RAINBOW RARE EARTHS LIMITED
ANNUAL REPORT 2023
A STRATEGIC SOURCE
OF RARE EARTH MINERALS
FOR A GROWING MARKET
RAINBOW
RARE EARTHS
A STRATEGIC SOURCE OF THE
RARE EARTH ELEMENTS DRIVING
DECARBONISATION
Rainbow Rare Earths (“Rainbow” or the “Company” or the “Group”) aims to be
a forerunner in the establishment of an independent and ethical supply chain
of the rare earth elements that are driving the green energy transition.
It is doing this successfully via the identification and development
of secondary rare earth deposits that can be brought into production
quicker and at a lower cost than traditional hard rock mining projects,
with a focus on the rare earth elements used to make permanent
magnets, namely neodymium and praseodymium (“NdPr”),
dysprosium (“Dy”) and terbium (“Tb”).
Rainbow is listed on the main market of the
London Stock Exchange under the ticker RBW.
CONTENTS
OVERVIEW
01 About Rare Earth Elements
02 Why Invest
STRATEGIC REPORT
06 Chairman’s Statement
09 Business Model
10 Q&A with CEO
14 Market Review
16 Operations Review
22 Sustainability Report
34 Financial Review
35 Payments to Governments
CORPORATE GOVERNANCE
38 Board of Directors
40 Senior Mangement
41 Corporate Governance Statement
46 Principal Risks and Uncertainties
48 Directors’ Report
FINANCIAL STATEMENTS
52 Independent Auditors’ Report
58 Consolidated Statement
of Comprehensive Income
59 Consolidated Statement
of Financial Position
60 Consolidated Statement
of Changes in Equity
61 Consolidated Cash Flow Statement
62 Notes to the Financial Statements
IBC Shareholder Information
Front cover image:
The first batch of mixed rare earth sulphate
was produced at the front-end pilot plant
in Johannesburg in September 2023
OVERVIEW
ABOUT RARE EARTHS ELEMENTS
RARE EARTH ELEMENTS ARE FUNDAMENTAL
TO LIFE IN THE 21ST CENTURY
A group of 17 elements in the periodic table, including the 15 in the Lanthanide series plus
two additional elements. Rare earths are categorised into light elements and heavy elements,
with the latter being less common.
Classifications
Nd, Pr, Tb, Dy are critical elements of the global energy transition
Light Rare Earths
Heavy Rare Earths
Applications
Electric Cars
Wind Turbines
Smart Phones
Speakers
Computer Drives
Defence
Due to their unique electrical and magnetic properties, rare earth
elements (“REEs”) allow for miniaturisation and much lighter, stronger,
resilient, and efficient components. To date, they have transformed the
consumer electronics market, enabling the high-tech products so integral
to our lives and which still account for ca. 50% of the rare earth market.
However, REEs have an even more important role to play as enablers
of the transition to the green economy. REEs are vital components of
the type of permanent magnets used within electric vehicles and wind
turbines, with both of these markets forecast to continue rapid growth
as global efforts play out to reach net zero.
Currently China controls ca. 70% of rare earth mining, but over 90% of
the downstream rare earth processing and manufacturing. This reliance
on one country creates supply chain vulnerability which, combined with
a forecast deficit of supply compared with rising demand, has driven
countries around the world to officially recognise REEs as critical minerals.
Adding to the criticality of REEs is their growing use in high tech
and strategic defence applications, such as guided missiles,
drones, electronic displays, sonar and jet fighter engines.
Global demand for magnet rare earth oxides (“REOs”)
(Nd, Pr, Dy, Tb)
300
250
200
150
100
50
0
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2022 global
demand ca. 163,150kt
2040 global demand
potential ca. 289,500kt
Wind power demand growth at a CAGR of ca. 15% p.a.
requires 0.2Mt additional magnet REOs by 2040
EV sales growth at a CAGR of ca. 10% p.a.
requires ca. 1.2Mt additional magnet REOs by 2040
Other uses of rare earths demand growth at a CAGR of ca. 3% p.a.
requires ca. 3Mt additional magnet REOs by 2040
Source: Argus Media
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
01
OVERVIEW
WHY INVEST
A UNIQUE INVESTMENT
OPPORTUNITY IN RARE EARTHS
CRITICAL MINERALS
Demand for REEs is forecast to
rise significantly to facilitate global
decarbonisation, as well as for use
in strategic and high-tech products.
FOCUS ON SECONDARY
SOURCES
Rainbow is focused on the development
of secondary sources of rare earths,
namely phosphogypsum stacks that are
the residue of phosphoric acid production.
EXPERIENCED TEAM
Rainbow’s team has a history of delivering
multiple processing plants, feasibility
studies and mine developments.
Read more on pages 14 to 15
Read more on page 9
Read more on pages 38 to 40
Back-end Pilot Plant – USA
• Production of separated rare earth oxides
• Uses K-Tech’s patented CIX and CIC
separation technology
• Flexibility to establish back-end separation process
permanently in the USA could establish Rainbow
as one of the first producers of separated rare earth
oxides in the country
OCP - Morocco
• Testwork underway to develop the optimal
technique for the extraction
of rare earth elements from sedimentary-
sourced phosphogypsum
• Collaboration with OCP S.A. (“OCP”) and
Mohammed VI Polytechnic University (“UM6P”)
Uberaba – Brazil
• Major new opportunity to replicate Phalaborwa
at a potentially larger scale
• Phosphogypsum stack with same type of source
material (hardrock carbonatite)
• MOU with the Mosaic Company (“Mosaic”) in place
• Sample results confirmed 0.58% TREO and
all four magnet REEs
02 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
OVERVIEW
WHY INVEST CONTINUED
INNOVATIVE TECHNOLOGY
Proprietary rare earth separation
processes delivers efficiencies and
cost benefits versus traditional
solvent extraction.
MULTI-ASSET RARE EARTH
PORTFOLIO
Rainbow has secured two rare earth
projects on different continents that are
expected to be brought into production
faster and at a lower cost than traditional
rare earth mine development projects.
RESPONSIBLE SUPPLY
Rainbow aims to to be a forerunner
in the establishment of an independent
and ethical supply chain of REEs and
a focus on responsible production
is central to our business model.
Read more on page 19
Read more on pages 16 to 20
Read more on pages 22 to 27
LCM - UK
World-leader in the manufacture of alloys
for permanent magnets - agreement to
purchase seperated rare earth oxides
from Rainbow
Phalaborwa – South Africa
• NPV of US$627 million
• Annual production of ca. 1,850t of magnet
rare earths
• Annual EBITDA of ca. US$192 million
• Creation of 275-300 direct jobs
• Clean-up of site with legacy environmental issues
Front-end Pilot Plant – South Africa
• Production of a mixed rare earth sulphate
• Technology developed jointly by Rainbow
and K-Technologies, Inc. (“K-Tech”)
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
03
STRATEGIC REPORT
DEVELOPING A
RESPONSIBLE RARE
EARTHS SUPPLY
CHAIN
The International Energy Agency forecasts
that wind electricity capacity will need
to increase from ca. 75 GW in 2022
to ca. 350 GW by 2030 in order to
stay on track with the Net Zero
Emissions 2050 Scenario
04 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
STRATEGIC REPORT
STRATEGIC REPORT
06 Chairman’s Statement
09 Business Model
10 Q&A with CEO
14 Market Review
16 Operations Review
22 Sustainability Report
34 Financial Review
35 Payments to Governments
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
05
STRATEGIC REPORT
CHAIRMAN’S STATEMENT
“RAINBOW HAS BECOME
ONE OF THE ONLY RARE EARTH
DEVELOPMENT COMPANIES IN THE
WORLD WITH MULTIPLE NEAR-TERM
PRODUCTION OPPORTUNITIES”
06 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
STRATEGIC REPORT
CHAIRMAN’S STATEMENT CONTINUED
Post Year-end, the Phalaborwa project
recorded a major milestone with the recovery
of the first mixed rare earth sulphate from the
front-end pilot plant in Johannesburg.
This material is considered to be a commercially
saleable product that could be a standalone
revenue stream for the project, with an
estimated sales value of ca. 60% of the global
price for separated rare earth oxides. The
mixed rare earth sulphate will be used as the
feed stock to produce separated rare earth
oxides at the back end pilot plant at K-Tech's
facility in Florida.
Responsible supply
Rainbow’s business model is driven by the
shift to cleaner energy, in that we will produce
the materials required to make permanent
magnets needed for EVs and wind turbines -
with this comes a responsibility to operate
in a sustainable manner - read more about
our approach to sustainability on page 22.
We have the opportunity at Phalaborwa to
clean up legacy environmental issues on site,
the main one being acid water which has
accumulated over the unlined gypsum stacks.
The acid water will be neutralised and used as
process water, with the remnant gypsum then
deposited on new lined stacks according
to International Finance Corporation (“IFC”) /
Equator Principles. This gypsum is intended
to be further on-sold as a clean and benign
feed for the cement and other industries,
leaving the site rehabilitated to its original
state over time.
Phalaborwa’s potential to be a near-term
source of ethical magnet rare earth supply
was recognised by Less Common Metals Ltd
(“LCM”), with whom we have entered into a
strategic supply agreement for Phalaborwa
production. LCM is currently the only rare earth
metal and alloy manufacturing facility in the
UK and one of the only facilities in the EU.
Its location is of strategic importance to
Rainbow as the Group’s aim is to play
an important part in the establishment
of a Western supply chain for critical REEs
outside of Chinese control.
Dear Shareholder,
The world is currently in the midst of a new
industrial revolution – the transition to a
sustainable green energy system. This shift is
set to drive a huge increase in the requirements
for the minerals needed to power clean energy
technologies. Of these minerals, REEs are
recognised as amongst those with the highest
risk for supply shortages, as well as displaying
considerable supply chain vulnerability due to
China’s dominant position in the market.
REEs are essential components of permanent
magnets, which are found in a plethora of high
tech products, including smartphones, camera
lenses, plasma screens, hard drives and even
artificial joints. However, it is their use in electric
vehicles (“EVs”) and wind turbines that is
driving major future market growth, with Argus
Media Ltd estimating that supply of the
magnet rare earths, NdPr, Dy and Tb, will need
to grow by ca. 8% per annum by 2032 in order
to match demand. Read more in Market
Review on pages 14 to 15.
Rainbow’s aim is to be a forerunner in the
establishment of an independent, sustainable
and ethical supply chain of REEs and I am
delighted to note that we made excellent
progress towards this aim in the year to 30
June 2023 (“FY 2023” or the “Year”) via the
advancement of the Phalaborwa project in
South Africa and, post Year end, via the MOU
entered into with Mosaic to jointly develop the
Uberaba project in Brazil.
Both projects target secondary sources of rare
earths, being phosphogypsum stacks that are
the residue of phosphoric acid production.
These stacks sit at surface, thereby eliminating
the traditional geological risk and cost of
mining, and are therefore expected to have a
significantly lower capital intensity and
operating expenditure (“opex”) than traditional
rare earth mining projects. Furthermore they
can be considered “near-term” production
opportunities – for example, the Phalaborwa
project is expected to commence operations
in 2026, which is just five years after Rainbow
secured the project.
The outstanding economics of the
Phalaborwa project were confirmed via the
publication of its Preliminary Economic
Assessment (“PEA”) in October last year, which
noted a base case NPV10 of US$627 million ,
an average EBITDA operating margin of 75%
and a payback period of less than two years.
This very high margin sets Phalaborwa apart
from other development projects in our space
as it can withstand significant pricing volatility.
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
07
STRATEGIC REPORT
CHAIRMAN’S STATEMENT CONTINUED
Portfolio development
Post Year-end, the agreement with Mosaic
represents a major opportunity for Rainbow
to replicate Phalaborwa at a potentially larger
scale. The Uberaba phosphogypsum material
is similar to Rainbow’s Phalaborwa project in
South Africa in that the original feedstock was
based on a hardrock carbonatite phosphate
deposit. Initial assay analysis from samples
have indicated an average grade of 0.58%
total rare earth oxides (“TREO”), which is
more than 30% higher than the 0.44% TREO
for Phalaborwa, and confirmed that the
Uberaba basket contains all four of the most
economically important rare earths, NdPr
at ca. 25% of the basket and includes the
two “heavy” permanent magnet rare earths,
Dy and Tb. Read more in “Uberaba” on page 20.
Further to the acquisition of the
Phalaborwa project in December 2020
and the subsequent development of
processing technology to recover REEs
from phosphogypsum as a by-product of
phosphoric acid production, the Directors
have re-focused the business on secondary
sources of REEs where they consider higher
returns are available. As such, the Directors
no longer intend to invest significant capital
at the Gakara asset in Burundi to convert the
existing resource target to a reserve status.
This resulted in an impairment review being
carried out for the Gakara assets in the year
ended 30 June 2023 and led to the net assets
being written down to nil as at 30 June 2023.
Read more in the “Financial Review” on page 34.
Corporate development
Rainbow’s successful development in FY 2023
was rewarded by continued strong backing
for the Company in the market, with a placing
to raise US$9.5 million in May 2023 achieved
at a premium of 30% to the share price,
and a placing post Year-end in September
2023 to raise US$5.4 million achieved at a
minor discount of 3% to the share price.
Both fundraisings included cornerstone
participation by TechMet Limited (“TechMet”),
a private investment company developing
world class projects across the critical metals
for the global energy transition, and which
counts the US International Development
Finance Corporation (“DFC”) as a major backer.
Pursuant to the nomination right held by
TechMet, Darryll Castle (currently Director
of Operations for TechMet) joined the Rainbow
Board in June 2023. Through his extensive
career Darryll has served as an executive
director of a number of mining and production
companies and has first-hand operations and
projects experience globally. We welcome
Darryll to the Board.
Responsible production is a core component
of our business model and Rainbow has made
good progress this year with setting up the
structural aspects that will ensure ESG is
integrated into our operations. Post Year-end,
the Board approved a new Sustainability Policy
for the Group and we have committed to a
number of United Nations Sustainable
Development Goals (“SDGs”), which will
provide a focal point for our sustainability
strategy and plans. Read more in Sustainability
on pages 22 to 27.
We have been working with carbon and
climate change advisors to further understand
Phalaborwa’s potential environmental impacts
and have provided our first annual disclosure
in line with the recommendations of the Task
Force on Climate-related Financial Disclosures
(“TCFD”).
Poised for success
I believe Rainbow offers a compelling
investment opportunity in our space.
Further to the MOU with Mosaic in Brazil,
Rainbow has become one of the only rare
earth development companies in the world
with multiple near-term production
opportunities, as well as occupying a unique
position in the pipeline given our ability to
utilise innovative and proprietary technology
to take the processing of our material all the
way through to separated rare earth oxides.
Read more in “Our Business Model” on page 9.
This is an exciting time for the Group and
I look forward to the imminent production
of separated rare earth oxides in Q4 calendar
year (“CY”) 2023, bearing in mind Rainbow will
be one of the first companies to do this on US
soil, which further validates our vision to be an
integral part of an independent and Western
supply chain of rare earths.
I would like to thank the host countries in
which we operate and all our staff who have
worked so diligently in laying the platform for
delivering one of the most exciting rare earth
stories in the world.
ADONIS POUROULIS
NON-EXECUTIVE CHAIRMAN
08 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
STRATEGIC REPORT
BUSINESS MODEL
With our strong project development and operating experience,
unique intellectual property and diversified portfolio, Rainbow will
develop a responsible, independent rare earths supply
chain to drive the green energy transition.
PROJECT
IDENTIFICATION
Focus on secondary sources of
supply that can be brought into
production quicker and at a lower
cost and carbon intensity than rare
earth mine development projects
UNIQUE POSITION IN PIPELINE
Rainbow will be one of the few
companies outside of Asia to
produce separated rare earth
oxides, including the
“heavies” Dy and Tb
BUSINESS MODEL
Developing a
responsible supply of
critical rare earths
INNOVATIVE
TECHNOLOGY
Application of proprietary
separation technologies including
CIX and CIC in order to deliver
separated magnet rare earth oxides
more efficiently than traditional solvent
extraction methods
RESPONSIBLE PRODUCTION
Rainbow will contribute to a
responsible supply chain for rare earths
by integrating strong environmental
and social practices into its
project development and
management
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
09
STRATEGIC REPORT
Q&A WITH CEO
“THE LONG-TERM OUTLOOK
FOR RARE EARTHS IS POSITIVE AS
THERE IS A MANDATED SHIFT TO THE
ELECTRIFICATION OF OUR TRANSPORT
SYSTEM, AS WELL AS THE EXPONENTIAL
ROLL-OUT OF OFFSHORE WIND CAPACITY
TO FACILITATE GLOBAL DECARBONISATION”
WHAT DO YOU CONSIDER TO BE THE
KEY ACHIEVEMENTS OF FY 2023?
“
FY 2023 has been a period of further rapid
development for Rainbow and the progression
of our aim to be a forerunner in the
establishment of an independent and ethical
supply chain of the rare earth elements driving
the green energy transition.
The publication of the Phalaborwa PEA in
October last year demonstrated that this was
one of the lowest cost rare earth projects in
development today and, not only that, it could
be brought into production at much quicker
pace than traditional projects, as it involves the
processing of gypsum stacks already sitting at
surface, thereby eliminating the cost and risk
of mining.
Phalaborwa will use a unique processing
flowsheet that was developed by and in
conjunction with our partner K-Tech and which
incorporates continuous ion exchange (“CIX”)
and continuous ion chromatography (“CIC”).
While this technology was proven at lab-scale,
we wanted to demonstrate that it is
commercially viable and this was achieved
both during the Year and post Year-end via the
successful operation of our pilot plant and the
production of the mixed rare earth sulphate.
This validates Rainbow’s business model
and has allowed us to target other
phosphogypsum resources globally.
Post Year-end, we signed an MOU with
Mosaic in Brazil with regards to the Uberaba
phosphogypsum stack, which is expected
to have comparable characteristics to
Phalaborwa due to the similarities of the host
rock. This deal has opened up the future for
Rainbow to become a multi-asset producer of
rare earth elements from secondary sources.
Read more in “Uberaba” on page 20.
Post Year-end, we also entered into a strategic
supply agreement with LCM, the UK-based
world leader in the manufacture and supply
of complex alloy systems and metals. Securing
a buyer of our separated rare earth oxides that
shares our values and aspirations was of
strategic importance to Rainbow, especially as
the vast majority of rare earth processing and
manufacturing companies are based in China.
The intention is for the separated rare
earth oxides produced by Phalaborwa to
be manufactured by LCM into metal in order
to create an alloy, which is then supplied to
permanent magnet manufacturers in the EU
and the USA, with the ultimate customer of
the rare earth permanent magnets being
clearly defined and in alignment with the
positioning of both Rainbow and LCM
in a Western supply chain.
10 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
Q&A
STRATEGIC REPORT
Q&A WITH CEO CONTINUED
AND WHAT WERE THE KEY
CHALLENGES?
“
We continued to see turbulence in the
global geopolitical landscape, which had
ramifications for economies worldwide,
particularly with the ongoing disruption to
supply chains and the rising cost of various
inputs and commodities. This compounded
the issue of slower global economic activity
and growth that was already an issue further
to the impacts of the Covid-19 pandemic.
We have found that this has played out with
investors taking a “risk-off” approach,
especially with regards to smaller companies in
the resources sector. In spite of these external,
macro-economic challenges, we continue to
be greatly encouraged by the progress we
have been able to make internally and
fortunately we have a host of catalyst points
over the next six months to two years, as we
deliver on the various milestones that bring
Phalaborwa closer to first production in 2026.
Another challenge relates to volatility in the
pricing of rare earths experienced during the
Year, albeit Rainbow is not in production as
of yet. Pricing performed strongly in the year
ended 30 June 2022 (“FY 2022”) due to
surging demand, especially following a rush
to install offshore wind capacity in China to
take advantage of government subsidies,
combined with the continued adoption
of EVs worldwide. Pricing was also positively
impacted by supply disruptions due to the
COVID-19 pandemic and the start of the
conflict between Ukraine and Russia.
However, in FY 2023 we saw a correction in
pricing as China increased supply, set against
a backdrop of softer economic conditions.
At the time of this Report, pricing has
recovered from the lows and expectations
are for further improvements into 2024.
We remain confident that the long-term
outlook for rare earth demand and pricing
is positive as there is a mandated shift to the
electrification of our transport system, as well
as the exponential roll-out of offshore wind
capacity worldwide in order to meet global
decarbonisation and net zero targets. Read
more in “Market Review” on pages 14 to 15.
Post Year-end, we achieved a major
milestone with the production of the first
mixed rare earth sulphate from Phalaborwa
phosphogypsum material at the pilot plant
front-end pilot plant in Johannesburg.
This was a significant de-risking event for
the project and the Group, as it confirms
Phalaborwa as a rare earth producer and can
provide a standalone revenue stream for
the project.
This material will be used as feed for the
back-end pilot plant and will be processed
further to produce separated rare earth oxides
in Q4 CY 2023. Read more in “Phalaborwa”
on pages 16 to 19.
CAN YOU GIVE AN UPDATE ON THE
PHALABORWA PROJECT?
“
Work at Phalaborwa has continued apace
and we are underway with all the various
workstreams required for the Definitive
Feasibility Study (“DFS”), which we plan
to complete by the end of H2 CY 2024
subject to funding.
A major component of this was the
construction, commissioning and operation
of the pilot plant to prove up our proprietary
separation technology, both at scale and
on a continuous basis, as well as to produce
sufficient quantities of separated permanent
magnet rare earth oxides for testing and
marketing purposes.
