A STRATEGIC
SOURCE OF RARE
EARTH MINERALS
FOR A GROWING
MARKET
Rainbow Rare Earths Limited
Annual Report & Accounts 2021
Overview
About Us
A STRATEGIC SOURCE OF
RARE EARTH MINERALS FOR
A GROWING MARKET
Rainbow Rare Earths Limited (“Rainbow” or “the
Company”) is listed on the London Stock Exchange
with two major opportunities in Africa: the Phalaborwa
Project in South Africa and the high-grade Gakara
Project in Burundi, East Africa.
Contents
Overview
01 Strategy and Business Model
02 Market Overview
04 At a Glance
Strategic Report
08 Chairman’s Statement
10 Chief Executive’s Statement
12 Operational Review
15 ESG Report
18 Financial Review
19 Government Payments
Corporate Governance
22 Directors’ Report
24 Board of Directors
25 Senior Management
26 Principal Risks and Uncertainties
29 Corporate Governance Statement
Financial Statements
34 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
This report covers the financial year from 1 July 2020 to 30 June 2021 (“FY 2021”).
Overview
Strategy and Business Model
Strategy
Rainbow’s strategy is to become a globally significant and responsible producer
of rare earths, with a particular focus on Neodymium and Praseodymium (“NdPr”)
– the fundamental building blocks in the global green technology revolution.
With its diversified portfolio, proven ability and strong operating experience,
the Company is well positioned to take advantage of the demand for rare earth
oxides, which analysts predict will grow substantially over the coming years.
Business Model
Responsible rare earths production:
developing an integrated mine-to-metal producer
PROJECT
IDENTIFICATION
ASSET
APPRAISAL
PROJECT
DEVELOPMENT
Assessing rare earths
opportunities to identify
those with the potential
to create a responsible
supply chain and
generate shareholder
and broader
stakeholder value
Detailed technical work
to deliver feasibility
studies and determine
the optimal route to rare
earths production
Capital investment to
extract and upgrade in-
situ resources to a
saleable rare earth
product in an
environmentally
responsible manner
DOWNSTREAM
RARE EARTH OXIDE
PRODUCTION
Investigating the potential
to produce separated rare
earths oxide for sale to
industrial users, realising
the full value of the
underlying metals for our
stakeholders and
developing a responsible,
independent, Western
supply chain to power
the green revolution
Rainbow Rare Earths Limited Annual Report & Accounts 2021
01
Overview
Market Overview
NdPr:
DRIVING THE GREEN
REVOLUTION
Global trends and increasing legislation accelerate
NdPr demand
Key global megatrends are driving strong and
diversified demand for NdPr:
• Automation: Accelerating technological progress.
Low carbon transition: Environmental protection
•
and climate change.
Sustainable resource security: Increasing scarcity
of and global competition for resources.
Supply chain security: Against a backdrop of
heightened national protectionism.
•
•
NdPr demand accelerated by evolving global
emissions legislation:
• Wind power will be a key contributor to meeting the
•
•
•
Paris Climate Goals.
The UK has pledged to ban new petrol and diesel car
sales by 2030 and increase offshore wind capacity to
a level sufficient to power every home by this date.
Germany targets offshore wind power expansion
targets of 20GW by 2030 and 40GW by 2040.
France aims to produce 1 million electric vehicles (“EVs”)
annually by 2025.
As a key component of permanent magnets, required for the
construction of motors and turbines, analysts are predicting demand
for Neodymium and Praseodymium oxides to grow substantially over
the coming years, tipping the market into a supply deficit.
Permanent magnet production accounted for 91% of the total
value of total rare earth oxide (“TREO”) consumption in 20191
Anticipated global rare earth oxides magnet
demand growth2
Categories
By volume
By value
Battery alloys
Catalysts
Ceramics, pigments & glazes
Glass polishing powders & additives
Metallurgy & alloys
Permanent magnets
Phosphors
Other
1 Source: Adamas Intelligence
26%
35%
91%
141Kt by 2030
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
2020
2021
2022
2023
2024 2025
2026
2027
2028 2029
2030
EV/mobility
Wind Power
Industrial
Consumer
Other
2 Source: Adamas Intelligence
02
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Overview
Market Overview
continued
There are no existing acceptable substitutes for NdPr
in permanent magnets used in EVs and wind turbines
Significant projected NdPr supply constraints
The motor technology required across all EVs drives
NdPr demand, regardless of battery chemistry:
•
Global annual demand for NdPr is expected to substantially
exceed global annual production by 20303.
Each new EV requires between 1-2kg of NdPr.
Average annual NdPr demand from EVs is forecast to increase
by ~4,200 – 9,600 tonnes per annum from 2020-20254.
The value of global magnet rare earth oxides consumption is
expected to increase from US$2.98 billion to US$15.65 billion
by 20305.
•
•
•
Permanent magnet electricity generators
for wind turbines:
• Wind turbines consume ~600-830kg of rare earth
oxides per megawatt6.
Estimated wind-capacity growth of 5.7% year-on-year
to 20507.
Growing to +1.9 terawatt of total wind capacity by 20508.
•
•
3 Adamas Intelligence
4 SP Angel
5 Adamas Intelligence
6 Curtin University
7 Bloomberg NEF New Energy Outlook 2020
8 NDRC-ERI “Aggressive Scenario”
NdPr Oxide: forecast supply/demand balance9
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
-20,000
-40,000
2020
2021
2022
2023
2024
2025
2026
2027
2028 2029
2030
Production
Demand
Balance
9 Source: Adamas Intelligence
Rainbow basket prices
Rainbow’s rare earths basket prices have risen 64% during FY 2021,
significantly outstripping forecast price rises, reaching US$17.42/kg
as at 30 June 2021 for the Gakara Project. Nd prices increased 75%
from US$42.50/kg to US$74.50/kg and Pr rose 87% from
US$44.05/kg to US$82.50/kg.
Phalaborwa has a considerably higher underlying basket price,
containing 29.1% NdPr (compared to 20.0% for the average Gakara
basket) together with higher proportions of high value Dysprosium
(“Dy”) and Terbium (“Tb”), and has enjoyed a 67% increase over the
year due to the higher weighting towards NdPr.
Securing an ethical and sustainable supply chain
for strategic materials:
•
China currently dominates global rare earths production,
with an approximate 80% share.
The EU’s Action Plan on Critical Raw Materials aims to
strengthen domestic sourcing of raw materials in the EU and
diversify supply from both primary and secondary sources.
The US has announced contracts with rare earths producers
to strengthen its domestic supply chain.
•
•
A supply deficit is anticipated due to challenges
in bringing new rare earth mines into production,
which include:
• Many projects being low grade.
•
Estimated high levels of capital for complex processing,
ranging from US$200-700 million for major listed rare
earths projects.
A significant number of projects have high levels of
radioactive elements, adding to complexity in processing.
•
NdPr Price forecasts10
•
According to the below Adamas Intelligence data,
NdPr prices were forecast to increase significantly by 2030.
Prices in 2020 rose faster than predicted due to
supply-side constraints.
Ongoing price strength is expected by analysts across
the range of rare earths focused on by Rainbow.
•
•
130
80
30
a
5
1
0
2
a
6
1
0
2
a
7
1
0
2
a
8
1
0
2
a
9
1
0
2
f
0
2
0
2
f
1
2
0
2
f
2
2
0
2
f
3
2
0
2
f
4
2
0
2
f
5
2
0
2
f
6
2
0
2
f
7
2
0
2
f
8
2
0
2
f
9
2
0
2
f
0
3
0
2
Nd Oxide - US$/Kg
Pr Oxide - US$/Kg
10 Source: Adamas Intelligence
45
40
35
30
25
20
15
10
5
0
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
1
2
0
2
2
2
0
2
3
2
0
2
4
2
0
2
5
2
0
2
6
2
0
2
7
2
0
2
8
2
0
2
9
2
0
2
0
3
0
2
Phalaborwa actual US$/kg
Gakara actual US$/kg
Phalaborwa forecast US$/kg
Gakara forecast US$/kg
Rainbow Rare Earths Limited Annual Report & Accounts 2021
03
Overview
At A Glance
PROJECT AND COUNTRY
RISK DIVERSIFICATION
FROM TWO SCALABLE
PROJECTS IN SOUTH
AFRICA AND BURUNDI
LTIs in FY 2021 and FY 2020
0
LTI-free hours worked since
February 2019
1.1m
LTIFR in FY 2021 and FY 2020
LTIs in FY 2021 and FY 2020
0.0
0
PHALABORWA
Pretoria
SOUTH AFRICA
LTI-free hours worked since
February 2019
LTIFR in FY 2021 and FY 2020
1.1m
0.0
04
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Overview
At A Glance
continued
PHALABORWA
SOUTH AFRICA
Contribution of TREO by oxide
GAKARA
BURUNDI
LOW COST
SIMPLE
PROCESSING
ENVIRONMENTAL
RESPONSIBILITY
69.6%
Nd
Pr
Dy
Tb
Other
Exciting near-term
growth opportunity
•
•
A co-development agreement was
signed with Bosveld Phosphates in
2020 to process rare earth elements
(“REE”) from two gypsum stacks
resulting from over 50 years of
phosphate hard rock mining.
Largely permitted and positioned
in an established mining town, with:
-
associated skilled labour
availability; and
supporting industry (i.e. local
production of sulphuric acid,
an expected key reagent in
the processing circuit).
-
38Mt mineral resource with strong
weighting towards NdPr
•
Inferred mineral resource estimate
of 38.3Mt at 0.43% TREO, of which
29.1% comprises high value NdPr,
and with economic levels of Dy
and Tb oxide credits.
Phalaborwa is 6 – 10 times higher
grade than a typical ionic clay style
rare earth deposit.
•
23.4%
5.7%
1.0%
0.3%
High-grade concentrate
from a simple operation
•
•
Located just south of Bujumbura
in Burundi, Gakara has a large mining
permit covering 39km2, with over 1,500
occurrences of rare earths discovered
in outcrop on surface demonstrating
a large-scale mineralised system.
A combination of breccia style
mineralisation, suitable for open pit
mining and bulk processing, and high-
grade veins, amenable to selective open
pit or underground mining.
Simple processing and high value
carbonate product expected to
drive strong project economics
•
Rare earths are present in a chemical
rather than mineral form thereby
removing the need to firstly produce
a mineral concentrate before
undertaking a complex and energy
intensive “cracking” process, which
is required by the majority of global
rare earth projects.
Gypsum stacks are amenable to
simple, direct leaching with low-cost
sulphuric acid at ambient
temperature and pressure.
Investigating the potential for further
downstream processing to separate
and purify individual rare earth
oxides as part of the Preliminary
Economic Assessment (“PEA”).
•
•
•
•
•
Opportunity for high value concert,
weighted towards NdPr
•
Gakara has demonstrated the
potential to produce a high value
TREO concentrate of 52-56%,
weighted towards NdPr, with low
levels of radioactivity.
Trial mining and processing since
2017 has demonstrated amenability
for simple, low-cost gravity
separation from ore sourced from
across the licence area.
Investment in 2020-21 allowed
exploration and trial mining to
progress towards targeted production
of 100 tonnes of mineral concentrate
per month using owner mining fleet
with clear pathway to further growth
utilising existing pilot plant
infrastructure.
Gakara is currently on care and
maintenance with minimal holding
costs pending discussions with the
Government of Burundi.
Responsible production of rare
earths from waste
•
By processing the existing gypsum
stacks, Rainbow aims to deliver a
“green” rare earths project, removing
existing environmental liability and
redepositing clean, benign gypsum
on a new stack, which is expected
to conform with IFC Standards.
Very low levels of radioactive
elements confirmed.
•
BURUNDI
Bujumbura
GAKARA
PROJECT
Rainbow Rare Earths Limited Annual Report & Accounts 2021
05
Strategic Report
Page title
DEVELOPING
A RESPONSIBLE
RARE EARTHS
SUPPLY CHAIN
Electric vehicle moter
06
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Strategic Report
Page title
STRATEGIC
REPORT
08 Chairman’s Statement
10 Chief Executive’s Statement
12 Operational Review
15 ESG Report
18 Financial Review
19 Government Payments
Rainbow Rare Earths Limited Annual Report & Accounts 2021
07
Strategic Report
Chairman’s Statement
“WE BELIEVE RAINBOW IS
NOW WELL POSITIONED TO
DEVELOP A RESPONSIBLE,
INDEPENDENT, WESTERN
RARE EARTHS SUPPLY CHAIN
AND BECOME A SIGNIFICANT
PRODUCER OF NEODYMIUM
AND PRASEODYMIUM.”
This has been a transformative year for
Rainbow, in which we have introduced the
exciting, near-term growth opportunity
presented by Phalaborwa to our portfolio.
The signing of the co-development
agreement for this project in South Africa
in FY 2021 represented a step change in
Rainbow’s business model. Not only did it
add diversification, but most importantly
it provided the potential for us to participate
in the downstream stage of rare earth oxide
production. As pressure continues to
accelerate around the globe to reach the
net-zero goals of the Paris Agreement, we
believe Rainbow is now well positioned to
develop a responsible, independent, Western
rare earths supply chain and become a
significant producer of Neodymium and
Praseodymium. This will enable our business
to bridge some of the substantial expected
global gap between current supply and
mounting demand and provide the building
blocks which are essential to the success
of the green energy revolution.
Integral to low carbon technologies,
the demand for rare earths, and more
specifically NdPr, is increasing and we are
therefore heavily focused on rapidly bringing
the Phalaborwa Project into production.
FY 2021 has seen a 78% increase in the price
of NdPr oxide, which has continued to rise
since the year-end. As the automotive
industry continues to shift to electric
vehicles and the demand for clean energy
further accelerates, the outlook for NdPr
becomes ever more compelling, with
analysts predicting a fivefold increase in the
value of global magnet rare earth oxide
consumption by 2030. With rare earth supply
still dominated by China, we see significant
opportunities to provide an alternative
source and are committed to producing the
metals in a responsible manner. We believe
that our Phalaborwa Project demonstrates
this commitment well - by processing the
existing gypsum stacks, our aim is to deliver
a “green” rare earths project, removing
existing environmental liability and
redepositing clean, benign gypsum
on a new stack.
08
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Strategic Report
Chairman’s Statement
continued
“WITH RARE EARTH SUPPLY STILL
DOMINATED BY CHINA, WE SEE
SIGNIFICANT OPPORTUNITIES TO
PROVIDE AN ALTERNATIVE SOURCE
AND ARE COMMITTED TO PRODUCING
THE METALS IN A RESPONSIBLE
MANNER.”
This is a very exciting time for Rainbow
as we drive forward with the development
of Phalaborwa and I look forward to updating
shareholders on further developments as we
continue to drive value through the business.
Adonis Pouroulis
Chairman
The year has brought some challenges for the
Company - both as a result of the ongoing
global pandemic, but also more specifically,
the interruptions we are experiencing in
Burundi, with the Gakara exploration and trial
mining operation on care and maintenance.
However, we continue to engage effectively
with Government stakeholders and are
confident of reaching a resolution. Whilst the
situation facing Rainbow in Burundi is
disappointing, it has allowed our team to
focus on the substantially larger opportunity
presented for the near-term development of
Phalaborwa, which we see as the immediate
catalyst of Rainbow’s business model. We
remain committed to the positive
contributions we are able to make as a
Company within our countries of operation
and communities through the payment of
taxes and royalties, the provision of
employment, local investment and the
support of local supply chains.
Ensuring a strong governance framework
for the business is a priority for Rainbow and
we were delighted to further strengthen the
Board during FY 2021 with the appointment
of Ambassador J. Peter Pham. Peter brings
a rich and detailed understanding of African
political and economic issues, as well as
insights and relationships across Africa and
Washington. As the architect of efforts to
reform and rebuild US relations with Burundi,
Peter’s insights will be invaluable to the
Company.
On behalf of the Board of Directors, I would like
to thank our management team, employees
and contractors for their continued dedication
to the Company, hard work and
determination. I also wish to express gratitude
to our shareholders, who have shown strong
support for the business, as evidenced by two
recent over subscribed placings - the first in
November 2020 to raise £2.56 million and the
second completed post year end in October
2021 to raise £6.435 million.
Rainbow Rare Earths Limited Annual Report & Accounts 2021
09
Strategic Report
Chief Executive’s Statement
“WE HAVE LONG BELIEVED
THAT THE ESSENCE OF
RAINBOW’S BUSINESS MODEL
WOULD COME FROM
PARTICIPATING FURTHER IN
DOWNSTREAM PROCESSING
TO REALISE THE FULL VALUE
OF THE UNDERLYING RARE
EARTH OXIDES FOR OUR
STAKEHOLDERS.”
10
Rainbow Rare Earths Limited Annual Report & Accounts 2021
We have made significant progress with
our strategy in FY 2021, which is testament
to the commitment of our team in the light
of the challenges we are all facing as a result
of Covid-19. We have continued to prioritise
the health and safety of our employees
throughout the global pandemic and adopt a
zero-harm policy in our operations, remaining
focused on ensuring a safe working
environment at all times. I am pleased to
report that zero lost time injuries (“LTIs”)
occurred at Gakara during 2021, leading to a
lost time injury frequency rate (“LTIFR “) of
0.00 and a total period exceeding 1.1 million
hours LTI-free pilot production since February
2019. This demonstrates our commitment to
this fundamental aspect of the business,
which we will aim to mirror at other
operations going forward. Read more about
health and safety on page 16 of this report.
