions are derived from market and other internal estimates. The key
estimates included volatility rates and the expected life of the warrants. Judgement was required in assessing that the market rate of
interest applicable to the first Pipestone loan was equivalent to the US$50,000 calculated value of the warrants issued. This included
estimating the timing of the repayment of the loan, which occurred on a funding event in June 2020 ahead of the final maturity date
in February 2021.
Judgment was required when assessing the market rate of interest applicable to the second Pipestone loan and estimating the timing
of cash flows used in determining the effective interest rate as the loan is repayable at the earlier of a US$3 million funding event or the
final maturity date of 31st December 2021. Management concluded that the funding event would arise prior to the maturity date for the
calculation and this required judgment. Additionally, as the loan was provided by the Group’s Chief Executive Office who is also
a shareholder, judgment was required in determining that difference between the market rate of interest and the zero coupon
represented a shareholder contribution of US$60,000 recorded in equity.
Decommissioning, site rehabilitation and environmental costs (note 18)
The Group’s mining and exploration activities are subject to various laws and regulations governing the protection of the environment.
The Group recognises management’s best estimate of the rehabilitation costs in the period in which they are incurred. Actual costs
incurred in future periods could differ materially from the estimates. Additionally, future changes to environmental laws and regulations,
life of mine estimates and discount rates could affect the carrying amount of this provision. The Board assessed the extent of
rehabilitation and decommissioning required as at 30 June 2020 and concluded that a provision of US$100,000 should be recognised
in respect of future rehabilitation obligations at the Kabezi plant site, and the Gasagwe and Murambi mining areas.
4. LOSS FROM OPERATING ACTIVITIES
Operating loss includes:
Share-based payment
Audit of the Group and Company financial statements
Non-audit service fees
Depreciation
Impairment
Loss on disposal of fixed assets
30 June 2020 30 June 2019
US$’000
(62)
(101)
(2)
(2,570)
(3,854)
-
US$’000
(7)
(101)
(2)
(279)
-
(5)
The non-audit services provided by the Company’s auditors BDO LLP during the year related to a review of the unaudited interim results
for the six months to 31 December 2019.
5. FINANCE INCOME
Interest received
Foreign exchange gains
30 June 2020 30 June 2019
US$’000
1
354
355
US$’000
2
854
856
Foreign exchange gains in the current and prior periods mainly relate to gains on translation of funds from US dollars to Burundian
Francs (“BIF”) plus the settlement of liabilities in Burundi denominated in BIF.
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6. FINANCE COSTS
Charges related to the Lind Facility
Interest on Pella bridge loan
Interest on Pipestone bridge loan
Interest on bank borrowing
Bank charges
Interest on lease liabilities (2018: finance leases)
30 June 2020 30 June 2019
US$’000
2,473
4
-
139
23
5
2,644
US$’000
-
-
53
118
19
19
209
Details of the Group’s borrowings are set out in note 17 and in respect of the Lind facility note 31. The interest charge on bank borrowing
during the year related primarily to the BIF denominated loan with Finbank which carries an interest rate of 15%.
7. REMUNERATION OF KEY MANAGEMENT PERSONNEL
Key management personnel are defined as being Executive and Non-executive Directors and Persons Discharging Managerial
Responsibility (“PDMRs”), who are in effect the members of the Executive Committee and are set out on pages 26 to 27.
Their remuneration for the 12 months ended 30 June 2020 and 30 June 2019 is summarised as follows:
Wages and salaries
Benefits
Share-based payments
Total remuneration of key management personnel
Benefits paid to employees include healthcare and pension contributions.
8. TOTAL EMPLOYEE REMUNERATION (INCLUDING KEY MANAGEMENT PERSONNEL)
Wages and salaries
Benefits
Share-based payments
Total employee remuneration
30 June 2020 30 June 2019
US$’000
1,192
54
192
1,438
US$’000
1,129
22
7
1,158
30 June 2020 30 June 2019
US$’000
2,433
140
192
2,765
US$’000
1,865
82
7
1,954
Staff costs includes amounts settled by shares as follows:
• US$54,000 of non-executive director fees relating to the year ended 30 June 2019 settled via the issue of 1,388,887 ordinary shares
at a price of £0.03 per share in July 2019.
• US$131,000 of deferred bonuses relating to the year ended 30 June 2018 settled via the issue of 3,470,716 ordinary shares at a price
of £0.03 per share in July 2019.
• US$95,000 paid to non-executive directors for H1 2020 fees settled via the issue of 2,534,604 ordinary shares at a price of £0.03 per
share in June 2020.
The average number of employees during the period were made up as follows
Directors
Management and administration
Mining, processing and exploration staff
30 June 2020 30 June 2019
US$’000
6
10
190
206
US$’000
6
16
251
273
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Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS CONTINUED
For the year ended 30 June 2020
9.
INCOME TAX EXPENSE
Withholding tax
Current tax expense
Land tax
Mining convention community tax
Total tax expense for the year
30 June 2020 30 June 2019
US$’000
58
23
20
30
131
US$’000
-
9
-
-
9
The income tax charge in the year relates to a minimum tax in Burundi for accounting periods where no taxable profits are reported
calculated as 1% of revenue (2019: 1.5% of revenue).
The difference between the total tax expense shown above and the amount calculated by applying the standard rate of corporation tax
to the loss before tax is as follows:
Loss for the year before tax
Income tax using the Guernsey rate of 0%:
Effects of:
Differences in tax rates
Disallowed expenses (impairment)
Minimum income tax based on revenue in Burundi
Tax losses carried forwards
30 June 2020 30 June 2019
US$’000
(12,146)
US$’000
(1,517)
-
(5)
-
9
5
9
-
(2,328)
1,156
-
1,172
-
Rainbow Rare Earths Limited and Rainbow International Resources Limited are subject to 0% income tax in Guernsey and the British
Virgin Islands respectively. Rainbow Rare Earths UK Limited, which was established on 1 April 2017, is subject to an income tax rate in
United Kingdom of 19%. In Burundi, Rainbow Burundi SPRL and Rainbow Mining Burundi SM are subject to corporation tax at 30%.