During the Year, the decision was made to split
the pilot plant, so that the front-end, which will
produce a high-value mixed rare earth
sulphate, would remain in South Africa close
to the Phalaborwa project, while the back-end,
which will produce separated rare earth
oxides, would be built and run at the premises
of our partner, K-Tech. This would deliver cost
and time efficiencies as a result of removing
the logistics involved in transporting pilot-scale
equipment from the USA, where it is designed,
fabricated, and tested, to South Africa, where it
would have to be reassembled and
commissioned, as well as ensuring that key
K-Tech personnel would be available on site to
oversee and optimise the process in real-time.
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
11
Q &
severe imbalances of supply with potential
“shortages of up to 70% of demand”. These
heavy rare earths are essential to produce
the kind of high-performance permanent
magnets needed for EVs and wind turbines.
Read more in “Importance of the Heavies”
on page 19.
Our job is to ensure that Phalaborwa maintains
its position in an independent and responsible
supply chain. This will open the door to
investment from the various US initiatives that
have been set up to fund US interests in the
green transition. We have already seen this via
the involvement of TechMet, which has a 12%
stake in Rainbow, and, indirectly, their major
shareholder the DFC.
WHAT ARE THE KEY RISKS TO ITS
DEVELOPMENT?
“
As the process developed with and by
K-Tech is a novel process, albeit using
existing technologies and equipment,
investors undoubtedly saw technology risk
as a key hurdle to investment. This was why
the successful production of a mixed rare
earth sulphate from the front-end pilot plant
in August 2023 was an important milestone;
however, we expect to see the benefit of a
“de-risked” investment case once the back-
end pilot plant produces the separated rare
earth oxides – expected in Q4 2023.
Management has always had a high level of
confidence in the technology. For us, it is more
about timing of the project development and
what could impact that. Permitting in South
Africa is a factor, which is why we are running
the various workstreams required already,
alongside or incorporated with the DFS
requirements. The fact that the project will be
cleaning up the legacy issue of acid water on
site I think incentivises the permitting process
to stay on track as it is to the benefit of the
local environment and communities.
In terms of financing, we believe that
Phalaborwa will continue to be of interest
to strategic investors, especially since it will
produce all four of the critical rare earths for
permanent magnets, including the heavies
Dy and Tb, which are of even scarcer supply.
In fact, McKinsey released a report in 2023
noting that of all the critical minerals it
surveyed, Dy could see the most
STRATEGIC REPORT
Q&A WITH CEO CONTINUED
“
HOW DOES THE PHALABORWA
PROJECT COMPARE TO OTHER
RARE EARTH DEVELOPMENT
PROJECTS GLOBALLY?
Phalaborwa is a unique project with
exceptional economics, as demonstrated
by the PEA. One of the main aspects that
attracted me to the project was its
comparatively low cost base, which provides
resilience against pricing volatility:
•
•
•
firstly, as this is not a traditional mining
project there are no costs associated
with drilling, blasting, crushing, milling
and flotation to produce a mixed rare
earth concentrate;
secondly, the phosphogypsum material
has already been chemically “cracked”
because it is the by-product of phosphoric
acid production, meaning it has already
been subjected to heat and sulphuric acid
– the cracked material allows for a simpler
hydrometallurgical process to produce
separated and purified rare earth oxides;
and
thirdly, the CIX / CIC separation
technology developed by K-Tech replaces
traditional solvent extraction (“SX”)
technology, which uses toxic and
flammable solvents and diluents and
requires many different stages, thereby
delivering a process that is safer and more
environmentally responsible, as well as
reduced capital and operating costs due
to a simplified flowsheet.
The project also has exceptional sustainability-
related opportunities as it is founded on the
principles of circularity. We will be taking
a waste product (the existing phosphogypsum
stacks), cleaning it and extracting value from
it – both via the recovery of the REEs and then
via the sale of the benign gypsum that is
produced as the by-product of the process.
Our operations will see the clean-up of the
legacy environmental issues, namely the acid
water on site, and will fully deplete the gypsum
stacks over time, thereby allowing for a full-
circle environmental rehabilitation of the site.
Finally, a key benefit of targeting a secondary
source of rare earths in this manner is that the
project can be brought into production in a
much quicker manner than traditional mining
projects. In fact, we are targeting for the
project to begin production just five years
after we commenced work on site.
12 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
&A
STRATEGIC REPORT
Q&A WITH CEO CONTINUED
WHAT ARE THE PRIORITIES
FOR FY 2024?
“
The production of the separated rare earth
oxides in the back-end pilot plant will be the
most important milestone in the project to date
and it is even more exciting and symbolic that
they will be produced in the US. This favourable
position has led us to consider permanently
basing our oxide separation process in the
US and we will continue to evaluate this.
We will maintain the pace of the project
development to date with the continued
progress with the environmental and social
impact assessment (“ESIA”) and publication
of the DFS by the end of FY 2024 and that will
set the scene to commence project finance
and on to construction.
We will look to gain a better understanding
of the mineralogy of the Uberaba stack, which
will inform the future work programme around
resource delineation and development of a
flowsheet adapted to the Uberaba material.
We will continue to work with OCP and UM6P
to evaluate the optimal technique for the
extraction of REEs from sedimentary-sourced
phosphogypsum. While this is a longer-term
project, it represents an exciting opportunity
for Rainbow due to the scale of the opportunity
if test work can achieve favourable results, as it
will unlock the enormous potential of rare
earths contained in sedimentary-sourced
phosphogypsum material. Read more in “OCP”
on page 21.
Finally we will also be continuing to develop
our sustainability approach and practices
within the Group, bearing in mind these are
an essential part of our future success, and are
conducting a life cycle assessment (“LCA”) at
Phalaborwa to understand the environmental
impacts associated with the lifecycle of rare
earths production.
It’s an exciting period ahead. I would like
to thank the Rainbow team, as well as our
various partners and contractors, for working
tirelessly to deliver the results we have to date.
GEORGE BENNETT
CHIEF EXECUTIVE OFFICER
EVOLVING REGULATORY
LANDSCAPE
REEs are considered integral to decarbonisation, as well as having
many highly strategic uses in advanced technologies, including in
defence applications.
Currently China controls ca. 70% of rare earth mining, but ca. 90%
of the downstream rare earth processing and manufacturing.
This reliance on one country creates supply chain vulnerability,
which is exacerbated by geopolitical tensions.
As such, the world has woken up to REEs as “critical minerals”,
i.e. minerals that are considered essential to economic or national
security and which have a supply chain vulnerable to disruption.
The race is on to access new sources of raw material supply from
countries outside of China aligned with Western interests, as well
as to develop downstream processing and manufacturing
capabilities.
SIGNIFICANT GOVERNMENT SUPPORT
FOR RARE EARTHS
Inflation Reduction Act
US$400bn directed to funding clean energy, including
securing rare earth supply chains
Critical Minerals Strategy
Building resilience of supply chains for critical minerals,
including the acceleration of domestic capabilities
CRITICAL RAW MATERIALS ACT
Building resiliance of supply chains for critical minerals,
including rare earths, to enable EU to meet 2030
objectives
Critical Minerals Strategy
A national framework to grow Australia’s critical minerals
sector and the ability to process minerals domestically
National Security Strategy
Rare earths included in strategy to reduce Japan’s
dependence on countries to secure stable supply
for critical goods
Relevance to Rainbow: Rainbow aims to be a forerunner
in the establishment of an independent and ethical supply
chain of REEs.
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
13
STRATEGIC REPORT
MARKET REVIEW
CLEAN ENERGY IS
DRIVING A HUGE
INCREASE IN DEMAND
FOR REEs
Demand drivers
Currently, ca. one third of global REPM demand is driven by EV
drivetrains and wind turbines applications. The remaining ca. two thirds
is driven by consumer electronics, traditional automotive, HVAC, disk
drives, speakers, robotics and a variety of consumer/industrial/defence
applications. However, growth in the clean energy sector is expected
to see its share of the REPM market rise to ca. 56% by 2028, according
to Canaccord Genuity and Adamas Intelligence.
REPM demand by end-user 2016 – 2028
100
Due to their unique electrical and magnetic properties, rare earth elements
have become integral to many of the high tech products that we rely on
today, especially consumer electronics such as laptops, smart phones and
flat screen TVs, as well as being used across diverse applications such as
lasers, glass, magnetic materials and industrial processes.
However, the shift to a clean energy system is set to drive a huge increase
in the requirements for REEs and other critical minerals, meaning that the
energy sector is emerging as a major force in mineral markets.
The four REEs that are particularly important to the green energy
transition are Nd Pr, Dy and Tb, due to their role in the rare earth
permanent magnets (“REPMs”) critical for use in EVs and wind turbines.
The competitive advantage of REPMs is their very high strength to
weight ratio, meaning they can deliver a higher power output from a
more compact magnet size than other magnets. The most powerful
REPM on the market currently is the neodymium magnet, also known
as an NdFeB magnet, which is renowned for having the best magnetic
properties, as well as being easy to process into the special shapes
required for innovative technologies.
REPMs are also integral to the defence industry, where they are used for
integrated electronic displays, sonar, laser and advanced guiding systems.
REPMs are by far the most economically important use of rare earths,
accounting for ca. 26% by volume in 2022, but ca. 74% by value;.
however, they are forecast to account for +99% by value by 2040,
according to Argus Media.
Relevance to Rainbow: The Phalaborwa project is well placed
to capitalise on the demand for REPMs, as its rare earth basket
contains all four of the most important rare earths (NdPr, Dy and Tb)
in economic quantities.
Uses of REEs by volume and value
Categories
By Volume
By Value
90
80
70
60
50
40
30
20
10
0
2016
2018
2020
2022
2024
2026
2028
Auto accessories
EV drive trains
Other
Wind turbine generators
Consumer electronics
Source: Adamas Intelligence actuals, Canaccord Genuity estimates
Within the clean energy space, there are two major drivers of demand
for REPMs, being EVs and wind turbines.
The EV market is forecast to grow ca. 13% per annum from 2023 to 2033,
with global sales of EVs expected to rise to ca. 49 million units in 2033.
Global EV sales by type 2019 – 2033
50m
40m
30m
20m
10m
0
2019
2021
2023
2025
2027
2029
2031
2033
BEV (Mn units)
PHEV (Mn units)
Source: Argus Media
The increasing use of REPM direct drive generators (efficiency
benefits over traditional gearbox-based designs) used in wind turbines
is expected to be another key demand driver, as wind generation is one
of the fastest growing forms of energy. Nearly 400GW of capacity is
expected to be installed from 2021 to 2031, which will require growth
of ca. 20% per annum.
Magnets
Batteries
Catalysts
Glass Industry
Phosphors
Ceramics
Metal Alloys
Other
Source: Argus Media
26%
11%
17%
25%
6%
6%
6%
14 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
Global offshore wind capacity additions 2022 – 2031 (GW)
60
50
40
30
20
10
0
74%
7%
6%
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
Europe
Other Asia
Source: Argus Media
North America
Cumulative total capacity (right axis)
450
375
300
225
150
75
0
STRATEGIC REPORT
MARKET REVIEW CONTINUED
Supply Outlook
Rare earth supply grew 19% from ca. 236Kt in 2021 to ca. 280Kt in 2022,
driven by higher output from China and Myanmar. China updates its REE
mining and smelting/separation quotas twice a year. The production
quota increased by 25% to 210kt TREO in 2022 and a more moderate
increase of 14% to 230kt TREO was set for 2023. This increase was
deemed appropriate in order to support global demand growth and in
light of uncertainty surrounding output from Myanmar, where production
at certain assets was temporarily shut down during the year.
Rare earth pricing
Rare earth pricing performed very strongly in FY 2022, with 10-year
highs hit in Q1 2022 due to surging demand, especially following a record
year in the roll-out of global offshore wind capacity, according to the
Global Wind Energy Council, with a quadrupling in additions from 2020
as a result of a rush to install offshore wind in China to take advantage
of government subsidies, combined with the continued adoption
of EVs worldwide.
Pricing was also positively impacted by supply disruptions, particularly
due to the COVID-19 pandemic and the start of the conflict between
Ukraine and Russia.
It has been a different picture in FY 2023, with pricing of NdPr down
ca. 50% due to the increased supply, set against weaker demand due
to softer economic conditions in China and globally. At the time of this
Report, pricing has recovered from the lows and expectations are for
further improvements into 2024.
While there could be continued pricing volatility in the short-term,
industry commentators agree that the longer-term outlook for REE
pricing is supportive given the forecast supply/demand deficit that
will be driven by global decarbonisation.
Phalborwa basket price performance and forecast
550
500
450
400
350
300
250
200
150
2021 2022 2023f 2024f 2025f 2026f 2027f 2028f 2029f 2030f 2031f 2032f
Phalaborwa basket price - US$/t gypsum
Source: Argus Media
Relevance to Rainbow: The Phalaborwa PEA indicated an
operating cost of US$33.86 per kilo of separated magnet REO,
which is believed to be one of the lowest operating costs
globally. By contrast, many of the rare earth projects in development
today are estimated by Canaccord Genuity to require spot pricing
of >US$100/kg for NdPr in order to be economic.
Rare earth supply by source 2019 - 2023 (tonnes)
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
2019
2020
2021
2022
2023
China-based production
Lynas
Source: Argus Media
Mountain Pass
New projects
While there are a number of new REE projects outside of China in
development today, there are multiple challenges in bringing new supply
to market. Due to the nature of REE mineral deposits, they often involve
complex mineralogy with associated radioactive elements. This can lead
to processing challenges, as well as permitting difficulties, and is
associated with higher capital requirements and ongoing operating costs.
Relevance to Rainbow: The Phalaborwa project will recover REEs
from phosphogypsum stacks that sit at surface, thereby eliminating
the mining cost and risk associated with traditional development
projects, as well as the longer lead time required to bring a new
project into production.
While REE supply is forecast to continue to grow, it is not expected
to be able to keep pace with the fast-growing demand for REPMs, which
would need supply of the permanent magnet REEs to grow by nearly 9%
per annum to satisfy the demand for the green energy transition.
Supply vs demand outlook 2021 - 2032
160
140
120
100
80
60
40
20
0
2021 2022 2023f 2024f 2025f 2026f 2027f 2028f 2029f 2030f 2031f 2032f
550
500
450
400
350
300
250
200
150
Nd demand
Tb demand
Pr demand
Total supply
Dy demand
Phalaborwa basket price
Supply & Demand, kt REO (left axis) Phalaborwa basket price, US$/t gypsum (right axis)
Source: Argus Media
The chart above forecasts a supply deficit to emerge from 2025 onwards,
with a total deficit of ca. 27,000t of magnet REEs forecast by 2032.
Relevance to Rainbow: The Phalaborwa project will produce
ca. 1,850t of magnet rare earths per annum, which is equivalent to
ca. 7% of the forecast supply deficit by 2032.
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
15
STRATEGIC REPORT
OPERATIONS REVIEW
PHALABORWA
SOUTH AFRICA
ESTIMATED TO BE ONE OF THE
LOWEST COST RARE EARTH PROJECTS
IN DEVELOPMENT TODAY
Project timeline
PILOT PLANT
PERMITTING
UPDATED
DEFINITIVE
FEASABILITY STUDY
PRODUCTION
EXPECTED 2026
Overview
The Phalaborwa project in South Africa
represents an exciting, near-term production
opportunity of all four of the magnet rare
earths required for the green energy transition.
The operation will involve the processing of
phosphogypsum stacks, which are the by-
product of historic phosphoric acid production
on the site, which ceased in 2014. This
resource sits at surface, thereby eliminating
the cost and risk of traditional mining projects.
Rainbow will be using proprietary separation
technology developed by, and in conjunction
with, its partner K-Tech, which will allow for the
material to be processed into separated rare
earth oxides of 99.95% purity. Annual
production is estimated to be ca. 1,850 tonnes
of the magnet rare earths NdPr, Dy and Tb.
Apart from delivering products that are vital to
global efforts of decarbonisation, Phalaborwa
has strong environmental credentials in terms
of reducing legacy risks from the previous
operations on site to an environmentally
sensitive area. Furthermore, consideration of
sustainability-related risks and opportunities
are an integral part of the Phalaborwa
development and operating plan.
Rainbow currently owns 85% of the project,
with an option to acquire the remaining 15%
from Bosveld for US$7 million of equity in the
Company - read more on page 34.
Background to Phalaborwa
Phosphogypsum
The original source rock for the phosphoric
acid operations was a hardrock carbonatite,
which was mined to initially produce a
phosphate slurry feed that was then
processed into phosphoric acid. While the
hardrock carbonatite did not contain rare
earths in sufficient quantities to be mined for
these elements alone, the processing it
underwent served to concentrate the quantity
of rare earths contained therein, resulting in
higher concentrations of rare earths than were
in the original hardrock.
This processing also subjected the material
to sulphuric acid and heat, which effectively
led to “cracked” chemical phosphogypsum
material at Phalaborwa. The benefit of this is
that it has rendered the rare earths associated
with the phosphogypsum amenable to direct
acid leaching, which allows for a simpler
hydrometallurgical process to produce
separated and purified rare earth oxides.
Phalaborwa magnet rare earth
basket value
8%
16%
15%
Nd
Pr
Tb
Dy
61%
16 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
STRATEGIC REPORT
OPERATIONS REVIEW CONTINUED
Post-tax NPV10
US$627.4m
Annual EBITDA $192m
75%
Operating Margin
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
17
STRATEGIC REPORT
OPERATIONS REVIEW CONTINUED
PHALABORWA
CONTINUED
Phalaborwa’s comparatively low operating
cost is due to the fact that its material has
already been mined and deposited at surface,
which eliminates the cost and risk associated
with traditional rare earth development
projects. It also gives the project exceptional
resilience against pricing volatility, which was
experienced in FY 2023.
The PEA generates a strong EBITDA
at all pricing scenarios, with our sensitivity
analysis showing that at US$60/kg for Nd and
Pr oxides, which is below the weakest prices
seen in 2023, Phalaborwa would produce
US$82 million per annum EBITDA – rising to
an average of US$504 million per annum over
the project life using long term forecast pricing
from Argus Media published in April 2023.
Update on operations
Rainbow is well progressed on a number of
workstreams required to deliver the project’s
DFS, which is due by the end of H1 2024.
METC Engineering has commenced work
to fully define the engineering scope required
for the project and will play a central role
in coordinating the different operational
aspects of the DFS. Paragon Tailings has
been engaged to advise on the work
around reclamation of the gypsum stacks
in accordance with strict safety and
environmental standards, and will be assisted
by the US-based global gypsum experts
Ardaman and Associates, Inc., a Tetra Tech
company (“Ardaman”). Ardaman are
conducting tests and the design work for the
new stacks upon which the benign gypsum
will be deposited.
Full ESIA workstreams are underway with WSP
Golder for the DFS and permitting process.
Stellar economics
The PEA was based on processing 2.2 million
tonnes per annum of phosphogypsum over
a 14-year project life to deliver 26,208 tonnes
of separated rare earth magnet oxides at an
average cost of US$33.86/kg. This delivers an
exceptional 75% operating margin at the base
case basket price of US$137.92 per kg for the
rare earth oxides.
The base case financial model set out
in the PEA delivered:
•
post-tax NPV10 of US$627.4 million,
representing more than double the
US$295.5 million total capital cost ;
post-tax IRR of 40%; and
post-tax payback of upfront capital costs
after two years of operations.
•
•
EBITDA sensitivity to pricing
350
300
250
200
150
100
50
0
78.46
101.47
124.48
147.50
170.51
193.52
216.54
Magnet REO basket price - US$/kg
Revenue/kg magnet REO produced
Average EBITDA - US$m/annum
Average cost/kg magnet REO produced
EBITDA sensitivity to Argus market
forecast pricing over the life of mine
400
350
300
250
200
150
100
50
0
2026
2028
2030
2032
2034
2036
2038
Magnet REO basket price - US$/kg (left axis)
EBITDA - US$m (right axis)
Source of forecast rare earth oxide pricing from 2026 - 2032: Argus Media
800
700
600
500
400
300
200
100
0
18 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
STRATEGIC REPORT
OPERATIONS REVIEW CONTINUED
A key workstream that forms part of the
project’s DFS is the operation of a pilot plant
in order to optimise the flowsheet and
demonstrate the efficacy of the separation
technology developed by and with K-Tech.
Phase one of the pilot plant comprises
a front end situated at the facilities of Mintek
in Johannesburg, South Africa. The front-end
process incorporates the front-end gypsum
washing, acid leach, fluoride removal via CIX,
rare earth precipitation and a sulphuric acid
agitated bake to produce a high-value mixed
rare earth sulphate. This was successfully
achieved in Q3 CY 2023, with the product
being in line with management expectations
in terms of purity, grade, reagent consumption
and overall recoveries of ca. 65%.
Phase two of the pilot plant comprises
a back end situated at the facilities of K-Tech
in Lakeland, Florida, USA. The back-end
process will water leach the mixed rare earth
sulphate into a pregnant leach solution,
perform a cerium rejection step to minimise
flows downstream (thereby further reducing
operating costs and capital expenditure) into
the CIX circuit for loading onto the cation resin
before stripping and going into the final CIC
step, which will produce the separated rare
earth oxides using K-Tech’s patented
CIX/CIC technology.
Rainbow is currently exploring the option
of permanently establishing its back-end rare
earth oxide separation process in the USA and
has identified a potential site for a commercial
scale plant.