We believe that Phalaborwa provides us with
a relatively unique opportunity for the rapid
development of a low-capital and -operating
cost, high-value rare earths processing
facility. We therefore see this asset as the
cornerstone of Rainbow’s business in the
near term and continue to assess similar
assets to complement the portfolio.
We have long believed that the essence
of Rainbow’s business model would come
from participating further in downstream
processing in order to realise the full value
of the underlying rare earth oxides for our
stakeholders. Therefore, we have enlarged
the scope of the PEA at Phalaborwa to now
include an additional downstream
processing step. The original flowsheet
already planned to produce a mixed rare
earth carbonate (rather than simply a mineral
concentrate), due to the gypsum stacks
being in a “cracked” chemical rather than
mineral form. This removes the requirement
that most global rare earth projects have
of firstly producing a mineral concentrate
before undertaking a complex and energy
intensive “cracking” process.
In June, Rainbow released a maiden JORC
(2012) compliant mineral resource estimate
for Phalaborwa of 38.3Mt at 0.43% TREO,
which exceeded original expectations of
35Mt from the gypsum stacks. Importantly,
29% of the total contained rare earth oxides
comprise high-value NdPr oxide, the
essential metals for permanent magnets
powering the green revolution. In addition
to this, we were pleased to see economic
Dysprosium and Terbium oxide credits,
which enhance the overall value of the
rare earth basket contained in the stacks.
Strategic Report
Chief Executive’s Statement
continued
“PHALABORWA REPRESENTS A VERY
EXCITING, ENVIRONMENTALLY SOUND,
FAST-TRACK DEVELOPMENT
OPPORTUNITY FOR RAINBOW.”
We were particularly excited by the highly
positive initial test work results received from
ANSTO Minerals, which were published in May
and support our view that Phalaborwa can be
developed as a low capital intensity project
with operating costs near the bottom of the
global rare earth cost curve. As this project
entails the processing of gypsum waste
residue resulting from historic phosphoric
acid production , it carries significant
environmental advantages, with anticipated
lower energy and reagent requirements than
a traditional rare earths project. As with
Gakara, Phalaborwa benefits from the fact
that the gypsum stacks contain low levels of
radioactive elements, which are not expected
to pose a problem in the processing circuit.
All these factors combined confirm our belief
that Phalaborwa represents a very exciting,
environmentally sound, fast-track
development opportunity for Rainbow.
The signing of our exclusive rare earths
separation technology agreement with
K-Technology in September represented
another positive moment for the business.
We believe that it provides Rainbow with a
significant competitive advantage and that
the intellectual property (“IP”) is ideally suited
to Phalaborwa, where it would enable us to
focus on the separation of only the most
valuable rare earth oxides within the basket.
In addition to the anticipated capex and opex
savings that could be achieved using this
technology, when compared to a traditional
separation circuit, it will enable Rainbow to
participate efficiently in the downstream
separation process, allowing us to capture
the full rare earth oxide price for our material.
We are also excited to be in a position to utilise
the technology to secure an interest in other
rare earth phosphogypsum opportunities
in the region, where we believe tremendous
value can be unlocked.
However, the year has not been without its
complications. In April 2021, the Company
received notification from the Government
of Burundi of a temporary suspension on
the export of concentrate from Gakara.
Subsequently, shortly before year end, the
Company received notification of a temporary
suspension of exploration, trial mining and
processing operations at Gakara. During this
Government-mandated suspension,
operating costs in Burundi have been
minimised, with the vast majority of staff
placed on suspension, such that the ongoing
situation is not having a significant impact on
the Company’s cash flow forecasts. Whilst the
exploration and trial mining operation remains
on care and maintenance, we continue to take
a steadfast approach to resolving these
issues and recommencing the positive
contributions we make in Burundi to
the benefit of all our stakeholders.
We enhanced our senior project development
team in 2021 through the appointments of
Chris le Roux and Charles Graham who work
closely with Rainbow’s Technical Director,
Dave Dodd. With their combined wealth of
experience, they will be instrumental in the
successful delivery of Phalaborwa.
Given its unique nature, it is our belief
that Phalaborwa will be capable of reaching
production of mixed rare earth carbonate
faster than any other rare earth development
project globally. Therefore, with continued
strong progress being made at this project,
coupled with the favourable supply/demand
fundamentals in the rare earths market
outlook, I remain confident that Rainbow is
optimally positioned to become a globally-
significant producer of rare earth metals,
supplying the building blocks for the
green revolution.
George Bennett
Chief Executive Officer
Rainbow Rare Earths Limited Annual Report & Accounts 2021
11
Strategic Report
Operations Review
PHALABORWA
SOUTH AFRICA
EXCITING NEAR-TERM
GROWTH
OPPORTUNITY
Inferred mineral resource
38.3Mt
High value NdPr
29.1%
12
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Strategic Report
Operations Review
continued
Located in South Africa, Phalaborwa
comprises two gypsum stacks which
contain an inferred mineral resource
estimate of 38.3Mt at 0.43% TREO derived
from historic phosphate hard rock mining.
High-value NdPr oxides represent 29.1% of
the TREO, which is believed to represent one
of the largest weightings of any project in the
world. In addition to this, there are economic
Dysprosium and Terbium oxide credits which
enhance the overall value of the rare earth
basket contained in the stacks.
The Company has made strong progress
towards the delivery of the Phalaborwa
Project since signing the Joint Venture
agreement in November 2020 for a total
consideration of US$750,000. This has
included the publication of initial
metallurgical test work results in May and the
announcement of a maiden JORC mineral
resource estimate in June 2021.
Contained in a “cracked” chemical form
in the gypsum stacks, a mixed rare earth
carbonate can be produced without the
need to first produce a mineral concentrate
and then “crack” it prior to separation of
individual rare earth oxides. This removes
a complex and costly stage in the standard
process for a typical rare earth mineral
project, enabling the Company to deliver
a higher-value carbonate with lower
operating costs. The expected cost benefits
are also enhanced by the fact that the
gypsum stacks will not require hard-rock
mining (including waste stripping), or energy
intensive crushing and grinding of the
primary ore source.
Metallurgical test work results published,
in May 2021, have confirmed that the
gypsum stacks are amenable to simple,
direct leaching with low-cost sulphuric or
hydrochloric acid without pre-treatment,
at ambient temperature and pressure.
The mineral resource estimate and
metallurgical test work results received
to date have also confirmed that the
gypsum stacks are homogenous in nature,
with minimal geological uncertainty,
substantially de-risking the project.
The low levels of radioactive elements
present in the stacks reinforce the view that
Inferred mineral resource estimate
Mineral resources have been individually
estimated for the two separate gypsum
stacks, labelled as Stack A and Stack B,
as set out opposite:
Phalaborwa will be well suited to a simplified
processing flow sheet, with anticipated
lower energy and reagent requirements than
a traditional project. Further metallurgical
test work continues at ANSTO Minerals in
Australia, focused upon optimisation of
leach recovery, acid consumption and initial
selective recovery of the rare earths from
the leach solution to design an optimised
processing circuit for recovery of a mixed
rare earth carbonate.
The Company plans to complete the PEA
for Phalaborwa in H2 2021. This will compare
a conventional route to produce a Cerium-
depleted mixed rare earth carbonate versus
an alternative flowsheet that bypasses the
carbonate stage and delivers three higher
value products, comprising NdPr oxide,
Tb oxide and Dy oxide. The results will then
guide the direction for development
of a feasibility study.
Phalaborwa rare earths basket value),
thereby enabling the Company to capture
the full benefit of additional value from
downstream processing without superfluous
capital and operating expenditure which
would be needed to separate all the individual
rare earth elements present in the stacks.
Located in an established mining town
in the Limpopo province of South Africa,
Phalaborwa benefits from all the associated
skilled labour availability and supporting
industry (such as the local production of
sulphuric acid, which will likely be a key
reagent for the project). Sasol’s pilot plant
remains on site, alongside the Phosphoric
Acid Plant equipment. Existing infrastructure
includes a high voltage switchyard (providing
access to Eskom grid power), machine
shops, workshops, laboratory buildings,
administration offices, acid storage and
ammonia tanks, boilers and rail sidings.
Further downstream processing to separate
and purify individual oxides is anticipated
to deliver the following benefits compared
to a traditional flowsheet:
•
The enhanced flowsheet is expected
to be capable of delivering a higher
value product, delivering the full value
of the separated rare earth metal oxides.
By comparison, Rainbow’s Gakara
Project has produced a high-grade
mineral concentrate, which has been
sold to China for further downstream
beneficiation/processing, realising
approximately 30% of the contained rare
earths metal oxide value. The traditional
flowsheet at Phalaborwa would produce
a mixed rare earth carbonate, realising
approximately 60% - 65% of the
contained metal oxide value.
This compares to 100% of the metal
oxide value we could achieve by going
further downstream to produce
separated individual oxides.
Capital and operating expenditure
cost savings are expected compared
to the initial traditional flowsheet to
produce a mixed rare earth carbonate
for further processing in a dedicated
separation facility.
Only the high value rare earths will be
separated and recovered (Nd, Pr, Tb
and Dy, which represent 95% of the
•
•
Rare earths separation
technology agreement
Post year end, Rainbow entered into
an exclusive IP licensing agreement with
K-Technologies, Inc. (“K-Tech”) in September
2021 to use its rare earths separation
technology in the SADC1 region.
·
The IP is suitable for use in the
downstream separation of REEs
into separated REOs or carbonates
in phosphogypsum applications.
The process achieves the separation
of REO in fewer stages with greater
flexibility leading to capital and operating
expenditure savings.
The process eliminates the use of toxic
and highly flammable solvents and
diluents with significant environmental
and safety advantages.
Individual rare earths are targeted
in solution, removing the requirement
to separate a full spectrum of REOs,
creating substantial efficiencies
in a processing circuit.
·
·
·
In the case of Phalaborwa, K-Tech could
develop the IP to target the specific REOs
of value within the asset’s gypsum stacks
(NdPr, Dy and Tb), generating cost savings
and simplifying the separation process.
1 Southern African Development Community
Contribution of TREO by oxide Grade
TREO Nd Pr Dy Tb Other Th U
Mt % % % % % % ppm ppm
Stack A 27.4 0.42 23.3 5.7 1.0 0.4 69.6 49.0 1.8
Stack B 10.9 0.46 23.6 5.7 1.0 0.3 69.4 44.1 2.0
38.3 0.43 23.4 5.7 1.0 0.3 69.6 47.6 1.8
Total
• All estimated mineral resources are classified as inferred.
• The inferred mineral resource estimate is reported above a cut-off grade of 0.2% TREO.
• No constraining pit shell is required for the inferred mineral resource estimate due to the gypsum stacks being
entirely above ground level.
• Mineral resources are not mineral reserves and do not have demonstrated economic viability.
Rainbow Rare Earths Limited Annual Report & Accounts 2021
13
Strategic Report
Operations Review
continued
GAKARA
BURUNDI
HIGH-GRADE
CONCENTRATE FROM
A SIMPLE OPERATION
Gakara, which is located in Western Burundi,
approximately 20km south-southeast
of Bujumbura, has produced one of the
highest-grade concentrates in the world
at 54% TREO. Trial mining and processing,
carried out at the operation since 2017, have
demonstrated the deposit’s amenability
to simple open pit mining and low-cost
gravity separation from ore sourced from
high-grade stockwork vein systems across
the licence area.
The Company received notification from
the Government of Burundi in April 2021
of a temporary suspension on the export
of concentrate, and subsequently the
suspension of exploration, trial mining
and processing operations in June 2021.
Operations were therefore placed on care
and maintenance, with the majority of local
staff being placed on suspension and short-
term cash requirements in Burundi
minimised. Due to Gakara’s stage
of development, which remains in the
exploration and trial mining phase,
this development is not expected to have
a material impact on the Company’s short
term cash flow projections, which envisage
an ongoing investment programme in
Burundi. Rainbow’s operating subsidiary,
Rainbow Mining Burundi SM (“RMB”) holds
approximately 420 tonnes of concentrate
available for export which is expected to
provide funding for the re-commencement
of operations once permitted.
The Company understands that the primary
concerns of the Government relate to the
pricing of the rare earth mineral concentrate
sold by RMB. Rainbow notes that this was
addressed comprehensively in an
independent report, dated 26 July 2019,
commissioned by the World Bank at the
request of the Government and compiled
by SRK Consulting. This report, accepted by
the Government in 2020, concluded that:
The price paid by ThyssenKrupp, the
•
multinational industrial group, for the
Gakara rare earth mineral concentrate,
which is established on the basis of
internationally recognised pricing,
is commercial and forms a reliable
foundation for the computation of
royalties payable to the Government.
•
•
The export grades of each shipment
are independently verified as accurate
by two internationally recognised
laboratories (ALS Laboratories in Canada
and Baotou Research Institute of Rare
Earths in China) and have been correctly
reported to the Government for each
shipment from Gakara to date.
That Rainbow is a “model company
for new market entrants”.
Prior to the suspension of trial mining at the
end of June, 641 tonnes of concentrate were
produced at Gakara in FY 2021, representing
a 77% increase on 363 tonnes produced in FY
2020. This growth was driven by additional
trial mining areas to the east of the existing
Murambi operations, opened up in early
March 2021 following the commissioning
of a new excavator and expanded fleet
of haulage trucks.
The Company continues to engage
constructively with the Ministry and other
stakeholders to resolve this issue and allow
exploration activities including trial mining
operations and exports to recommence.
14
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Strategic Report
Environmental, Social and Governance (“ESG”)
OUR CORE
VALUES
We have demonstrated our commitment to responsible ESG practices, underpinned
by Rainbow’s core values, in our operations at Gakara. We will continue to uphold these
practices at Phalaborwa and look to implement best practice at our operations
wherever possible, producing rare earths from a responsible and independent,
Western supply chain.
ZERO HARM
INTEGRITY
RESPECT
to our people, to the local
population, to the wider community
and the environment
undertaking all our business
dealings and relationships with
the utmost integrity
for our colleagues, for our local
communities and for our customers
and stakeholders
ACCOUNTABILITY
TRANSPARENCY
COURAGE
to be willing to take responsibility
for all our actions
to conduct all of our business
dealings to the highest level
of transparency
to be prepared to persevere when
others would not
Rainbow Rare Earths Limited Annual Report & Accounts 2021
15
Strategic Report
Environmental, Social and Governance (“ESG”)
continued
HEALTH AND
SAFETY
A steadfast approach to protecting health and safety
Rainbow adopts a zero-harm policy, meaning that we are committed
to ensuring that our staff, as well as contractors and other visitors
to our sites, are kept healthy and safe from harm.
Throughout the organisation, individuals are held responsible for their
own and everyone else’s safety and wellbeing, while managers and
supervisors ensure that standards and relevant policies are adhered to.
Our Board-level Safety, Health and Environment Committee (“SHEC”) is
ultimately responsible for making sure appropriate policies are in place,
and that those policies are being enacted, although these matters have
been considered in full Board meetings throughout FY 2021.
The Company operates a risk management strategy to avoid and/or
manage risks, based on the hierarchy of controls, which involves the
following steps:
1. Hazard elimination
2. Hazard substitution
3. Engineering controls
4. Administrative controls
5. PPE
We have an Operating Health and Safety (“OHS”) system in place
and safety training is a priority for the Company to facilitate safer,
more efficient and effective working practices. All staff and
contractors are required to undergo an induction programme, and in
addition to this, workers hold routine “toolbox” meetings to discuss
safety issues and are encouraged to consider risks of each activity
for themselves.
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 task-specific hazard identification and
risk assessment, continuous risk assessments, 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.
All employees are provided with the necessary protective personal
equipment (“PPE”) to mitigate potential safety risks.
The Company has demonstrated its steadfast commitment to safety
through its strong performance at Gakara over the years, which has
continued in FY 2021, with 0 lost time injuries (“LTI”), leading to a LTIFR
rate of 0.0, and 1.1 million LTI-free hours worked since February 2019.
Health
A number of illnesses have been identified as risks at Gakara under
the Company’s OHS system, including Covid-19, malaria, HIV/AIDS,
and gastric infections. The OHS policies and guidelines provide
guidance on how to reduce the risks from these and other illnesses.
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.
Our operations at Gakara continued to be largely unaffected by
Covid-19 throughout FY 2021, nonetheless we maintained a number
of measures in place to protect the health of our employees, including
social distancing and enhanced personal hygiene practices.
The Company aims to assist with the prevention of HIV infections
through educational programmes, encouraging voluntary counselling
and testing and supporting with procurement of necessary
medication and healthcare.
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.
LTIs in FY 2021 and FY 2020
LTI-free hours worked since
February 2019
LTIFR in FY 2021 and FY 2020
0
1.1m
0.0
16
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Strategic Report
Environmental, Social and Governance (“ESG”)
continued
SOCIAL
ENVIRONMENT
Partnering with our local communities
Rainbow is committed to the highest standards of Corporate Social
Responsibility (“CSR”) and strives to ensure that local stakeholders
shares in the benefits of its projects. This will remain an important
element of our strategy going forward through the provision of
employment opportunities, local community investment, the support
of local supply chains and the payment of taxes and royalties.
The majority of our 261 employees are local to our operations, with 98%
of the workforce at Gakara coming from Burundi. The Company
is committed to gender diversity with 8% female employees overall
and a higher percentage of women in certain areas of the business,
for example at the Bujumbura office, which comprises 29% women.
Rainbow prioritises responsible and fair employment practices and
minimises the use of temporary labour by offering permanent
employment contracts at all levels of the Company.