No deferred tax asset has been recognised in respect of the tax losses carried forward as the recoverability of this benefit is dependent
on the future profitability of the individual entities within the Group, the timing of which is considered insufficiently certain. The total
unrecognised potential deferred tax assets in respect of losses carried forward in Rainbow Rare Earths UK Limited are US$29,000 (30
June 2019: US$12,000), Rainbow Burundi SPRL US$98,000 (30 June 2019: US$104,000), and Rainbow Mining Burundi SM US$1,371,000
(30 June 2019: US$1,348,000).
10. LOSS PER SHARE
The earnings per share calculations for 30 June 2020 reflect the changes to the number of ordinary shares during the period.
At the start of the year, 216,339,000 shares were in issue. During the year, a total of 205,642,551 new shares were allotted
(see note 19 Share Capital) and on 30 June 2020, 421,981,551 shares were in issue. The weighted average of shares in issue
in the year was 373,141,644.
Earnings per share have been calculated using the weighted average of ordinary shares. The Company was loss making for all periods
presented, therefore the dilutive effect of share options has not been taken account of in the calculation of diluted earnings per share,
since this would decrease the loss per share for each reporting period.
At 30 June 2019
At 30 June 2020
Weighted number of
ordinary shares
193,843,716
373,141,644
Basic and diluted
Loss for the year (US$’000) attributable to ordinary equity
Weighted average number of ordinary shares in issue during the year
Loss per share (cents)
2020
(2,174)
373,141,644
(0.58)
2019
(11,492)
193,843,716
(5.93)
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11. EXPLORATION AND EVALUATION ASSETS
At 1 July 2018 and 1 July 2019
Transferred from Property Plant & Equipment
Additions
At 30 June 2020
US$’000
-
5,417
2,155
7,572
Refer to note 3 for details of the transfer from property, plant and equipment. The unaudited interim accounts for the period ended
31 December 2019 indicated that US$6.2 million was transferred from property, plant and equipment to exploration and evaluation
asset on 1 July 2019 with no depreciation recognised prior to transfer. The unaudited income statement included all costs and revenues
relating to the trial mining and processing activities, resulting in a reported loss before tax of US$1.8 million. In preparing the financial
statements for the year-end 30 June 2020 the assumptions inherent in the unaudited interim accounts relating to the date of transfer
and the nature of the ongoing trial mining and processing activities, and the relevant accounting treatment thereof, were refuted and
reassessed as disclosed in note 3. As a result, the transfer from property, plant and equipment to exploration and evaluation costs was
reduced by US$0.8 million to US$5.4 million and US$0.7 million of costs and revenues relating to trial mining and processing in October
to December 2019 have been capitalised rather than being recognised in the income statement.
Included within additions is US$422,000 (2019: Nil) related to gross revenues earned during the exploration phase which represent
a contribution towards exploration costs incurred.
FinBank SA hold security over the fixed and floating assets of Rainbow Mining Burundi SA which include US$6.6 million of exploration
and evaluation assets associated with the Gakara mining permit in Burundi.
12. PROPERTY, PLANT AND EQUIPMENT
US$’000
Cost
At 1 July 2018
Additions
At 1 July 2019
Additions
Disposals
Transfer to Intangible Fixed assets
At 30 June 2020
Depreciation
At 1 July 2018
Impairment in the year
Charge for year
At 1 July 2019
Charge for year
Eliminated on disposals/transfers
Transfer to Intangible Fixed assets
At 30 June 2020
Net Book Value at 30 June 2020
Net Book Value at 30 June 2019
Net Book Value at 30 June 2018
Mine
development
costs
Plant &
machinery
Vehicles
Office
equipment
Mine
restoration
7,791
1,526
9,317
-
-
(9,134)
183
-
1,529
1,981
3,510
254
(3,717)
47
136
5,807
7,791
2,665
-
2,665
-
-
-
2,665
-
2,235
430
2,665
-
-
-
2,665
-
-
2,665
709
-
709
370
(5)
-
1,074
-
-
142
142
157
(1)
-
298
776
567
709
24
17
41
8
(4)
-
45
-
-
7
7
9
(1)
-
15
30
34
24
60
40
100
-
-
(100)
-
-
90
10
100
-
-
(100)
-
-
-
60
Total
11,249
1,583
12,832
378
(9)
(9,234)
3,967
-
3,854
2,570
6,424
420
(2)
(3,817)
3,025
942
6,408
11,249
Depreciation of US$157,000 relating to mining vehicles and site infrastructure was capitalised in the year as part of Exploration
and Evaluation costs.
FinBank SA hold security over the fixed and floating assets of Rainbow Mining Burundi SA which include US$941,000 of tangible fixed
assets in Burundi.
13. INVENTORY
Finished goods
Consumables
Total inventory
30 June 2020 30 June 2019
US$’000
95
3
98
US$’000
142
25
167
Finished goods represents 132 tonnes (2019: 51 tonnes) of rare earth concentrate available for export at the Kabezi processing plant,
which has been valued at net realisable value, US$147,000 lower than the cost of production. Movements in the value of finished goods
are recognised within exploration and evaluation cost additions in the year ended 30 June 2020 to the extent they arose after
1 September 2020 as explained in note 3.
Consumables relates to fuel stocks at 30 June 2020.
Rainbow Rare Earths Limited Annual Report & Accounts 2020
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Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS CONTINUED
For the year ended 30 June 2020
14. TRADE AND OTHER RECEIVABLES
Accrued income
VAT recoverable
Prepayments
Royalty receivables
Deposits paid
Sundry debtors
Total trade and other receivables
30 June 2020 30 June 2019
US$’000
17
99
124
265
-
-
505
US$’000
15
24
18
306
16
559
938
VAT recoverable relates to the input VAT recoverable in Burundi and UK.
Accrued income represents the cash due from the sale of concentrate which took place prior to 30 June, but for which cash was not
received until after year end.
The US$306,000 (2019: US$265,000) in respect of royalty receivables arises because the royalty payments up to 30 June 2020 have
been based on the total basket price of exports, rather than on the discounted price received from the Company’s customer
ThyssenKrupp. Subsequent to the year end the Government of Burundi has accepted the recommendations of a report published in July
2019 by SRK, commissioned by the World Bank at the request of Rainbow and the government, into the reasonableness of the discount
received by Rainbow and has agreed to repay the difference.