Mineral Resource Estimate (“MRE”)
During the Year, the Group published an
updated JORC compliant MRE for the project,
which upgraded a portion of the Inferred
Resource to Measured and Indicated and
confirmed a total Resource of 30.4 Mt at 0.44%
TREO, with the high-value, permanent magnet
elements Nd and Pr representing 29% of the
TREO in the rare earths basket, as well as
economic quantities of Dy and Tb. The full MRE
can be accessed at
https://www.rainbowrareearths.com/
project/phalaborwa/.
The technical team is currently focused on
evaluation and confirmation of the bulk density
at depth of the gypsum stacks, also with input
from Ardaman. It is probable, based on
Ardaman’s experience and techniques used
to evaluate the resource of similar
phosphogypsum stacks, that the in-situ dry
density for the stacks below the water table
is higher than that for the upper dry material.
This may result in an increase in the MRE.
Sustainability-related opportunities
Rainbow’s operations at Phalaborwa will serve
to clean up a legacy environmental issue –
namely the build-up of acid water associated
with the historic gypsum stacks, which are
currently unlined.
Rainbow’s front-end plant process will
neutralise the acid water and the plant’s
by-product will be a cleaner “benign” gypsum
which no longer contains any acid water
residue. The neutralised water will be used
in the closed-circuit plant process, thereby
eliminating the need to draw on an external
water source.
The benign gypsum will be deposited
on new stacks which are lined according to
International Finance Corporation standards
and Equator Principles. Post Year-end,
Rainbow signed a letter of intent to enter
into an offtake agreement with NEXUS,
under which NEXUS will acquire the benign
gypsum and on-sell it to both South Africa
and neighbouring countries.
This agreement will see the stacks at
Phalaborwa eventually fully depleted, allowing
for a complete environmental rehabilitation of
the site, as well as having a positive socio-
economic effect on local industry.
An important part of an independent
and ethical rare earths supply chain
Phalaborwa is a unique project in that it offers
a near-term source of responsible production
of the critical rare earths NdPr, Dy and Tb,
all of which can be delivered as separated
oxides, unlike most projects which produce
a mixed rare earth product.
These credentials are demonstrated by the
backing for Rainbow and Phalaborwa by
TechMet, the critical minerals champion which
is itself partially funded by the US DFC, and the
strategic supply agreement with UK-based
LCM, which is looking to negotiate a binding
offtake agreement for Phalaborwa’s
separated rare earth oxides.
THE IMPORTANCE OF HEAVY RARE
EARTH ELEMENTS (“HREES”)
Heavy rare earth metals are defined by
their higher atomic weights relative to light
rare earths. They are less common, and
some elements within the group are facing
shortages as demand outpaces supply.
The incorporation of Dy and Tb into REPMs
delivers enhanced operating performance
by enabling them to operate at higher
temperatures (magnets with HREE can
operate up to 240°C as compared to 60°C
for those magnets without HREE), without
losing their magnetic properties (high
coercivity). This makes them essential to
the REPMs used in EVs, wind turbines and
military applications.
Of all the critical minerals, McKinsey
assesses that Dy and Tb are amongst
the highest risk for supply shortages
and it was telling that China actually
decreased its production quota for
HREEs in H1 2023, which is considered
likely due to resource scarcity.
While there are some processing projects
in the development pipeline, there are
currently no facilities producing separated
HREE oxides outside of Asia.
Relevance to Rainbow: The Phalaborwa
project will produce all four of the critical
REPM REEs, including Dy and Tb. If the
Group decides to establish the plant back-
end process permanently in the USA, this
could establish Rainbow as one of the first
producers of separated rare earth oxides
in the country.
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
19
STRATEGIC REPORT
OPERATIONS REVIEW CONTINUED
UBERABA
BRAZIL
THE OPPORTUNITY TO REPLICATE
PHALABORWA AT A POTENTIALLY
LARGER SCALE
Uberaba
The Uberaba project in Brazil is the subject
of an MOU between Rainbow and its owner
Mosaic, which was announced post Year-end.
The project is similar to Phalaborwa in that it
will entail the processing of a phosphogypsum
stack that is the by-product of phosphoric acid
production which was originally based on a
hard rock carbonatite.
Mosaic’s phosphoric acid operations are
ongoing, meaning that new phosphogypsum
is deposited on the stacks annually.
Due to the similarities of the feedstock, the
Uberaba stack was expected to have a similar
grade and rare earth element make-up as
those of Phalaborwa and this was confirmed
by initial assay analysis, which indicated:
an average grade of 0.58% TREO;
•
the basket contains all four of the magnet
•
rare earths NdPr, Dy and Tb, with NdPr
representing ca. 25% of the basket.
Rainbow and its partner Mosaic are very
encouraged by these results and are therefore
planning additional test work at SGS
Laboratories in Toronto around the mineralogy
to identify the rare earth phases and facilitate
the development of a processing test
programme. The costs for this initial work
programme will be shared by both parties 50:50.
Under the terms of the MOU, Rainbow and
Mosaic will look to jointly develop a process
flowsheet to extract the rare earth elements
from the Uberaba stack. Due to the similarity
of the Phalaborwa and Uberaba projects,
Rainbow anticipates that the majority of the
Phalaborwa front-end process flowsheet
(jointly developed by Rainbow and K-Tech
to deliver a mixed rare earth sulphate) will be
applicable, as well as the Phalaborwa back-
end process flowsheet (the patented K-Tech
IP which uses CIX and CIC to deliver separated
rare earth oxides), which Rainbow has
exclusive rights to in Brazil.
Following the production of the process
flowsheet, Rainbow and Mosaic will collaborate
on the production of a PEA for this opportunity
to extract rare earths.
“This agreement with
Mosaic represents a major opportunity
to become a multi-asset producer
of rare earth elements from
secondary sources.”
GEORGE BENNETT
CHIEF EXECUTIVE OFFICER
20 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
STRATEGIC REPORT
OPERATIONS REVIEW CONTINUED
OCP
MOROCCO
A LONGER-TERM OPPORTUNITY
TO UNLOCK THE POTENTIAL OF RARE
EARTHS IN SEDIMENTARY-SOURCED
PHOSPHOGYPSUM
Rainbow, OCP and UM6P will continue
to jointly run a test programme aimed at
developing an economically viable process
to extract rare earths from sedimentary-
sourced phosphogypsum. This collaborative
effort will evaluate possible economic process
routes to upgrade and extract rare earths from
the relatively low grade feedstock.
This test programme will require a longer
timeframe than that required for the
Phalaborwa project, as there are more steps
to the process that must each be shown to
be economically viable.
“The combined skills of OCP
and UM6P, as well as our technical
team and partner K-Tech, offers
unparalleled expertise in the recovery
of rare earths from phosphogypsum.”
GEORGE BENNETT
CHIEF EXECUTIVE OFFICER
OCP
In August 2022, Rainbow entered into
a master agreement with OCP, the Moroccan
world-leading producer of phosphate
products, and UM6P, a Moroccan university
with a strong focus on science, technology
and innovation, to further investigate and
develop the optimal technique for the
extraction of rare earth elements from
sedimentary-sourced phosphogypsum.
As at Phalaborwa and Uberaba, the OCP
phosphogypsum material is generated
as a by-product from their phosphoric acid
production operations; however, it differs in
that the original source rock is a sedimentary
phosphate rock. Sedimentary ores are typically
lower grade in rare earths than hardrock
carbonatites, but they make up the bulk
of phosphoric acid production worldwide
(estimated at ca. 90%). Therefore, these
sedimentary ores represent a significant,
and as yet untapped, potential global
resource of rare earths.
Test results of initial upgraded samples of the
OCP phosphogypsum material, carried out by
SGS Laboratories in Johannesburg, indicated
the following:
•
•
an average grade of 0.40% TREO; and
the OCP basket contains all four of the
magnet rare earths, NdPr, Dy and Tb, with
NdPr representing ca. 14.3% of the basket.
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
21
STRATEGIC REPORT
SUSTAINABILITY
DEVELOPING A RESPONSIBLE
SUPPLY OF CRITICAL RARE EARTHS
Our approach to sustainability
By focusing on the production of critical rare earths from secondary sources, integrating environmental considerations into decision making,
taking a responsible approach to business and concentrating on stakeholder value creation, Rainbow is a crucial contributor to a responsible,
independent rare earths supply chain that we believe will drive the global green energy transition.
A focus on responsible production is central to our business model. We seek to minimise to the greatest extent possible any potential,
adverse impacts of our operations as well as to maximise the Group’s ability to positively affect the economy, environment and society.
In FY 2023, we have concentrated on advancing our sustainability strategy. We believe in the importance of a systematic approach and are laying strong
foundations from which to embed sustainability in project development as well as to manage, measure and report on our sustainability performance.
Key achievements
• Developing and formalising
sustainability approach
• Reviewing and updating policies
• Calculating office-based
emissions
• Publication of first
disclosures under
TCFD framework
Current focus
• Progress Phalaborwa ESIA
• Implement internal systems
to measure and monitor key
envrionmental and social
metrics
• Phalaborwa LCA
Future aims
• Continued integration of sustainbility
in overall strategic development
• Conduct a comprehensive
materiality assessment
• Development of
sustainability reporting
• Implement
sustainability
targets
Rainbow’s approach to sustainability is founded upon the following four pillars:
RESPONSIBLE
BUSINESS
ENVIRONMENTAL
INTEGRATION
Developing
a responsible
supply of critical
rare earths
CREATING
VALUE
FOCUS ON
SECONDARY
SOURCES
22 Rainbow Rare Earths Limited
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SUSTAINABILITY CONTINUED
Sustainable Development Goals
We recognise the role that business and industry can play in advancing
the United Nations SDGs – the blueprint to achieve a better and more
sustainable future for all. In FY 2023, we have analysed the 169
underlying targets of the 17 goals to identify initial areas where we
believe Rainbow can make a clear contribution. In global terms, clearly all
the SDGs are important (and indeed interconnected), however, we think
a focused approach at this stage of the Group’s development will enable
us to take proactive steps to contribute to their achievement – both by
optimising our positive impact as well as implementing the correct
practices to minimise any negative impact. Therefore, we have chosen 8,
9 and 12 as our current core goals and, as our business grows, we will
continue to assess our performance against these, as well as look to
add additional goals over time.
With its innovative approach to producing critical
rare earths in an environmentally responsible
manner from secondary sources, Rainbow aims
to create economic value, with a focus on local
supply chain support and job creation, thereby
supporting growth and development.
Rainbow leverages its technological expertise,
and that of its partners, to effectively process
rare earths, which are an essential building block
for permanent magnets used in critical
sustainable infrastructure and environmentally
sound technologies, such as wind turbines and
EV motors.
The Group focuses on the production
of rare earths from secondary sources, aiming
to integrate a circular economy approach and
avoid some of the carbon emissions and other
environmental impacts often associated with
rare earths mining business models.
By processing material from waste, Rainbow
looks to rehabilitate historical environmental
degradation.
Sustainability governance and management
Sustainability is an important agenda point at Rainbow’s Board meetings
and the Company has a Sustainability Committee. This was previously
the Board-level Safety, Health and Environment Committee, which has
been amended post-Year end with updated terms of reference.
The Sustainability Committee is responsible for overseeing on behalf
of the Board, and making recommendations to the Board, on:
•
the Group's initiatives, including policies, compliance systems,
monitoring processes and strategies, to manage sustainability-
related business practices and performance;
promoting the Group's long-term success and viability by seeking
opportunities to strengthen the Group's licence to operate,
recognising the role Rainbow has to play in taking a responsible
approach to managing its environmental and social impacts as
well as prioritising ethical business practices; and
oversight of the implementation of the Group’s sustainability
strategy, helping to ensure that Rainbow is a responsible, resilient
and sustainable business.
•
•
Rainbow’s Sustainability Policy guides the Groups’s approach and sets
out clear commitments to operating in a safe, ethical, sustainable and
responsible way. This is approved by the Board and is available on our
website here: https://www.rainbowrareearths.com/about/corporate-
governance/company-policies/.
The policy covers a range of topics such as governance and ethics,
human rights, health and safety, employment, environmental impacts
(including, but not limited to, those related to climate change, emissions,
pollution, water stewardship, responsible waste management,
biodiversity), communities and our supply chain.
It is fundamental to our business model that sustainability
considerations are integrated into all strategic decision making.
Sustainability risks and opportunities are considered as part of the
Group’s overall risk management processes and frameworks.
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STRATEGIC REPORT
SUSTAINABILITY CONTINUED
RESPONSIBLE BUSINESS
OPERATING IN A SAFE, ETHICAL,
SUSTAINABLE AND RESPONSIBLE WAY
Related SDGs
Key achievements
(cid:31)
(cid:31)
(cid:31)
All existing Group policies reviewed and updated
Sustainability Policy implemented
Supplier Code of Conduct implemented
Purpose and values
Rainbow’s purpose is to produce the critical rare earths required
to progress the global green technology revolution in an efficient
and responsible manner. By integrating sustainable development
considerations into corporate strategy and decision-making
processes, we believe we can operate in a manner which
creates long-term shared value and benefits for our
stakeholders and reflects our core values of:
Governance, ethics and values
Rainbow is committed to good governance, transparency,
accountability, effective risk management and to conducting business
in an ethical and responsible manner. This is guided by our policies,
including the Group Code of Conduct, which is available on our
website: www.rainbowrareearths.com/about/corporate-
governance/company-policies/. The policies are reviewed on an
annual basis and approved by the Board.
•
•
•
•
•
•
Zero harm
Integrity
Respect
Accountability
Transparency
Courage
As part of our work to advance our approach to sustainability
and ensure the Group has the appropriate internal frameworks to
guide this approach, we have reviewed and further developed our
policies in FY 2023. This involved updating existing policies and also
implementing two key new policies – our Sustainability Policy and our
Supplier Code of Conduct.
Rainbow has an Anti-Bribery Policy that sets out the key principles of
ethical and responsible conduct and standards of behaviour to which
all employees and stakeholders are expected to adhere. We also have
a clear Whistleblowing Procedure in place, with explicit detail on how
we process and investigate concerns- read more on page 44.
As our business continues to grow, we will focus on further maturing
our procedures and developing our policies to encourage effective
corporate governance.
Human rights
Rainbow is aware of its responsibility to respect and protect the
internationally recognised human rights of our people, business
partners and, where this is within our control, the human rights
of those within our supply chain and communities.
We are committed to the prevention, mitigation and, where
appropriate, remediation of any adverse human rights impacts with
which the Group is involved. Our approach is guided by the UN Guiding
Principles on Business and Human Rights and the UN Declaration of
Human Rights and is contained within our Code of Conduct (as well as
within our Supplier Code of Conduct – see “Responsible supply chain”
on page 25).
Health and safety
Our primary objective is to achieve a zero-harm working environment
and we are committed to supporting employee health.
We prioritise the safety of our workforce and will implement
and maintain strong health and safety management systems
at our operations.
Our approach to safety prioritises a commitment to identifying and
taking appropriate action to avoid or mitigate workplace incidents,
injuries and illnesses. We will also provide appropriate training on
health and safety management to our workforce and promote a
culture of responsibility for keeping ourselves and each other safe
from harm.
Fair employment
Rainbow is committed to responsible and fair employment practices,
with due consideration to diversity, wherever we operate. We look
to provide a working environment in which everyone is treated
with respect and dignity.
We aim to provide training and skills development opportunities,
contributing to an effective and engaged workforce.
Rainbow is an equal opportunity employer and does not tolerate
discrimination against, or harassment of, any of our employees
on any grounds (including race, ethnicity, national origin, age, religion,
gender, sexuality) or retaliation. Any such instances of discrimination
are treated as serious misconduct, in line with our Code of Conduct.
24 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
STRATEGIC REPORT
SUSTAINABILITY CONTINUED
CREATING VALUE
CONTRIBUTING TO A RESPONSIBLE
SUPPLY CHAIN, PROMOTING
SOCIO-ECONOMIC DEVELOPMENT AND
PROVIDING LOCAL OPPORTUNITIES
Related SDGs
Key achievements
(cid:31)
(cid:31)
Phalaborwa ESIA work progressing
Supplier Code of Conduct implemented
We aim to positively contribute to the communities in which
we operate through the provision of local employment opportunities,
the support of local supply chains, community support and the
transparent payment of taxes and royalties - read more in our
Payments to Governments Report on page 35.
Phalaborwa will create numerous employment opportunities over its
life, with priority being given to the local workforce. The Group will also
work closely with local contractors and suppliers to build long-term
supply chain solutions from the local area, contributing to socio-
economic development.
•
•
Responsible supply chain
Rainbow is committed to developing a responsible rare earths supply
chain and, as such, we have been working during the Year to build the
correct internal frameworks to manage this. We have put in place
a Supplier Code of Conduct to encourage the companies within our
supply chains also to apply the same high standards that we expect
at Rainbow.
Our Supplier Code of Conduct includes some of the following
key expectations of our suppliers:
•
the provision of safe working conditions and responsible
employment practices, including a minimum requirement to pay
statutory wages and to follow applicable working time legislation;
taking adequate measures for the prevention, mitigation and,
where appropriate, remediation of any adverse human rights; and
environmentally responsible operating practices.
We are aware that effective stakeholder engagement
will be fundamental to the long-term success of Phalaborwa
and are focused on building mutual trust and respect with our
local communities and integrating stakeholder considerations
into project development decisions to create long-term value
for all our stakeholders.
As part of the ESIA process, we will be commencing stakeholder
consultations in FY 2024. The Group has a Whistleblowing Policy
which can be used by local communities to raise any concerns
ahead of the development of a specific grievance mechanism
for Phalaborwa which will be developed at this time.
Following the development of our Supplier Code of Conduct, going
forward when working with suppliers for the first time, Rainbow will
supply them with the Code and ask them to confirm that they have
read, understood and will comply with the commitments. We expect
suppliers to implement or develop appropriate internal processes
and/or corrective actions to achieve compliance with the Supplier
Code of Conduct.
In the event of failure to uphold commitments and in the case
of a serious breach of practices, Rainbow may end a contractual
relationship.
As our business grows, responsible supply chain management
will continue to be an area of significant focus and we will develop
our policy and approach accordingly.
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Annual Report & Financial Statements 2023
25
STRATEGIC REPORT
SUSTAINABILITY CONTINUED
FOCUS ON SECONDARY SOURCES
APPLY OUR UNIQUE PROCESSING
TECHNOLOGY TO HISTORICAL WASTE IN
THE FORM OF PHOSPHOGYPSUM STACKS
Related SDGs
Other portfolio opportunities
Leveraging our proprietary technology, we continue to explore
opportunities to deliver separated rare earth oxides from secondary
phosphogypsum sources around the world, which currently include
the below:
•
Rainbow has signed an MOU with Mosaic to jointly develop
a process flowsheet to extract rare earth elements from the
Uberaba stack in Brazil - read more on page 20.
Rainbow has a master agreement with OCP and UM6P
to investigate and develop the optimal technique for the
extraction of rare earth elements from phosphogypsum material
generated as a by-product of OCP’s phosphoric acid production -
read more on page 21.
Key achievements
(cid:31)
(cid:31)
MoU signed with Mosaic to jointly develop a process flowsheet
to extract rare earth elements from secondary source in Brazil
Kicking off LCA for Phalaborwa
By focusing on the production of rare earths from secondary sources,
Rainbow aims to integrate a circular economy approach into business
decisions, where possible, and avoid some of the carbon emissions and
other environmental impacts usually associated with many elements
of a traditional mining business model, which are not required when
processing secondary source material as opposed to mining primary ore.
•
Using our unique processing technology, our intention at Phalaborwa is
to process material from historical waste in the form of phosphogypsum
stacks in an efficient and responsible way, operating on a brownfield site
therefore not impacting land use. We believe this will provide us with the
opportunity to rehabilitate environmental degradation brought about by
previous operations on site. Rainbow will work closely with previous
owners of the property to accelerate the rehabilitation of unused areas
in accordance with the closure plans and funding already in place.
An important element of Rainbow’s opportunity to rehabilitate the site
will be neutralising the acidic solution currently on top of the gypsum
stacks for use in a closed circuit in the processing plant. In addition
to this, Rainbow will then dispose clean, benign gypsum on stacks,
which are built according to IFC Performance Standards and Equator
Principles. Where possible, the Group will seek to identify uses
for waste and by-products of its processing activities.
Demonstrating our focus on the circular economy approach
and the responsible use of natural resources, Rainbow has
signed an offtake agreement with NEXUS to acquire the
benign gypsum from Phalaborwa.
Rainbow expects Phalaborwa to use a lower amount of energy
and reagents (due to the material already having been “cracked”)
when compared to traditional hard rock mining deposits. In order
to better understand Phalaborwa’s environmental impact, we are
conducting a LCA.
The LCA will quantify and analyse the GHG emissions associated
with the entire life cycle of rare earth elements production, including
mining, processing, manufacturing, product use, and disposal.
This will assist us in identifying opportunities for reduction to minimise
the Group’s carbon footprint by optimising energy use, improving
efficiency and exploring alternative materials and processes.
26 Rainbow Rare Earths Limited
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STRATEGIC REPORT
SUSTAINABILITY CONTINUED
ENVIRONMENTAL INTEGRATION
INTEGRATING ENVIRONMENTAL
CONSIDERATIONS INTO STRATEGIC
DECISION-MAKING
Related SDGs
TCFD report
Rainbow is focused on achieving responsible, near-term and efficient
rare earths production from secondary sources. With demand for the
rare earths required in permanent magnets largely driven by global
decarbonisation efforts, Rainbow’s business model itself is linked
to climate-related opportunities. As such, we acknowledge the
importance of integrating climate-related risks and opportunities
into our strategy and have initiated the first phase of carbon disclosure
in our annual reporting, representing a significant step forward in our
sustainability workstreams.