We aim to provide local people with business opportunities, such as
catering for the workforce, and purchase local produce wherever
possible. Rainbow also supplies clean, fresh water to the community
near Gakara from a tank outside its plant at Kabezi, fed from Rainbow’s
own borehole supply. Approximately 10,000 litres of water per week
are drawn from this tank by the local community.
The state of Burundi has a non-dilutable 10% shareholding in Gakara
and will benefit from any dividends generated, together with normal
payroll taxes, corporation taxes and a royalty of 4% on 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.
Rainbow produces rare earths, including Neodymium and
Praseodymium, which are critical building blocks in advancing
the green revolution. Used in permanent magnets for motors
and turbines, these rare earth elements are fundamental to global
decarbonisation. The Company is focused on producing these metals
in an environmentally-responsible manner, ensuring that end
consumers can rely upon the entire supply chain when purchasing
green products.
Environmental management is a key element of Rainbow’s OHS
system and is overseen by the SHEC. The Company complies with
applicable environmental laws and regulations. The Company has
conducted Environmental and Social Impact Studies at Gakara,
which were submitted to the Government in 2015 and new studies are
undertaken prior to extending mining into new areas of the licence.
The pilot plant at Gakara employs simple gravity processing to deliver
a high-grade concentrate with low levels of radioactivity suitable for
export, thereby producing one of the “greenest” rare earth
concentrates in the world, using no reagents in the circuit.
Generating rare earths from waste to
power the green revolution
The planned re-processing of material at Phalaborwa carries
significant environmental benefits, by producing rare earths for the
green revolution and then redepositing clean, benign gypsum suitable
for use in building and other industries. With anticipated lower energy
and reagent requirements than a traditional rare earths project, the
production of concentrate at Phalaborwa is expected to have fewer
negative environmental impacts.
As we progress towards on-site trial processing at Phalaborwa, we look
forward to engaging the community around that project site, ensuring
we bring benefits wherever possible to our host communities.
As the rare earths at Phalaborwa are contained within existing
stacks of waste gypsum residue, the project does not carry the
environmental challenges often associated with extracting rare
earths from the ground.
Rainbow Rare Earths Limited Annual Report & Accounts 2021
17
Strategic Report
Financial Review
Profit and loss
Despite the impact of the export ban limiting sales, revenue in FY 2021
was 51% higher than realised in FY 2020 with 350 tonnes of concentrate
sold at an average realised price of US$1,825/t compared to 275 tonnes
at US$1,535/t. With 420 tonnes of concentrate on hand at 30 June
2021, with an estimated sale value of US$3,000/t, the impact of
strengthening production and rare earth prices is not fully reflected
in the income statement for the year.
As the Company remains in an exploration and evaluation stage
at Gakara, US$0.4 million of costs associated with trial mining
and processing, net of associated revenue and movements in the
stockpile of finished concentrate, have been capitalised to exploration
and evaluation assets in the year (FY 2020: US$1.1 million).
Depreciation charged in the year relating to the Gakara mining fleet
totalling US$0.3 million (FY 2020: US$0.2 million) was also capitalised.
In the prior year a gross loss was reported, reflecting the mining and
processing costs incurred in July and August 2019, prior to a strategic
review which recognised that the Gakara asset is not in commercial
production. The reduction in losses both recognised in the income
statement and capitalised in the year reflects the improved
performance of the trial mining and processing activities at Gakara.
Administration expenses in FY 2021 totalled US$2.7 million compared
to US$2.1 million in FY 2020. The increase in the current year relates
primarily to share option charges of US$0.5 million, with options
issued to the new executive management team and Non-executive
Directors. Prior to the issue of options in January 2021, no options had
been issued since 2017, with all costs associated with issued share
options fully expensed at 30 June 2020. Depreciation included in the
income statement in the year totalled US$37k mainly relating to right
of use assets.
Finance income of US$0.4 million (FY 2020: US$0.9 million) relates
primarily to foreign exchange gains on movements primarily between
the Burundian Franc (“BIF”) and US dollars, the functional currency
of the Group. Finance costs of US$0.5 million (FY 2020 US$0.2 million)
include US$0.4 million of costs associated with the US$0.9 million
bridge loan from Pipestone Capital Inc, in which George Bennett, CEO,
has a beneficial interest, together with costs of a loan with the Group’s
bank in Burundi, FinBank.
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, totalling US$2k
in the year (FY 2020: US$9k).
18
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Balance sheet
At 30 June 2021, a total of US$9.8 million of exploration and
evaluation assets were included on the balance sheet (at 30 June
2020: US$7.6 million). Exploration and evaluation assets totalling
US$2.2 million were capitalised during the year including:
• US$0.75 million consideration for the Phalaborwa earn-in
agreement, of which US$0.25 million was settled in cash,
US$0.25 million settled in shares and US$0.25 million (to be
settled in cash or shares at the election of Bosveld Phosphates
(Pty) Limited, remains in creditors at the year end);
• US$0.4 million of other costs relating to the Phalaborwa asset,
principally relating to the costs of resource definition and
metallurgical test work for the material in the gypsum stacks;
• US$0.7 million of costs related to the trial mining and processing
operations at Gakara, including US$0.3 million of associated
depreciation for the mining fleet, as explained above; and
• US$0.4 million of other costs relating to Gakara including regional
exploration work and costs associated with the mining licence.
Further investment for property, plant and equipment was also made
at Gakara, with US$0.7 million of additions to expand capacity of the
mining fleet and improve performance at the pilot plant, including
dealing with known bottlenecks to allow for further growth in trial
mining production.
Inventory at 30 June 2021 totalled US$0.9 million (at 30 June 2020:
US$0.2 million). The significant growth in available for sale
concentrate in Burundi from US$0.1 million to US$0.7 million resulted
from the build up in concentrate resulting from the export ban
imposed by the Government of Burundi in April 2021. In addition,
consumables representing spare parts for the mining fleet and plant
were in transit from South Africa to Burundi at the year-end and are
included in stock.
Trade and other receivables totalled US$0.4 million at 30 June 2021
(30 June 2020: US$0.9 million). A total of US$0.6 million receivables
from a placing undertaken in June 2020 were received in July 2020,
driving down the overall balance at the current year-end. The
remainder of trade and other receivables primarily relates to tax
receivables in Burundi. The US$0.3 million royalty receivable was
impaired to US$0.2 million at 30 June 2021, as set out in note 15 to
the financial statements, to reflect uncertainty in the recovery of this
balance. In addition, following a tax audit in Burundi, an amount of
reverse VAT was found not to have been paid from the period between
2017 and 2019, and has been provided for at 30 June 2021, of which
US$0.2 million will be recoverable.
Trade and other payables totalled US$1.0 million at 30 June 2021
(30 June 2020: US$0.7 million). Trade payables were US$0.2 million
lower than at 30 June 2020, reflecting standard trading terms for all
suppliers. The increase includes US$0.3 million accrued for the results
of the Burundi tax audit for 2017-19 noted above, which is set out in
more detail in note 17 to the financial statements, and US$0.25 million
for the final consideration payment due for the Phalaborwa earn-in
agreement noted above.
The Company had borrowings of US$1.9 million at 30 June 2021
(30 June 2020: US$1.7 million). The movement reflects monthly
repayments against the FinBank loan in Burundi, off-set by interest
accrued on the Pipestone loan noted above and a revaluation of the
warrants initially issued in lieu of interest on the original loan in
February 2020.
Strategic Report
Financial Review
continued
Cashflow
Net cash in the 12 months to 30 June 2021 decreased by US$0.2 million
(FY 2020: increase of US$0.7 million). Financing inflows totalled
US$4.3 million (FY 2020: US$5.9 million), as set out below. These were
invested US$2.7 million (FY 2020: US$2.4 million) in tangible and
intangible assets associated with the Phalaborwa and Gakara Projects
and US$1.9 million (FY 2020: US$2.8 million) to fund operating activities.
Financing
In order to fund ongoing capital and operating cost requirements,
the Company raised a net US$4.6 million (FY 2020 US$5.1 million)
via the issue of new equity during the year as set out below:
•
In November 2020 an equity placing raised net proceeds
of US$3.4 million with new and existing shareholders at a
price of 6 pence per share via the issue of 42.7 million shares.
Between December 2020 and April 2021, Australian Special
Opportunity Fund, LP exercised options over 10.5 million shares
at an exercise price of 5.28p per share, raising gross cash
proceeds of US$763k.
•
In addition, during the year the Company drew and repaid a short-
term bridge loan from related parties totalling US$0.3 million and
settled US$0.3 million of interest and capital against the FinBank
loan in Burundi, as set out in note 18 to the financial statements.
In February 2020 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 June 2020 the loan was refinanced with
US$75k settled via the issue of ordinary shares. From December 2020
the loan has been further refinanced, bearing interest as set out in
note 18 to the financial statements, with US$84k interest accruing
in the year.
At 30 June 2021, the Group had US$0.6 million of available cash.
Subsequent to the year end, in October 2021, the Company has raised
a further US$8.8 million via the issue of 42.9 million shares at a price
of 15 pence per share (including US$2.0 million representing 10 million
shares to be issued subject to shareholder approval at the AGM).
The Group’s reasonably plausible downside scenario cash flow
forecasts demonstrate that the Group will have US$2.2 million
available at 31 December 2022, excluding the conditional US$2.0
million funds raised and before any discretionary expenditure.
Government Payments
Rainbow is committed to full payment of its tax and fiscal obligations wherever it operates, as this supports the social licence to operate,
and ensures a fair contribution to local economies.
The table below sets out the key payments to government in the period arising as a result of Rainbow’s activity, including direct taxes
(such as land taxes, duties etc) and indirect taxes (such as payroll taxes, withholding tax, and net VAT paid).
US$’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
-
-
-
-
-
91
-
-
91
FY 2021
Burundi
36
-
-
22
58
154
13
(12)
213
Total
36
-
-
22
58
245
13
(12)
304
UK
-
-
-
-
-
228
-
2
230
FY 2020
Burundi
59
20
41
23
143
89
92
(77)
247
Total
59
20
41
23
143
317
92
(75)
477
Royalty payments relate to the government royalty of 4% charged on the value of exports, which has been charged in the year ended
30 June 2021 on the discounted price received for the sale of a mineral concentrate to third party customers. During the year ended 30 June
2020 (and in previous periods) the Burundian authorities applied the 4% royalty rate to the gross value of rare earth oxides contained in the
concentrate exported, with only part of the US$59k paid relating to the actual realised price of the mineral concentrate. The discounted price
received was independently adjudged to be fair and reasonable in a third-party report commissioned on behalf of the Government of Burundi
by the World Bank. The discount arises due to the high-cost downstream processing required to deliver the underlying separate rare earth
oxides from the mineral concentrate exported. At 30 June 2021, a total of US$306k has been overpaid in royalties. An impaired value of
US$178k is included within trade and other receivables in respect of the historic royalty overpayment, as set out in note 15 to the financial
statements, based on an assessment of the likelihood that the overpayment will be recovered, considering a range of possible outcomes
including recovery against future royalty liabilities, full recovery in the short term and no recovery.
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 – no payments were made during the current financial year as the cost is expected to be off-set against the royalty receivable
noted above, with the cost of US$20k accrued in the financial statements. Corporation Tax is payable in Burundi based on a minimum 1% of
turnover whilst the local operating entity remains loss making. No taxes were paid due to prior year payments on account being in excess of the
cumulative tax charge. 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.
Rainbow Rare Earths Limited Annual Report & Accounts 2021
19
Corporate Governance
Page title
WE ARE
COMMITTED
TO THE HIGHEST
STANDARDS
OF CORPORATE
GOVERNANCE
Inspection of offshore wind farm
20
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Corporate Governance
Page title
CORPORATE
GOVERNANCE
22 Directors’ Report
24 Board of Directors
25 Senior Management
26 Principal Risks and Uncertainties
29 Corporate Governance Statement
Rainbow Rare Earths Limited Annual Report & Accounts 2021
21
Corporate Governance
Directors’ Report
The Directors present their annual report and the financial
statements of the Group for the year ended 30 June 2021.
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.
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 26 to 28.
Principal activity
The Company’s principal activity is the development of rare earth
minerals projects in South Africa and Burundi.
Advisers
The Company’s advisers are set out on page 67.
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 rare earth minerals projects to become a globally-significant and
responsible producer of rare earth metals. Once operational, the net
cash generated from the Group’s projects will be used to service the
Company’s financing, re-invested in further rare earth project
development opportunities, or (where appropriate) repaid to
investors in the form of dividends.
In the short term, this strategy is focused on the Phalaborwa rare
earths Project in South Africa, where an inferred mineral resource has
been defined contained within gypsum stacks derived from historic
phosphate hard rock mining. Work is ongoing to define a preliminary
economic assessment on the Phalaborwa development opportunity.
The Gakara Project in Burundi is currently on care and maintenance
as set out in the Operations Review on page 14.
Financial results
During the 12 months ended 30 June 2021, the Company reported
a net loss of US$2,742k (year ended 30 June 2020: net loss
of US$2,234k).
No dividends have been declared in respect of the years ending
30 June 2021 or 2020.
Directors
A list of the Directors of the Company is set out on page 24.
No Director shall be requested to vacate office at any time by
reason of any specific age attained. The Board considers that there
is a balance of skills within the Board and that each of the Directors
contributes effectively.
Directors’ remuneration
Compensation
Salary/fees Benefits Pension for loss of office Total
(US$’000) (US$’000) (US$’000) (US$’000) (US$’000)
June June June June June June June June June June
2021 2020 2021 2020 2021 2020 2021 2020 2021 2020
Executive Directors
George Bennett1 269 229 - - - - - - 269 229
Martin Eales - 13 - 7 - 1 - 164 - 185
Non-Executive Chairman
Adonis Pouroulis 68 53 - - - - - - 68 53
Non-Executive Directors
Alexander Lowrie 42 35 - - - - - - 42 35
Atul Bali 40 35 - - - - - - 40 35
J Peter Pham 6 - - - - - - - 6 -
Shawn McCormick 42 35 - - - - - - 42 35
Robert Sinclair 42 35 - - - - - - 42 35
509 435 - 7 - 1 - 164 509 607
Total
1.
In addition to salary, as set out in note 18 to the Financial Statements, Pipestone Capital Inc, in which George Bennett has a beneficial interest, earned US$84k interest on an unsecured
US$925k bridge loan from 1 December 2020 to 30 June 2021.
George Bennett was appointed on 27 August 2019, replacing
Martin Eales as Chief Executive Officer. George Bennett’s salary was
increased with effect from 1 April 2021 from US$250k per annum to
US$325k 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 £130k. 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.
22
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Non-executive Directors’ fees were increased with effect from
1 April 2021 as follows:
•
Adonis Pouroulis fees as Non-executive Chairman were
increased from £42.5k/annum to £70.0k/annum.
Other Non-executive Director fees were increased from
£27.5k/annum to £35k/annum, with an additional £5k per annum
paid to Non-executive Directors (excluding the Non-executive
Chairman) who are chairmen on formal Board Committees
as set out on page 31.
•
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.
Corporate Governance
Directors’ Report
continued
Directors’ responsibility statement
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulation.
Principal shareholders
A list of shareholders who beneficially hold more than
5% of the Company’s shares at 25 October 2021 is as follows:
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 confirm that, to the best of their knowledge:
(a) the financial statements give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Group; and
(b) the management report includes a fair review of the development
and performance of the business and the position of the Group,
together with a description of the principal risks and uncertainties
that they face.
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.
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.
Number % of
of ordinary share
Name of shareholder shares capital
Pella Group
(beneficially owned by Adonis Pouroulis) 76,478,864 14.9%
Pipestone Capital Inc
(beneficially owned by George Bennett) 34,726,294 6.8%
Robert Kampf 28,753,578 5.6%
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 at 25 October 2021 are as follows:
Number % of
of ordinary share
Position shares capital
Adonis Pouroulis
Non-executive Chairman 76,478,864 14.9%
George Bennett
Chief Executive Officer 34,726,294 6.8%
Alexander Lowrie
Non-executive Director 6,075,124 1.2%
Atul Bali
Non-executive Director 3,657,992 0.7%
J Peter Pham
Non-executive Director 250,000 0.0%
Robert Sinclair
Non-executive Director 5,026,757 1.0%
Shawn McCormick
Non-executive Director 9,316,571 1.8%
Pete Gardner
Senior manager 200,000 0.0%
Cesare Morelli
Senior manager 1,249,680 0.2%
136,981,282 26.8%
Total
Going concern
The Directors have reviewed the Group’s cash flow forecasts
for at least 12 months following the reporting date, together with
appropriate sensitivities and mitigating actions. A full analysis of the
Directors analysis of the going concern status of the Group is set out
in note 2 to the Financial Statements.
After taking into account available cash, loan facilities anticipated to
remain available and forecast cash flows, the Directors consider that
the Group will have adequate resources to continue its operational
existence for the foreseeable future and, accordingly, the Directors
continue to adopt the going concern basis in preparing the
consolidated 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 2021
George Bennett
Chief Executive Officer
Rainbow Rare Earths Limited Annual Report & Accounts 2021
23
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 founder of Petra Diamonds (LSE: PDL),
founder and director of Chariot (AIM: CHAR) and founder and
chairman of the Pella Resources Group. Adonis holds a Bachelor
of Science Degree (Honours).
George Bennett
Chief Executive Officer
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 (which he seed funded and helped
raise the initial capital as a non-executive director) 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.