Sundry debtors represent proceeds from the placement announced on 22nd June 2020, set out in note 19, of which US$559,000 has
been received to date.
Expected credit losses were assessed at 30 June 2020 considering various potential scenarios, information regarding the counterparty
credit risk, the historical payment profiles and forward looking factors. No expected credit loss provision was considered necessary.
15. CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Total cash at bank and in hand
No cash amounts were restricted at 30 June 2020 (30 June 2019: nil).
16. TRADE AND OTHER PAYABLES
Trade payables
Accrued expenses
Taxes and social security
Amounts due to staff and management
Pension contributions
Other payables
Total trade and other payables
30 June 2020 30 June 2019
US$’000
119
119
US$’000
788
788
30 June 2020 30 June 2019
US$’000
1,074
358
82
517
3
63
2,097
US$’000
261
233
22
133
3
46
698
The Directors consider that the carrying value of trade and other payables approximate to their fair value.
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17. BORROWINGS
Finbank Loan
Pella Convertible
Pipestone Loan
Warrant liability
Lease liabilities (note 23 – included in other creditors at 30 June 2019)
Other borrowings
Total borrowings
Lease liabilities fall due:
Due within one year
Due between 2 to 5 years
After 5 years
Other borrowings fall due:
Due within one year
Due between 2 to 5 years
The following table analyses the movement in borrowings:
30 June 2020
Borrowings brought forward
Cash flows from borrowings
Drawdown of borrowings
Repayment of borrowings
Payment of lease liabilities
Interest paid
Non-cash movement in borrowings
Reclassification of finance lease creditor
Recognition of right of use lease liabilities
Interest charge on borrowings
Settlement of borrowings in shares
Recognition of warrant liability
Settlement of interest via issue of warrants
Extinguishment of 1st Pipestone bridge loan
Drawn down of 2nd Pipestone bridge loan
Discount for deemed interest on related party loan
Other
Borrowings carried forward
30 June 2020 30 June 2019
US$’000
836
704
-
-
-
22
1,562
US$’000
762
-
868
50
128
-
1,808
33
56
39
128
1,093
587
1,680
-
-
-
-
1,562
-
1,562
30 June 2019
US$’000
US$’000
760
798
798
-
-
-
4
-
-
-
-
-
-
-
(521)
1,808
4
1,562
US$’000
US$’000
1,562
767
1,000
(74)
(22)
(137)
31
119
190
(779)
50
(50)
(925)
925
(60)
(22)
In addition, details of the Lind Facility relating to the year ended 30 June 2019 are set out in note 31.
Finbank Loan
The Bank borrowings relate to a loan facility with Finbank in Burundi that was converted from an overdraft facility in December 2019 for
a total of 1.5 billion BIF (US$799,000). It is expressed in BIF and carries an interest rate of 15%. Prior to the conversion the total amount
owing on the original overdraft was reduced and no overdraft remains at 30 June 2020.
Under the terms of this loan, Finbank has security over the fixed and floating assets of Rainbow Mining Burundi SA (“RMB”, the local
operating company in Burundi which owns the Gakara project and mining permit), the shares of RMB, and the cash held in RMB’s Finbank
bank accounts. Interest on the loan and overdraft account amounted to US$118,000 (2019: US$139,000), which was settled in cash.
Pella Bridge Loan
The Pella bridge loan was an unsecured bridge funding facility of US$0.7 million announced in May 2019, between the Company and
Pella Ventures Limited (an entity in which Adonis Pouroulis, Rainbow’s chairman and largest shareholder, has a beneficial interest).
The full amount was drawn in June 2019 at an interest rate of 15% per annum. The loan was settled via the issue of 18,636,040 new
Ordinary Shares at the same terms as issued to other investors in the placing completed in July 2019 as set out in note 19.
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Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS CONTINUED
For the year ended 30 June 2020
17. BORROWINGS CONTINUED
Pipestone Bridge Loan
On 21st February 2020 Pipestone Capital Inc, in which George Bennett, the Company’s CEO, has a beneficial interest, provided a
US$1 million unsecured bridging loan to the Company. The loan was advanced to provide short term capital to the Company to
safeguard Pipestone’s position as a significant shareholder ahead of what was expected to be a positive resource update followed
by a larger capital raise to secure the long term funding for the Company’s investment strategy.
The loan did not bear interest, with the finance cost provided by the issue of 2 million warrants with a 4 year life over the Company’s shares
at a strike price of 4.55p/share (a 30% premium to the 20 day VWAP and a 1.25p premium to the 3.3p/share closing mid-market price on
the date of the loan). The warrants have been valued at US$50,000 which equates to an interest rate of 15.0% over the expected life of the
loan and has been recognised as interest in the year. The warrants are recognised as a separate liability with a maturity in 2-5 years.
In June 2020 the original Pipestone loan was re-financed, with US$75,000 repaid via the issue of 1,993,779 shares as part of the equity
placing announced on 22nd June 2020 at a price of £0.03 per share. The remaining US$925,000 was extinguished and replaced with
a new, interest free, unsecured bridging loan of US$925,000 pending a larger capital raise expected following the announcement of the
Company’s updated resource statement. No further warrants were issued. The loan is repayable on the earlier of 31st December 2021
or the date of a fundraising by the Company to raise a minimum of US$3 million in new equity. At the election of Pipestone Capital Inc all
or part of the loan balance may be used to subscribe for shares as part of an equity fundraising triggering repayment on the same terms
and conditions applicable for all investors at the time of that fundraising.
As the loan was provided by an entity connected with a director of the Company on preferential terms it has been discounted at an
effective interest rate of 15% for an estimated 6 month term representing an arms-length short term loan and the discount recognised
in an equity reserve to be recognised as interest payable in the 2020-2021 financial year.
18. PROVISIONS
Rehabilitation provision
Total provisions
30 June 2020 30 June 2019
US$’000
100
100
US$’000
100
100
Rehabilitation provisions relate to the anticipated cost of restoring the operating sites at Kabezi, Gasagwe and Murambi.