We are committed to embedding environmental considerations
into Phalaborwa’s development and are therefore intent on putting
the right foundations in place from the outset from which to build our
sustainability strategy. Developing climate change-related strategies
and commitments is a key element of this approach. Rainbow’s
climate-related reporting will mature as we move through project
development and construction and into production. We intend
to publish a standalone disclosure report in line with the
recommendations of the TCFD in due course.
In preparation for such a disclosure, we have published
information on pages 28 to 33, which is presented according
to the TCFD key themes and recommendations for the period
1 July 2022 to 30 June 2023.
Key achievements
Office-based Scope 1 & 2 emissions calculated
First disclosures in line with TCFD recommendations
Phalaborwa ESIA work progressing
We are committed to integrating environmental considerations
into strategic decision-making at the highest level of the business
(i.e. Board and Sustainability Committee level) in order to create
a responsible and sustainable supply of critical rare earths. We aim
to achieve continuous improvement in environmental practices
and performance and to minimise, or where possible avoid, negative
impacts from our operations on the natural environment, including
those relating to climate change (see our TCFD Report for more
information), water usage, waste management and biodiversity.
The ESIA at Phalaborwa is being conducted by consultants WSP
in accordance with IFC Performance Standards and work is
progressing well, with many of the reports and specialist studies
required for regulatory processes and to obtain environmental
authorisations either at an advanced stage or in progress.
This work will inform the implementation of a robust
environmental management system for the project.
As Phalaborwa progresses to development, our aim will be to
implement sound environmental management practices around
resource use, energy, water and waste management, air quality and
carbon emissions and biodiversity. Given the site’s brownfield nature,
we will look to maximise our potential for positive impacts through
rehabilitation and remediation.
Phalaborwa is founded on the principles of circularity via the
extraction of value from ‘waste’ products. As part of this, the intention
to sell the benign gypsum by-product produced at the project is
expected to see the phosphogypsum stacks at Phalaborwa eventually
fully depleted, which would allow for a complete environmental
rehabilitation of the site.
We have made significant progress in understanding Phalaborwa’s
potential environmental impacts through the carbon accounting work
we have commenced in FY 2023 which will feed into the LCA.
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
27
STRATEGIC REPORT
SUSTAINABILITY CONTINUED
ENVIRONMENTAL INTEGRATION CONTINUED
TCFD FRAMEWORK
The TCFD was created by the Financial Stability Board in 2015 to develop guidance for consistent climate-related financial risk disclosures
for use by companies, banks, and investors in providing information to stakeholders. One of the Financial Stability Board’s key aims was to
enable stakeholders to better understand the “concentrations of carbon-related assets in the financial sector and the financial system’s
exposure to climate-related risks”1.
Ultimately, increasing the amount of reliable information on exposure to climate-related risks and opportunities will strengthen the stability
of the global financial system, contribute to a greater understanding of climate risks, and facilitate financing the transition to a more stable
and sustainable economy.
Accordingly, the TCFD developed a set of recommendations in 2017 to assist companies in identifying and disclosing the financial impacts
of climate change risks and opportunities on their business in their mainstream reports, including their annual reports and financial filings.
The latest TCFD guidance on implementing the recommendations was published in 2021, which includes supplemental guidance for
insurance companies and asset owners.
The TCFD recommendations are categorised according to four thematic areas that represent core elements of how organisations operate:
Governance, Strategy, Risk Management and Metrics and Targets. These elements are outlined in Figure 1 below.
Governance
Strategy
Risk management
Metrics and targets
Disclose the Group’s
governance around climate-
related risks and opportunities.
Disclose the actual and
potential impacts of climate-
related risks and opportunities
on the Group’s businesses,
startegy and financial planning
where such information is
material.
Disclose how the Group
identifies, assesses and
manages cliate-related risks.
Disclose the metric and targets
used to assess and manage
relevant climate-related risks
and opportunities where such
information is material.
Figure 1: TCFD framework.
1 FSB Proposal for a Disclosure Task Force on Climate-Related Risks, 2015.
28 Rainbow Rare Earths Limited
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SUSTAINABILITY CONTINUED
ENVIRONMENTAL INTEGRATION CONTINUED
TCFD REPORT
The following table provides a summary of Rainbow’s first climate disclosures aligned with the TCFD recommendations associated with the four
thematic areas: Governance, Strategy, Risk Management and Metrics and Targets.
GOVERNANCE
Recommendation
Response
a. Describe the board’s
oversight of climate-
related risks and
opportunities
Rainbow’s Board comprises the Chairman, one executive director, and five
independent non-executive directors. The Board is responsible for regularly
assessing and reviewing key business risks in the Group’s operations and met
eight times in the last financial year.
Compliance
Partially compliant
Notably, in the last year the Board has overseen and approved the development
of the Group’s Sustainability Policy, which can be found on our website here:
https://www.rainbowrareearths.com/about/corporate-governance/company-
policies/. The policy states our commitment to sound environmental
management and minimising the impacts of our operations on the environment,
including those relating to climate change, water usage, waste management
and biodiversity.
b. Describe
management’s role in
assessing and
managing climate-
related risks and
opportunities
The Board delegates sustainability-related responsibilities to management.
Accordingly, the Directors and management regularly assess and discuss the
principal risks facing the Group. In addition, senior management regularly discuss
material developments (normally weekly) and consider the financial and reporting
implications of any matters arising.
Partially compliant
A key element of risk within Rainbow’s operations is environmental management,
which is overseen by the Board and Audit Committee, in liaison with the
Sustainability Committee (formerly the Safety, Health, and Environment Committee).
The Sustainability Committee has oversight of the Group’s compliance
with applicable environmental laws and regulations. Rainbow is currently working
with WSP to carry out an ESIA at Phalaborwa. The Sustainability Committee met
once during the 2023 financial year to discuss the discuss the development
of the Group’s ESG strategy, both over the short-and longer-term and
regulatory developments.
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STRATEGIC REPORT
SUSTAINABILITY CONTINUED
ENVIRONMENTAL INTEGRATION CONTINUED
TCFD REPORT CONTINUED
STRATEGY
Recommendation
Response
a. Describe the climate-
related risks and
opportunities the
organisation has
identified over the
short, medium, and
long term.
Rainbow’s strategy is to develop a responsible supply of rare earth minerals
to meet the escalating demand for these critical minerals needed for global
decarbonisation.
Phalaborwa is still in the preliminary stages of development; however, in order
to build strong foundations at the earliest stage, the following key workstreams
have been initiated to assess and help inform a robust view of the physical and
transitional climate-related risks and opportunities that may impact our
operations and the environment.
Compliance
Partially compliant
b. Describe the impact
of climate-related
risks and
opportunities on the
organisation’s
businesses, strategy,
and financial
planning.
• We are in the process of quantifying and assessing expected operation
emissions based on the PEA at Phalaborwa. This is the starting point
from which Rainbow will measure the actual performance of the Group’s
Greenhouse Gas (“GHG”) emitting activities once in production.
• We are commencing work with external consultants to develop a LCA for
Phalaborwa to assess the GHG emissions associated with producing and
using rare earth metals. This will enable Rainbow to identify emission hotspots
and opportunities for reduction, supporting the development of the Group’s
decarbonisation strategy.
• We have embarked on developing scenario analyses to evaluate future
climate change-related risks and opportunities for the business over the
short, medium and long term.
Climate-related opportunities are some of the material drivers behind our
business model and growth strategy. Rainbow is contributing to the green energy
transition with the responsible production of rare earths, with a specific focus on
neodymium (Nd), praseodymium (Pr), dysprosium (Dy), and terbium (Tb).
These metals are fundamental in the production of permanent magnets used
in wind turbines and EVs, with their demand projected to escalate with the
transition to renewable energy - read more in Market Review on pages 14 to 15.
The financial impacts of the climate risks and opportunities facing the business
will be further explored and articulated following results from the LCA and
scenario analysis testing (as described above). These measures will inform
Rainbow’s business, strategy, and financial planning in relation to climate-related
risks and opportunities.
Rainbow is committed to integrating environmental considerations into
strategic decision-making and sound environmental management, with
a focus on environmental protection and the responsible use of natural
resources. This includes a focus on energy efficiency and the investigation
of the commercial viability of using renewable energy sources.
Partially compliant
30 Rainbow Rare Earths Limited
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SUSTAINABILITY CONTINUED
ENVIRONMENTAL INTEGRATION CONTINUED
TCFD REPORT CONTINUED
Compliance
Partially compliant
STRATEGY CONTINUED
Recommendation
Response
c. Describe the
resilience of the
organisation’s
strategy, taking into
consideration
different climate-
related scenarios,
including a 2°C or
lower scenario.
Rainbow’s focus on processing separated rare earth oxides from historical waste
gypsum contributes to the underlying strength and resilience of our business
model, as many of the costly, energy-intensive steps, associated with traditional
rare earths mining projects, are removed. Further, Rainbow has the opportunity
to reduce its negative environmental impact by utilising reclaimed acid water
from the phosphogypsum stacks in a closed circuit.
Leveraging our proprietary technology, we continue to explore opportunities
to deliver separated rare earth oxides from secondary phosphogypsum sources
around the world, which will remove significant time, risk and cost from the overall
project timeline. Rainbow announced a Memorandum of Understanding with
Mosaic shortly after Year-end to jointly develop a process flowsheet to extract
rare earth elements from the Uberaba stack in Brazil - read more on page 20.
In addition, Rainbow intends to use climate change scenario analyses
to fully investigate the resilience of the Group’s strategy to climate change
risks and opportunities. The outcomes of these assessments will be published
once available.
The setting of a baseline carbon footprint in the future will assist us in managing
the performance of meeting emission reduction targets and other related
sustainability metrics.
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SUSTAINABILITY CONTINUED
ENVIRONMENTAL INTEGRATION CONTINUED
TCFD REPORT CONTINUED
Compliance
Partially compliant
RISK MANAGEMENT
Recommendation
Response
a. Describe the
organisation’s
processes for
identifying and
assessing climate-
related risks;
b. Describe the
organisation’s
processes for
managing climate-
related risks, and
c. Describe how
processes for
identifying,
assessing, and
managing climate-
related risks are
integrated into the
organisation’s overall
risk management.
Rainbow is in the process of estimating and assessing expected emissions from
planned operations at Phalaborwa based on projections in the PEA, as a first-pass
carbon footprint assessment. Alongside the LCA and proposed scenario analysis
workstreams, the first-pass carbon footprint will be critical in identifying and
assessing climate-related risks and identifying carbon reduction opportunities.
The emissions calculations will assist Rainbow in informing, understanding,
and optimising project development and subsequent operations.
The relatively small size of Rainbow’s management and finance team allows
the team to retain tight control over the identification and management of risks,
and related financial impacts, currently facing the business. The Board therefore
does not currently consider it appropriate to have a separate internal audit
function. Accordingly, the Board and the Audit Committee are responsible
for ensuring that the risks inherent to operating the Group, across numerous
jurisdictions, are identified, assessed, and managed. Rainbow’s Sustainability
Committee is also responsible for liaising with the Audit Committee, as
appropriate, on matters relevant to the Group’s management of sustainability-
related risks and opportunities. In addition to formal Audit Committee meetings,
the Chief Financial Officer has regular interaction with the Chairman of the Audit
Committee to discuss control and reporting matters in more detail. The Audit
Committee and Chief Financial Officer are supported by senior management,
who regularly discuss material developments (normally weekly) and consider
financial and reporting implications of any matters arising.
As the Group matures, Rainbow may consider formalising the processes
for identifying, assessing, and managing climate-specific risks, which may
be integrated into the organisation’s overall risk management.
Using the outcomes of the ESIA, which is currently being undertaken
for Phalaborwa, Rainbow will introduce a robust environmental and
social management system to the project.
32 Rainbow Rare Earths Limited
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ENVIRONMENTAL INTEGRATION CONTINUED
TCFD REPORT CONTINUED
METRICS AND TARGETS
Recommendation
Response
Compliance
Partially compliant
The first-pass carbon footprint will assist in selecting appropriate metrics for
monitoring our operation’s emissions. Importantly, the first-pass carbon footprint
will be critical in identifying carbon reduction opportunities and will assist Rainbow
in informing and optimising project development and subsequent operations.
As a first step in our emissions accounting and disclosure, we have calculated
Scope 1 and 2 emissions for office-related activities – demonstrating a step
forward in transparency and setting the Group on the right path for future
disclosure of more material operations emissions going forward.
Rainbow’s carbon footprint for our head office emissions is shown below.
This represents Rainbow’s actual emissions and first phase of annual carbon
disclosure.
Partially compliant
Emissions1 from office-related activity
Scope Emissions in tCO2e
Scope 1 0.15
Scope 2 5.85
Scopes 1 & 2 6.01
The office activity-related carbon footprint does not serve as a baseline for
benchmarking against operation-related emissions in future, as the Group’s
material carbon emissions will be associated with its processing activities when
production commences. Rainbow will establish a baseline emissions profile once
the operations are in progress.
As the Group matures, Rainbow will consider setting targets to manage climate-
related risks and opportunities. These targets will be informed by the culmination
of ongoing climate-related scenario analyses and the setting of a baseline carbon
footprint once the business is fully operating.
Partially compliant
a. Disclose the metrics
used by the
organisation to
assess climate-
related risks and
opportunities in line
with its strategy and
risk management
process.
b. Disclose Scope 1,
Scope 2 and, if
appropriate, Scope 3
GHG emissions and
the related risks.
c. Describe the targets
used by the
organisation to
manage climate-
related risks and
opportunities and
performance against
targets.
1 Emissions were calculated by multiplying the activity data by the appropriate emission factor to get the tonnes (t) of carbon dioxide (CO2) equivalent (e).
The activity emissions are reported in line with the GHG Protocol Corporate Standard (GHG Protocol).
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
33
STRATEGIC REPORT
FINANCIAL REVIEW
RAINBOW’S STRATEGIC FOCUS
IS TO IDENTIFY AND DEVELOP
SECONDARY RARE EARTH
DEPOSITS
Rainbow’s strategic focus is to identify and develop secondary rare earth deposits that can be brought into production quicker and at a lower cost
than traditional hard rock mining projects. As a developer, Rainbow capitalises the costs of exploration and evaluation for each identifiable project
once the legal right to the project has been secured. During the Year, as a result of the successful PEA released for Phalaborwa and the growing
pipeline of growth opportunities from the associated processing technology, the Directors decided against investing significant amounts in Burundi
to develop a formal mineral resource. As a result an impairment review was carried out on the Gakara cash generating unit, which has been written
down to a net asset value of nil. As a result, the Financial Statements now reflect the updated business strategy, with the exploration and evaluation
assets on the balance sheet relating solely to Phalaborwa and the income statement dominated by the impairment charge against Gakara.
PROFIT AND LOSS
BALANCE SHEET
The loss for the Year reflects the impairment of the Gakara cash
generating unit and the ongoing administrative costs for the Group.
As noted above, due to the change in strategy an impairment review
was carried out for the Gakara cash generating unit during the Year,
which comprised both intangible and tangible fixed assets together
with cash, mineral concentrate, royalty receivables and consumables
held in stock. The liabilities associated with the Gakara project include
a loan, decommissioning, site rehabilitation and environmental costs, tax
liabilities and trade payables. Based on the assessment of both the legal
and political position in Burundi, the Directors were unable to foresee a
date when the operations at the project would be able to restart and
accordingly have written the net assets of the Gakara cash generating
unit to nil, with an impairment charge of US$9.6 million recognised.
Within administration expenses, the costs associated with maintaining
the Gakara project on care and maintenance totalled US$0.9 million (FY
2022: US$1.3 million) including US$0.3 million of non-cash depreciation
associated with the tangible fixed assets prior to the impairment (FY
2022: U$0.4 million). The Group continues to focus on minimising costs
associated with the asset.
The Group’s other corporate costs totalled US$2.6 million (FY2022:
US$2.3 million). This increase was driven primarily by an increase
in business development costs as the Group started to develop its
pipeline of growth opportunities including both Uberaba and OCP.
Net finance income of US$0.2 million (FY 2022: costs of US$0.3 million)
represents foreign exchange differences, primarily relating to movements
between the Burundian Franc (“BIF”) and US dollars, the functional
currency of the Group. Finance costs also include US$0.1 million (FY 2022:
US$0.1 million) associated with the FinBank loan in Burundi.
34 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
As set out above, the Gakara impairment has had a significant impact
on the Group balance sheet, with US$9.8 million of non-current assets
at 30 June 2022 relating to Gakara (US$8.6 million of exploration and
evaluation costs and tangible fixed assets with a net book value of
US$1.0 million) being written down to nil. The Gakara cash generating
unit now includes US$0.7 million of mineral concentrate inventory,
carried at cost, which is offset by the FinBank loan (US$0.4 million)
and other net liabilities of US$0.3 million dominated by tax and
government liabilities in Burundi which have not been settled whilst
the suspension of activities persists.
A total of US$2.9 million of exploration and evaluation assets were
capitalised in the Year relating to Phalaborwa, leaving a closing
capitalised cost of US$4.8 million. Expenditure accelerated following
completion of the PEA in October 2022 as pilot test work commenced
alongside other activities to develop a DFS. At the balance sheet date,
the Group has no tangible fixed assets and no obligations for
environmental closure at the Phalaborwa site.
At 30 June 2023, the Group held US$8.1 million of cash and cash
equivalents which is predominantly held with Barclays Bank in London,
having raised US$9.5 million in May 2023 at a price of 10.377 pence
per share.
GOING CONCERN
In July 2023, US$5 million was paid to Barak Fund SPC Limited on behalf
of Bosveld Phosphates (Pty) Limited to secure a path to 100% ownership
of Phalaborwa. As a result of the payment, the Group secured an
immediate 85% interest in Phalaborwa and was granted an option to
acquire the remaining 15% via the issue of US$7 million in shares. In
September 2023, the Company replenished the funds spent on the
Phalaborwa acquisition, raising US$5.5 million at a price of 15 pence per
share, of which US$0.7 million is subject to shareholder approval at the
forthcoming AGM.
Based on a review of cash flow forecasts for the period to 31 December
2024, at least US$3.4 million of additional funding will need to be raised
before 31 December 2024, the timing of which is dependent primarily on
the speed at which the Phalaborwa DFS is completed, which is within
management’s control. Whilst this funding requirement does represent a
material uncertainty which may cast significant doubt on the ability of the
Company to continue as a going concern, the Board is confident that this
funding will be secured based on its history of successful fundraising.
STRATEGIC REPORT
FINANCIAL REVIEW CONTINUED
PAYMENTS TO GOVERNMENTS
Rainbow is committed to full payment of its tax and fiscal obligations wherever it operates, as this supports the Group's social licence to operate,
and ensures a fair contribution to local economies.
The table below sets out the key payments to governments for the Year arising as a result of Rainbow’s activity, including direct taxes
(such as royalties, land taxes and corporation tax) and indirect taxes (such as payroll taxes and VAT).
Payments disclosed in this Report are shown in US Dollars. Actual payments have been made in South African Rands and Burundian Francs.
US$’000
Royalties
Permits and land taxes
Corporation tax
Total tax borne
Payroll tax
Net VAT
Total net payments to government
South Africa
-
-
-
-
139
133
272
FY 2023
Burundi
-
-
-
-
20
3
23
Total
-
-
-
-
159
136
295
South Africa
-
-
-
-
44
(22)
22
FY 2022
Burundi
-
-
2
2
78
(4)
76
Total
-
-
2
2
122
(26)
98
Royalty payments relate to the Government of Burundi royalty of 4% charged on the value of exports of rare earths mineral concentrate.
No royalties were paid during FY 2023 as operations in Burundi, including all exports, are suspended by the Government.
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 FY 2023 as the Burundi operations are suspended, with the annual cost 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 turnover was reported in FY 2023 as operations in Burundi, including all exports, are suspended by the Government.
Payroll taxes 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 & Financial Statements 2023
35
CORPORATE GOVERNANCE
EFFECTIVE CORPORATE
GOVERNANCE IS
ESSENTIAL TO THE
SUCCESS OF OUR
BUSINESS
Rare earths are used in many of the latest
high tech applications, including aircraft
radar and touchscreens
36 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
38 Board of Directors
40 Senior Mangement
41 Corporate Governance Statement
46 Principal Risks and Uncertainties
48 Directors’ Report
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
37
CORPORATE GOVERNANCE
BOARD OF DIRECTORS
ADONIS POUROULIS
NON-EXECUTIVE CHAIRMAN
GEORGE BENNETT
CHIEF EXECUTIVE OFFICER
ALEXANDER LOWRIE
INDEPENDENT
NON-EXECUTIVE DIRECTOR
SHAWN MCCORMICK
INDEPENDENT
NON-EXECUTIVE DIRECTOR
Appointment date:
August 2011
Committees:
Nomination (Chair)
Adonis is an entrepreneur whose
expertise lies in the discovery,
exploration and development of
natural resources across Africa,
as well as more recently
becoming an active investor and
developer of clean technologies
and sustainable energy projects.
Having worked in the African
natural resources sector for over
30 years he has extensive
experience and a wide network of
industry relationships across the
continent. Adonis is the founder
of Rainbow, which he listed in
2017. He is also founder and CEO
of Chariot Transitional Energy
(AIM: CHAR), founder and
Chairman of the Pella Resources
Group, and was the founder and
Chairman of Petra Diamonds
(LSE: PDL).