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, Gunnerside Advisors, 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). Alex graduated
from Durham University with a BA (hons) in Combined Social
Sciences, and he is also in the process of completing an
executive MBA from Henley Business School.
Robert has over 50 years’ experience in finance and accountancy
of which 40 years have been spent in the Guernsey financial services
industry. He is a director and chairman of the Audit Committee
of Chariot 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 a strategic advisory services company and an adviser
to the Pella Resources Group.
Atul Bali
Non-executive Director
Atul is a corporate CEO and board member with extensive experience
in tech, government contracting and regulated industries operating
on all six continents. Over more than 20 years, he has led in excess of
50 M&A and JV transactions in over 25 countries and both managed
and served on the boards of several highly regulated businesses.
Currently he advises a number of high-growth technology
companies, is chairman of the Football Pools and a non-executive
director of Everi Holdings Inc (NYSE:EVRI). 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 trained as a Chartered Accountant with KPMG in the UK.
J. Peter Pham
Non-executive Director
J. Peter Pham is a scholar and practitioner of International Affairs
with more than 20 years of experience in Africa. Most recently, he
served until January 2021 as first-ever United States Special Envoy
for the Sahel Region with the personal rank of Ambassador. He had
previously served as the US Special Envoy for the Great Lakes Region
of Africa from 2018-2020.
Ambassador Pham is currently a Distinguished Fellow at the Atlantic
Council, a preeminent American foreign policy think tank, where he
was Vice President for Research and Regional Initiatives and Director
of the Council’s Africa Center before his service in government. He is
the author of several books and more than 300 articles, essays and
reviews on African politics, security, and economic issues.
He is also a member of the Board of the Smithsonian National Museum
of African Art in Washington, DC, serving between 2016-2021 as Vice
Chair, as well as a Non-Executive Director of Africell Global Holdings.
24
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Corporate Governance
Senior Management
Pete Gardner
Chief Financial Officer
Chris Attwood
Project Manager - Gakara
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.
Chris has more than 20 years’ experience in mining and extractive
industries. He is a qualified mining engineer (Cambourne School
of Mines) and has worked throughout Africa (including Tanzania
and Eritrea) as well as the rest of the world. As well as rare earths,
Chris has experience with gold, tin, coal, and quarrying operations.
Dave Dodd
Technical Director
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.
Charles Graham
Project Manager - Phalaborwa
Charles is a Mechanical Engineer with 20 years’ experience in project
management delivering multidisciplinary mining and infrastructure
projects in remote and logistically challenging geographical regions.
He has successfully completed multiple feasibility studies across
Africa and has a proven track record of increasing project value by
reducing capital and operating costs during project life cycle from
study to execution.
The above names have been designated as Persons Discharging
Managerial Responsibility (“PDMRs”) along with Gilbert Midende,
the previous General Manager in Burundi, who retired in May 2021.
Rainbow Rare Earths Limited Annual Report & Accounts 2021
25
Corporate Governance
Principal Risks and Uncertainties
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:
Risk
Comment
Business impact
Mitigation
Project definition
risk including
exploration and
extractive
metallurgy
High
At Phalaborwa, the Company is finalising
a preliminary economic assessment which
is expected to define a processing flow
sheet capable of economically extracting
the magnet rare earth metals from the
gypsum stacks in a low capital and low
operating cost environment. However, this
is dependent on the results of future test
work, which may not meet management’s
expectations.
At Gakara, the Company does not currently
have a code-compliant Mineral Resource
or Reserve due to the complexity of the
underlying geological mineralisation.
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.
Political risk in
Burundi
High
On 12 April 2021, the Government
of Burundi temporarily suspended the
export of concentrate produced at Gakara.
This was followed on 29 June 2021 with a
Government mandated suspension of all
trial mining and exploration activity.
All operations remain on care and
maintenance at 27 October 2021.
There has been no attempt to remove
the mining licence for the Gakara Project.
26
Rainbow Rare Earths Limited Annual Report & Accounts 2021
The Company’s technical team have
designed and commissioned numerous
commercial plants in Africa, including rare
earth projects. A number of alternative
options and technologies are considered
for each step of the extractive process to
ensure that the final flow sheet chosen for
the Phalaborwa Project can be delivered.
At Gakara, throughout FY 2021 ongoing
trial mining of ore, sourced using both
mechanical and manual mining methods
from across the licence area, confirmed
near vein continuity and quality.
Batch processing of this material
demonstrated the ability to produce a
high-grade rare earth concentrate via
simple gravity separation for all ore sources
identified to date. Subject to exploration
activities re-starting, the Company expects
to further improve confidence in the Gakara
mineralisation.
The current trial mining exploration and
evaluation activity is 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. Current exploration work is
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.
Such activities are intended to support
an eventual JORC Resource Statement
and feasibility study for the commercial
scale operation.
Management understand that the
concerns of the Government of Burundi
relate principally to the pricing of the rare
earth concentrate sold, which was
addressed comprehensively in an
independent report commissioned
by the World Bank in 2019 and accepted
by the Government in 2020.
Although the situation has persisted longer
than originally anticipated, management
expect operations at Gakara to resume
in the near term.
Corporate Governance
Principal Risks and Uncertainties
continued
Risk
Comment
Business impact
Mitigation
Financing risk
The Company has recently completed
an equity fundraising to predominantly
finance the next phase of project definition
for the Phalaborwa Project in South Africa,
which is expected to allow a feasibility
study to be completed.
High
The Company currently forecasts that
additional funding will be required in order
to deliver its project development plans
as well as for general working capital
requirements.
At Phalaborwa in South Africa, additional
finance is expected to be required for
on-site pilot test-work ahead of a larger
fundraising for commercial scale project
development.
At Gakara in Burundi, additional financing
would be required to fund commercial scale
development beyond the current trial
mining and processing operations.
Rare earth prices
Rainbow’s strategy is to become a globally-
significant and responsible producer of rare
earth metals, with a particular focus on
NdPr – the fundamental building blocks for
the permanent magnets driving the global
green technology revolution.
High
Whilst analysts are predicting strong
growth in demand for rare earths, prices
have been volatile in the past. If the
underlying rare earth basket price of the
Group’s development projects fall, 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 for the
Gakara Project trial mining activities
in Burundi, selling rare earth concentrate
at a discount of approximately 70% to the
quoted price of the underlying metal oxides.
At Gakara, the Company expects funds
received from the sale of current mineral
concentrate to be available to finance the
re-commencement of trial mining
operations, which at current rare earth
prices would not be expected to require
further funding to maintain.
Longer term, management maintains
strong relationships with key sources of
finance. Rainbow 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 secure additional
funding as required.
Rainbow is focused on delivering
a preliminary economic assessment
for the Phalaborwa Project in South Africa,
which is expected to be a simple, low-cost
operation due to the nature of the rare
earth mineral resource contained in a
chemical form in two gypsum stacks, which
will not require many of the processes
associated with a primary mineral ore body
for the extraction of rare earths.
At Gakara the Company expects
to re-commence trial mining and
processing operations, which are not
expected to require further funding to
maintain at current rare earth prices.
In the event of lower market prices,
the Company would seek to defend its
margins by reviewing its operating cost
base, where possible, reducing discretionary
expenditure and optimising the scale
of developments to minimise the impact
of fixed costs and marginal ore.
The Company will aim to negotiate
off-take arrangements if required to
ensure a commercial development is
viable in the interests of all stakeholders.
Rainbow Rare Earths Limited Annual Report & Accounts 2021
27
Corporate Governance
Principal Risks and Uncertainties
continued
Risk
Comment
Business impact
Mitigation
Civil unrest
Medium
Burundi has experienced civil unrest,
including most recently in 2015.
South Africa experienced some civil unrest
in 2021. Any subsequent instances of civil
unrest could impact the long-term
operations of the Company’s development
projects, including the ability to obtain
supplies, export production and manage
administrative matters.
Currency controls in
Burundi
At Gakara, the Company receives proceeds
in US dollars, which, are repatriated to an
account in the Burundi Central Bank.
Medium
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
including international suppliers, servicing
of international debt and repatriation
of profits.
Covid-19
The Covid-19 pandemic could disrupt the
Company’s operations, delaying project
definition works.
Low
Although civil unrest is beyond the control
of management, the Company maintains
strict political neutrality in all countries
in which it operates.
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.
The Company has the right, under its
Mining Convention with the Burundian
Government, to 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.
Activity remains largely 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.
28
Rainbow Rare Earths Limited Annual Report & Accounts 2021
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 bearing the size and nature of the
Company in mind.
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 10 times in the year to 30 June
2021. 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 may not 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 disseminated 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 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.
All banking transactions must be initiated and authorised
by at least two staff members, one of whom is a senior manager
(CEO or CFO). Since the retirement of the General Manager
in Burundi, all payments are approved by the CEO or CFO prior
to payment being made locally. For international payments,
all payments are approved in the on-line banking system
by the CFO following sign-off by the CEO.
Financial operations in Burundi are reviewed regularly by the
CFO, both on visits to Burundi and online. During the Covid-19
pandemic, with international travel reduced, reviews have
primarily been conducted in an online 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.
Rainbow Rare Earths Limited Annual Report & Accounts 2021
29
Corporate Governance
Corporate Governance statement
continued
Board of Directors
The Company had one Executive Director and six Non-executive Directors at 30 June 2021. All major decisions relating to the Group are made
by the Board as a whole. Operations are conducted by the subsidiaries of the Company. In Burundi, the Company is represented on the board
of Rainbow Mining Burundi SM by the CEO and CFO.
Determining the strategy for the Company;
Approving the annual budget;
Discussing and approving financing, including new debt and equity;
Setting the Dividend policy;
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:
•
•
•
•
• Mergers and acquisitions activity and significant transactions;
•
•
Risk management; and
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
George Bennett
Alexander Lowrie
Atul Bali
J. Peter Pham
Robert Sinclair
Shawn McCormick
1 Ages at 30 June 2021
Age1
51
60
46
50
50
71
54
Position
Chairman
CEO
Non-exec
Non-exec
Non-exec
Non-exec
Non-exec
Appointed
5 Aug 2011
27 Aug 2019
16 Nov 2016
29 Mar 2017
17 May 2021
5 Aug 2011
4 Feb 2016
Audit Remuneration
Member
-
Chair
-
-
Member
-
-
-
Member
Member
-
Chair
-
Nomination
Chair
-
-
Member
Member
-
-
SHEC
-
Member
Member
-
-
-
Chair
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 2021 (see Note 22 for details).
The table below shows the attendance at Board and committee meetings during the year to 30 June 2021:
Name
Adonis Pouroulis
George Bennett
Alexander Lowrie
Atul Bali
J. Peter Pham
Robert Sinclair
Shawn McCormick
Board
10/10
8/10
10/10
9/10
0/10
10/10
10/10
Audit Remuneration
3/3
N/A
1/1
N/A
N/A
3/3
2/2
N/A
N/A
3/3
3/3
N/A
3/3
N/A
Nomination
2/2
N/A
2/2
2/2
0/0
N/A
N/A
SHEC
N/A
0/0
0/0
N/A
N/A
N/A
0/0
The membership of Board committees was updated in the year following the appointment of J. Peter Pham to the board in May 2021. The table
of Board committee attendance is based on the Board committee appointments at the time of the relevant meeting. There were no formal Board
meetings after the formal appointment of J. Peter Pham. The Board is 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.
30
Rainbow Rare Earths Limited Annual Report & Accounts 2021
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 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.
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 three times during 2020/21. During these meetings, the following
matters were considered:
•
The audit of the year ended 30 June 2020 was planned and the
key areas of audit risk were discussed ahead of the relevant audit
procedures being undertaken.
The financial statements for the year ended 30 June 2020,
and the interim financial statements for the six months ended
31 December 2020, 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 2020.
Nomination Committee
The Nomination Committee is chaired by Adonis Pouroulis. Atul Bali
is a member of the nomination committee and, following his
appointment, J. Peter Pham replaced Alexander Lowrie as a
committee member. 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 twice during FY 2021 to consider the
appointment of J. Peter Pham to the Board as Non-executive Director.
Remuneration Committee
Shawn McCormick was replaced by Alexander Lowrie as chair of
the Remuneration Committee during the year. The other members,
Adonis Pouroulis and Robert Sinclair, served throughout the year.
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 three times during 2020/21
to discuss a new short-term and long-term incentive plan for senior
management, the remuneration package of the CEO, CFO and
Chairman, and the issue of share options to members of the wider
management team.
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.
No formal meetings were held in the year, with safety considered
by the full Board at each formal meeting. A number of informal
discussions were also held between the committee members
to discuss SHEC matters.
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.
Anti-bribery policy
The Company has adopted an anti-bribery policy and procedures,
which apply 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 acts as the Group's Anti-Bribery Officer. 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 2021
George Bennett
Chief Executive Officer
Rainbow Rare Earths Limited Annual Report & Accounts 2021
31
Financial Statements
Page title
OPPORTUNITY
TO ACHIEVE
ADDITIONAL
VALUE FROM
FURTHER
DOWNSTREAM
PROCESSING
Electric Car Battery Pack
32
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Financial Statements
Page title
FINANCIAL
STATEMENTS
34 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
Rainbow Rare Earths Limited Annual Report & Accounts 2021
33
Financial Statements
Independent Auditors’ Report
To the members of Rainbow Rare Earths Limited
Opinion on the financial statements
In our opinion, the financial statements:
•
•
•
give a true and fair view of the state of the Group’s affairs as at 30 June 2021 and of its loss for the year then ended;
have been properly prepared in accordance with IFRSs as adopted by the European Union; and
have been properly prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.
We have audited the financial statements of Rainbow Rare Earths Limited (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year
ended 30 June 2021 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position,
the Consolidated Statement of Changes in Equity, the Consolidated Cash Flow Statement and notes to the financial statements, including a
summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union.
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 believe
that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remain 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. The non-audit services prohibited by that standard were not provided to the Group or the Parent Company.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation
of the financial statements is appropriate.
We considered going concern to be a key audit matter having considered the uncertainty over the timing of when trial mining operations
at Gakara will restart given the temporary suspension of trial mining operations and export ban put in place by the Burundian Government.
Our evaluation of the Directors’ assessment of the entity’s ability to continue to adopt the going concern basis of accounting and in response
to the key audit matter is described below.
• We obtained the Directors’ cash flow forecast and critically assessed the underlying assumptions it included, which have been approved
by the Board. This forecast indicates the Group has sufficient cash resources at December 2022 to continue as a going concern.
• We agreed the opening cash balance to bank statements following the equity placement conducted in October 2021.
• We agreed future cash outflows in respect of loans to underlying agreements. This included cash outflows to settle the unsecured loan
to Pipestone Capital and interest and capital repayments to Finbank.
• We assessed the reasonableness of the cash outflows for the corporate overhead, which included some contingency, and assessed
the level of cash outflows assumed for the Gakara mine, which was assumed to remain on care and maintenance for the entire forecast
period. This involved comparing forecast cash outflows to prior year actuals.
• We reviewed contracts and minutes to ensure non-discretionary capital expenditure at Phalaborwa were appropriately included
in the cash flow forecast. We noted the Directors’ model included no discretionary cash outflows for Phalaborwa.
We reviewed the adequacy and completeness of disclosures in the financial statements in respect of going concern.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the Group’s ability to continue as a going concern for a period of at least twelve months from
when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.
34
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Financial Statements
Independent Auditors’ Report
To the members of Rainbow Rare Earths Limited
continued
Overview
Coverage 98.56% (2020: 97.56%) of Group profit before tax
100% (2020: 100%) of Group revenue
99.97% (2020: 99.35%) of Group total assets
Key audit matters 2021 2020
1. Carrying value of Burundi assets
2. Going concern
Materiality Group financial statements as a whole
US$130k (2020: US$120k) based on 1% (2020: 1.1%) of total assets.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of internal control,
and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal
controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement.
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 South Africa and Burundi. In approaching the audit we considered how the Group
is organised and managed. We assessed the business as being two projects comprising of the the Gakara and the Phalaborwa Projects,
and a corporate head office function.
Our Group audit scope focused on the Group’s principle operating entities, Rainbow Rare Earths Limited, Rainbow Mining Burundi and Rainbow
International Resources. We have identified these entities as significant components for the purposes of our financial statement audit, based on
their relative share of total assets. The significant components accounted for 99% of total assets and were subject to full scope audits conducted
by BDO LLP using a team with experience of auditing African exploration entities. Full scope audits were performed on these significant components.
The remaining components of the Group were considered non-significant and these components were principally subject to analytical review
procedures with specific procedures for any significant balances impacting the Group results.
All audit work (full scope audit or review work) was conducted by BDO LLP, with the exception of the inventory count work carried
out by BDO Rwanda.
Rainbow Rare Earths Limited Annual Report & Accounts 2021
35
Financial Statements
Independent Auditors’ Report
To the members of Rainbow Rare Earths Limited
continued
Key audit matters
Key audit matters are those matters that, in our professional judgement, 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. In addition to the matter described in the Conclusions
related to going concern, we have determined the matter below to be the key audit matter to be communicated in our report.
Key audit matter: Carrying Value of Burundi Assets Refer to Note 3, 12, 14 & 15
The exploration assets are the most significant assets on the Group’s balance sheet and relate to the exploration licence acquisition
costs and subsequently capitalised exploration expenditure incurred on the Group’s Projects, Gakara and Phalaborwa. As at 30 June 2021,
the Group’s capitalised exploration costs amounted to US$9,751k (30 June 2020: US$7,572k), of which US$8,635k (2020: US$ 7,572k)
relates to the Gakara asset in Burundi.