19. SHARE CAPITAL
Share Capital
Issued Share Capital (nil par value)
The table below shows a reconciliation of share capital movements:
At 1 July 2018
August 2018 – share placing
January 2019 – collateral shares issued to Lind
March 2019 – Lind drawdown tranche 1
April 2019 – Lind drawdown tranche 2
May 2019 – Lind drawdown tranche 3
June 2019 – conversion of Lind Convertible
At 1 July 2019
July 2019 – share placing – cash receipts net of costs
July 2019 – share placing – employee bonuses and fees
July 2019 – Pella Convertible
July 2019 - Lind Convertible (see note 31)
June 2020 – share placing – cash receipts net of costs
June 2020 – share placing – non-executive director fees
June 2020 – partial repayment of Pipestone loan
At 30 June 2020
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30 June 2020 30 June 2019
US$’000
20,056
20,056
US$’000
28,132
28,132
Number of shares
174,760,472
13,146,873
7,500,000
3,425,728
5,132,067
3,927,500
8,446,360
216,339,000
121,207,779
4,859,603
18,636,040
19,272,462
37,138,284
2,534,604
1,993,779
421,981,551
US$’000
16,722
1,875
384
88
85
86
816
20,056
4,275
185
704
1,376
1,366
95
75
28,132
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On 3 July 2019 the Company issued 121.2 million new ordinary shares at a price of 3 pence per share, raising gross cash proceeds
of approximately US$4.6 million (before costs of US$0.3 million). At the same time the Company issued:
•
•
•
4.9 million new ordinary shares at a price of 3 pence per share as settlement of employee bonuses and non-executive director fees
18.6 million new ordinary shares at a price of 3 pence per share representing the settlement of the Pella loan.
19.3 million new ordinary shares representing the conversion of the Lind facility announced on 10th June at a conversion price
of 2.69 pence per share.
On 22 June 2020 the Company issued 37.1 million new ordinary shares at a price of 3 pence per share, raising gross cash proceeds
of approximately US$1.4 million (before costs of US$38,000). At the same time the Company issued:
•
•
2.5 million new ordinary shares at a price of 3 pence per share as settlement of non-executive director fees
2.0 million new ordinary shares at a price of 3 pence per share representing the partial settlement of the Pipestone loan.
These allotments included the following related parties:
Placing July 2019
Placing June 2020
Adonis Pouroulis (Director)
George Bennett (Director)
Alex Lowrie (Director)
Atul Bali (Director)
Robert Sinclair (Director)
Shawn McCormick (Director)
Martin Eales (Director)
Jim Wynn (PDMR)
Cesare Morelli (PDMR)
Gilbert Midende (PDMR)
Others (not related parties)
Total
No of shares
19,108,262
26,455,026
-
305,555
305,555
305,555
1,182,563
844,688
640,315
803,150
94,752,753
144,703,422
US$’000 No of shares
3,359,648
1,993,779
458,332
1,783,332
458,332
1,787,518
-
-
-
-
31,825,726
41,666,667
722
1,000
-
12
12
12
45
32
24
30
3,275
5,164
US$’000
126
75
17
67
17
67
-
-
-
-
1,167
1,536
The share placing in August 2018 and the three Lind drawdowns in 2019 together represent net cash proceeds of shares issued
in the period of US$2.1 million (US$2.35 million gross less transaction costs of US$0.21 million).
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$0.2 million). These allotments included the following related parties:
Adonis Pouroulis (Director)
Robert Sinclair (Director)
Atul Bali (Director)
Martin Eales (Director)
Jim Wynn (PDMR)
Others (not related parties)
Total
No of shares
2,496,917
291,624
416,667
83,333
58,333
9,799,999
13,146,873
US$’000
389
45
65
13
9
1,527
2,049
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Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS CONTINUED
For the year ended 30 June 2020
20. SHARE OPTIONS AND WARRANTS
The total share-based payment charge for the year was US$7,000 (2019: US$62,000).
Employee share options
A total of 10,975,066 employee share options had been issued at 30 June 2019.
No new employee share options were granted and 5,483,666 share options lapsed during the period. The table below shows
the movement on share options held by PDMRs in the year:
A Pouroulis
A Pouroulis
R Sinclair
R Sinclair
A Lowrie
A Bali
C Morelli
G Midende
M Eales
S McCormick
S McCormick
J Wynn
B Jankowitz
Others
Options
held at
30 June 2019
402,000
500,000
350,000
500,000
500,000
500,000
944,700
944,700
2,916,666
350,000
500,000
1,250,000
1,250,000
67,000
10,975,066
Lapsed
during the
period
-
-
-
-
-
-
-
-
(2,916,666)
-
-
(1,250,000)
(1,250,000)
(67,000)
(5,483,666)
Granted
during the
Options
held at
Exercise
period 30 June 2020 price (pence) Date of grant
30-Jan-17
23-Aug-17
30-Jan-17
23-Aug-17
23-Aug-17
23-Aug-17
30-Jan-17
30-Jan-17
30-Jan-17
30-Jan-17
23-Aug-17
27-Jun-17
27-Jun-17
30-Jan-17
402,000
500,000
350,000
500,000
500,000
500,000
944,700
944,700
-
350,000
500,000
-
-
-
5,491,400
10.00
15.00
10.00
15.00
15.00
15.00
10.00
10.00
10.00
10.00
15.00
12.75
12.75
10.00
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
which first
tranche
exercisable
30-Jan-17
23-Aug-17
30-Jan-17
23-Aug-17
23-Aug-17
23-Aug-17
30-Jan-17
30-Jan-17
30-Jan-17
30-Jan-17
23-Aug-17
27-Jun-17
27-Jun-17
30-Jan-17
At 30 June 2020, the following employee share options were exercisable and outstanding:
Outstanding at 1 July 2019
Granted during the year
Exercised in the year
Lapsed or expired in the year
Outstanding at 30 June 2020
Average
weighted
exercise price
(pence)
11.77
-
-
11.25
12.28
Number
10,975,066
-
-
(5,483,666)
5,491,400
Fair value
(US$’000)
1,387
-
-
(658)
599
Lind Share Options
In January 2019, 16,718,987 share options were issued to Lind Partners with an exercise price of 5.28 pence. These were exercisable
immediately from the date of award for a period of 48 months. The Fair Value of these share options was estimated using a Black Scholes
model to be US$0.5 million. This cost was included under Finance Costs as part of the cost of the Lind Facility.