Appointment date:
August 2019
Appointment date:
November 2016
Appointment date:
February 2016
Committees:
SHEC
Committees:
Remuneration (Chair), Audit, SHEC
Committees:
SHEC (Chair)
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) and Orecorp
Ltd (which he seed funded, raised
the initial capital as a non-
executive director and listed
on the ASX).
In 2006, George established MDM
Engineering Ltd, a mining
engineering company building
mineral process plants and
mining infrastructure throughout
Africa, which he successfully
listed on the London Stock
Exchange in 2008. 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.
Alex is an experienced director,
advisor, board observer and
investor with around 25 years’
experience, initially in financial
markets and subsequently with
a specific focus on the critical
metals mining, battery recycling
and technology sectors.
Concentrating on battery,
hydrogen and EV critical
materials, Alex advises
companies from seed stage
through to wider capital markets
exposure and is a non-executive
director to a number of these
entities. He is also the co-founder
of Telemark Capital LLP, a capital
advisory and asset management
partnership, which also provides
governance services as an
independent investment
committee member.
Prior to this Alex worked for 14
years in investment banking. He
was a director at Deutsche Bank
and then RBS, having started his
banking career originally with ABN
AMRO. Through these positions,
he gained extensive experience
in primary and secondary equity
offerings, bringing companies to
market through IPOs (including
structuring, marketing and
distribution).
Qualifications:
BA (Hons) in combined social
sciences – Durham University;
currently carrying out Executive
Masters of Business
Administration (“MBA”) – Henley
Business School
Shawn is an international affairs
specialist with more than 30
years of political and extractive
industries sector experience
having served in The White House
as Director for African Affairs on
the National Security Council
(Washington), Africa Regional
Director and Senior Global Affairs
Advisor at BP (London) and
Corporate Vice President for
International Affairs at TNK-BP
(Moscow). He is currently
Managing Director of a London-
based strategic consulting firm
focused on the natural resources
sector in Africa and beyond.
Qualifications:
BA (Hons) – University of
Southern California;
advanced coursework at Insead
Qualifications:
BA (Hons) in Science and Mining
Engineer – University of
Witwatersrand.
Qualifications:
Member of the Johannesburg
Stock Exchange
External appointments:
CEO of
Chariot Transitional Energy plc
External appointments:
N/A
External appointments:
N/A
External appointments:
Chairman of Trinity Metals Group,
Non-Executive Director
of Karo Mining Holdings
Interest in the Company
As at 27 October 2023:
84,108,870 shares / 13.5%
Interest in the Company
As at 27 October 2023:
37,347,298 shares / 6.0%
Interest in the Company
As at 27 October 2023:
6,838,124 shares / 1.1%
Interest in the Company
As at 27 October 2023:
9,316,571 shares / 1.5%
38 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
CORPORATE GOVERNANCE
BOARD OF DIRECTORS CONTINUED
ATUL BALI
INDEPENDENT
NON-EXECUTIVE DIRECTOR
J. PETER PHAM
INDEPENDENT
NON-EXECUTIVE DIRECTOR
DARRYLL CASTLE
INDEPENDENT
NON-EXECUTIVE DIRECTOR
Appointment date:
March 2017
Appointment date:
May 2021
Appointment date:
June 2023
Committees:
Audit (Chair), Nomination
Committees:
Nomination
Committees:
N/A
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 25
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 the Lead Independent
Director of Everi holdings, Inc
(NYSE: EVRI). He has previously
held divisional CEO or president
positions with International Game
Technology PLC (NYSE: IGT),
Aristocrat Leisure Limited (ASX:
ALL), and RealNetworks, Inc
(NASDAQ: RNWK), a venture
capital firm, as well as Deputy
Chair of Gaming Realms PLC
(LSE: GMR).
J. Peter Pham is a scholar and
practitioner of international affairs
with more than 20 years’
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.
Darryll is Director of Operations for
TechMet, a strategic shareholder
with the right to nominate one
Director to the Rainbow Board for
so long as it holds at least 10% of
the issued shares in the
Company. Previously CEO of a
number of mining and production
companies including CEO of
Trafigura mining, CEO of PPC
Cement, CEO of Anvil Mining
(listed in Toronto and Australia),
as well as multiple board
memberships of listed and private
companies, and previously Chief
Operations Officer at Metorex
Group Limited.
First hand operations and
projects experience globally
including in Cuba, Spain, Peru,
and particularly on the African
continent, having run projects
and companies in the DRC,
Zambia, Angola, Zimbabwe,
Ethiopia, Rwanda and Tanzania.
Qualifications:
BA (Joint Hons) in Law &
Economics, University of Keele
Chartered accountant – KPMG, UK
Qualifications:
BA (Hons) in Economics -
University of Chicago;
MA (Hons), LLM (Hons), PhD
(Hons) - Gregorian University
External appointments:
Non-Executive Director of
Everi holdings, Inc, Chairman of
The Football Pools; board
member and Finance Committee
Chair of The Bush School Seattle
External appointments:
Non-Executive Chairman of High
Power Exploration (HPX)
Non-Executive Director, Africell
Global Holdings
Qualifications:
BSc in Civil Engineering –
University of KwaZulu-Natal;
Bachelor of Commerce –
University of South Africa; MBA –
University of Cape Town; past
Chartered Financial Analyst (CFA)
Charterholder.
External appointments:
Director of Operations for TechMet
Interest in the Company
As at 27 October 2023:
4,420,992 shares / 0.7%
Interest in the Company
As at 27 October 2023:
631,500 shares / 0.1%
Interest in the Company
As at 27 October 2023:
821,422 shares / 0.1%
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
39
CORPORATE GOVERNANCE
SENIOR MANAGEMENT
PETE GARDNER
CHIEF FINANCIAL OFFICER
DAVE DODD
TECHNICAL DIRECTOR
ALBERTO BRUTTOMESSO
PROJECT DIRECTOR
Appointment date:
May 2020
Appointment date:
January 2021
Appointment date:
May 2023
Pete is a qualified chartered
accountant with a breadth
of experience in financial
management and corporate
finance in the natural resources
sector. He was the Finance
Director of Amara Mining Plc
from October 2009 managing
the corporate and financial
development of the company
culminating in its acquisition by
Perseus Mining, and former Chief
Finance Officer for Piran
Resources, Chaarat Gold Holdings
and Alexander Mining Plc.
Dave has 45 years of extractive
metallurgy experience covering
research and development,
technical sales and
predominantly metallurgical
project development and
execution. He was Technical
Director and co-founder of MDM
Engineering between 1987-2014.
Dave has designed and
commissioned plants across
Africa and the rest of the world,
covering minerals from rare
earths to gold, platinum,
diamonds, copper, zinc,
phosphate, cobalt and many
others. He is a Fellow of the
Southern Africa Institute of
Mining and Metallurgy.
Qualifications:
BSc (Hons) in Physics - University
of Birmingham
Chartered Accountant – ICAEW
Qualifications:
BSc (Hons) in Chemical
Engineering – University of
Manchester Institute of Science
and Technology
Alberto has over 30 years’
experience in project and
engineering management,
delivering 80 multidisciplinary
mining, water treatment and
infrastructure projects to date
across the African continent.
Alberto has managed projects
incorporating all aspects of the
mining process across gold,
diamonds, chrome, platinum
and uranium, including extensive
experience in the delivery of
processing plants. He has a
proven track record of delivering
total turn key projects within
budget and on time, increasing
project value by reducing capital
and operating costs during
project life cycle from study
to execution.
Qualifications:
Mechanical Engineer – Technikon
Witwatersrand; post graduate,
National Higher Diploma in
Business Management -
Technikon Witwatersrand.
External appointments:
N/A
External appointments:
N/A
External appointments:
N/A
Interest in the Company
As at 27 October 2023:
618,522 shares / 0.1%
Interest in the Company
As at 27 October 2023:
1,500,000 shares / 0.2%
Interest in the Company
As at 27 October 2023: N/A
The Senior Managers listed
on this page have been
designated as persons
discharging managerial
responsibility (“PDMRS”).
In addition, Charles Graham,
the Project Director for
Phalaborwa, was a PDMR prior
to his replacement by
Alberto Bruttomesso.
40 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
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, the Directors recognise the importance
of effective 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 in mind the size and nature of the Company.
The Board oversees the performance of the Group’s activities. It
comprises experienced board members who have held senior positions
in a number of public and private companies. The Board is responsible
to shareholders for the proper management of the Group. The Non-
Executive Directors have particular responsibility to ensure that the
strategies proposed by the Executive Director are carefully considered.
The Board meets regularly and met eight times in FY 2023. 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 (“AGM”).
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
constitutes a quorum.
The Board ensures it is aware of the views of major and other
shareholders through regular meetings in person (where appropriate),
feedback via the Company’s investor relations manager or via the review
of investor relations board reports, 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 Group’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 natural
resource 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 online
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 FY 2023, reviews
were primarily conducted in an online environment and in-country
visits limited to discussions with the Burundi government.
The Group uses a central financial reporting system (xero) which
records all transactions, capturing third party documents (e.g.
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 & Financial Statements 2023
41
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
STATEMENT CONTINUED
Board of Directors
The Company had one Executive Director and six Non-Executive Directors at 30 June 2023. 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.
The Board reviews key business risks regularly, including the financial risks facing the Group in the operation of its business.
These matters include, but are not limited to, the following:
determining the strategy for the Company;
•
approving the annual budget;
•
discussing and approving financing, including new debt and equity;
•
setting the dividend policy;
•
•
developing the appropriate ESG standards and practices;
• 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 as at 30 June 2023, the year they were appointed, and current committee
memberships:
Name Age
Adonis Pouroulis 53
George Bennett 62
Alexander Lowrie 48
Shawn McCormick 56
Atul Bali 52
J. Peter Pham 52
Darryll Castle 54
Position
Non-Executive Chairman
CEO
Independent Non-Exec
Independent Non-Exec
Independent Non-Exec
Independent Non-Exec
Non-Exec
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 (with the exception of Darryll Castle) in terms of character and judgment, notwithstanding the following:
•
•
all the independent Non-Executives are shareholders in the Company see Board of Directors on pages 38 to 39 for further information).
all the independent Non-Executives held share options during the Year (see note 22 for details).
Darryll Castle is not independent because he is the Director of Operations for TechMet, a strategic shareholder with the right to nominate one Director
to the Rainbow Board for so long as it holds at least 10% of the issued shares in the Company.
The table below shows the attendance at board and committee meetings during FY 2023:
Name
Adonis Pouroulis
George Bennett
Alexander Lowrie
Atul Bali
J. Peter Pham
Shawn Mccormick
Darryll Castle1
1 Darryll Castle was appointed on 12 June 2023.
Board
8/8
8/8
8/8
8/8
6/8
7/8
1/1
Audit Remuneration
1/1
N/A
1/1
N/A
N/A
1/1
N/A
N/A
N/A
3/3
3/3
N/A
0/3
N/A
Nomination
0/0
N/A
N/A
0/0
0/0
N/A
N/A
SHEC
N/A
1/1
1/1
N/A
N/A
0/1
N/A
The table of board committee attendance is based on the board committee appointments at the time of the relevant meeting. The Board is regularly
informed of developments outside of 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 on page 44, 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 SHEC (now renamed the Sustainability Committee) committees which have formally delegated
duties and responsibilities within written terms of reference, the Board may set up additional committees as appropriate.
42 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
STATEMENT CONTINUED
Diversity
The Board of Rainbow understands that diversity and inclusion are important in providing a broad range of perspectives in the workplace,
fostering innovation, encouraging collaboration and enabling businesses to deliver better results for their stakeholders.
As the Company progresses on its development path, it will continue to consider the appropriate mix of skills, culture and qualities,
as well as the diversity represented, that will allow Rainbow to deliver on its strategy.
Rainbow is committed to developing a diverse workforce and to providing a work environment in which everyone is treated fairly and with respect.
The Company does not currently have a formal Board diversity policy which is mainly a reflection of the small size of the Rainbow business to date.
However, as part of its future development plans, in FY 2024 the Company aims to commence the planning work required to put a diversity and
inclusion policy in place that will set out its commitment to ensuring an equitable, diverse and inclusive workplace.
As part of this work, we will be looking at all elements of diversity and considering a broad definition of difference, including but not limited to:
experience, skills, expertise, ethnicity, nationality, gender, cultural and socio-economic background, geographic location, age, education, religious
beliefs, language, neurodiversity, disability, sexuality and family responsibilities.
Rainbow Board Diversity
Diversity of skills and experience
Gender diversity Ethnic diversity
Emerging markets
Operations
Capital markets
Sustainability
Public poloicy
Corporate governance
0
1
2
3
4
5
6
7
8
2
5
White British or other White
Asian/Asian British
7
Male
Female
Gender diversity
The Company has not met the UK’s Financial Conduct Authority’s (“FCA”) diversity targets that at least 40% of the board members should be female
and that at least one of the senior board positions should be held by a woman, and the reason for this mainly relates to the historically lower proportion
of women in the resources and industrial industries. However, the Company is aware that much progress has been made in order to increase female
representation in these sectors and will be looking to improve its gender diversity statistics as the Company continues with its corporate development
path. This will be a focus for the Company’s Nomination Committee in FY 2024.
The following table sets out the Company’s current gender diversity at senior levels of the business as at 30 June 2023:
Men
Women
Number of
board members
7
0
Number
of senior
Percentage
positions on
Percentage the board (CEO,
of executive
of the board CFO, SID, Chair) management management
100
0
Number
in executive
100
0
2
0
1
0
Ethnic diversity
The Company has met the FCA’s diversity target that at least one member of the board should be from an ethnic minority background excluding
white ethnic groups (as set out in categories used by the Office for National Statistics).
The following table sets out the Company’s current ethnic diversity at senior levels of the business as at 30 June 2023:
White British or other White
Mixed / Multiple Ethnic Groups
Asian / Asian British
Black / African / Caribbean / Black British
Other ethnic group, including Arab
Number of
board members
5
0
2
0
0
Number
in executive
Number
of senior
Percentage
positions on
Percentage the board (CEO,
of executive
of the board CFO, SID, Chair) management management
100
0
0
0
0
71
0
29
0
0
2
0
0
0
0
1
0
0
0
0
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
43
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 Atul Bali
and its members are Alexander Lowrie and Shawn McCormick.
The members of the audit committee are considered to possess the
appropriate skills and experience to monitor and ensure the integrity
of the Group’s financial reporting, Internal Audit, internal financial control
and risk management systems and to support Rainbow’s governance.
The audit committee should meet not less than two times a year
and is responsible for ensuring the financial performance of the Group
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 Group’s
risk assessment and internal control processes under review.
The audit committee met three times during the Year. During these
meetings, the following matters were considered:
•
the audit of the year ended 30 June 2022 was planned and the
key areas of audit risk were discussed ahead of the relevant audit
procedures being undertaken. The audit planning meeting for FY
2023 occurred after the financial year end.
the financial statements for the year ended 30 June 2022, and the
interim financial statements for the six months ended 31 December
2022, were reviewed. The audit committee met with the auditors at
the conclusion of the FY 2022 audit to discuss their findings and,
following due consideration, 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 Group’s audit and concluded that
BDO LLP was sufficiently independent to conduct the audit. The only
non-audit service during the Year was the informal review of the interim
financial statements for the six months to 31 December 2022.
Nomination committee
The nomination committee is chaired by Adonis Pouroulis and its
members are Atul Bali and J. Peter Pham. 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 did not
meet during FY 2023.
Remuneration committee
The remuneration committee is chaired by Alexander Lowrie and its
members are Adonis Pouroulis and Shawn McCormick. It is 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.
Safety, health, and environment committee
The SHEC is chaired by Shawn Mccormick and its members
are George Bennett and Alexander Lowrie.
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 met once during FY 2023 to discuss the development
of the Group’s sustainability strategy, both over the short-and longer-
term, and an action plan and budget were subsequently approved in
order to deliver on this strategy. Post year-end, the SHEC was renamed
the Sustainability Committee - see page 23 for details.
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, Senior
Managers 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
As part of our work during the Year to strengthen our policies,
we have updated the Group’s Anti-bribery Policy. The Policy includes
clear guidance on expected behaviour and procedures (including
whistleblowing), 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 clear definitions as well as 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.
Guidance and expectations around conflicts of interest are included in
the Group’s Code of Conduct.
Pete Gardner, CFO, acts as the Group’s Anti-bribery Officer, overseeng
the day-to-day operation of the Policy and procedures. He reports
to the Board on any specific issues that might arise and the Board also
regularly reviews the operation of the Policy and related procedures.
All personnel are required to receive guidance and training in relation
to the Group’s Policy and procedures.
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.
The Group’s Anti-Bribery Policy, along with its Code of Conduct
and Ethics, its Whistleblowing Procedure and its Share Dealing Code,
can be found on the Company’s website at
https://www.rainbowrareearths.com/about/corporate-
governance/company-policies/.
Signed on behalf of the Board of Directors on 27 October 2023.
The remuneration committee met once during FY 2023 to discuss and
approve Board and Senior Management remuneration, as well as the
Company’s share option scheme and the award of share options to
Directors and Senior Management.
GEORGE BENNETT
CHIEF EXECUTIVE OFFICER
44 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
CORPORATE GOVERNANCE
PRINCIPAL RISKS AND
UNCERTAINTIES
THE DIRECTORS
REGULARLY ASSESS
AND DISCUSS THE
PRINCIPAL RISKS
FACING THE GROUP
The Phalaborwa front-end pilot plant
in Johannesburg
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
45
CORPORATE GOVERNANCE
PRINCIPAL RISKS AND
UNCERTAINTIES
The Directors regularly assess and discuss the principal risks facing the Group, including those that would threaten its business model,
future performance, solvency or liquidity.
The key risks affecting the Group are set out below:
Risk
Comment
Business impact
Mitigation
Project definition
risk
At Phalaborwa, PEA published in October
2022 confirmed a processing flowsheet
capable of economically extracting the
magnet rare earth metals from the gypsum
stacks in a low capital and low operating cost
environment.
High
Pilot test work to confirm the efficacy
of the processing flowsheet is underway with
the production of a mixed rare earth sulphate
in South Africa which will be used for pilot
testing of the final separation process
in the USA. As a result of the pilot test work,
changes may be required to the proposed
processing flowsheet which could have a
detrimental impact on the economics
of the project as set out in the PEA.
A DFS will need to be completed
to provide sufficient confidence for project
development, which may not deliver results
in line with the PEA.
Permitting risk
New and updated permits and licences
will be required to develop the Phalaborwa
project including, but not limited to, a water
use licence, waste management licence
and air emissions licence.
High
Financing risk
The Group’s ability to continue to develop the
Phalaborwa project and other new business
opportunities will rely upon its continued
ability to access financing, both
at the corporate and project level.
High
46 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
The Group’s technical team has designed
and commissioned numerous commercial
plants in Africa, including completion
of feasibility studies for rare earth projects,
and are therefore familiar with alternative
technical options that may need to be
deployed if the original strategies prove
uneconomic.
The results of the pilot test work programme
to date, comprising the production of an
initial batch of mixed rare earth sulphate,
have been in line with the PEA. This includes
both metal recoveries of ca. 65% and reagent
consumption in the process.
Rainbow is working with specialist consultants
to compile the technical reports required for
the permitting process and is aiming to make
the relevant applications in parallel with work
on the DFS.
Whilst the timeframe for the issuance of
permits is difficult to predict, the Phalaborwa
project will clean up legacy environmental
issues at the site, including treating the acid
water currently associated with the unlined
gypsum stacks and re-stacking the
processed gypsum on new lined stacks
designed in accordance with IFC
Performance Standards and the Equator
Principles. Accordingly, the Group is
confident that the relevant permits will be
issued to allow the project to proceed.
The strong economic returns set out in the
PEA for Phalaborwa are expected to ensure
funding is available to deliver the DFS and,
ultimately, the development of the
Phalaborwa project.
Management maintains strong relationships
with key sources of finance. Rainbow has a
history of securing funding required for the
Group’s growth plans, including support from
its cornerstone investors, and management
expects to be able to secure additional
funding as required.
CORPORATE GOVERNANCE
PRINCIPAL RISKS AND
UNCERTAINTIES CONTINUED
Risk
Comment
Business impact
Mitigation
Rare earth prices
Co-development risk
High
Medium
Rainbow is focused on the identification
and development of secondary rare earth
deposits that can be brought into production
quicker and at a lower cost than traditional
hard rock mining projects, with a focus on
the permanent magnet rare earth elements
neodymium and praseodymium, dysprosium
and terbium.
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 projects and could impact the
commercial viability of any development.
The Group’s assets include projects that
will be conducted in joint arrangements
or with associates, which reduces the
Group’s ability to control and manage
risk and places reliance on partners not
controlled by the Group.
At Phalaborwa, Bosveld Phosphates (Pty)
Limited has a 15% interest in the project and,
as current owner of the site, their assistance
is required to ensure the assets necessary
for the project development are transferred
at the necessary time into the joint venture
vehicle and they remain liable for the historic
environmental liabilities associated with the
project site.
The Group’s development pipeline,
including the Uberaba property in Brazil and
the opportunity with OCP in Morocco, are at a
much earlier stage of development. The legal
framework for the development of a
commercial operation for these opportunities
has not been fully defined and terms may
not be agreed with the owners of these
assets to allow a development to occur.
Political risk in
Burundi
On 12 April 2021, the Government of Burundi
suspended the export of concentrate
produced at Gakara. This was followed
on 29 June 2021 with a suspension of all trial
mining and exploration activity. All operations
remain on care and maintenance.