In addition, the Group holds rare earths inventory produced during the year and unsold as at 30 June 2021 from the Gakara asset
of US$717k (2020: US$142k), and has a royalty receivable from the Burundian Government arising from overpayment of royalties
on exported rare earths sales of US$178k as at 30 June 2021 (2020: US$306k).
In June 2021, the Burundian Government put a temporary suspension on trial mining operations. This followed an export ban that was put
in place by the Burundian Government in March 2021. As a result, since June 2021 the mine has been on care and maintenance. Should the
temporary suspension and export ban not be lifted, operations may not restart and the value of the Gakara exploration asset, rare earths
inventory and royalty receivable asset may not be recoverable and require impairing to their recoverable amount.
Given the judgement involved in assessing this, the carrying value of these assets is a key audit matter.
36
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Financial Statements
Independent Auditors’ Report
To the members of Rainbow Rare Earths Limited
continued
How the scope of our audit addressed the key audit matter
To assist us in determining whether the carrying amount of the exploration and evaluation asset, inventory and royalty receivable
is recoverable, we have undertaken the following procedures:
• We made inquiries of Management regarding the temporary suspension of mining operations and export ban imposed by the Government
of Burundi and read board minutes, public announcements and correspondence with the Burundi Government and legal advisers.
Exploration and evaluation assets:
We evaluated Management’s impairment indicator assessment and formed our own assessment of impairment indicators by considering
the requirements of IFRS 6. In doing so we:
• Confirmed the Group continues to hold valid title to the Gakara Project by inspecting the licence agreements, while noting that the
Burundian Government has implemented a temporary suspension of trial mining operations and banned the Group from exporting
ore produced from trial mining activities;
• Reviewed budgets and strategic plans to confirm that further expenditure on exploration to evaluate mineral resources in the specific
area is budgeted and planned;
• Obtained the 2020 Competent Person’s Exploration Target Report that indicated the project has a commercial exploration target.
In addition, we assessed the expert’s objectivity and independence, and considered the scope and findings of their report;
• Assessed the assumptions in management’s economic model that indicated the carrying amount of the exploration and evaluation
asset is likely to be recovered, subject to the temporary suspension from trial mining operations and export ban being lifted;
• We considered the application of management’s accounting policy to capitalise additions and losses arising from trial mining activities
against the relevant accounting standards;
• We tested additions by agreeing costs to supporting documents including contracts and invoices and assessed the nature of the
capitalised costs. This included making inquiries of management and operational staff to understand the nature of the trial mining and
processing activities so we could evaluate management’s conclusion that they contributed to the exploration and evaluation activities; and
• We assessed the financial statement disclosures, specifically including the uncertainty of the project given the temporary suspension
of operations and the export ban imposed by the Government of Burundi.
Inventory:
• BDO Rwanda attended an inventory count at the year-end where the number of bags of inventory were counted.
• A second inventory count was attended after the year end when the contents of the bags were verified as being rare earths by taking
plunge samples using a handheld X-Ray Fluorescence scanner.
• As a second inventory count was performed after the year end, we inspected the mining records post year end to confirm no further
mining activities had been carried out and that the inventory existed at year end.
• We reviewed Management’s calculation to support the inventory’s cost was supported by its net realisable value by agreeing a sample
of inventory costs to underlying supporting documents and considering the appropriateness of the cost allocation, and comparing the
cost to the year-end rare earth prices, assuming the export ban would be lifted.
• We assessed the financial statement disclosures, specifically including the uncertainty of the project given the current export
ban imposed by the Government of Burundi.
Royalty receivable:
• For sales made in the year, a royalty payment of 4% of the net basket price of rare earths sold was made. We recalculated the royalties
paid and agreed payments made to bank statements.
• For the royalty recoverable in respect of overpayments made in prior years we agreed the gross balance to correspondence from
the Government that confirmed that the amounts recognised were repayable to the company.
• We assessed Management’s assumptions to determine the recoverable amount of the receivable given the time that has elapsed
with no payments being received. We recalculated the impairment which involved probability weighting potential different outcomes
of the manner of recovery, including: receipt of the balance in full, recovering the asset by offset against future payments discounted
for the time value of money, and no amounts being recovered.
• We assessed the financial statement disclosures, specifically including the uncertainty of the project given the temporary suspension
of operations and the current export ban.
Key observations:
Based on procedures performed, we consider that there is significant uncertainty over when the temporary suspension from mining
operations and the export ban will be lifted, which may impact the recoverability of the carrying value of the Gakara exploration and
evaluation assets, inventory and royalty receivable.
Rainbow Rare Earths Limited Annual Report & Accounts 2021
37
Financial Statements
Independent Auditors’ Report
To the members of Rainbow Rare Earths Limited
continued
Our application of 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.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level,
performance materiality, to determine the extent of testing needed. 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.
Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows:
2021
US$’000
Materiality 130,000
Basis for determining materiality 1% total
assets
2020
US$’000
120,000
1.1% total
assets
Group financial statements
Rationale for the benchmark applied We consider total assets to be the most significant determinant of the Group’s
financial performance on the basis that the Group’s principal activity is the
exploration of mining assets and it is the value of assets that is of the greatest
interest to the users of the financial statements. The decrease in the threshold
for 2021 was due to the uncertainty associated to the value of the total assets,
specifically relating to Gakara operations.
Performance materiality
91,000
90,000
Basis for determining performance materiality Performance materiality was set at 70% (2020: 75%) of the materiality level based
on our assessment of a number of factors including the expected total value
of known and likely misstatements (based on past experience), our knowledge
of internal control and management’s attitude towards proposed adjustments.
The decrease in the threshold for 2021 was due to the higher risk of the Group
with regards to the export ban in Burundi.
Component materiality
We set materiality for each component of the Group based on a percentage of 70% (2020: 75%) of Group materiality dependent on the size
and our assessment of the risk of material misstatement of that component; this was capped due to aggregation risk in line with the ISAs (UK).
Component materiality ranged from US$86,600 to US$97,500 (2020: US$50,000 to US$67,500). In the audit of each component, we further
applied performance materiality levels of 70% (2020: 75%) of the component materiality to our testing to ensure that the risk of errors exceeding
component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of US$2,600 (2020: US$6,000).
We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.
Other information
The directors are responsible for the other information. The other information comprises the information included in the Annual Report and
Accounts, 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. 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 course of 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 this gives rise to a material misstatement in the
financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in this regard.
Other Companies (Guernsey) Law, 2008 reporting
We have nothing to report in respect of the following matters where 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,
proper accounting records have not been kept by the Parent Company; or
the Parent Company financial statements are not in agreement with the accounting records; or
are necessary for the purposes of our audit.
38
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Financial Statements
Independent Auditors’ Report
To the members of Rainbow Rare Earths Limited
continued
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement within the Directors Report, 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.
Extent to which the audit was capable of detecting irregularities, including fraud
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:
In addition, our testing also included, but was not limited to:
•
Gaining an understanding of the legal and regulatory framework applicable to the Group and the industry in which it operates through
review of minutes of meetings and public available information, and considering the risk of acts by the Group which were contrary to
applicable laws and regulations, including fraud. These included but were not limited to compliance with the Companies (Guernsey) Law,
2008 and international accounting standards, as well as Burundian and South African mining, environmental and taxation legislation.
Communicating relevant and identified laws, regulation, and potential fraud risks to all engagement team members and remaining alert
to any indicators of fraud or non-compliance with laws and regulations throughout the audit. The engagement partner assessed the
engagement team’s collective competence and capabilities to be appropriate to identify or recognise non-compliance with laws and
regulations.
•
• Holding calls with employees in a management position who are not part of the finance team, to confirm that no instances of fraud
•
•
had taken place.
Testing the financial statement disclosures to supporting documentation, performing testing on account balances which were considered
to be a greater risk of susceptibility to fraud. These balances relate to our key audit matters as disclosed above.
Obtaining an understanding of the control environment in monitoring compliance with laws and regulations through review of minutes
of meetings and enquiries put to Management.
• Making enquiries of management as to whether there was any correspondence with regulators and the Government, in so far as the
•
•
correspondence related to the financial statements, and reviewed this correspondence.
Performing targeted journal entry testing based on identified characteristics the audit team considered could be indicative of fraud,
for example capitalisation to property plant and equipment or exploration assets with the opposite entry going to codes other than payables.
Reviewing bank statements, expenses and petty cash around the period when Management visited the Government in Burundi to identify
potential facilitation payments made by the Group.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not
detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed
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 are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at:
https://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 Parent 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 Parent 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 Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Peter Acloque
For and behalf of BDO LLP
Recognised Auditor, London, United Kingdom
27 October 2021
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
Rainbow Rare Earths Limited Annual Report & Accounts 2021
39
Financial Statements
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2021
Revenue
Production and sales costs
Gross loss
Administration expenses
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
30 June 2021 30 June 2020
US$’000
422
(905)
(483)
US$’000
639
(639)
-
(2,707)
(2,389)
(2,707)
(2,872)
433
(466)
856
(209)
(2,740)
(2,225)
(2)
(9)
(2,742)
(2,234)
(52)
(2,690)
(2,742)
(60)
(2,174)
(2,234)
(0.60)
(0.60)
(0.58)
(0.58)
4
6
7
10
24
11
11
Notes on pages 44 to 67 form part of these financial statements.
40
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Financial Statements
Consolidated Statement of Financial Position
As at 30 June 2021
Non-current assets
Exploration and evaluation assets
Property, plant, and equipment
Right of use assets
Total non-current assets
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Borrowings
Lease liabilities
Total current liabilities
Non-current liabilities
Borrowings
Lease liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share-based payment reserve
Share warrant reserve
Other reserves
Retained loss
Equity attributable to the parent
Non-controlling interest
Total equity
30 June 2021 30 June 2020
US$’000
US$’000
Notes
12
13
25
14
15
16
17
18
19
18
19
20
21
23
23
23
24
9,751
1,354
70
11,175
863
441
573
1,877
13,052
(1,009)
(1,231)
(14)
(2,254)
(662)
(69)
(61)
(792)
7,572
942
104
8,618
167
938
788
1,893
10,511
(698)
(1,093)
(33)
(1,824)
(587)
(95)
(100)
(782)
(3,046)
(2,606)
10,006
7,905
32,465
1,295
-
60
(22,878)
10,942
(936)
10,006
28,132
1,099
40
60
(20,542)
8,789
(884)
7,905
These financial statements were approved and authorised for issue by the Board of Directors on 27 October 2021 and signed on its behalf by:
George Bennett
Director
Notes on pages 44 to 67 form part of these financial statements.
Rainbow Rare Earths Limited Annual Report & Accounts 2021
41
Financial Statements
Consolidated Statement of Changes in Equity
For the year ended 30 June 2021
Balance at 1 July 2019
Note
US$’000
20,056
US$’000
1,375
US$’000
1,764
US$’000
40
US$’000
US$’000
US$’000
- (19,040) 4,195
interest
Total
US$’000
US$’000
(824) 3,371
Share
capital
Shares
Share-
Share
Attributable
Non-
to be
based
warrant
Other Accumulated
to the
controlling
issued
payments
reserve
reserves
losses
parent
-
-
-
-
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
-
-
-
-
-
-
-
510
(314)
1,295
(40)
-
-
-
-
(2,690)
(2,690)
(52)
(2,742)
-
-
-
-
3,423
(85)
250
-
40
510
-
745
314
60 (22,878) 10,942
-
-
-
-
-
-
-
-
-
3,423
(85)
250
-
510
745
(936) 10,006
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8,385
(309)
(1,375)
-
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
Total comprehensive expense
Loss and total comprehensive loss for year
21
21
18
22
22
-
-
-
28,132
-
Transactions with owners
Shares placed during the year for
cash consideration
Share placing transaction costs
Non-cash issue of shares during the period
Share warrants expired in the year
Fair value of employee share options in year
Share options exercised in the year, net of costs
Balance at 30 June 2021
21
21
21
22
22
21
3,423
(85)
250
-
-
745
32,465
Notes on pages 44 to 67 form part of these financial statements.
42
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Financial Statements
Consolidated Cash Flow Statement
For the year ended 30 June 2021
Cash flow from operating activities
Loss from operating activities
Adjustments for:
Depreciation
Profit on disposal of fixed assets
Share-based payment charge
Directors fees settled in shares
Operating loss before working capital changes
Net increase in inventory
Net (increase)/decrease in trade and other receivables
Net increase/(decrease) 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 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 2021 30 June 2020
US$’000
US$’000
Notes
(2,707)
(2,872)
13
22
14
15
17
6
7
10
13
12
13
18
18
18
19
21
21
16
37
-
510
-
(2,160)
(121)
(62)
136
(2,207)
359
-
(23)
-
(1,871)
(690)
(2,024)
-
(2,714)
275
(438)
(104)
(56)
4,727
(85)
4,319
(266)
788
51
573
279
4
7
96
(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
Notes on pages 44 to 67 form part of these financial statements.
Rainbow Rare Earths Limited Annual Report & Accounts 2021
43
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
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 2021 and 30 June 2020 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.
The consolidated financial statements have been prepared on a historical cost basis, except for financial instruments measured
at fair value through profit or loss.
Going Concern
As at 26 October 2021, the last practicable date before the publication of these accounts, the Company had total cash of US$6.3 million
having received £4.9 million (US$6.7 million) from an equity fundraise announced on 13 October 2021 as set out in note 30. The equity fundraise
includes a further £1.5 million (US$2.0 million) of expected gross proceeds subject to shareholder approval, which is expected to be received
by 22 November 2021.
The Board have reviewed a range of potential cash flow forecasts for the period to 31 December 2022, including reasonable possible downside
scenarios. This has included the following assumptions:
Corporate:
The forecast includes US$2.5 million of ongoing general and administrative costs of the Group over the 18-month period from 1 July 2021
to 31 December 2022, based on the current administrative costs of the Group.
At 30 June 2021 the Group has US$1.6 million of undiscounted financing liabilities including:
• US$1.0 million, including accrued interest, in an unsecured loan from Pipestone Capital, a Company associated with George Bennett, CEO,
which is expected to be repaid from the proceeds of the post year end equity fundraise.
• US$0.6 million in a term loan from FinBank in Burundi. Capital repayment of this loan is suspended until 31 December 2021 subject to
the Gakara operation remaining suspended in Burundi. From 1 January 2022 repayments will recommence at a rate of US$21k per month
(including interest), which is included in the Group’s cash flow forecasts within the care and maintenance costs for the Gakara project.
Management’s reasonably plausible downside scenario includes repayment of the above liabilities together with the settlement in cash of:
• US$2.7 million for ongoing general and administrative costs of the Group, inclusive of a 10% contingency for unexpected costs.
• US$0.25m for the final balance due in December 2022 under the Phalaborwa earn-in agreement, which can be settled in cash or shares
at the election of Bosveld Phosphates (Pty) Limited.
The reasonably plausible downside scenario also excludes the final US$2.0 million placing proceeds expected to be received
by 22 November 2021 as these are subject to approval of shareholders for the disapplication of pre-emption rights at the
Annual General Meeting to be held on 17 November 2022.
Phalaborwa:
This forecast assumes the completion of the Phalaborwa PEA in H2 2021 at a total cost of US$0.5 million. As there are no other committed costs
for Phalaborwa, with the estimated US$3.0 million costs required to complete the bankable feasibility study being discretionary, management’s
reasonably plausible downside scenario includes no further expenditure for the Phalaborwa project.
Gakara:
The cash flow forecasts assumes ongoing care and maintenance costs totalling US$1.0 million for the forecast period. In the event that the
Gakara Project returns to operations, stock of rare earth concentrate with an estimated gross sales value of US$1.3 million would be sold to provide
the funds to re-commence trial mining and processing operations. The forecasts show that, with the current productive capacity of the trial mining
operations, the Gakara project would not require additional financial support from Rainbow Rare Earths Limited at current rare earth prices.
Conclusion
Based on Management’s reasonably plausible downside scenario outlined above the Group will have US$2.2 million available at the end
of the forecast period before any discretionary expenditure such as the US$3.0m estimated costs required to complete the Phalaborwa
bankable feasibility study.
Accordingly, the Board are satisfied that the Group has sufficient cash resources to continue its operations and meet its commitments
for the foreseeable future and have concluded that it is appropriate for the financial statements to be prepared on a going concern basis.
44
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
continued
2. ACCOUNTING POLICIES CONTINUED
New and amended standards and interpretations adopted by the Group
The Group has adopted the following standards and amendments for the first time for their annual reporting period commencing 1 July 2020:
•
The definition of material has been amended for IAS 1 and IAS 8 to align the definition across standards and is effective for reporting periods
commencing on or after 1 January 2020. The new definition clarifies the definition of material whereby if omitting, misstating or obscuring
it could reasonably be expected to influence decisions of the primary users of financial statements. The amendments to the definition
of material will not have a significant impact on the financial statements.
The definition of a business per IFRS 3 has also been amended to determine when an entity acquires a business or a group of assets.
This amendment is effective for reporting periods commencing on or after 1 January 2020 and will therefore affect all future business
combinations however there is no impact on the current reporting period.
Interest Rate Benchmark Reform – IBOR “phase 1” (Amendments to IFRS 9, IAS 39 and IFRS 7) that is the first part to a two-phase project
which considers relief to hedge accounting in the period before the IBOR reform. These amendments are mandatorily effective for periods
commencing on or after 1 January 2020 and must be applied retrospectively however there is no impact on the current reporting period.