Warrants
On 9 November 2015 Rainbow Rare Earths issued 6,293 warrants for services with an exercise price of US$14.30 per warrant and a
contractual life of 5 years. The separable warrants were issued as consideration for arranging a funding transaction for the Company.
Following the share sub-division, the total warrants and exercise price have been adjusted on a pro rata basis in accordance with the
existing agreement.
On 21 February 2020, 2,000,000 warrants were issued to Pipestone Capital Inc, in which George Bennett, the Company’s CEO, has a
beneficial interest. The warrants were issued in lieu of interest on a US$1 million bridging loan provided to the Company as set out in note
17. The warrants have a contractual life of 4 years at an exercise price of 4.55 pence per warrant. The fair value of the warrants has been
estimated using a Black Scholes model to be US$50,000. This cost was included under Finance Costs as part of the cost of the Pipestone
Loan Facility. The Pipestone warrants are recognised as a financial liability at fair value through profit and loss.
At 30 June 2020, the following share warrants were outstanding:
Outstanding at 1 July 2019
Issued in the year
Exercisable at 30 June 2020
Number
427,924
2,000,000
-
Exercise
price
US$0.21
4.55 pence
-
Fair value
(US$’000)
40
50
-
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The Fair Value of share options and warrants awarded in the current and prior year was estimated using a Black-Scholes model.
The inputs into the Black Scholes were:
Share price (GBP pence)
Exercise price (GBP pence)
Expected volatility
Risk free rate
Rate of Exchange
Time to exercise (years)
Lind Share
Options
25 January
2019
3.9
5.28
90%
0.71%
1.32
4
Pipestone
Loan
Warrants
3.3
4.55
105.9%
0.45%
1.296
3
Expected volatility was determined as follows:
•
•
Lind Share options, by calculating the volatility of a basket of similar listed companies.
Pipestone Loan warrants, by calculating the annual volatility of the Company’s closing mid-market share price
on the London Stock Exchange.
The expected life used in the model has been on management’s best estimate for the effects of exercise restrictions and behaviour.
21. RESERVES
Reserve Purpose
Share capital Value of shares issued less costs of issuance
Shares to be issued Shares to be allotted in respect of equity commitments
Share-based payment reserve Fair value of share options issued
Warrant reserve Includes fair value of warrants issued
Translation reserve Gains/losses arising on retranslating the net assets of Rainbow Rare Earths UK Limited from GBP
to US Dollars
Other reserves Fair value adjustments for interest free loans
Accumulated losses Cumulative net losses recognised in the statement of comprehensive income
Non-controlling interest Amounts attributable to the 10% interest the State of Burundi has in Rainbow Mining Burundi SM
and 3% interest Gilbert Midende has in Rainbow Burundi SPRL at 30 June 2020. Refer to note 22
for further details and non-controlling interests for earlier periods
Details in the movements of these reserves are set out in the Statement of Changes in Equity.
22. NON-CONTROLLING INTEREST
The non-controlling interests of the Group’s partners in its operations are presented in the table below:
Name of subsidiary
Country
Effective non-controlling interest
Interest of non-controlling interest
As at 1 July 2018
Minority share of loss for year
As at 1 July 2019
Minority share of profit for year
At 30 June 2020
Assets at year-end:
30 June 2019
30 June 2020
Liabilities at year-end:
30 June 2019
30 June 2020
Profit/(loss) for the year to:
30 June 2019
30 June 2020
Rainbow
Burundi
SPRL
Burundi
US$’000
3%
Rainbow
Mining
Burundi SM
Burundi
US$’000
10%
6
-
6
1
7
1
1
313
295
-
18
33
785
818
59
877
6,447
8,964
14,608
17,069
(7,858)
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Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS CONTINUED
For the year ended 30 June 2020
23. LEASES
The Group leases two properties in Burundi which have been recognised in the year ended 30 June 2020 as right of use assets in
accordance with the requirements of IFRS 16. Both properties are subject to annual agreements. Right of use assets and lease liabilities
have been calculated by reference to the Group’s anticipated long-term intentions to renew the lease agreements, which are estimated
at 10 years (Bujumbura office) and 4 years (employee accommodation) respectively. The lessor for the employee accommodation is
Gilbert Midende, a PDMR and related party (see note 25 below),
Right of use assets
Right of use assets recognised in year
Depreciation in year
Balance as at 30 June 2020
Land and buildings
US$’000
119
(15)
104
In addition, the Group has a lease contract for land situated in Kabezi at the site of the processing plant, the final payments under which
are due in the year ended 30 June 2021 after which the land ownership remains with the Group. This had historically been accounted for
as a finance lease under IAS17 and the asset is included within Property, Plant and Equipment in note 11. The lessor, Gilbert Midende, is a
PDMR and a related party (see note 25 below),
Lease liabilities
As at 1 July 2019
Lease liabilities recognised in year
Finance charges
Lease payments
As at 30 June 2020
30 June 2020
US$’000
31
119
19
(41)
128
The lease liability at 30 June 2019 was included in other creditors within current liabilities. The following table reconciles the minimum
lease commitments at 30 June 2019 prior to the adoption of IFRS 16 to the amount of lease liabilities recognised in the year:
Minimum operating lease commitment at 30 June 2019
Plus: effect of extension options reasonably certain to be exercised
Less: short-term leases not recognised under IFRS16
Undiscounted lease payments
Less: effect of discounting using the incremental borrowing rate as at the date of initial application
Lease liabilities recognised in year
US$’000
42
173
(18)
197
(78)
119
The Group also leases a number of pieces of mining equipment on a week to week basis. The majority of these arrangements were
terminated during the year as the Group acquired its own vehicles. At 30 June 2020 the Group retains a single rented bulldozer, which it
intends to replace with a purchased unit as soon as funding allows. The Group has applied the exemption under IFRS 16 not to recognise
these short-term leases as right of use assets.