Low
The Phalaborwa PEA confirmed a 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. The resulting
operating margin will allow Phalaborwa
to be resilient against rare earth pricing
volatility as the project is expected to
generate strong returns even in a lower
rare earth price environment.
The Group aims to negotiate offtake
arrangements to ensure a commercial
development is viable in the interests
of all stakeholders.
For Phalaborwa, Rainbow has the option
to acquire the 15% minority interest from
Bosveld by issuing US$7 million of equity
in Rainbow Rare Earths Limited. This will
enable the Group to fully control that project
and creates a strong incentive for Bosveld
Phosphates (Pty) Limited to ensure it takes
the necessary steps to allow the project to
be developed.
For the earlier stage projects, Rainbow’s rare
earths processing expertise and ownership,
directly or under licence in the relevant
territories, of the IP rights to develop an
economic processing flow sheet similar
to Phalaborwa is expected to ensure that
suitable commercial terms can be agreed for
the long term development of these assets.
Due to the re-focus of Rainbow’s business
on the Phalaborwa asset and growth
opportunities from the associated processing
technology, the Directors do not envisage
investing significant amounts in Burundi
to develop a formal mineral resource and
therefore the net assets of the Gakara cash
generating unit have been impaired to nil in
the 2023 Annual Report and Accounts.
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
47
CORPORATE GOVERNANCE
DIRECTORS’ REPORT
The Directors present their Annual Report and the Financial
Statements of the Group for the year ended 30 June 2023.
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 Q&A, and in the Operating and Financial Reviews.
The Group’s business and operations and the results thereof are
reflected in the attached Financial Statements.
Principal activity
The Company’s principal activity is the development of rare earth
minerals projects in South Africa and Brazil.
Business model
The basis on which the Company seeks to preserve and generate value
is through the identification and development of secondary rare earth
deposits that can be brought into production quicker and at a lower
cost than traditional hard rock mining projects, with a focus on the
permanent magnet rare earth elements neodymium and
praseodymium, dysprosium and terbium. 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 a measured and indicated mineral
resource has been defined contained within gypsum stacks derived
from historic phosphate hard rock mining. The PEA has confirmed that
Phalaborwa represents an economically attractive potential source of
rare earth oxides.
The Uberaba project in Brazil represents a longer-term prospect; the
Company is currently carrying out initial test work with its partner Mosaic
to understand the mineralogy of the deposit better.
Directors’ remuneration
Business risks
A review of the key risks to the Company is set out on pages 46 to 47.
Advisers
The Company’s advisers are set out on the inside back cover.
Financial results
During the 12 months ended 30 June 2023, the Company reported
a net loss of US$12,865k (30 June 2022: net loss of US$3,985k).
No dividends have been declared in respect of the years ending
30 June 2023 or 2022.
Directors
A list of the Directors of the Company is set out on pages 38 to 39.
No Director shall be requested to vacate office at any time by reason
of any specific age attained. The Board considers that there is a balance
of skills within the Board and that each of the Directors contributes
effectively.
Salary/fees (US$’000) Bonus (US$’000) Total (US$’000)
June 2023
June 2022
June 2023
June 2022
June 2023
June 2022
Executive Directors
George Bennett
Non-Executive Chairman
Adonis Pouroulis
Non-Executive Directors
Alexander Lowrie
Atul Bali
J Peter Pham
Shawn McCormick
Darryll Castle 1
Robert Sinclair 2
Total
1. Darryll Castle was appointed on 12 June 2023.
2. Robert Sinclair retired on 18 January 2022.
335
115
50
50
44
50
-
N/A
644
325
93
53
49
47
53
N/A
30
650
163
-
-
-
-
-
-
N/A
163
134
-
-
-
-
-
-
-
134
498
115
50
50
44
50
-
N/A
807
459
93
53
49
47
53
N/A
30
784
48 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
CORPORATE GOVERNANCE
DIRECTORS’ REPORT CONTINUED
Directors’ responsibility statement
The Companies (Guernsey) Law, 2008 requires the Directors to prepare
financial statements for each financial period, which give a true and fair
view of the state of affairs of the Group for that period and of the profit
or loss of the Group for that period. Under that law they have elected
to prepare the financial statements in accordance with International
Financial Reporting Standards as adopted by the EU and applicable law.
In preparing those financial statements the Directors are required to:
•
• make judgments and estimates that are reasonable and prudent;
•
select suitable accounting policies and then apply them consistently;
state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the
financial statements; and
prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Group will continue in business.
•
The Directors are responsible for keeping proper accounting records
which disclose with reasonable accuracy at any time the financial
position of the Group and to enable them to ensure that the financial
statements have been properly prepared in accordance with the
Companies (Guernsey) Law, 2008. They are also responsible for
safeguarding the assets of the Group and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
The Directors confirm that they have complied with the above
requirements in preparing the financial statements.
So far as each of the Directors are aware, there is no relevant audit
information of which the Group’s auditor is unaware; having taken
all the steps the Directors ought to have taken to make themselves
aware of any relevant audit information and to establish that the
Group’s auditor is aware of that information.
Principal shareholders
A list of shareholders who beneficially hold more than 5% of the
Company’s shares at 27 October 2023 is as follows:
Key Shareholders Number Percent
Adonis Pouroulis 84,108,870 13.5
TechMet 75,206,112 12.0
George Bennett 37,347,298 6.0
Caden Holdings 36,967,805 5.9
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 27 October 2023 are as follows:
Key Shareholders Number Percent
Adonis Pouroulis 84,108,870 13.5
George Bennett 37,347,298 6.0
Shawn McCormick 9,316,571 1.5
Alexander Lowrie 6,838,124 1.1
Atul Bali 4,420,992 0.7
Dave Dodd 1,500,000 0.2
Darryll Castle 821,422 0.1
J. Peter Pham 631,500 0.1
Pete Gardner 618,522 0.1
145,603,299 23.3
Total
Website publication
The Directors are responsible for ensuring that the Annual Report
and the Financial Statements are made available on a website.
Financial statements are published on the Company’s website
(www.rainbowrareearths.com) in accordance with applicable legislation
in Guernsey governing the preparation and dissemination of financial
statements, which may vary from legislation in other jurisdictions.
The maintenance and integrity of the Company’s website is the
responsibility of the Directors. The Directors’ responsibility also extends
to the ongoing integrity of the financial statements contained therein.
Going concern
The Directors have reviewed the Group’s cash flow forecasts for at
least 12 months following the reporting date, 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 considering available cash, loan facilities anticipated to remain
available, forecast cash flows and anticipated fundraising activities
the Directors consider that the Group will have adequate resources
to continue its operational existence for the foreseeable future. However,
the cash flow forecast includes additional fundraising which is not yet
in place. The Directors believe that the need to raise further funds
represents a material uncertainty that casts doubt on this assumption.
Nevertheless, the Directors 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 AGM.
Signed on behalf of the Board of Directors on 27 October 2023
GEORGE BENNETT
CHIEF EXECUTIVE OFFICER
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
49
FINANCIAL STATEMENTS
PAGE TITLE
RARE EARTHS
ARE USED IN THE
COMPONENTS OF
MANY DEVICES
USED DAILY
Rare earths have transformed the consumer
electronics market, enabling the high-tech
products so integral to our lives
50 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
FINANCIAL STATEMENTS
PAGE TITLE
FINANCIAL STATEMENTS
52 Independent Auditors’ Report
58 Consolidated Statement of Comprehensive Income
59 Consolidated Statement of Financial Position
60 Consolidated Statement of Changes in Equity
61 Consolidated Cash Flow Statement
62 Notes to the Financial Statements
IBC Shareholder Information
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
51
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF RAINBOW RARE EARTHS LIMITED
Opinion on the financial statements
In our opinion, the financial statements of Rainbow Rare Earths Limited (“the Group”):
• give a true and fair view of the state of the Group’s affairs as at 30 June 2023 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 Group”) for the year ended 30 June 2023 which comprise the Consolidated
Statement of Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Changes in Equity, 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. Our audit opinion is consistent with the additional report to the Audit Committee.
Independence
Following the recommendation of the Audit Committee, we were appointed by the Audit Committee on the 03 October 2016 to audit the financial statements
for the year ending 30 June 2016 and subsequent financial periods. The period of total uninterrupted engagement including retenders and reappointments is 8
years, covering the years ended 30 June 2016 to 30 June 2023. We remain independent of the Group and the Parent Company 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 public interest 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.
Material uncertainty relating to going concern
As stated in note 2 the Group has forecasted that it will need to raise additional funding before 31 December 2024, the timing of which is dependent
on the speed at which the Phalaborwa Definitive Feasibility Study is completed and the amount of funds required to progress the Uberaba opportunity.
These conditions, along with the other matters set out in Note 2 indicate the existence of a material uncertainty which may cast significant doubt over
the Group’s ability to continue as a going concern. These financial statements do not include any adjustments that may be necessary if the group was
not a going concern. Our opinion is not modified in respect of this matter.
We identified going concern as a key audit matter based on our assessment of the significance of the risk and the effect on our audit strategy.
Our 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:
• Critically assessing the Director’s cash flow forecast and the underlying assumptions which have been approved by the Board. This included stress testing
and applying sensitivities to the base cashflow forecast. Our testing included testing the integrity of the model, comparing forecast costs to historical
actuals, evaluating the consistency of the forecast capital and exploration expenditure within the Group’s strategic plans, and considering the
reasonableness of the sensitivities applied and outcome of the stress testing;
• Verifying cash balances used in the forecast close to the date of sign off of these financial statements, by tracing cash positions against bank statements;
• Agreeing the receipt of US$4.7m of the total US$5.4m of funds raised in the September 2023 private placement to bank statements;
• Agreeing future cash outflows in respect of loans to underlying agreements. This included assessing the timing of the interest and capital repayments
on the Finbank loan was appropriately reflected in cashflows commencing from July 2023;
• Assessing the reasonableness of the cash outflows for the corporate overhead, which included some contingency and considering the completeness
of the costs included in the forecast;
• Assessing 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 and considering the completeness of the costs included in the forecast;
• Considering the reasonableness of the assumptions in the model regarding the cost and timing of completing the Phalaborwa Definitive Feasibility Study
(DFS) and pilot plant testing by 30 June 2024;
• Considering the ability of the group to secure additional funds in the future based on its history of successful fundraising; and
• Reviewing Board minutes and project reports for any indications of unexpected costs, claims or disputes.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.
52 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF RAINBOW RARE EARTHS LIMITED
Overview
Coverage 100% (2022: 93%) of Group loss before tax
100% (2022: 96%) of Group total assets
Key audit matters 2023 2022
1. Accuracy and completeness of the impairment of Burundi assets
(cid:31)
(cid:31)
2. Material uncertainty relating to going concern
Materiality Group financial statements as a whole
2023: US$210k based on 1.5% of total assets.
2022: US$160k based on 4% of loss before tax.
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 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, Rainbow International
Resources and Rainbow Rare Earths (Pty) Ltd. We 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 100% of total assets and were subject to full scope audits conducted by the group
engagement team, with the exception of fixed assets verification and inventory counts in Rainbow Mining Burundi which were carried out by BDO member firm.
The remaining component of the Group, being a dormant entity, was considered non-significant, and this component was principally subject to analytical
review procedures with specific procedures for any significant balances impacting the Group financial statements.
All audit work (full scope audit or analytical review procedures) was conducted by the group engagement team, with the exception of the fixed assets
verification and inventory count as detailed above.
Climate change
Our work on the assessment of potential impacts on climate-related risks on the Group’s operations and financial statements included:
• Enquiries and challenge of management to understand the actions they have taken to identify climate-related risks and their potential impacts
on the financial statements and adequately disclose climate-related risks within the annual report;
• Performing our own qualitative risk assessment taking into consideration the sector in which the Group operates and how climate change affects
this particular sector; and
• Review of the minutes of Board and Audit Committee meeting and other papers related to climate change to assist us in performing our risk
assessment as to how the impact of the Group’s commitment as set out in the Annual Report may affect the financial statements and our audit.
We challenged the extent to which climate-related considerations, including the expected cash flows from the initiatives and commitments
have been reflected, where appropriate, in management’s going concern assessment and viability assessment.
We also assessed the consistency of managements disclosures included as Statutory Other Information’ on pages 28 - 33 with the financial statements and
with our knowledge obtained from the audit.
Based on our risk assessment procedures, we did not identify there to be any Key Audit Matters materially impacted by climate-related risks and related
commitments.
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
53
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S 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 “material uncertainty relating to going concern” section above, we have determined the matter below to be the key
audit matter to be communicated in our report.
Key audit matter: Accuracy and completeness of the impairment of Burundi Assets (Exploration Assets,
Property plant and Equipment, Inventory and the Royalty Receivable)
Refer to Note 3, 12, 14 & 15
In 2021 the Burundian Government put a suspension on trial mining operations and introduced an export ban. The exploration licence has not
been withdrawn, and the Directors believe that the licence area has significant rare earth mineral potential. However, due to the ongoing suspension
of mining operations and re-focus of Rainbow’s business on the Phalaborwa asset, the Directors do not envisage investing significant amounts in
Burundi in the future to develop the resource.
Accordingly, the Directors have written the net assets of the Gakara cash generating unit to US$nil, resulting in a US$9,575k impairment
charge being recorded in the year.
The assets associated with the Gakara project include both intangible and tangible fixed assets together with cash, mineral concentrate,
royalty receivables and consumables held in stock. The liabilities associated with the Gakara project include a loan, decommissioning,
site rehabilitation and environmental costs, tax liabilities and trade payables.
Given the judgements and estimates involved in assessing the accuracy of the impairment charge and recoverability of the unimpaired
Burundi assets, this is a key audit matter.
How the scope of our audit addressed the key audit matter
To determine the accuracy of the impairment charge and recoverability of the unimpaired Burundi assets we have undertaken the following procedures:
Exploration and evaluation assets, carrying value of nil after a U$8.6m impairment charge.
• We have considered management’s assessment of impairment indicators under IFRS 6 (Exploration and Evaluation of Mineral Resources)
and have confirmed against Board approved budgets that no substantive expenditure is either budgeted or planned to further explore the
area which is an impairment trigger; and
• We have tested the completeness and accuracy of the US$8.6m impairment of exploration assets by confirming no changes were made
to the exploration assets balance between 2022 and 2023 before impairment
Property plant and equipment (PP&E) carrying value of nil after a US$0.7m impairment charge.
• A BDO member firm under our direction and supervision physically verified the existence of a sample of PP&E;
• We considered the requirements of IAS 36 (Impairment of assets) which details PP&E should be held at the higher of value in use and fair value
less cost to sell, and:
-
-
in considering value in use, we reviewed correspondence between management and the Burundi government which gives no indication of when
the suspension will be lifted; and we corroborated management’s change of focus from Burundi to Phalaborwa by reviewing internal budgets.
Based on these procedures we concurred with management that the value in use of PP&E is nil; and
in considering fair value less cost to sell, we considered management’s ability to sell PP&E, which included consideration of the remote location
of the mine, the suspension of all mining activities in Burundi, and management’s ability to export the PP&E which also requires government
approval. Based on these procedures we concurred with management that fair value less cost to sell is nil.
Inventory Carrying value of US$0.7m after a US$0.1m impairment charge.
The impaired inventory of US$0.1m relates to spares and equipment held at a government warehouse awaiting import clearance.
Neither management nor ourselves have been able to confirm the existence of this inventory and we concur that it is appropriate to impair it to nil.
The remaining inventory on hand is made up of 420 tonnes of rare earth minerals.
• A BDO member firm attended an inventory count at the year-end and tested a sample of volumes and grades of the rare earth minerals;
• We assessed the rare earth minerals were appropriately held at the lower of cost and net realisable value. This included challenging management
over the timing of when the export ban will be lifted, as until this is lifted the inventory has no realisable value. In the event that the export ban is not
lifted, and the inventory is not able to be sold, management would use this to asset to partially settle any remaining in country liabilities.
Royalty receivable carrying value of nil after a US$0.1m impairment charge.
• We assessed Management’s assumptions to determine the recoverable amount of the receivable, including considering the time that has elapsed
with no payments having been received.
Key observations:
Based on procedures performed, we consider that the impairment charges and recoverable values of the remaining Burundi assets to have been
appropriate determined given the current facts and circumstances, and that the disclosures included within the financial statements that detail
the significant judgements and estimates arising from the suspension from mining operations to be appropriate.
54 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF RAINBOW RARE EARTHS LIMITED
CONTINUED
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the
magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial
statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance
materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial
as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect
on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows:
2023
US$’000
2022
US$’000
Materiality 210,000 160,000
Basis for determining materiality 1.5% of total assets 4% of loss before tax
Group financial statements
Rationale for the benchmark applied Total Assets was determined as an appropriate basis as the principal focus of the Group
remains the advancement and development of its projects.
As such, we consider the users of the financial statements will focus on the statement
of financial position and total assets of the Group in order to understand the level of
investment being made.
In the prior year, materiality was based on 4% of loss before tax. We considered loss before
tax to be the most significant determinant of the Group’s financial performance given the
increased focus on Phalaborwa which made up a lower proportion of the group’s total assets,
and the costs incurred to keep Gakara on care and maintenance were being expensed in the
period. Therefore, loss before tax was considered to be a more appropriate materiality base
as this represents the costs incurred to fund the group in the pre-revenue phase of operation.
Performance materiality 147,000 112,000
Basis for determining performance materiality Performance materiality was set at 70% (2022: 70%) 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.
Component materiality
We set materiality for each component of the Group based on Group materiality to ensure that the risk of errors exceeding component materiality
was appropriately mitigated; this was capped due to aggregation risk in line with the ISAs (UK). Component materiality was US$105,000 for each
component (2022: US$106,000). In the audit of each component, we further applied performance materiality levels of 70% (2022: 70%) 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$4,200 (2022: US$3,200).
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, 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:
• proper accounting records have not been kept by the Company; or
•
• we have failed to obtain all the information and explanations which, to the best of our knowledge and belief,
the financial statements are not in agreement with the accounting records; or
are necessary for the purposes of our audit.
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
55
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S 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 Company’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 Company 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:
Non-compliance with laws and regulations
Based on:
• Our understanding of the Group and the industry in which it operates;
• Discussion with management and those charged with governance and also consider legal counsel; and
• Obtaining and understanding of the Group’s policies and procedures regarding compliance with laws and regulations.
We considered the significant laws and regulations to be the applicable accounting framework, Companies (Guernsey) Law 2008, Tax regulations
and the Listing Rules of the Financial Conduct Authority.
The Company is also subject to laws and regulations where the consequence of non-compliance could have a material effect on the amount or disclosures in
the financial statements, for example through the imposition of fines or litigations. We identified such laws and regulations to be Task Force on Climate-Related
Financial Disclosures (TCFD), local health and safety law, compliance with the rights for Phalaborwa as per the earn-in-agreement, the mining permits and
export ban of Burundi and the Prevention of Corruption (Bailiwick of Guernsey) Law, 2003.
Our procedures in respect of the above included:
• Review of minutes of meeting of those charged with governance for any instances of non-compliance with laws and regulations;
• Review of correspondence with tax authorities for any instances of non-compliance with laws and regulations;
• Review of financial statement disclosures and agreeing to supporting documentation; and
• Review of legal expenditure accounts to understand the nature of expenditure incurred.
56 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF RAINBOW RARE EARTHS LIMITED
CONTINUED
Fraud
We assessed the susceptibility of the financial statements to material misstatement, including fraud. Our risk assessment procedures included:
• Enquiry with management and those charged with governance regarding any known or suspected instances of fraud;
• Obtaining an understanding of the Company’s policies and procedures relating to:
-
-
• Review of minutes of meeting of those charged with governance for any known or suspected instances of fraud;
• Discussion amongst the engagement team as to how and where fraud might occur in the financial statements; and
• Performing planning analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
Detecting and responding to the risks of fraud; and
Internal controls established to mitigate risks related to fraud.
misstatement due to fraud.
Based on our risk assessment, we considered the areas most susceptible to fraud to be management override of controls and areas of judgement
due to level of subjectivity involved with them.
Our procedures in respect of the above included:
• Fraud enquiries were held with management and those charged with governance to identify whether any instances of fraud were noted in the period.
• 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.
• 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 to address
the presumed risk of management override of controls, including bribery. For example, we tested capitalisation to property plant and equipment
or exploration assets with the opposite entry being processed against bank and cash accounts and not against liability accounts.
• Reviewing the Group’s year end unadjusted entries, consolidated entries and investigating any that appear unusual as to nature or amount
by agreeing to supporting documentation; and
• Assessing significant estimates made by management for bias.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members who were all deemed to have
appropriate competence and capabilities and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
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 Company’s members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work
has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members
as a body, for our audit work, for this report, or for the opinions we have formed.
Peter Acloque
For and on behalf of BDO LLP, Chartered Accountants,
London, United Kingdom
27 October 2023
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
57
Year ended
Year ended
30 June 2023 30 June 2022
US$’000
-
-
-
US$’000
-
-
-
(3,509)
(9,575)
(3,585)
(69)
(13,084)
(3,654)
377
(158)
216
(543)
(12,865)
(3,981)
-
(4)
(12,865)
(3,985)
(881)
(11,984)
(12,865)
(105)
(3,880)
(3,985)
(2.23)
(2.23)
(0.76)
(0.76)
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2023
Revenue
Cost of sales
Gross profit
Administration expenses
Impairment of Gakara assets
Loss from operating activities
Finance income
Finance costs
Loss before tax
Income tax expense
Total loss after tax and comprehensive expense for the year
Total loss after tax and comprehensive expense for the year is attributable to:
Non-controlling interest
Owners of parent
The results of each year are derived from continuing operations
Loss per share (cents)
Basic
Diluted
Notes
4
6
7
10
24
11
11
Notes on pages 62 to 84 form part of these financial statements.