•
•
New standards, interpretations, and amendments not yet effective
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2020 reporting periods
and have not been early adopted by the Group. These standards include:
•
Interest Rate Benchmark Reform – IBOR “phase 2” (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) that addresses issues that
might affect financial reporting after the reform of an interest rate benchmark including its replacement with an alternative benchmark rate.
These amendments are mandatorily effective for periods beginning on or after 1 January 2021.
IAS 37 - Onerous Contracts – Cost of Fulfilling a Contract amending the standard regarding costs a company should include as the cost
of fulfilling a contract when assessing whether a contract is onerous. These amendments are mandatorily effective for periods beginning
on or after 1 January 2022.
IAS 16 - Property, Plant and Equipment - Proceeds before Intended Use regarding proceeds from selling items produced while
bringing as asset into the location and condition necessary for it to be capable of operating in the manner intended by management.
These amendments are mandatorily effective for periods beginning on or after 1 January 2022.
IAS 1 – Presentation of Financial statements – The classification of liabilities as current or non-current basing the classification on
contractual arrangements at the reporting date. These amendments are effective for periods beginning on or after 1 January 2023.
•
•
•
With the exception of the amendment to IAS16, which will impact the future accounting treatment of revenue generated during
the commissioning phase of a commercial development at any of the Group’s projects, these amendments are not expected to have
a material impact on the Group.
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.
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 generates 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.
Rainbow Rare Earths Limited Annual Report & Accounts 2021
45
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
continued
2. ACCOUNTING POLICIES CONTINUED
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,
under which the majority of production has been sold. Under the terms of the contract the Company’s performance obligation is considered to
be satisfied and associated revenue from customers is recorded when the legal title for a shipment is transferred to ThyssenKrupp, normally
at a port in East Africa, after which the Company has no responsibility for the onward shipment of the concentrate.
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. Shipping and other fees are 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.
During the year the Company also sold some production to a separate customer with title passing at the mine gate, after which all risks and
costs associated with the relevant shipment passed to the customer. Revenue was booked on the basis of a fixed price contract on the day
of collection from the processing facility in Burundi.
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, excluding any costs associated with year-end inventory.
An adjustment is recorded to cost of sales to eliminate the margin generated on revenue during the period with a corresponding reduction
in capitalised costs for profits generated or increase in capitalised costs for losses incurred.
Costs incurred prior to the legal right to a mineral project being obtained are written off immediately. 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.
In November 2020 the Company announced the signing of an agreement with Bosveld Phosphates (Pty) Limited for the co-development of the
Phalaborwa rare earths project in South Africa. The agreement requires Rainbow to fund work to deliver a pre-feasibility study for the Phalaborwa
development, at which point a formal joint venture company will be formed of which Rainbow will own a stake of between 60% and 85%. Under
the terms of the agreement Rainbow will transfer into the joint venture company the intellectual property rights relating to the pre-feasibility
study and will gain control of the joint venture company. Accordingly:
•
•
The joint venture company on incorporation will be a subsidiary of the Company and will not be a joint venture as defined in IFRS11.
The costs incurred by the Group prior to incorporation of the joint venture company are being accounted for as costs relating to an
exploration and evaluation asset under IFRS 6.
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.
46
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
continued
2. ACCOUNTING POLICIES CONTINUED
Property, plant and equipment continued
Depreciation
Property, plant and equipment is depreciated on a straight line basis over the estimated useful life of the asset. 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
Plant, machinery and mine infrastructure 5 years
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 non-financial assets including 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 performs an impairment test in accordance with the provisions of IAS 36.
In such circumstances the aggregate carrying value of the exploration and evaluation asset, together with any associated property,
plant and equipment held within the relevant cash generating unit, 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.
Where the carrying amount of an asset or cash generating unit exceeds its recoverable amount, the asset or cash generating unit is considered
impaired and is written down to its recoverable amount. Impairment losses are recognised in the Income Statement. Impairment losses
recognised for a cash generation are recognised against intangible assets ahead of tangible assets.
A previously recognised impairment loss is reversed if the recoverable amount increases as a result of a reversal of the conditions that originally
resulted in the impairment. This reversal is recognised in the Income Statement and is limited to the carrying amount that would have been
determined, net of depreciation, had no impairment loss been recognised in prior years.
Leases
At inception 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.
Rainbow Rare Earths Limited Annual Report & Accounts 2021
47
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
continued
2. ACCOUNTING POLICIES CONTINUED
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 project. 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 tangible or intangible fixed assets of the same amount. Upon commercial production this addition is then charged against
profits over the life of the project. Closure provisions are updated annually for changes in cost estimates as well as for changes to the anticipated
life of the project, 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 where realisable
value is considered to be lower than historic cost.
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.
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, to the extent they represent financial assets, 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
48
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
continued
2. ACCOUNTING POLICIES CONTINUED
Financial instruments continued
•
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.
A financial liability is removed from the balance sheet when it is extinguished, being when the obligation is discharged, cancelled or expired.
On extinguishment of a financial liability, any difference between the carrying amount of the liability and the consideration paid, including
any non-cash assets transferred or liabilities assumed, is recognised in profit or loss. A modification or exchange of a financial liability is
either accounted for as an extinguishment of the original financial liability or a renegotiation of the original financial liability.
An extinguishment or substantial modification of a financial liability results in de-recognition of the original financial liability and any
unamortised transaction costs associated with the original financial liability are immediately expensed to the profit and loss account.
Where the change in the terms of the modified financial liability are not substantial, it is accounted for as a modification of the original liability,
with the modified financial liability measured at amortised cost using the original effective interest rate. To determine whether the terms of
the modified liability are substantially different from those of the original one, a qualitative assessment is performed. If it is not already clear
from a qualitative assessment that a modification has resulted in a substantial change, then quantitative assessment is performed.
This includes consideration whether the discounted present value of the cash flows under the new terms, including any fees paid net of any
fees received and discounted using the original effective interest rate, is at least 10% different from the discounted present value of the
remaining cash flows of the original financial liability.
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.
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 at fair value at the date of grant by use of an option pricing model. Where the share options
only contain service conditions or non-market conditions, a Black – Scholes model is used. Where the share options contain market conditions,
a Monte Carlo simulation model is used and reflected the in the fair value of the options granted. Details of the assumptions used in those models
are included in Note 22 Share based payments.
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.
Rainbow Rare Earths Limited Annual Report & Accounts 2021
49
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
continued
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 and estimation uncertainty are:
Impairment indicator assessment for exploration and evaluation assets (note 12)
Significant accounting judgement
Judgment was required in determining whether indicators of impairment existed at 30 June 2021 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 against the criteria set out in IFRS 6.
For the Phalaborwa asset management noted the JORC compliant inferred mineral resource was defined in June 2021 and positive initial
metallurgical test work results have been reported. Accordingly, management do not consider there to be any indicators of impairment for
the Phalaborwa asset.
For the Gakara cash generating unit management considerations for each of the criteria set out in IFRS 6 were as follows:
1. The period for which the entity has the right to explore in the specific area has expired during the period or will expire in the near future,
and is not expected to be renewed.
The Gakara mining licence is valid until 2040. Management considered the current political situation in Burundi, which has led to a suspension
of operations at Gakara, noting that this is in contravention of the legally binding mining convention in place between the Government of
Burundi and the Group’s Burundi subsidiary, Rainbow Mining Burundi SM. Whilst formal negotiations to allow the operations to re-start have
not occurred, numerous discussions have been held with the Government of Burundi indicating that the suspension does not constitute a
long-term threat to the integrity of the licence. Management are confident that operations will be allowed to re-start following discussions
with the Government of Burundi and, accordingly, do not consider this to be an indicator of impairment for the Gakara asset.
2. Substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted
nor planned.
Significant investment was made at the Gakara project in the financial year, which had been expected to allow increased production from trial
mining and processing activities. The budget for 2021-22 originally set out included a continuation of trial mining and processing activities.
It was expected that any positive cash flow generated would be re-invested in Burundi to further expand the productive capacity of the trial
mining operation to fully utilise the pilot plant capacity and allow exploration to expand into new areas across the licence. Notwithstanding
the current suspension of activities in Burundi, this intention remains.
3. Exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities
of mineral resources and the entity has decided to discontinue such activities in the specific area.
An updated JORC compliant exploration target for the Gakara project was announced in October 2020, which showed considerable potential
for commercially viable quantities of mineral resources to be defined. Subject to Government support exploration and evaluation work is
expected to re-commence in 2022.
4. Sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the
exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale.
The Gakara mining licence covers an area of 39km2 over which numerous occurrences of rare earth mineralisation have been detected
from both surface sampling/mapping and geophysical surveys. Due to the complex nature of the stockwork vein systems much of the
focus since 2017 has been on trial mining and processing to demonstrate the ability to recover a saleable concentrate from the vein hosted
mineralisation and to define the best mining methodology to exploit these types of structures. At the point of suspension of activities recent
investment had delivered a pathway which is expected allow this work to fund further exploration activity across the licence. Despite the
capacity of the current pilot plant not representing commercial scale production, management are confident that at current rare earth
prices ongoing production utilising the full capacity of the pilot plant would allow the full recovery of the carrying amount of the non-financial
assets in the Gakara cash generating unit. This does not remove the intention to undertake further exploration and evaluation work to allow
a full commercial scale operation to be developed.
Accordingly, management do not consider there to be any indicators of impairment for the Gakara asset.
Recoverability of royalty receivable (note 15)
Key sources of estimation uncertainty
Rainbow Mining Burundi SM has historically overpaid royalties arising from the sale of rare earth concentrate. Whilst the Government has
accepted in writing that the overpaid royalties are recoverable, no repayment has been received to date. The Directors have impaired the royalty
receivable based on an assessment of the likelihood that the overpayment will be recovered, considering a range of possible outcomes including
recovery against future royalty liabilities, full recovery in the short term and no recovery. The impairment is recognised in administrative expenses
in the year. The discount rate used and estimated timing of recovery of the royalty receivable are both management’s best estimates and future
recovery may differ.
50
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
continued
3. ACCOUNTING JUDGMENTS AND ESTIMATIONS CONTINUED
Valuation of available for sale mineral concentrate (note 14)
Significant accounting judgement
Trial mining and processing operations at the Gakara project in Burundi are currently on care and maintenance at the request of the Government
of Burundi. At 30 June 2021 the operation has 421t of available for sale mineral concentrate with an estimated sale value of US$1.3 million carried
at cost of US$717k on the Group balance sheet. This concentrate cannot be sold due to an export ban imposed by the Government of Burundi.
Judgement was needed in assessing whether the current export ban would be lifted, allowing the value of the concentrate to be realised.
Management made judgements on the political situation in Burundi and assess that it is probable that the current export ban will be lifted
in due course, and that the timing of the likely sale would not impact the carrying value of the mineral concentrate at the balance sheet date.
Transfer of mine development costs to exploration and evaluation assets (note 12 and 13)
Significant accounting judgement
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$5.4m 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.
Pipestone loan (note 18)
Key sources of estimation uncertainty
Warrants were issued by the Company in lieu of interest on the original Pipestone loan as set out in note 18. 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. The warrants are classified as financial liabilities at fair value through profit and loss
and revalued at each balance sheet date.
Decommissioning, site rehabilitation and environmental costs (note 20)
Key sources of estimation uncertainty
The Group’s mining and exploration activities are subject to various laws and regulations governing the protection of the environment. Estimation
and experience is used in determining the expected timing, closure and decommissioning methods, which can vary in response to changes in
the relevant legal requirements or decommissioning technologies. No provision was deemed necessary for the Group’s Phalaborwa project as
on-site activities have not yet commenced and historical environmental liabilities associated with the site remain with the previous owners.
The discounted provision recognised for the Group’s Gakara project represents management’s best estimate of the rehabilitation costs
that will be incurred, discounted from the period in which they are judged to be 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.
Share based payments (note 22)
Key sources of estimation uncertainty
The valuation of share options issued in the year has been based on a Black Scholes model for options with no market based vesting conditions
and a Monte Carlo simulation for options with market based vesting conditions. The inputs to both models represent the Director’s best
estimates for the likely exercise behaviour of the option holders. The expected future share price volatility was estimated based on the historical
volatility of the Company’s share price and a representative peer group of similar companies. For the share options with market based vesting
conditions an independent specialist consultant was engaged to simulate the impact on the market-based conditions on the fair value of the
options issued.
Rainbow Rare Earths Limited Annual Report & Accounts 2021
51
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
continued
4. LOSS FROM OPERATING ACTIVITIES
Operating loss includes:
Employee benefit expense
Share-based payment charge
Audit of the Group financial statements
Non-audit service fees paid to Company auditor
Depreciation
Taxes and duties
Loss on disposal of fixed assets
30 June 2021 30 June 2020
US$’000
(1,150)
(7)
(101)
(2)
(279)
(98)
(5)
US$’000
(1,025)
(510)
(136)
(2)
(37)
(175)
-
The non-audit services provided by the Company’s auditors BDO LLP during the year related to a review of the unaudited interim results
for the six months to 31 December 2020.
5. SEGMENTAL INFORMATION
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker.
The chief operating decision maker has been identified as the Chief Executive Officer. It is considered that the Group has two reportable segments:
•
•
Phalaborwa – a gypsum stack re-treatment project for the recovery of rare earths in South Africa.
Gakara – a high grade rare earth project in Burundi.
Unallocated costs include corporate costs which are not reported by entity to the Board.
The segmental information for the year ended 30 June 2021 is set out below:
Revenue
Production and sales costs
Administration expenses
Loss from operating activities
Finance income
Finance costs
Loss before tax
Income tax expense
Loss after tax
Segmental assets
Segmental liabilities
Capital expenditure
Phalaborwa
US$’000
-
-
-
-
-
-
-
-
-
1,116
-
1,116
Gakara
US$’000
639
(639)
(806)
(806)
345
(126)
(587)
(2)
(589)
11,352
(1,209)
1,484
Unallocated
US$’000
-
-
(1,901)
(1,901)
88
(340)
(2,153)
-
(2,153)
584
(1,837)
-
Total
US$’000
639
(639)
(2,707)
(2,707)
433
(466)
(2,740)
(2)
(2,742)
13,052
(3,046)
2,600
In the year ended 30 June 2020 the Group had only one reportable segment, the Gakara project. As a result comparative data is not reported
for the year ended 30 June 2020.
6. FINANCE INCOME
Interest received
Foreign exchange gains
Total
30 June 2021 30 June 2020
US$’000
2
854
856
US$’000
-
433
433
Foreign exchange gains in the current and prior periods mainly relate to gains on translation of funds from US dollars to Burundian Francs (“BIF”)
plus the settlement of liabilities in Burundi denominated in BIF.
52
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
continued
7. FINANCE COSTS
Change in fair value of warrant liability (notes 18 and 22)
Interest on Pipestone bridge loan (note 18)
Interest on bank borrowing (note 18)
Interest on short term bridge loan (note 18)
Bank charges
Reversal of accrued finance costs associated with Lind facility
Interest on lease liabilities
Total
8. REMUNERATION OF KEY MANAGEMENT PERSONNEL
30 June 2021 30 June 2020
US$’000
-
53
118
-
19
-
19
209
US$’000
256
140
99
5
24
(75)
17
466
Key management personnel are defined as being Executive and Non-executive Directors and Persons Discharging Managerial Responsibility
(“PDMRs”), who are set out on pages 24 to 25.
Their remuneration for the 12 months ended 30 June 2021 and 30 June 2020 is summarised as follows:
Wages and salaries
Benefits
Share- based payments
Total remuneration of key management personnel
Benefits paid to key management personnel include pension contributions.
9. TOTAL EMPLOYEE REMUNERATION (INCLUDING KEY MANAGEMENT PERSONNEL)
Wages and salaries
Benefits
Share-based payments
Total employee remuneration
30 June 2021 30 June 2020
US$’000
1,129
22
7
1,158
US$’000
1,110
16
510
1,636
30 June 2021 30 June 2020
US$’000
1,865
82
7
1,954
US$’000
2,048
69
510
2,627
Benefits paid to employees include healthcare and pension contributions.
Staff costs include US$1,048k capitalised within Exploration and Evaluation assets in the year (2020: US$1,067k).
Staff costs include US$95k paid to Non-executive Directors for H1 2020 fees settled via the issue of 2,534,604 ordinary shares
at a price of £0.03 per share in June 2020.
The average number of employees during the period were made up as follows
Directors
Management and administration
Mining, processing and exploration staff
Total
30 June 2021 30 June 2020
6
16
251
273
6
20
235
261
Rainbow Rare Earths Limited Annual Report & Accounts 2021
53
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
continued
10. INCOME TAX EXPENSE
Current tax expense
Total tax expense for the year
30 June 2021 30 June 2020
US$’000
9
9
US$’000
2
2
The income tax charge in the year relates to a minimum tax in Burundi for accounting periods where no taxable profits are reported calculated
as 1% of revenue (2020: 1% of revenue).
The difference between the total tax expense shown above and the amount calculated by applying the standard rate of corporation
tax to the loss before tax is as follows:
Loss for the year before tax
Income tax using the Guernsey rate of 0%:
Effects of:
Differences in tax rates
Differences in tax capital allowances
Differences in treatment of exploration and evaluation costs
Tax losses carried forwards
Minimum income tax based on revenue in Burundi
Total
30 June 2021 30 June 2020
US$’000
(1,517)
US$’000
(2,740)
-
(215)
42
(178)
351
2
2
-
(5)
-
-
5
9
9
Rainbow Rare Earths Limited and Rainbow International Resources Limited are subject to 0% income tax in Guernsey and the British Virgin
Islands respectively. Costs for the Phalaborwa asset are being incurred by Rainbow International Resources Limited ahead of incorporation
of a subsidiary company in South Africa. 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$71k (30 June 2020: US$29k),
Rainbow Burundi SPRL US$1k (30 June 2020: US$98k), and Rainbow Mining Burundi SM US$3,127k (30 June 2020: US$1,371k).