Payments under short term leases in the year ended 30 June 2020 totalled US$579,000 (30 June 2019: US$734,000). Due to the nature
of the contracts there is no commitment at year end.
24. CAPITAL COMMITMENTS
There were no capital commitments at 30 June 2020 (2019: nil). Under the terms of the Gakara Mining Convention there are no minimum
expenditure commitments in respect of exploration and evaluation activities.
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25. RELATED PARTY TRANSACTIONS
Artemis Trustees Limited 1
Gilbert Midende 2
Pella Ventures Limited 3
Uvumbuzi Resources Limited 4
Benzu Minerals (Pty) Limited 4
Pipestone Capital Inc 5
Year to 30 June 2020
Year to 30 June 2019
Charged
in year
US$’000
-
38
-
-
56
1,000
1,094
Settled Balance as at
in year 30 June 2020
US$’000
-
35
-
-
-
925
960
US$’000
-
(53)
(704)
-
(91)
(75)
(923)
Charged
in year
US$’000
32
43
704
38
90
-
907
Settled Balance as at
in year 30 June 2019
US$’000
16
18
704
-
35
-
(773)
US$’000
(16)
(25)
-
(38)
(55)
-
(134)
Notes
1.
Robert Sinclair, a Director of Rainbow Rare Earths Limited, resigned from Artemis Trustees Limited on 4th June 2019. Artemis Trustees Limited is therefore no longer a related party to
the Group
In addition to his salary, US$38,000 was charged by Gilbert Midende in the year ended 30 June 2020 in respect of leases (see note 23). The balance shown at 30 June 2020 relates to
amounts contractually due under leases rather than the lease liability recognised including expectations of future renewals.
Pella Ventures Limited, of which Adonis Pouroulis is the ultimate beneficial owner, provided a US$0.7 million bridge loan in June 2019 that was settled by the issue of shares in July
2019 as explained in note 17
Uvumbuzi Resources Limited and Benzu Minerals (Pty) Limited are connected to Cesare Morelli, the Group’s Chief Geologist, through which exploration services are provided to the
Group. In addition to the amounts disclosed, which relate to costs associated with the acquisition of exploration licences in Zimbabwe and exploration activities recharged, salary was
paid to Cesare Morelli via Benzu Minerals Limited and is included in remuneration disclosures for all key management personnel which has been disclosed in note 7
Pipestone Capital Inc, in which George Bennett, the Company’s CEO, has a beneficial interest, provided a US$1 million bridging loan to the Group in February 2020 as explained in note
17. In June 2020 US$75,000 was settled via the issue of ordinary shares as part of a placing as set out in note 19
2.
3.
4.
5.
In addition, subsequent to the year end a bridge loan totalling US$275,000 was received from related parties as disclosed in note 28.
26. INVESTMENT IN SUBSIDIARIES
The shareholdings in the Group’s subsidiaries for each year are set out below:
% Share
Country of Capital Held
Name of Company Principal Activity Incorporation 2020 2019
Rainbow International Resources Ltd Rare earth exploration British Virgin Islands 100% 100%
Rainbow Rare Earths UK Ltd Service Company United Kingdom 100% 100%
Rainbow Burundi SPRL Rare earth exploration Republic of Burundi 97% 97%
Rainbow Mining Burundi SM Rare earth mining Republic of Burundi 90% 90%
Rainbow Rare Earths Zimbabwe (Private) Limited Rare earth exploration Zimbabwe 100% N/A
a. Rainbow International Resources Limited, Rainbow Rare Earths UK Ltd and Rainbow Rare Earths Zimbabwe (Private) Limited
are all 100% owned by Rainbow Rare Earths Limited
b. 97% of shares in Rainbow Burundi SPRL and 90% of shares in Rainbow Mining Burundi SM are held by Rainbow International
Resources Limited
c. The government of Burundi has a 10% interest in Rainbow Mining Burundi SM granted in accordance with the Mining Code of Burundi
d. Gilbert Midende holds a 3% interest in Rainbow Burundi SPRL
27. CONTINGENT LIABILITIES
There were no contingent liabilities at 30 June 2020 (30 June 2019: nil).
28. POST BALANCE SHEET EVENTS
On 27 October 2020 the Group perceived a bridge loan totalling US$275,000 from related parties as set out below:
Name
George Bennett (via Pipestone Capital Inc)
Alex Lowrie
Atul Bali
Robert Sinclair
Shawn McCormick
Pete Gardner (via MPD Consulting Limited)
Total
The loans are repayable on the earlier of the Company raising US$1.0 million in equity or 31 December 2021.
US$’000
150
25
25
25
25
25
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Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS CONTINUED
For the year ended 30 June 2020
29. FINANCIAL RISK MANAGEMENT
The Group’s financial liabilities at each period end consist of bank borrowings, leases, unsecured loans and trade and other payables
(including accrued expenses). The warrants issued in lieu of interest for the Pipestone Loan, as set out in note 20, are measured at fair
value through profit or loss. All other liabilities are measured at amortised cost. These are detailed in notes 16, 17 and 23.
The Group has various financial assets, being trade and other receivables and cash, which arise directly from its operations.
All are classified as assets held at amortised cost. These are detailed in notes 14 and 15.
The fair values of the Group’s cash, trade and other receivables, borrowings, unsecured loans, leases, trade and other payables
and financial liabilities at fair value through profit and loss are considered to approximate book value.
The risks arising from the Group’s financial instruments are credit risk, liquidity risk and market risk (including interest risk and
currency risk). The risk management policies employed by the Group to manage these risks are discussed below.
Credit risk
Credit risk refers to the risk that the Group’s financial assets will be impaired by the default of a third party. The Group is exposed to credit
risk on its cash and cash equivalents as set out in note 15, with additional risk attached to other receivables set out in note 14. Credit risk
is managed by ensuring that surplus funds are held in the UK or Guernsey with well-established financial institutions of high-quality
credit standing. At 30 June 2020 83% of funds were held with a bank with a long term A- credit rating.