58 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
AS AT 30 JUNE 2023
Non-current assets
Exploration and evaluation assets
Property, plant and equipment
Right of use assets
Total non-current assets
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Borrowings
Lease liabilities
Total current liabilities
Non-current liabilities
Borrowings
Lease liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share-based payment reserve
Other reserves
Retained loss
Equity attributable to the parent
Non-controlling interest
Total equity
Notes
12
13
19
14
15
16
17
18
19
18
19
20
21
23
23
24
Year ended
Year ended
30 June 2023 30 June 2022
US$’000
US$’000
4,830
27
39
4,896
718
365
8,107
9,190
14,086
(1,250)
(201)
(23)
(1,474)
(285)
(21)
(55)
(361)
10,588
1,043
108
11,739
858
401
4,134
5,393
17,132
(909)
(235)
(32)
(1,176)
(518)
(81)
(61)
(660)
(1,835)
(1,836)
12,251
15,296
50,937
1,719
-
(38,483)
14,173
(1,922)
12,251
41,442
1,467
-
(26,572)
16,337
(1,041)
15,296
These financial statements were approved and authorised for issue by the Board of Directors on 27 October 2023 and signed on its behalf by:
GEORGE BENNETT
DIRECTOR
Notes on pages 62 to 84 form part of these financial statements.
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
59
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2023
Share
Share-
based
Share
warrant
Attributable
Non-
Other Accumulated
to the
controlling
capital
payments
reserve
reserves
losses
parent
interest
Note
US$’000
32,465
US$’000
1,295
US$’000
-
US$’000
60
US$’000
(22,878)
US$’000
10,942
US$’000
(936)
Total
US$’000
10,006
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(3,880)
(3,880)
(105)
(3,985)
-
-
-
8,779
(240)
157
-
-
-
8,779
(240)
157
-
60
(60)
298
-
-
-
281
126
- (26,572) 16,337
-
-
-
-
298
281
(1,041) 15,296
-
(11,984)
(11,984)
(881)
(12,865)
-
-
-
-
-
-
13
-
-
60
- (38,483)
9,485
(115)
325
-
125
14,173
-
-
-
-
-
9,485
(115)
325
-
125
(1,922) 12,251
Balance at 1 July 2021
Total comprehensive expense
Loss and total comprehensive loss for year
Transactions with owners
21
Shares placed during the year for cash consideration
Share placing transaction costs
21
Non-cash issue of shares during the period, net of costs 21
Eliminate historic discount on extinguishment of interest
free bridge loan
Fair value of employee share options in year
Share options exercised in the year, net of costs
Balance at 30 June 2022
22
21
Total comprehensive expense
Loss and total comprehensive loss for year
-
8,779
(240)
157
-
-
-
-
-
-
281
41,442
-
298
(126)
1,467
-
-
Transactions with owners
Shares placed during the year for cash consideration
Share placing transaction costs
Fair value of employee share options in year
Share options cancelled in year
Share options exercised in the year, net of costs
Balance at 30 June 2023
21
21
22
22
21
9,485
(115)
-
-
125
50,937
-
-
325
(13)
(60)
1,719
Notes on pages 62 to 84 form part of these financial statements.
60 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
FINANCIAL STATEMENTS
CONSOLIDATED CASH FLOW
STATEMENT
FOR THE YEAR ENDED 30 JUNE 2023
Cash flow from operating activities
Loss from operating activities
Adjustments for:
Depreciation
Impairment
Share-based payment charge
Operating loss before working capital changes
Net decrease in inventory
Net increase decrease in trade and other receivables
Net 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
Net cash used in investing activities
Cash flow from financing activities
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 in cash and cash equivalents
Cash & cash equivalents at the beginning of the year
Foreign exchange loss on cash and cash equivalents
Cash & cash equivalents at the end of the year
Notes
22
14
15
17
6
7
10
13
12
18
18
19
21
21
16
Year ended
Year ended
30 June 2023 30 June 2022
US$’000
US$’000
(13,084)
(3,654)
382
9,575
325
(2,802)
-
(31)
(94)
(2,927)
156
-
-
-
(2,771)
(28)
(2,510)
(2,538)
(61)
(78)
(42)
9,610
(115)
9,314
4,005
4,134
(32)
8,107
380
69
297
(2,908)
5
(29)
(100)
(3,032)
186
-
-
(2)
(2,848)
(42)
(837)
(879)
(1,009)
(138)
(24)
9,077
(275)
7,631
3,904
573
(343)
4,134
Notes on pages 62 to 84 form part of these financial statements.
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
61
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
1. GENERAL INFORMATION
Reporting entity
Rainbow Rare Earths Limited (“the Company”) 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 Connaught House, St Julian’s Avenue,
St Peter Port, Guernsey, GY1 1GZ. The consolidated financial statements of the Company for the years ended 30 June 2023 and 30 June 2022
comprise the Company and its subsidiaries.
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. Given the development status of the Group’s assets, management do not consider sustainability and climate change as key risks requiring
significant judgement for the Year. The Group has prepared sustainability disclosures on pages 22 to 33 in line with the requirements set out in the
listing rules to the extent relevant for a Group without producing assets.
Going Concern
As at 30 June 2023, the Group had total cash of US$8.1 million. During Q3 CY 2023 the Group paid out a total of US$7.3 million including costs
of US$5.7 million to secure an immediate 85% interest in the Phalaborwa project as set out in note 29. On 27 September 2023 the Company
announced a private placement raising £4.5 million (approximately US$5.5 million) before costs estimated at US$0.1 million, of which £3.9 million had
been received at 27 October 2023 as set out in note 29. Going forward the Group expects further cash income of £0.6 million from the equity fund raise
that is subject to shareholder approval, which is expected to be received at the Company’s AGM on 20 November 2023, and has no commitments.
The Board have reviewed a range of potential cash flow forecasts for the period to 31 December 2024, including reasonable possible downside
scenarios. This has included the following assumptions:
Corporate:
The forecast includes US$3.2 million of ongoing general and administrative costs of the Group over the 18-month period from 1 July 2023
to 31 December 2024 (the “Period”), based on the current administrative costs of the Group. This includes US$0.2 million in respect of pursuing
new business opportunities, which will cover only the initial test work at the opportunities identified to date including the opportunity with OCP
in Morocco and the opportunity with the Mosaic Company in Brazil.
Management’s reasonably plausible downside scenario includes a 10% contingency for unexpected costs plus a further US$0.25 million per annum
for business development costs.
Phalaborwa:
The forecast includes US$5.7 million of costs relating to the acquisition of the 85% ownership in Phalaborwa, including relevant transaction costs,
which was announced on 28 June 2023 and paid in Q3 2023 as noted above. The forecast also includes all costs required for the completion of the
Phalaborwa DFS, estimated at US$5.9 million, inclusive of a 10% contingency. This includes all costs associated with the ongoing pilot test work
campaign underway in both South Africa and USA.
The forecast also includes salary and consultant costs of US$0.6 million for the core project team tasked with advancing the project. No further
contingency on the costs associated with the DFS was considered necessary for management’s reasonably plausible downside scenario as the base
case forecast includes relevant contingencies. Management’s reasonably plausible downside scenario includes a 10% contingency on the costs of the
core project team.
Uberaba:
As set out in note 29, a memorandum of understanding was signed on 17 July 2023 with Mosaic to jointly develop a process flowsheet and conduct
a preliminary economic assessment related to the extraction of rare earth elements from Mosaic's phosphogypsum stack in the Uberaba area of
Minas Gerais in Brazil. At the date of this Report, the Group has no commitments in respect of this project. A detailed budget for the anticipated work
stream is not yet available and will need to be agreed with Mosaic, but it is noted that management’s reasonably plausible downside scenario would
not be sufficient for a resource to be defined and a PEA to be developed and further funding may be required to allow for the Uberaba opportunity
to be de-risked, the timing of which cannot be accurately predicted at this time.
Gakara:
The cash flow forecasts assume ongoing care and maintenance costs totalling US$0.6 million including amounts payable under the FinBank loan
facility in Burundi. The Group has determined that no additional cash outflows will be incurred on Gakara until the export ban and mining suspension
has been lifted. In the event that the Gakara project did return to operations, stock of rare earth concentrates with a current estimated gross sales
value of US$1.0 million would be sold to provide the funds to re-commence operations. The re-start would be conditional on the Gakara project not
requiring additional financial support from Rainbow Rare Earths Limited at then current rare earth prices.
62 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
CONTINUED
2. ACCOUNTING POLICIES CONTINUED
Going Concern continued
Conclusion
The base case forecast includes a total cash outflow over the Period of US$16.1 million. Management’s reasonably plausible downside scenario,
which includes a 10% contingency for corporate costs, fixed costs at Phalaborwa and Gakara costs, together with a further allowance for
business development opportunities, includes a total cash outflow of US$16.9 million.
At 30 June the Group had US$8.1 million of available cash which together with US$5.4 million of net funds raised in September 2023 provides
US$13.5 million of available resources, which confirms that the Group will need to raise additional funds before 31 December 2024, the timing of which
is dependent primarily on the speed at which the Phalaborwa DFS is completed, which is within managements control. Management’s reasonably
plausible downside scenario suggests that at least US$3.4 million will need to be raised, along with any funds required to progress the Uberaba
opportunity in Brazil.
The Board is confident that this funding will be secured, based on its history of successful fundraising. However, it also acknowledges that this funding
is not, at the present time, in place. Accordingly, the Board acknowledges that the need for additional funding represents a material uncertainty which
may cast significant doubt on the ability of the Group to continue as a going concern and, therefore, that it may be unable to realise its assets and
discharge its liabilities in the normal course of business. The financial statements do not include any adjustments that would result if the Group was
unable to continue as a going concern.
New and amended standards and interpretations adopted by the Group
No material changes to accounting policies arose as a result of new standards applied by the Group from 1 July 2022.
New standards, interpretations, and amendments not yet effective
Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2023 reporting periods and have
not been early adopted by the Group. These standards include:
•
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 2024.
IAS 1 and IFRS Practise Statement 2 – Disclosure of Accounting Policies – Amendments to “Presentation of Financial Statements” and an
update to “Making Materiality Judgements” to help assist with providing useful accounting policy disclosures. The amendments are effective
from 1 January 2023 but may be applied earlier.
IAS 8 Amendments – Definition of Accounting Estimate - The amendments introduce a new definition for accounting estimates: clarifying
that they are monetary amounts in the financial statements that are subject to measurement uncertainty. The amendments also clarify the
relationship between accounting policies and accounting estimates by specifying that a company develops an accounting estimate to achieve
the objective set out by an accounting policy. The amendments are effective for periods beginning on or after 1 January 2023, with earlier
application permitted, and will apply prospectively to changes in accounting estimates and changes in accounting policies occurring on or
after the beginning of the first annual reporting period in which the company applies the amendments.
Amendments to IAS 12 Income Taxes - Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction. These amendments
are effective for periods beginning on or after 1 January 2023.
Amendments to IAS 12 - International Tax Reform; Pillar Two Model Rules. These amendments are effective for periods beginning on or after
1 January 2023.
Amendments to IFRS 16 - Lease Liability in a Sale and Leaseback. The amendments are effective from 1 January 2024 but may be applied earlier.
Amendments to IAS 1 - Non-current Liabilities with Covenants. The amendments are effective from 1 January 2024 but may be applied earlier.
•
•
•
•
•
•
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.
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
63
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
CONTINUED
2. ACCOUNTING POLICIES CONTINUED
Foreign currency
The consolidated financial statements are presented in US dollars, which is also the functional currency of the Company and all of its subsidiaries.
The Group’s strategy is focused on developing an ethical supply chain for rare earth elements from secondary sources, with its principal project based
in South Africa and a global pipeline of earlier stage opportunities being developed. All such opportunities will ultimately generate revenue in United
States Dollars, which is the currency in which rare earth elements are traded internationally. All support services are charged between group
companies in United States Dollars. The Group is funded by various financial liabilities which are principally denominated in United States Dollars
and shareholder equity.
Transactions in foreign currencies are translated to the functional currency of the Group entity at the rates of exchange prevailing on the dates
of the transactions. At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated to the functional
currency at the rates prevailing on the reporting date. Exchange differences on all transactions are recognised in the consolidated statement of
comprehensive income in the year in which they arise.
Revenue recognition
The Group plans to produce and sell separated rare earth oxides from the Phalaborwa project in South Africa and other secondary rare earth
sources via a mixture of long term off-take contracts and spot sales to global customers. The Group’s Gakara project in Burundi produces a mixed
rare earth mineral concentrate which was previously sold under a long-term offtake contract with ThyssenKrupp Metallurgical Products GmbH.
Revenue is recognised on transfer of control of the relevant rare earth product, which can occur at the project site, at a port in transit to the customers
premises or at the customers premises.
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.
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 “project 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 project development plan is established and the results of exploration and evaluation
data including internal and external assessments.
Property, plant and equipment
Property, plant and equipment consists of plant and machinery, project 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 Group assesses the stage of a 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 project 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 project 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. Prior to this period, any costs associated with the project site are capitalised.
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.
64 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
CONTINUED
2. ACCOUNTING POLICIES CONTINUED
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
project 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 goodwill (if any) and then to identifiable assets on a pro-rata basis.
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 & Financial Statements 2023
65
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
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 (including but not limited to Run of Mine (“RoM”) ore (where applicable), pre-shipment rare earth finished or partially processed
product stockpiles, or rare earth products 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 all relevant costs incurred in bringing the stockpiles to their present condition at the period end (including as appropriate
mining or reclamation costs, processing costs and transportation costs). Realisable value is based on an estimate of selling price less applicable further
costs to be incurred to the point of revenue recognition (including as appropriate further expected processing costs, 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.
In Burundi, when no taxable profit arises, current tax includes a minimum tax charge 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.
In applying the general model, the Group monitors on a forward-looking basis the expected credit loss, 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.
66 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
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 statement 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 23.
Share options
Equity-settled share-based payments to employees and Directors are initially 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, considering market-based vesting conditions.
The fair values of share options are measured at fair value at the date of grant. Where the share options only contain service conditions or non-market
conditions and the options are issued with a relevant strike price, a Black – Scholes model is used. Where the share options contain market conditions,
a Monte Carlo simulation model is used and reflected in the fair value of the options granted. Where the share options contain no market conditions
and do not include a strike price the fair value is assessed by reference to the share price on the date of issue. Details of the assumptions used 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 is 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 & Financial Statements 2023
67
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
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:
Accounting treatment of exploration and evaluation costs
Significant accounting judgement
Judgment was required in determining how to treat costs incurred during the Year for the Group’s development projects in South Africa and Burundi.
For the Phalaborwa asset management note that the project is based on a JORC compliant mineral resource estimate contained within gypsum
stacks at the Phalaborwa site. The Group has an 85% economic interest in the project. Accordingly, all costs associated with defining the technical
feasibility and commercial viability of the project are being capitalised under IFRS6.
For the Gakara asset, management note that the project has been on care and maintenance throughout the Year. Accordingly, none of the costs
incurred have been focused on improving the understanding of the ore body, and as such all costs have been recognised in the income statement
in the Year.
Impairment indicator assessment for exploration and evaluation assets and associated assets (notes 12, 13 and 14)
Significant accounting judgement
Judgment was required in determining whether indicators of impairment existed at 30 June 2023 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.
Phalaborwa
For the Phalaborwa asset, management note the PEA released in October 2022 confirmed 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 with strong economic returns. Recent pilot
test work has confirmed that the rare earth elements are capable of being extracted from the phosphogypsum and upgraded in line with the flow
sheet set out in the PEA to produce a mixed rare earth sulphate. The mixed rare earth sulphate will be shipped to the USA where the back-end pilot
plant for the separation of the magnet rare earths recently finished commissioning. Accordingly, management do not consider there to be any
indicators of impairment for the Phalaborwa asset.
Gakara
The assets associated with the Gakara project include both intangible and tangible fixed assets together with cash, mineral concentrate,
royalty receivables and consumables held in stock. The liabilities associated with the Gakara project include a loan, decommissioning,
site rehabilitation and environmental costs, tax liabilities and trade payables.
Despite the ongoing suspension, the Directors note that the Government of Burundi has not suggested that the licence will be withdrawn.
The Directors also continue to believe that the licence area represents a significant area of rare earth mineral potential. However, the Directors
do consider that an indicator of impairment exists at 30 June 2023 due to the re-focus of Rainbow’s business on the Phalaborwa asset and
growth opportunities from the associated processing technology. As such, the Directors do not envisage investing significant amounts
in Burundi to develop a formal mineral resource and therefore an impairment review is required under IFRS 16 paragraph 20.
Based on the assessment of both the legal and political position in Burundi, the Directors were unable to foresee a date when the operations
at the project would be able to restart, and accordingly have written the net assets of the Gakara cash generating unit to nil. In making this judgement,
the Directors have made the key judgements and estimates detailed below.
Carrying value of Gakara tangible and intangible assets (notes 12 and 13)
Significant accounting judgement
The impairment review of the intangible and tangible fixed assets associated with the Gakara project required an estimate of the value in use and fair
value less costs to sell for the assets. In making this decision, the Directors were unable to assign any value for the potential sale of the project or the
separate sale of the tangible fixed assets associated with the project given the nature of the situation, which is subject to political constraints not in
accordance with Burundi law. Accordingly, the intangible and tangible fixed assets were fully impaired at 30 June 2023 in accordance with IAS36.
A change in the situation in Burundi could allow the operations to restart in the future, or permit the sale of the project to a third party, which could
allow the impairment to be fully or partially reversed.
68 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
CONTINUED
3. ACCOUNTING JUDGMENTS AND ESTIMATIONS CONTINUED
Valuation of available for sale mineral concentrate (note 14)
Significant accounting estimate
Operations at the Gakara project in Burundi are currently on care and maintenance at the request of the Government of Burundi. At 30 June 2023
the operation has 421 tonnes of available for sale mineral concentrate with an estimated sale value of US$1.0 million carried at cost of US$717k on
the Group balance sheet as set out in note 14. This concentrate cannot be sold due to an export ban imposed by the Government of Burundi.
Management note that in the two years since the export ban was imposed the mineral concentrate has not degraded in any way and, due to the lack
of a ready market for the concentrate in Burundi, the risk of loss through theft was very low. Management assess that it is probable that the current
export ban will be lifted in due course, although the timing of future sales cannot be accurately predicted. In the event the export ban is lifted, the
proceeds from the sale of mineral concentrate will either be used to restart operations or to settle existing liabilities.
Recoverability of royalty receivable (note 15)
Significant accounting estimate
Rainbow Mining Burundi SM (“RMB”) 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 made a judgement that
the royalty receivable is unlikely to be recovered in the near term due to the political situation in Burundi. Given the significant uncertainty of the timing
and quantum of any future recovery the asset has been fully impaired at 30 June 2023 with a further impairment charge of US$109k recognised in
impairment of Gakara assets in the Year. Future recovery may differ from management’s best estimate.
Decommissioning, site rehabilitation and environmental costs (note 20)
Significant accounting estimate
The Group’s mining and exploration activities are subject to various laws and regulations governing the protection of the environment. Estimation
and experience are 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 recorded for the Group’s Phalaborwa project as on-site activities have
not yet commenced and there is no legal obligation for restoration by the Group with historical environmental liabilities associated with the site
contractually remaining 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.
4. LOSS FROM OPERATING ACTIVITIES
Operating loss includes:
Employee remuneration (excluding share options)
Share-based payment charge
Audit of the Group financial statements 1
Depreciation
Impairment of Gakara assets
1. Audit fees include US$179k for the current year and US$6k foreign exchange differences from the prior year.
Year ended
Year ended
30 June 2023 30 June 2022
US$’000
(1,936)
(298)
(150)
(380)
(69)
US$’000
(1,517)
(325)
(173)
(382)
(9,575)
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
69
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
CONTINUED
5. SEGMENTAL INFORMATION
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker.
The chief operating decision maker has been identified as the Chief Executive Officer. It is considered that the Group has two reportable segments:
•
•
Phalaborwa – a gypsum stack re-treatment project for the recovery of rare earths in South Africa.
Gakara – a high-grade rare-earth project in Burundi.
Unallocated costs include corporate costs, which are not reported by entity to the Board.