The tax losses for Rainbow Burundi SPRL and Rainbow Mining Burundi SM expire after five accounting periods. The tax losses for
Rainbow Rare Earths UK Limited have no expiry. The unrecognised deferred tax asset for Rainbow Mining Burundi SM expires as follows:
US$1,104k on 31 December 2022; US$631k on 31 December 2023; US$853k on 31 December 2024; US$359k on 31 December 2025.
The unrecognised deferred tax asset for Rainbow Burundi SPRL and Rainbow Mining Burundi SM have been impacted in the year due
to the expiration of previously available tax losses and the impact of a recent tax audit in Burundi as follows:
Unrecognised deferred tax asset at 1 July 2020
Deferred tax asset arising in year
Tax losses expiring in year
Impact of Burundi tax audit:
- Differences in treatment of exploration and evaluation costs
- Disallowed expenses
- Differences in capital allowances
Exchange rate differences arising
Unrecognised deferred tax asset at 30 June 2021
Rainbow
Burundi SPRL
US$’000
98
Rainbow
Mining
Burundi SM
US$’000
1,371
-
(97)
-
-
-
-
1
315
-
1,898
(156)
(344)
43
3,127
54
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
continued
11. LOSS PER SHARE
The earnings per share calculations for 30 June 2021 reflect the changes to the number of ordinary shares during the period.
At the start of the year, 421,981,551 shares were in issue. During the year, a total of 54,429,883 new shares were allotted (see note 21 Share
Capital) and on 30 June 2021, 476,411,434 shares were in issue. The weighted average of shares in issue in the year was 450,749,572.
The loss per share have been calculated using the weighted average of ordinary shares. The Company was loss making for all periods presented,
therefore the dilutive effect of share options has not been taken account of in the calculation of diluted earnings per share, since this would
decrease the loss per share for each reporting period.
Basic and diluted
Loss for the year (US$’000) attributable to ordinary equity holders
Weighted average number of ordinary shares in issue during the year
Loss per share (cents)
12. EXPLORATION AND EVALUATION ASSETS
At 1 July 2019
Transferred from Property Plant & Equipment
Additions
At 30 June 2020
Additions
Adjustment of rehabilitation provision
At 30 June 2021
2021
(2,690)
450,749,572
(0.60)
2020
(2,174)
373,141,644
(0.58)
Gakara
US$’000
-
Phalaborwa
US$’000
-
Total
US$’000
-
5,417
2,155
7,572
1,102
(39)
8,635
-
-
-
1,116
-
1,116
5,417
2,155
7,572
2,218
(39)
9,751
During the year the Company entered into an agreement to earn up to an 85% interest in the Phalaborwa rare earths project in South Africa. The
project represents an opportunity to extract rare earth elements from the chemical re-treatment of gypsum stacks. A JORC compliant rare earth
resource was declared on 17 June 2021 and the costs of establishing the commercial viability of development for the project are being capitalised
as exploration and evaluation assets under IFRS 6. Additions in the year include US$750k consideration payable under the earn-in agreement of
which US$500k was settled during the year: US$250k in cash and US$250k by the issue of 1,229,883 new Ordinary Shares of no par value in the
Company on 25 June 2021. The remaining US$250k will be settled in December 2021 in cash or shares at the election of the joint venture partner,
Bosveld Phosphates (Pty) Ltd. The remaining additions of US$366k represent cost associated with the definition of the inferred mineral resource,
ongoing metallurgical test work and technical support costs associated with defining the optimal processing flow sheet for the project.
Included within Gakara additions is US$989k related to gross losses earned during the exploration phase which represent a contribution
towards exploration costs incurred. Gakara additions also include US$269k of depreciation on assets used in trial mining and processing
operations at the project.
FinBank SA hold security over the fixed and floating assets of Rainbow Mining Burundi SM (“RMB”) which include US$7.3 million of exploration
and evaluation assets associated with the Gakara mining permit in Burundi.
On 12 April 2021 RMB received notification from the Ministry of Hydraulics, Energy and Mines of the Republic of Burundi of a temporary
suspension on the export of concentrate produced from the trial mining and processing operations at the Gakara Project. On 29 June 2021
a further notification was received temporarily suspending all trial mining and processing operations pending negotiations on the terms
of the Gakara mining convention signed in 2015.
Following various face to face meetings in Burundi in April, June and July 2021 the Company understands that the primary concerns of the
Government relate to the pricing of the rare earth mineral concentrate sold by RMB. This was addressed comprehensively in an independent
report, dated 26 July 2019, that was commissioned by the World Bank at the request of the Government of Burundi and compiled by SRK
Consulting. This report, accepted by the Government in 2020, concluded that:
•
The price paid by ThyssenKrupp, the multinational industrial group, for the Gakara rare earth mineral concentrate, which is established
on the basis of internationally recognised pricing, is commercial and forms a reliable foundation for the computation of royalties payable
to the Government.
The export grades of each shipment are independently verified as accurate by two internationally recognised laboratories (ALS Laboratories
in Canada and Baotou Research Institute of Rare Earths in China) and have been correctly reported to the Government for each shipment
from Gakara to date.
That Rainbow is a “model company for new market entrants”.
•
•
Rainbow Rare Earths Limited Annual Report & Accounts 2021
55
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
continued
12. EXPLORATION AND EVALUATION ASSETS CONTINUED
RMB continues to engage positively with the Government of Burundi to arrange discussions to allow export of rare earth concentrate to resume
along with trial mining and processing activities. The Directors have also confirmed from independent legal advisors that the mining convention
in place between RMB and the Government of Burundi remains legally binding on both parties, and that the actions of the Government of
Burundi have not been in accordance with that legally binding agreement.
Based on an assessment of both the legal and political position, the Directors have a reasonable expectation that the current temporary
suspension does not represent a threat to the licence and activities will be allowed to re-start. Accordingly, the Directors do not believe this
uncertainty represents an indication of impairment of the exploration and evaluation assets at Gakara, or the associated property, plant and
equipment or inventory within the Gakara cash generating unit. As set out in note 3 the Directors do not consider there to be any indicators
of impairment for the Gakara cash generating unit, however they note that the current suspension of activities could result in future losses
for the Group if it is not resolved as anticipated.
13. PROPERTY, PLANT AND EQUIPMENT
US$’000
Cost
At 1 July 2019
Additions
Disposals
Transfer to Intangible Fixed assets
At 30 June 2020
Additions
At 30 June 2021
Depreciation
At 1 July 2019
Charge for year
Eliminated on disposals/transfers
Transfer to Intangible Fixed assets
At 30 June 2020
Charge for the year
At 30 June 2021
Net Book Value at 30 June 2021
Net Book Value at 30 June 2020
Net Book Value at 30 June 2019
Mine
development
costs
Plant &
machinery
Vehicles
Office
equipment
Mine
restoration
9,317
-
-
(9,134)
183
-
183
3,510
254
(3,717)
47
26
73
110
136
5,807
2,665
-
-
-
2,665
182
2,847
2,665
-
-
-
2,665
2
2,667
180
-
-
709
370
(5)
-
1,074
508
1,582
142
157
(1)
-
298
241
539
1,043
776
567
41
8
(4)
-
45
-
45
7
9
(1)
-
15
9
24
21
30
34
100
-
-
(100)
-
-
-
100
-
-
(100)
-
-
-
-
-
-
Total
12,832
378
(9)
(9,234)
3,967
690
4,657
6,424
420
(2)
(3,817)
3,025
278
3,303
1,354
942
6,408
Depreciation of US$269k (2020: US$157k) relating to mining vehicles, plant & machinery 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$1,353k (2020: US$941k) of property,
plant and equipment in Burundi.
As set out in note 12 the Directors recognise the uncertainty relating to the temporary suspension of trial mining and processing activities
in Burundi which could impact the carrying value of the property, plant and equipment within the Gakara cash generating unit, which
comprises US$1,353k of the net book value at the balance sheet date.
14. INVENTORY
Finished goods
Consumables
Total inventory
30 June 2021 30 June 2020
US$’000
142
25
167
US$’000
717
146
863
Finished goods represents 421 tonnes (2020: 132 tonnes) of rare earth concentrate available for export at the Kabezi processing plant.
The cost is considered to be below the net realisable value and no provision for impairment has been made at 30 June 2021 (2020: $147k).
Movements in the value of finished goods are recognised within exploration and evaluation cost additions in the year. For the year ended
30 June 2020 these movements are recognised within exploration and evaluation cost additions to the extent they arose after 1 September 2019
as explained in note 3.
As set out in note 12 the Directors recognise the uncertainty relating to the temporary suspension of trial mining and processing activities
in Burundi which could impact the carrying value of the inventory within the Gakara cash generating unit, which comprises all of the inventory
held at the balance sheet date.
56
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
continued
15. TRADE AND OTHER RECEIVABLES
Accrued income
VAT recoverable
Prepayments
Royalty receivables
Deposits paid
Sundry debtors
Total trade and other receivables
30 June 2021 30 June 2020
US$’000
15
24
18
306
16
559
938
US$’000
-
189
66
178
5
3
441
VAT recoverable relates to the input VAT recoverable in Burundi. During the year ended 30 June 2021 a tax audit was undertaken in Burundi
over the local operating subsidiary, Rainbow Mining Burundi SM (RMB), covering the period from 2017 to 2019. The audit concluded that reverse
VAT totalling US$181k had not been correctly accounted for on a number of invoices received for services supplied to RMB from international
suppliers. The reverse VAT is recoverable under Burundi legislation and, accordingly, both the asset and liability have been recognised at
30 June 2021.
The US$178k (2020: US$306k) in respect of royalty receivables arises due to an overpayment of royalties up to 30 June 2020, which were paid
based on the total basket price of exports, rather than on the discounted price received from the Company’s customer ThyssenKrupp. In July
2020 the Government of Burundi accepted the recommendations of a report published in July 2019 by SRK, commissioned by the World Bank
on behalf of the government, which accepted that the discounted price received by Rainbow was reasonable. Subsequent royalties have been
paid on the basis of the discounted price. Despite the Government of Burundi agreeing to repay the difference in September 2020 no repayment
has been received to date. The Directors have impaired the royalty receivable based on an assessment of the likelihood that the overpayment will
be recovered, considering a range of possible outcomes including recovery against future royalty liabilities, full recovery in the short term and no
recovery. The impairment is recognised in administrative expenses in the year.
Sundry debtors at 30 June 2020 represent proceeds from the placement announced on 22nd June 2020, set out in note 21, which was received
in the year ended 30 June 2021.
Expected credit losses were assessed at 30 June 2020 considering various potential scenarios, information regarding the counterparty credit
risk, the historical payment profiles and forward-looking factors. No expected credit loss provision was considered necessary.
16. CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Total cash at bank and in hand
No cash amounts were restricted at 30 June 2021 (30 June 2020: nil).
17. TRADE AND OTHER PAYABLES
Trade payables
Accrued expenses
Taxes and social security
Burundi land taxes payable
Amounts due to staff and management
Pension contributions
Other payables
Total trade and other payables
30 June 2021 30 June 2020
US$’000
788
788
US$’000
573
573
30 June 2021 30 June 2020
US$’000
261
233
22
40
133
3
6
698
US$’000
71
233
363
60
32
-
250
1,009
Tax and social security payables include US$329k for taxes provided as a result of a tax audit undertaken in Burundi over the local operating
subsidiary, Rainbow Mining Burundi SM (RMB), covering the period from 2017 to 2019. Reverse VAT totalling US$152k and withholding tax
totalling US$75k had not been correctly accounted for on a number of invoices received for services supplied to RMB from international
suppliers. A further US$10k of payroll taxes were found not to have been paid on salaries for casual staff. Penalties totalling US$92k on the unpaid
taxes have also been provided for in accordance with Burundi legislation. An internal review was carried out for the period following the tax audit
and a further US$24k of taxes and penalties provided for 2020 and H1 2021.
Other payables include the final US$250k consideration payable under the Phalaborwa earn-in agreement, which is due to be settled
in cash or shares (at the election of Bosveld Phosphates (Pty) Ltd) in December 2021.
The Directors consider that the carrying value of trade and other payables approximate to their fair value.
Rainbow Rare Earths Limited Annual Report & Accounts 2021
57
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
continued
18. BORROWINGS
Finbank Loan
Pipestone Loan
Warrant liability
Total borrowings
Borrowings fall due:
Due within one year
Due between 2 to 5 years
Total
The following table analyses the movement in borrowings:
30 June 2021
Borrowings brought forward
Cash flows from borrowings
Drawdown of borrowings
Repayment of borrowings
Interest paid
Non-cash movement in borrowings
Interest charge on borrowings
Settlement of borrowings in shares
Valuation of warrant liability
Settlement of interest via issue of warrants
Extinguishment of Pipestone bridge loan
Drawn down of renewed Pipestone bridge loan
Discount for deemed interest on related party loan
Other
Borrowings carried forward
30 June 2021 30 June 2020
US$’000
762
868
50
1,680
US$’000
579
1,008
306
1,893
1,231
662
1,893
1,093
587
1,680
30 June 2020
US$’000
US$’000
1,562
US$’000
US$’000
1,680
275
(438)
(104)
244
-
256
-
(925)
925
-
(20)
(267)
1,000
(74)
(118)
171
(779)
50
(50)
(925)
925
(60)
(22)
808
480
1,893
(690)
1,680
Finbank Loan
The Finbank loan facility in Burundi is expressed in BIF and carries an interest rate of 15%. Interest has been paid throughout the period.
Capital repayments have been suspended since April 2021 as a result of the export ban imposed in Burundi on the Group’s rare earth
concentrate from trial mining and processing activities. This is not a substantial modification of the loan.
Under the terms of this loan, Finbank has security over the fixed and floating assets of Rainbow Mining Burundi SM (“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 amounted to US$98k (2020: US$118k).
Bridge Loan
A US$275k short term bridge loan was received from certain Directors and senior managers in October 2020 and repaid in full in December 2020
after a successful equity fundraising. Interest totalling US$5k was paid on the loan.
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 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). Further detail on the warrants are provided in note 22.
In June 2020 the original Pipestone loan was re-financed, with US$75k 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$925k was extinguished and replaced with a new, interest free,
unsecured bridging loan of US$925k pending a larger capital raise. No further warrants were issued.
The loan was further refinanced following an equity raise in November 2020, which triggered a repayment obligation for the loan. The Company
had no headroom under the prospectus directive regulations to issue shares at the price of the November 2020 equity raise to repay the loan and
had insufficient funds to allow for repayment in cash. As a result, the US$925k interest-free liability was extinguished and replaced with a new
unsecured bridge loan from 1 December 2020 which bears interest at a rate of 15% per annum. The loan is repayable on the earlier of
31 December 2021 or the date of a future equity fundraise of at least US$5 million.
58
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
continued
19. LEASE LIABILITIES
Lease liabilities fall due:
Due within one year
Due between 2 to 5 years
After 5 years
Total
The following table analyses the movement in lease liabilities:
30 June 2021
Lease liabilities brought forward
Cash flows from leases
Payment of lease liabilities
Interest paid
Non-cash movement in leases
Recognition of right of use lease liabilities
Interest charge on leases
Change in lease term
Lease liabilities carried forward
20. PROVISIONS
At 1 July 2019 and 30 June 2020
Discount
At 30 June 2021
30 June 2021 30 June 2020
US$’000
US$’000
14
37
32
83
33
56
39
128
30 June 2020
US$’000
US$’000
31
US$’000
US$’000
128
(39)
(17)
27
17
(33)
(56)
11
83
(22)
(19)
119
19
-
(41)
138
128
Rehabilitation
provision
US$’000
100
(39)
61
Rehabilitation provisions relate to the anticipated cost of restoring the operating sites at the Gakara project in Burundi. The rehabilitation
provision has been discounted to reflect management’s best estimates of the timing of future estimated cashflows. The environmental
provision for the year ended 30 June 2020 was not discounted. No adjustment of the prior year has been made as the impact is not material.
Rainbow Rare Earths Limited Annual Report & Accounts 2021
59
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
continued
21. SHARE CAPITAL
Share Capital
Issued Share Capital (nil par value)
The table below shows a reconciliation of share capital movements:
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
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
November 2020 - share placing – cash receipts net of costs
December 2020 - Exercise of share options (cash receipts)
January 2021 - Exercise of share options (cash receipts)
February 2021 - Exercise of share options (cash receipts)
April 2021 - Exercise of share options (cash receipts)
Costs associated with exercise of share options
June 2021 - Phalaborwa consideration shares
At 30 June 2021
30 June 2021 30 June 2020
US$’000
28,132
28,132
US$’000
32,465
32,465
Number of shares
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
42,700,000
3,000,000
4,000,000
2,700,000
800,000
-
1,229,883
476,411,434
US$’000
20,056
4,275
185
704
1,376
1,366
95
75
28,132
3,338
215
290
200
58
(18)
250
32,465
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 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 an unsecured bridge loan of US$0.7 million
originally drawn in June 2019 from Pella Ventures Limited (an entity in which the Company’s chairman has a beneficial interest).