At 30 June 2020 the Company had the following material receivables:
• US$0.6 million due from investors relating to the placing carried out in June 2020 which has been received.
• US$0.3 million due from the Government of Burundi relating to royalty overpayments as set out in note 14.
Subsequent to the balance sheet date the Government has agreed to repay this amount.
Market risk
Market risk arises from the Company’s use of interest bearing, tradable and foreign currency financial instruments. It is the risk that the
fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk), foreign
exchange rates (currency risk) or other market factors (other price risk).
Currency risk
Currency risk refers to the risk that fluctuations in foreign currencies cause losses to the Group.
The Group is exposed to foreign exchange risk arising from various currency exposures primarily with respect to Sterling and the
Burundian Franc. However, management monitors the exchange rate fluctuations on a continuous basis and acts accordingly.
The financial assets and liabilities that include significant foreign currency denominated balances are shown below.
Foreign exchange risk is managed by minimising balances held in currencies other than US dollars, particularly Burundian Francs.
The table below shows the currency profiles of cash and cash equivalents:
Cash and cash equivalents
US Dollars
GB Pounds
Burundi Francs
30 June 2020 30 June 2019
US$’000
96
23
-
119
US$’000
245
471
72
788
The table below shows an analysis of the currency of the monetary liabilities in the functional currency of the Group (US dollars):
US Dollars
GB Pounds
Burundi Francs
South African Rand
30 June 2020 30 June 2019
US$’000
574
1,229
1,754
102
3,659
US$’000
1,229
218
1,023
7
2,477
The largest exposure and the least stable currency is the Burundi Franc. A 10% movement in the US$:BIF rate would have resulted
in a gain or loss of approximately US$0.1 million (2019: approximately US$0.2 million) in the income statement in relation to the cash
and cash equivalents and trade payables as at 30 June 2020. Movements in the exchange rates between the US dollar and the
South African Rand or GB Pound do not have a significant impact on the Group’s financial position.
Interest rate risk
Interest rate risk refers to the risk that fluctuations in interest rates cause losses to the Company.
The Group and Company have no exposure to interest rate risk except on cash and cash equivalents which carry variable interest rates. The
Group has no material sensitivity to reasonable changes in variable interest rates. The group monitors the variable interest risk accordingly.
The Group’s borrowings bear fixed rates of interest.
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Liquidity risk
Liquidity risk refers to the risk that the Group has insufficient cash resources to meet working capital requirements. The Group manages
its liquidity requirements by using both short and long-term cash flow projections. The following table sets out the contractual maturities
(representing undiscounted contractual cash-flows) of financial liabilities:
As at 30 June 2020
As at 30 June 2019
Trade and other payables
Loans and borrowings 1
Lease liabilities
Due
Due in
2 to 5
years
Due in
1 to 2
years
Due in
5 to 10
years
Due
within 1
year
Due in
5 to 10
years
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
-
-
-
-
Due in
Due in
within 1 1 to 2 years 2 to 5 years
years
years
-
1,249
31
1,280
2,097
1,562
60
3,719
698
324
49
1,071
-
297
60
357
-
-
51
51
-
-
18
18
-
-
-
-
year
1.
The Pipestone loan totalling US$925,000 has been included within amounts due in 1 to 2 years based on the contractual maturity. This loan is included in current liabilities on the
balance sheet on the basis that it is expected to be repaid within 12 months.
Ultimate responsibility for liquidity risk management rests with the Directors, who have built an appropriate liquidity risk management
framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group
closely monitors and manages its liquidity risk. For further details on the Group’s liquidity position, please refer to the going concern
paragraph in note 2 of these accounts.
Capital management
In managing the capital, the Group’s primary objective is to maintain a sufficient funding base, through debt and equity, to enable
the Group to meet its working capital and strategic investment needs. This includes ensuring sufficient funds are available to service
the Group’s borrowings as they fall due. No funds are held in restricted or designated accounts for future debt servicing requirements.
In making decisions to adjust its capital structure to achieve these aims the Group consider not only its short-term position but also its
long term operational and strategic objectives.
The Group’s primary capital management measure is net debt (borrowings less cash) to total equity, measured as follows:
Net debt/(net cash) to equity
Total borrowings (note 17)
Less: Cash and cash equivalents
Net debt
Total equity
Ratio
30 June 2020 30 June 2019
US$’000
1,562
(119)
1,443
3,371
43%
US$’000
1,808
(788)
1,020
7,905
13%
The decrease in net debt reflects the higher cash at the year-end due to the fundraising undertaken in June 2020.
30. NON-CASH TRANSACTIONS
Material non-cash transactions were as follows:
Year end 30 June 2020
•
•
•
•
Staff costs and non-executive director fees settled in shares in July 2019 and June 2020 as set out in note 19.
Settlement of the Pella convertible in shares in July 2019 as set out in note 19.
Settlement of the final balance of the Lind convertible in shares as set out in note 31 and note 19.
Settlement of US$75,000 from the Pipestone bridge loan in shares in June 2020 and interest paid on the Pipestone loan
in the form of warrants as set out in note 17.
Recognition of right of use assets under lease agreements as set out in note 23.
•
Year end 30 June 2019
•
•
•
The difference between amounts shown in the cash flow statement and finance costs and the finance income as detailed in note 5
Share-based payments, which have been recognised in the income statement
Partial settlement in shares of the Lind Convertible as set out in note 31 and note 19.
31. LIND FACILITY
The Lind Facility represented a finance arrangement entered into by the Company in January 2019 with The Australian Special
Opportunity Fund, LP, an entity managed by The Lind Partners LLC (“Lind”).
The facility consisted of three elements: an unsecured convertible security amount of US$750,000 (the “Lind Convertible”); a 24-month
equity drawdown facility of up to US$7.0 million; and share options.
On signing of the facility, the Company received net proceeds of US$775,000 – of which US$750,000 was in respect of the Lind
Convertible, US$100,000 was the first drawdown under the equity drawdown facility, and US$75,000 was withheld as a commitment fee.
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Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS CONTINUED
For the year ended 30 June 2020
31. LIND FACILITY CONTINUED
Upon the first advancement of funding, the Company issued 7,500,000 shares as collateral to Lind, to be used at Lind’s discretion
to satisfy future share allotments.
The Lind Convertible amount of US$750,000 had a two-year term and carried no coupon. It was convertible into Ordinary Shares of the
Company by reference to face value of US$900,000 after a minimum of four months from the date of the agreement (25 January 2019).
The conversion price was determined to be the lower of 5.28p (being 130% of the 20-day VWAP prior to the date of the agreement), or a
10% discount to the average of the five consecutive daily VWAPs chosen by Lind during the 20 trading days prior to conversion. The Lind
Convertible was initially recorded at the proceeds received, net of transaction costs, and subsequently designated as a liability at fair
value through profit and loss held at fair value until settled in equity or the number of shares to be issued was set as a fixed amount.
Lind exercised their right to convert the Lind Convertible into Ordinary Shares in two tranches on 3 and 4 June 2019. The first
(3 June 2019) was for 19,047,619 shares at 7.6 pence, equating to £1,448k (US$1,838,000); the second (4 June 2019) was for 14,742,632
shares at 5.75 pence, equating to £858k (US$1,077,000). The total value of the convertible was thus US$2,915,000, based on the fair
value of 33,790,251 shares at the date of conversion.
On 30 June 2019, 8,446,360 Ordinary Shares were issued in satisfaction of this exercise, together with the 7,500,000 shares issued
as collateral in January 2019, while 17,843,891 Ordinary Shares were allotted on 22 July 2019 following the publication of a Prospectus
and the obtaining of the necessary shareholder and regulatory approvals.
In addition to the Lind Convertible, the agreement with Lind also included a 24-month equity drawdown facility. Under the terms of this
agreement, Lind agreed to advance monthly amounts of between US$100,000 and US$300,000 in return for the allotment of shares in
the Company, whose price was based on 90% of the average of five consecutive daily VWAPs chosen by Lind during the 20 trading days
prior to the issue of the shares. On initial recognition, the Company recorded shares to be issued and a receivable at fair value which was
subsequently revalued based on the fair value of the instrument until such time as the shares were issued or allocated.
The initial drawdown of US$100,000 on 28 January 2019 was satisfied by the allotment of 3,425,728, with two further drawdowns of
US$100,000 each in March and May 2019 for 5,132,067 and 3,927,500 shares respectively.
As part of the overall agreement with Lind, the Company also issued 16,718,987 share options at an exercise price of 5.28p, being 130% of
the 20-day VWAP prior to date of the agreement. The options, which remain in place at the date of this report, have a term of 48 months.
These options were valued using a Black-Scholes model at US$499,000 and were treated as a transaction cost of the Lind instrument.
The variable number of shares that could be issued under the Lind Convertible was fixed at the date of conversion (in two tranches – 3
June and 4 June 2019). Management concluded that the number of shares that could be issued from the date of the conversion notices
was fixed given the terms of the agreement whereby clauses that could give rise to any further variability being non-substantive.
Accordingly, the value of the convertible was fixed at that date and the increase in fair value of the instrument compared with the initial
proceeds was recorded as a finance cost in the income statement as follows:
Fair value movement on the facility 1
Recognition of cancellation fee 2
Share options awarded 3
Total cost of the convertible
Finance cost
US$’000
1,899
75
499
2,473
1.
2.
3.
The fair value movement includes the change in the fair value of the convertible loan notes between initial recognition at the US$750,000 proceeds received and the fair value
of the loan note at the date Lind issued conversion notices and fixed the number of shares to be issued, together with cash based transaction costs expensed. Lind opted to use the
7,500,000 collateral shares in part-settlement of the convertible on 3 June 2019. At the time these shares were allotted to Lind, their value was US$383,000 (based on a share price
of 3.9 pence at 28 January 2019). The value of these shares at the time of their use in part-settlement of the convertible was US$724,000 (based on a share price of 7.60 pence on
3 June 2019). The increase in value of US$341,000 effectively represented a credit reducing the overall cost of the convertible which is included in the fair value movement of the loan.
Drawdowns under the facility were suspended in March 2019. Under the terms of the agreement, the facility may be cancelled without cost after six drawdowns have been made, or at
any time prior to that for a cancellation fee of US$75,000. The US$75,000 fee is the expected cost of the equity draw down facility and is the maximum cost to be incurred with regard
to cancellation
The Fair Value of share options granted to Lind Partners as part of the facility agreement which were considered to represent a transaction cost of the facility and therefore expensed.
The Lind Convertible was settled as follows:
Value at conversion
Collateral shares taken on 3 June 2019
New shares allotted 30 June 2019
Balance at 30 June 2019
New shares allotted 22 July 2019
Balance at 30 June 2020
32. ULTIMATE CONTROLLING PARTY
The Company does not have a single controlling party.
66
Rainbow Rare Earths Limited Annual Report & Accounts 2020
Shares
33,790,251
(7,500,000)
(8,446,360)
17,843,891
(17,843,891)
-
Valuation
US$’000
2,915
(724)
(816)
1,375
(1,375)
-
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Financial Statements
SHAREHOLDER
INFORMATION
Executive director
George Bennett – Chief Executive Officer
Non-executive directors
Adonis Pouroulis – Chairman
Alex Lowrie
Shawn McCormick
Atul Bali
Robert Sinclair
Company Secretary
Artemis Secretaries Limited
Registered office
Trafalgar Court, Second Floor, East Wing,
Admiral Park, St Peter Port, Guernsey GY1 3EL
Registrars and transfer office
Computershare Investor Services PLC
PO Box 82, The Pavilions, Bridgwater Road
Bristol BS99 7NH
Bankers
Barclays Bank PLC
Finbank Burundi
Joint Brokers
SP Angel
Turner Pope
Independent Auditors
BDO LLP
Solicitors
Memery Crystal LLP (UK)
Legal Solutions Chambers (Burundi)
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Rainbow Rare Earths Limited Annual Report & Accounts 2020
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Rainbow Rare Earths Limited
Registered office
Trafalgar Court, Admiral Park, St Peter Port,
Guernsey GY1 3EL
www.rainbowrareearths.com