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 US$1.4 million (before costs of US$38k). 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.
On 27 November 2020, the Company issued 42.7 million new ordinary shares at a price of 6 pence per share, raising gross cash
proceeds of US$3.4 million (before costs of $85k).
These allotments included the following related parties:
Placing June 2020
Placing November 2020
Adonis Pouroulis (Director)
George Bennett (Director)
Alex Lowrie (Director)
Atul Bali (Director)
Robert Sinclair (Director)
Shawn McCormick (Director)
Others (not related parties)
Total
No of shares
3,359,648
1,993,779
458,332
1,783,332
458,332
1,787,518
31,825,726
41,666,667
US$’000
126
75
17
67
17
67
1,167
1,536
No of shares
-
-
-
-
-
-
42,700,000
42,700,000
US$’000
-
-
-
-
-
-
3,338
3,338
Between December 2020 and April 2021 Australian Special Opportunity Fund, LP exercised options over 10.5 million shares at an exercise price
of 5.28p per share, raising gross cash proceeds of US$763k (before costs of US$18k).
On 25 June 2021 1,229,882 shares were issued to Bosveld Phosphates (Pty) Limited to settle US$250,000 consideration due under
the Phalaborwa co-development agreement originally announced on 3 November 2020.
60
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
continued
22. SHARE OPTIONS AND WARRANTS
The total share-based payment charge for the year was US$510k, US$227k relating to the initial tranche of 1,236,001 options issued under
a new Long Term Incentive Plan and US$283k relating to 2,500,000 options issued under the existing share option plan as set out in more
detail below (2020: US$7k).
Employee share options
At 30 June 2021, the following employee share options were exercisable and outstanding:
30 June 2021
30 June 2020
Share option plan
Outstanding as at 1 July
Granted in the year
Lapsed in the year
Outstanding as at 30 June
Exercisable as at 30 June
Long Term Incentive Plan
Outstanding as at 1 July
Granted in the year
Outstanding as at 30 June
Exercisable as at 30 June
Average
weighted
exercise
Number price (pence)
5,491,400
2,500,000
-
7,991,400
7,991,400
-
3,708,000
3,708,000
-
12.28
12.00
-
12.19
12.19
-
-
-
-
Average
weighted
exercise
price (pence)
11.77
-
11.25
12.28
12.28
-
-
-
-
Number
10,975,066
-
(5,483,666)
7,991,400
7,991,400
-
-
-
-
No employee share options were exercised or lapsed in the year. The options outstanding at 30 June 2021 across both the share option
plan and long term incentive plan had a weighted average remaining contractual life of 7.8 years (2020: 6.8 years).
During the year 6.2 million options were issued on 18 January 2021 as follows:
•
2,500,000 being issued to the Non-executive Directors. The options have an exercise price of 12 pence per share and vest upon the 30-day
volume weight share price being above 12 pence per share. The options have been valued using a Black and Scholes model using the inputs
as detailed below.
•
3,708,000 issued under a new Long Term Incentive Plan (“LTIP”). The options have a nil exercise price and vest over a period of three years
based subject to achieving specific targets. The options will vest in three equal tranches: one third after 12 months, one third after 24 months
and one third after 36 months subject to the following performance conditions.
-
-
The 30 day volume weighted average share price being above 12 pence per share.
The total shareholder return in the financial years ending 30 June 2021, 2022 and 2023 being above average compared to a basket of
comparable investments comprising the FTSE 350 Mining Index, the FTSE SmallCap Index, and the specific rare earth stocks: Pensana plc,
Lynas Rare Earths Limited, Mkango Resources Ltd, Hastings Technology Metals Ltd and Peak Resources Limited.
The above conditions represent market conditions and a Monte Carlo simulation model was used to estimate the fair value.
The inputs into the Black Scholes valuation model for the 2.5 million options with an exercise price of 12 pence per share were:
Share price (GBP pence)
Exercise price (GBP pence)
Expected volatility
Risk free rate
Rate of Exchange
Time to exercise (years)
The inputs into the Monte Carlo simulation for the 3.7 million options issued under the new LTIP were:
Share price (GBP pence)
Exercise price (GBP pence)
Expected volatility
Expected volatility peer companies
Rate of Exchange
Time to exercise (years)
Options granted
18 January 2021
14.25
12 .00
90%
0.10%
1.32
3
Nil price options granted
18 January 2021
14.25
0.0
90%
51%-153%
1.32
7
Expected volatility was determined by reference to the annual volatility of the Company’s closing mid-market share price
on the London Stock Exchange or the peer companies as noted in the option conditions.
Rainbow Rare Earths Limited Annual Report & Accounts 2021
61
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
continued
22. SHARE OPTIONS AND WARRANTS CONTINUED
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, a funding arrangement entered
into by the Company in January 2019.
During the year, 10,500,000 of the above options were exercised for gross proceeds of US$763k. On 14 July 2021, a further 2,500,000 options
were exercised.
Warrants
Outstanding and exercisable at 1 July 2019
Issued during the year
Outstanding and exercisable at 1 July 2020
Expired during the year
Outstanding and exercisable at 30 June 2021
Number Exercise price
US$0.21
427,924
£0.0455
2,000,000
£0.0671
2,427,924
US$0.21
(427,924)
£0.0455
2,000,000
1. Weighted average exercise price calculated for US$ based warrants on US$:GBP exchange rate ruling at 30 June 2020
During the year the 427,924 warrants with an exercise price of US$0.21 per share originally issued to Chrystal Capital Partners LLP
on 9 November 2015 expired.
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 18. The warrants
have a contractual life of 4 years at an exercise price of 4.55 pence per warrant. The Pipestone warrants are recognised as a financial liability at
fair value through profit and loss with changes in value included under Finance Costs as part of the cost of the Pipestone Loan Facility as set
out in note 7.
As noted above, the Pipestone warrants are classified as a financial liability and are revalued at each period end using a Black and 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)
At 30 June
2021
14.5
4.55
106.7%
0.18%
1.383
1.7
At 30 June
2020
3.3
4.55
105.9%
0.45%
1.296
3.0
Expected volatility was determined by reference to 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.
62
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
continued
23. 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
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 24
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.
24. 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 2019
Minority share of loss for year
At 30 June 2020
Minority share of loss for year
At 30 June 2021
Assets at year-end:
30 June 2020
30 June 2021
Liabilities at year-end:
30 June 2020
30 June 2021
Loss for the year to:
30 June 2020
30 June 2021
No dividends have been paid to minority interests in the year (2020: nil).
Rainbow
Burundi
SPRL
Burundi
US$’000
3%
Rainbow
Mining
Burundi SM
Burundi
US$’000
10%
6
1
7
-
7
1
1
295
295
(18)
-
818
59
877
52
929
8,964
10,019
17,069
19,298
(595)
(524)
Rainbow Rare Earths Limited Annual Report & Accounts 2021
63
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
continued
25. LEASES
The Group leases three properties in Burundi. Two were recognised in the year ended 30 June 2020 as right of use assets in accordance
with the requirements of IFRS 16 with a further property recognised in the year ended 30 June 2021. The properties are subject to annual
agreements, with right of use assets and lease liabilities calculated by reference to the Group’s anticipated long-term intentions to renew the
lease agreements. The lessor for one of the buildings is Gilbert Midende, who was a PDMR and related party (see note 27) prior to formally retiring
as Director. General of Rainbow Mining Burundi SM in May 2021. During the year, the Group decided to terminate the lease relating to the related
party property and the right of use asset and lease liability have been revised to the level of the remaining lease payments.
Right of use assets
Right of use assets recognised in year
Depreciation in year
Balance as at 30 June 2020
Right of use asset recognised in the year
Amendment to expected life
Depreciation in year
Balance as at 30 June 2021
Land and buildings
US$’000
119
(15)
104
27
(33)
(28)
70
In addition, the Group acquired land situated in Kabezi at the site of the processing plant under a lease arrangement, the final payments under
which were made during the year ended 30 June 2021. The land ownership is being transferred to the Group. The asset is included within
Property, Plant and Equipment in note 11. The lessor, Gilbert Midende, was a PDMR and a related party prior to his retirement in May 2021.
The Group has also leased a number of pieces of mining equipment on a week to week basis. The majority of these arrangements were
terminated during the year ended 30 June 2020 as the Group acquired its own vehicles. The lease for the final rented bulldozer was terminated
in the year ended 30 June 2021 and there are no further short-term lease commitments. Payments under short term leases in the year ended
30 June 2021 totalled US$107k (30 June 2020: US$579k).
26. CAPITAL COMMITMENTS
There were no capital commitments at 30 June 2021 (2020: nil). Under the terms of the Gakara Mining Convention there are no minimum
expenditure commitments in respect of exploration and evaluation activities.
27. RELATED PARTY TRANSACTIONS
Year to 30 June 2021
Year to 30 June 2020
Charged
in year
US$’000
35
-
23
237
26
25
26
25
25
422
Settled Balance as at
in year 30 June 2021
US$’000
-
-
-
1,009
-
-
-
-
-
1,009
US$’000
(35)
-
(23)
(153)
(26)
(25)
(26)
(25)
(25)
(338)
Charged
in year
US$’000
38
-
56
1,000
Settled
Balance as at
in year 30 June 2020
US$’000
35
-
-
925
US$’000
(53)
(704)
(91)
(75)
1,094
(923)
960
Gilbert Midende 1
Pella Ventures Limited 2
Benzu Minerals (Pty) Limited 3
Pipestone Capital Inc 4
Alexander Lowrie 5
Atul Bali 5
Robert Sinclair 5
Shawn McCormick 5
MPD Consulting Limited 6
Total
Notes
1. Gilbert Midende formally retired as Director General of Rainbow Mining Burundi SM in May 2021. In addition to his salary, US$35k was charged by Gilbert Midende in the year ended 30 June 2021
(2020: US$38k) in respect of leases as set out in note 25.
2. 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.
3. Benzu Minerals (Pty) Limited is 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 drilling programme at Phalaborwa, salary was paid to Cesare Morelli via Benzu Minerals (Pty) Limited and is included in remuneration disclosures in note 9.
4. 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 of which US$75k was settled
via the issue of ordinary shares in June 2020. From December 2020 the loan has been interest bearing as set out in note 18, with US$84k interest accruing in the year. In addition, Pipestone Capital
provided US$150k of the bridge loan received in October 2020, which was repaid in full, including US$3k interest, in December 2020 as set out in note 18.
5. Alexander Lowrie, Atul Bali, Robert Sinclair and Shawn McCormick, all Non-executive Directors of the Company, provided an aggregate of US$100k of the bridge loan received in October 2020,
which was repaid in full, including US$2k aggregate interest, in December 2020 as set out in note 18.
6. MPD Consulting Limited (connected with Peter Gardner, CFO) provided US$25k of the bridge loan received in October 2020, which was repaid in full, including interest, in December 2020
as set out in note 18.
64
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
continued
28. 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 2021 2020
100%
Rainbow International Resources Ltd Rare earth exploration British Virgin Islands
100%
Rainbow Rare Earths UK Ltd Service Company United Kingdom
97%
Rainbow Burundi SPRL Rare earth exploration Republic of Burundi
90%
Rainbow Mining Burundi SM Rare earth mining Republic of Burundi
N/A
Rainbow Rare Earths Zimbabwe (Private) Limited Rare earth exploration Zimbabwe
100%
100%
97%
90%
100%
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
29. CONTINGENT LIABILITIES
There were no contingent liabilities at 30 June 2021 (30 June 2020: nil).
30. POST BALANCE SHEET EVENTS
On 14 July 2021 Australian Special Opportunity Fund, LP exercised options over 2.5 million shares at an exercise price of 5.28p per share,
raising gross cash proceeds of US$182k.
On 19 October 2021 the Company issued 32.9 million new ordinary shares at a price of 15 pence per share, raising gross cash proceeds
of £4.9 million (US$6.7 million) (before costs of US$0.2 million) by way of a placing, with a further 10 million shares to be issued raising
a further £1.5 million (US$2.0 million) subject to shareholder approval at the Company’s AGM.
31. 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 18, are measured at fair value through profit
or loss. All other liabilities are measured at amortised cost. These are detailed in notes 17, 18 and 19.
The Group has various financial assets, being trade and other receivables and cash, which arise directly from its operations. To the extent that
these represent financial assets they are classified as assets held at amortised cost. These are detailed in notes 15 and 16.
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 16. Credit risk is managed by ensuring that surplus funds are held in the UK with
well-established financial institutions of high-quality credit standing. At 30 June 2021, 90% of funds were held with a bank with a long
term A- credit rating (2020: 83%).
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).
Rainbow Rare Earths Limited Annual Report & Accounts 2021
65
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
continued
31. FINANCIAL RISK MANAGEMENT CONTINUED
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. 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
Total
30 June 2021 30 June 2020
US$’000
245
471
72
788
US$’000
353
183
37
573
The table below shows an analysis of the currency of the monetary liabilities in the functional currency of the Group (US dollars):
US Dollars
GB Pounds
Burundi Francs
South African Rand
Australian Dollars
Total
30 June 2021 30 June 2020
US$’000
1,229
218
1,023
7
-
2,477
US$’000
1,662
233
681
23
22
2,621
The largest exposure and the least stable currency is the Burundi Franc. A 10% movement in the US$:BIF rate would have resulted in a gain
or loss of approximately US$0.1m (2020: approximately US$0.1m) in the income statement in relation to the cash and cash equivalents and
trade payables as at 30 June 2020. Movements in the exchange rates between the US dollar and the South African Rand, Australian dollar
or GB Pound do not have a significant impact on the Group’s financial position.
Interest rate risk
Interest rate risk refers to the risk that fluctuations in interest rates cause losses to the Company.
The Group and Company have no exposure to interest rate risk except on cash and cash equivalents which carry variable interest rates.
The Group has no material sensitivity to reasonable changes in variable interest rates. The group monitors the variable interest risk accordingly.
The Group’s borrowings bear fixed rates of interest.
Liquidity risk
Liquidity risk refers to the risk that the Group has insufficient cash resources to meet working capital requirements. The Group manages
its liquidity requirements by using both short and long-term cash flow projections. The following table sets out the contractual maturities
(representing undiscounted contractual cash-flows) of financial liabilities:
As at 30 June 2021
As at 30 June 2020
Trade and other payables
Loans and borrowings
Lease liabilities
Total
Due in
2 to 5
years
Due in
1 to 2
years
Due
within 1
year
Due in
5 to 10
years
US$’000 US$’000 US$’000 US$’000
-
-
39
39
646
1,304
17
1,967
-
314
12
326
-
79
36
115
Due
Due in
Due in
within 1 1 to 2 years 2 to 5 years
years
years
US$’000
US$’000
-
-
297
1,249
60
31
357
1,280
year
US$’000
698
324
49
1,071
Due in
5 to 10
years
US$’000
-
-
51
51
Ultimate responsibility for liquidity risk management rests with the Directors, who have built an appropriate liquidity risk management
framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group
closely monitors and manages its liquidity risk. For further details on the Group’s liquidity position, please refer to the going concern paragraph
in note 2 of these accounts.
66
Rainbow Rare Earths Limited Annual Report & Accounts 2021
Financial Statements
Notes to the Financial Statements
For the year ended 30 June 2021
continued
31. FINANCIAL RISK MANAGEMENT CONTINUED
Capital management
In managing the capital, the Group’s primary objective is to maintain a sufficient funding base, through debt and equity, to enable the Group to
meet its working capital and strategic investment needs. This includes ensuring sufficient funds are available to service the Group’s borrowings as
they fall due. No funds are held in restricted or designated accounts for future debt servicing requirements. In making decisions to adjust its capital
structure to achieve these aims the Group consider not only its short-term position but also its long term operational and strategic objectives.
The Group’s primary capital management measure is net debt (borrowings less cash) to total equity, measured as follows:
Net debt/(net cash) to equity
Total borrowings (note 18)
Less: Cash and cash equivalents
Net debt
Total equity
Ratio
32. NON-CASH TRANSACTIONS
Material non-cash transactions were as follows:
30 June 2021 30 June 2020
US$’000
1,808
(788)
1,020
7,905
13%
US$’000
1,892
(573)
1,319
10,006
13%
Year end 30 June 2021
•
•
Settlement of the second tranche of consideration for the Phalaborwa earn-in agreement in shares as set out in note 21.
Recognition of right of use assets under lease agreements as set out in note 25.
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 21.
Settlement of the Pella convertible in shares in July 2019 as set out in note 21.
Settlement of the final balance of the Lind convertible in shares as set out in note 21.
Settlement of US$75k 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 18.
Recognition of right of use assets under lease agreements as set out in note 25.
•
33. ULTIMATE CONTROLLING PARTY
The Company does not have a single controlling party.
Rainbow Rare Earths Limited Annual Report & Accounts 2021
67
Financial Statements
Notes
68
Rainbow Rare Earths Limited Annual Report & Accounts 2021
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
J Peter Pham
Company Secretary
Artemis Secretaries Limited
Registered office
Trafalgar Court, Second Floor, East Wing,
Admiral Park, St Peter Port, Guernsey GY1 3EL
Company website
www.rainbowrareearths.com
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
Independent Auditors
BDO LLP
Solicitors
Memery Crystal LLP (UK)
Legal Solutions Chambers (Burundi)
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Rainbow Rare Earths Limited
Registered office
Trafalgar Court, Admiral Park, St Peter Port,
Guernsey GY1 3EL
www.rainbowrareearths.com