Phalaborwa
US$’000
-
-
-
-
-
-
-
-
-
-
-
4,868
4,830
-
-
38
(202)
2,877
Phalaborwa
US$’000
-
-
-
-
-
-
-
-
-
-
Gakara
US$’000
-
-
(9,575)
(562)
(368)
(10,505)
191
(115)
(10,429)
-
(10,429)
Unallocated
US$’000
-
-
-
(2,565)
(14)
(2,579)
186
(43)
(2,436)
-
(2,436)
916
-
-
37
879
(916)
-
8,302
-
27
2
8,273
(717)
28
Gakara
US$’000
-
-
(993)
(375)
(1,368)
22
(97)
(1,443)
(4)
(1,447)
Unallocated
US$’000
-
-
(2,284)
(2)
(2,286)
194
(446)
(2,538)
-
(2,538)
2,198
1,953
-
-
245
(133)
837
10,985
8,635
1,042
108
1,200
(1,232)
-
3,949
-
1
-
3,948
(471)
1
Total
US$’000
-
-
(9,575)
(3,127)
(382)
(13,084)
377
(158)
(12,865)
-
(12,865)
14,086
4,830
27
39
9,190
(1,835)
2,905
Total
US$’000
-
-
(3,277)
(377)
(3,654)
216
(543)
(3,981)
(4)
(3,985)
17,132
10,588
1,043
108
5,393
(1,836)
838
Year ended 30 June 2023:
Revenue
Production and sales costs
Impairment
Administration expenses
Depreciation
Loss from operating activities
Finance income
Finance costs
Loss before tax
Income tax expense
Loss after tax
Segmental assets
Exploration and evaluation assets
Property, plant and equipment
Other assets
Current assets
Segmental liabilities
Capital expenditure
Year ended 30 June 2022:
Revenue
Production and sales costs
Administration expenses
Depreciation
Loss from operating activities
Finance income
Finance costs
Loss before tax
Income tax expense
Loss after tax
Segmental assets
Exploration and evaluation assets
Property, plant and equipment
Other assets
Current assets
Segmental liabilities
Capital expenditure
70 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
CONTINUED
6. FINANCE INCOME
Change in fair value of warrant liability (notes 18 and 22)
Foreign exchange gains
Total
Year ended
Year ended
30 June 2023 30 June 2022
US$’000
-
216
216
US$’000
73
304
377
Foreign exchange gains in the current and prior periods mainly relate to gains on translation of funds from US dollars to Burundian Francs (“BIF”)
plus the settlement of liabilities in Burundi denominated in BIF.
7. FINANCE COSTS
Change in fair value of warrant liability (notes 18 and 22)
Interest on Pipestone bridge loan (note 18)
Interest on bank borrowing (note 18)
Interest on lease liabilities
Interest on outstanding taxes
Foreign exchange losses
Total
Year ended
Year ended
30 June 2023 30 June 2022
US$’000
109
(52)
(86)
(13)
-
(501)
(543)
US$’000
-
-
(78)
(11)
(30)
(39)
(158)
Foreign exchange losses in the current period arise principally from GBP and ZAR bank accounts, which the Group holds to match future expected
cash outflows, which depreciated in value against the US dollar during the year. The change in fair value of the warrant liability in the Year represents
a gain and has therefore been disclosed in finance income.
8. REMUNERATION OF KEY MANAGEMENT PERSONNEL
Key management personnel are defined as being Executive and Non-executive Directors and Persons Discharging Managerial Responsibility
(“PDMRs”), who are set out on pages 38 to 40. Directors’ emoluments are set out on page 48.
Their remuneration for the 12 months ended 30 June 2023 and 30 June 2022 is summarised as follows:
Wages and salaries
Bonus
Benefits
Share - based payments
Total remuneration of key management personnel
Year ended
Year ended
30 June 2023 30 June 2022
US$’000
1,330
218
8
274
1,830
US$’000
1,070
248
14
291
1,623
Benefits paid to key management personnel include pension contributions. In addition to salary and benefits payments to companies associated
with key management personnel are set out in note 26.
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
71
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
CONTINUED
9. TOTAL EMPLOYEE REMUNERATION (INCLUDING KEY MANAGEMENT PERSONNEL)
Wages and salaries
Bonus
Benefits
Share-based payments
Total employee remuneration
Year ended
Year ended
30 June 2023 30 June 2022
US$’000
1,914
218
43
287
2,462
US$’000
1,596
248
26
325
2,195
Benefits paid to employees include healthcare and pension contributions.
Staff costs include US$352k capitalised within Exploration and Evaluation assets in the Year (2022: US$239k) relating to the Phalaborwa project.
The average number of employees during the period were made up as follows
Directors
Management and administration
Total
10. INCOME TAX EXPENSE
Current tax expense
Prior year tax adjustment
Total tax expense for the year
Year ended
Year ended
30 June 2023 30 June 2022
7
28
35
6
32
38
Year ended
Year ended
30 June 2023 30 June 2022
US$’000
-
4
4
US$’000
-
-
-
The difference between the total tax expense shown above and the amount calculated by applying the standard rate of corporation tax to the loss
before tax is as follows:
Loss for the year before tax
Income tax using the Guernsey rate of 0%:
Effects of:
Differences in tax rates
Differences in capital allowances
Impact of Burundi impairment
Tax losses carried forwards
Adjustment of Burundi tax in respect of prior years
Total
Year ended
Year ended
30 June 2023 30 June 2022
US$’000
(3,981)
US$’000
(12,865)
-
(2,669)
32
2,472
165
-
-
-
(337)
(289)
3
623
4
4
Rainbow Rare Earths Limited and Rainbow International Resources Limited are subject to 0% income tax in Guernsey. Rainbow Rare Earths
(Proprietary) Limited is subject to income tax rate in South Africa at 27%. Rainbow Burundi SPRL and Rainbow Mining Burundi SM are subject
to corporation tax in Burundi 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 (Proprietary) Limited are US$43k (30 June 2022: US$17k).
72 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
CONTINUED
11. LOSS PER SHARE
The earnings per share calculations for 30 June 2023 reflect the changes to the number of ordinary shares during the Year.
At the start of the Year, 524,405,810 shares were in issue. During the Year, a total of 74,452,846 new shares were allotted (see note 21 Share Capital)
and on 30 June 2023, 598,858,656 shares were in issue. The weighted average of shares in issue in the Year was 536,805,149.
The loss per share has been calculated using the weighted average number of ordinary shares in issue. The Group was loss making for all periods
presented, therefore the dilutive effect of share options has not been accounted for in the calculation of diluted earnings per share, since this would
decrease the loss per share for each reporting period.
Basic and diluted
Loss for the year (US$’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 2021
Additions
At 30 June 2022
Additions
Impairment
At 30 June 2023
2023
(11,984)
536,805,149
(2.23)
2022
(3,880)
508,566,911
(0.76)
Gakara
US$’000
8,635
Phalaborwa
US$’000
1,116
Total
US$’000
9,751
-
8,635
-
(8,635)
-
837
1,953
2,877
-
4,830
837
10,588
2,877
(8,635)
4,830
Only costs relating to the Phalaborwa Project were capitalised during the Year. The Burundi Project has been under care and maintenance throughout
the Year and, accordingly, none of the costs meet the requirements under the Group’s accounting policy for capitalisation.
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.
The Directors have 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. However, despite ongoing engagement with the Government of Burundi since the export ban was initially imposed, RMB has not
received permission to re-start operations and is unable to reliably estimate when such a re-start may be possible.
Since acquiring the Phalaborwa project in December 2020 and the subsequent development of processing technology to recover rare earth elements
from phosphogypsum as a by-product of phosphoric acid production, the Directors have re-focused the business on secondary sources of rare earth
elements where they consider higher returns are available. As such, as set out in note 3, the Directors no longer intend to invest significant amounts at
Gakara to convert the existing resource target to a reserve capable of supporting long term commercial production, resulting in an impairment review
being carried out for the Gakara exploration and evaluation assets in the year ended 30 June 2023.
As set out in note 3, based on an assessment of both the legal and political position in Burundi, the Directors consider that the fair value of the Gakara
exploration and evaluation assets calculated in accordance with IAS 36 is nil and an impairment loss has been recognised.
FinBank SA hold security over the fixed and floating assets of RMB which include the impaired exploration and evaluation assets associated
with the Gakara mining permit in Burundi.
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
73
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
CONTINUED
13. PROPERTY, PLANT AND EQUIPMENT
US$’000
Cost
At 1 July 2021
Additions
At 30 June 2022
Additions
At 30 June 2023
Depreciation
At 1 July 2021
Charge for year
At 30 June 2022
Charge for the year
Impairment
At 30 June 2023
Net Book Value at 30 June 2023
Net Book Value at 30 June 2022
Net Book Value at 30 June 2021
Mine
development
costs
Plant and
machinery
Vehicles
Office
equipment
183
-
183
-
183
73
26
99
25
59
183
-
84
110
2,847
42
2,889
-
2,889
2,667
1
2,668
5
216
2,889
-
221
180
1,582
-
1,582
24
1,606
539
316
855
317
410
1,582
24
727
1,043
45
-
45
4
49
24
10
34
2
10
46
3
11
21
Total
4,657
42
4,699
28
4,727
3,303
353
3,656
349
695
4,700
27
1,043
1,354
As set out in notes 3 and 12, the Directors recognise that the ongoing suspension of all activities of RMB in Burundi and the subsequent decision not
to commit investment for the conversion of the Gakara resource target to reserves requires an impairment review for the tangible fixed assets relating
to the project in accordance with IAS36. Based on an assessment of both the legal and political position in Burundi, the Directors consider that the fair
value of the property, plant and equipment associated with the Gakara project calculated in accordance with IAS 36 is nil and an impairment loss has
been recognised.
FinBank SA hold security over the fixed and floating assets of RMB which include the impaired property, plant, and equipment in Burundi.
14. INVENTORY
Finished goods
Consumables
Total inventory
Year ended
Year ended
30 June 2023 30 June 2022
US$’000
717
141
858
US$’000
717
1
718
Finished goods represents 421 tonnes (2022: 421 tonnes) of mixed rare earth concentrate available for export at the Gakara processing plant.
Notwithstanding the current export ban in Burundi, the Directors note that the stock of concentrate held for sale has not deteriorated over the period
of suspension and the estimated sale value remains higher than the original cost. Notwithstanding the uncertainty relating to the likely timing of the
future sale of the concentrate, the Directors consider that the future increases in forecast rare earth prices will ensure that the present value of the
realisable price for the concentrate will remain above the cost of production and accordingly no provision for impairment has been made at 30 June
2023 (2022: US$Nil). The Directors recognise that the uncertainty relating to the future sale of the concentrate could impact the carrying value of the
stock of concentrate, which comprises all of the inventory held at the balance sheet date. Notwithstanding the uncertainty relating to the likely timing
of the future sale of the concentrate, the inventory is included within current assets on the basis that dialogue to lift the export ban is continuing and
the sale is expected to occur within 12 months.
As set out in notes 3, 12 and 13, the Directors recognise the ongoing suspension of all activities of RMB in Burundi and the re-focus of the Rainbow
business to secondary sources of rare earths. Accordingly, the value of goods in transit held in the port of Bujumbura has been written down to an
estimated net realisable value of nil during the year ended 30 June 2023 in line with the fixed assets associated with the Gakara project.
74 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
CONTINUED
15. TRADE AND OTHER RECEIVABLES
VAT recoverable
Prepayments
Royalty receivables
Deposits paid
Sundry debtors
Total trade and other receivables
Year ended
Year ended
30 June 2023 30 June 2022
US$’000
214
70
109
5
3
401
US$’000
263
97
-
3
2
365
VAT recoverable relates to the input VAT recoverable in Burundi (US$137k, 2022: US$194k) and South Africa (US$126k, 2022: US$20k).
During the year ended 30 June 2023 a revaluation of the Burundi Franc has resulted in the reduction in the US dollar value of the VAT recoverable
in Burundi. During the year ended 30 June 2021 a tax audit was undertaken in Burundi over the local operating subsidiary, RMB, covering the period
from 2017 to 2019. The audit concluded that reverse VAT totalling BIF302 million (US$106k) had not been correctly accounted for on several 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 are recognised at 30 June 2023.
During the Year an impairment of US$109k was recognised against the royalty receivable as set out in note 3.
Expected credit losses were assessed at 30 June 2023 considering various potential scenarios, information regarding the counterparty credit risk,
the historical payment profiles, and forward-looking factors. On the basis that the primary credit risk relates to the reverse VAT recoverable in Burundi,
which is expected to be paid only on resolution of all matters relating to the suspension of activity in Burundi, no expected credit loss provision was
considered necessary in the Year (2022: US$Nil).
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 2023 (30 June 2022: nil).
17. TRADE AND OTHER PAYABLES
Trade payables
Accrued expenses
Taxes and social security
Burundi land taxes payable
Provision for employment disputes
Total trade and other payables
Year ended
Year ended
30 June 2023 30 June 2022
US$’000
4,134
4,134
US$’000
8,107
8,107
Year ended
Year ended
30 June 2023 30 June 2022
US$’000
174
255
360
60
60
909
US$’000
124
736
290
100
-
1,250
Tax and social security payables include BIF737 million (US$260k) for taxes provided as a result of a tax audit undertaken in Burundi over the local
operating subsidiary, RMB, covering the period from 2017 to 2019. Reverse VAT totalling BIF302 million and withholding tax totalling BIF148 million
had not been correctly accounted for on a number of invoices received for services supplied to RMB from international suppliers. A further BIF20
million of payroll taxes were found not to have been paid on salaries for casual staff. Penalties totalling BIF182 million on the unpaid taxes have
also been provided for in accordance with Burundi legislation together with interest up to the balance sheet date totalling BIF85 million.
The Directors consider the carrying value of trade and other payables approximate to their fair value.
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
75
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
CONTINUED
18. BORROWINGS
FinBank Loan
Warrant liability
Total borrowings
Borrowings fall due:
Due within one year
Due between 2 to 5 years
Total
The following table analyses the movement in borrowings:
Borrowings brought forward
Cash flows from borrowings
Drawdown of borrowings
Repayment of borrowings
Interest paid
Non-cash movement in borrowings
Interest charge on borrowings
Settlement of borrowings in shares
Valuation of warrant liability
Revaluation of BIF loan
Other
Borrowings carried forward
Year ended
Year ended
30 June 2023 30 June 2022
US$’000
557
196
753
US$’000
363
123
486
201
285
486
235
518
753
Year ended 30 June 2023 Year ended 30 June 2022
US$’000
US$’000
753
US$’000
US$’000
1,893
-
(61)
(78)
78
-
(73)
(133)
-
(139)
(128)
486
-
(834)
(138)
138
(175)
(109)
-
(22)
(972)
(168)
753
FinBank Loan
The FinBank loan facility in Burundi is expressed in BIF and carries an interest rate of 15%. Interest on the loan was paid throughout the Year.
Updated repayment terms were agreed from February 2023, with BIF30 million per month paid until April 2027 (previously BIF50 million per month
payable until March 2025) covering both principal and interest on a reducing balance basis. This is not a substantial modification of the loan as the
impact on the net present value of the loan from the modification is less than 10%. During the Year the devaluation of the BIF from US$1:BIF2,062.63
at 30 June 2022 to US$1:BIF2,840.54 at 30 June 2023 has reduced the US dollar value of the liability by US$133k.
Under the terms of this loan, FinBank has security over the fixed and floating assets of RMB, the shares of RMB, and the cash held in RMB’s
FinBank bank accounts. Interest on the loan amounted to US$78k (2022: US$98k).
76 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
CONTINUED
19. LEASES
Lease liabilities fall due:
Due within one year
Due between 2 to 5 years
After 5 years
Total
The following table analyses the movement in lease liabilities:
Lease liabilities brought forward
Cash flows from leases
Payment of lease liabilities
Interest paid
Non-cash movement in leases
Recognition of lease liabilities
Interest charge on leases
Revaluation on termination
Change in lease term
Lease liabilities carried forward
Right of use assets
Balance as at 1 July 2021
Right of use asset recognised in the year
Amendment to expected life
Depreciation in year
Balance as at 30 June 2022
Right of use asset recognised in the year
Amendment to expected life
Depreciation in year
Balance as at 30 June 2023
Year ended
Year ended
30 June 2023 30 June 2022
US$’000
US$’000
23
21
-
44
32
35
46
113
Year ended 30 June 2023 Year ended 30 June 2022
US$’000
US$’000
113
US$’000
US$’000
83
(31)
(10)
-
10
(38)
-
(41)
(28)
44
(23)
(13)
110
13
(57)
-
(36)
66
113
Land and buildings
US$’000
70
110
(48)
(24)
108
-
(36)
(33)
39
During the year ended 30 June 2022, a new office lease was entered into in South Africa and the leases for two properties in Burundi initially
recognised at 1 July 2020 were formally terminated.
In the year ended 30 June 2023 notice of termination was given on the South African office lease and the applicable amendments to the Lease
Liability and Right of Use Asset were recorded in the Year to reflect the new termination date.
The remaining leasehold property in Burundi is subject to an annual agreement, with right of use assets and lease liabilities calculated by reference
to the Group’s anticipated long-term intentions to renew the lease agreements.
There are no other lease commitments.
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
77
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
CONTINUED
20. PROVISIONS
At 1 July 2021
Discount
At 30 June 2022
Discount
At 30 June 2023
Rehabilitation provision
US$’000
61
-
61
(6)
55
The rehabilitation provision relates to the anticipated cost of restoring the operating sites at the Gakara project in Burundi, discounted to reflect
management’s best estimates of the timing of future estimated cashflows.
No provision was recorded for the Group’s Phalaborwa project as on-site activities have not yet commenced and there is no legal obligation
for restoration by the Group with historical environmental liabilities associated with the site contractually remaining with the previous owners.
21. SHARE CAPITAL
Share Capital
Issued Share Capital
The table below shows a reconciliation of share capital movements:
At 30 June 2021
July 2021 - Exercise of share options (cash receipts)
October 2021 - Share placing – Cash receipts net of costs
November 2021 - Share placing – Cash receipts net of costs
December 2021 – Pipestone Loan repayment shares
April 2022 - Exercise of share options (cash receipts)
Costs associated with exercise of share options and loan settlement
At 30 June 2022
November 2022 - Exercise of share options (cash receipts)
May 2023 - Share placing (cash receipts)
Costs associated with exercise of share options and share placing
At 30 June 2023
Year ended
Year ended
30 June 2023 30 June 2022
US$’000
41,442
41,442
US$’000
50,937
50,937
Number of shares
476,411,434
2,500,000
32,900,000
10,000,000
875,389
1,718,987
-
524,405,810
2,000,000
72,452,846
-
598,858,656
US$’000
32,465
182
6,557
1,982
175
116
(35)
41,442
125
9,485
(115)
50,937
On 13 July 2021, the 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 13 October 2021, the Company issued 32.9 million shares at a price of 15 pence per share, raising gross cash proceeds of US$6.8 million
(before costs of $221k).
On 15 November 2021, the Company issued a further 10.0 million shares at a price of 15 pence per share, raising gross cash proceeds
of US$2.0 million (before costs of $18k).
On 25 April 2022, the Australian Special Opportunity Fund, LP exercised options over 1,718,987 million shares at an exercise price of 5.28p per share,
raising gross cash proceeds of US$116k.
On 10 November 2022, the Australian Special Opportunity Fund, LP exercised options over 2,000,000 shares at an exercise price of 5.28p per share,
raising gross cash proceeds of US$125k.
On 9 May 2023, the Company issued 72,452,846 shares at a price of 10.377 pence per share, raising gross cash proceeds of US$9.5 million
(before costs of US$0.1 million).
As set out in note 29 on 5 October 2023 a further 26,412,257 shares were issued at a price of 15 pence per share.
78 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
CONTINUED
22. SHARE OPTIONS AND WARRANTS
Employee share options
The total share-based payment charge for the Year was US$325k (2022: US$287k).
At 30 June 2023, the following employee share options were exercisable and outstanding:
30 June 2023
30 June 2022
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
price (pence)
13.43
-
18.00
13.33
12.07
-
-
-
-
Number
11,791,400
-
250,000
11,541,400
9,508,068
3,708,000
4,550,000
8,258,000
3,708,000
Average
weighted
exercise
price (pence)
12.19
16.03
13.43
12.53
-
-
-
-
Number
7,991,400
3,800,000
-
11,791,400
8,491,400
3,708,000
-
3,708,000
1,236,001
During the Year, 250,000 options lapsed due to an employee leaving the Group. No employee share options were exercised in the Year. The market
based vesting conditions attached to 1,236,000 nil priced options issued in 2021 were judged at 30 June 2023, with the calculated shareholder return
for the Company (-23%) being below the median for the basket of investments specified (-22%). The Directors considered the strong post Year-end
share price performance and waived the market based vesting conditions allowing the options to vest as set out in the table above. The modification
did not result in an increase in the fair value of the share options due to the share price at the date of the modification being below the share price on
the original date of grant.
The options outstanding at 30 June 2023 across both the share option plan and long-term incentive plan had a weighted average remaining
contractual life of 6.9 years (2022: 6.7 years).
During the Year, 4,550,000 options were issued as follows:
•
3,150,000 issued to the Directors and PDMR’s on 19 May 2023, pursuant to its Long Term Incentive Plan (LTIP approved in January 2021).
The options are nil priced share options and will vest in equal tranches over three years: one third after 12 months, one third after 24 months
and one third after 36 months.
1,400,000 issued to staff and PDMR on 6 June 2023, pursuant to its Long Term Incentive Plan (LTIP approved in January 202). The options
are nil priced share options and will vest in equal tranches over three years: one third after 12 months, one third after 24 months and one third
after 36 months.
•
The fair value of the options was judged to be the share price on the date of grant (19 May 2023: £0.086/share; 6 June 2023: £0.09/share).
Lind Share Options
In November 2022, 2,000,000 share options were exercised and new ordinary shares allotted to the Australian Special Opportunity Fund,
LP at a price of 5.28 pence per share. This exercise represents the final share options held by the Australian Special Opportunity Fund, LP.
Lind also exercised share options during the 2022 financial year as follows:
•
•
29 April 2022 - 1,718,987 share options at 5.28 pence per ordinary share allotted.
14 July 2021 – 2,500,000 share options at 5.28 pence per ordinary share allotted.
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
79
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
CONTINUED
22. SHARE OPTIONS AND WARRANTS CONTINUED
Warrants
Outstanding and exercisable at 30 June 2022 and 2023
Number Exercise price
£0.0455
2,000,000
Weighted average exercise price calculated for US$ based warrants on US$:GBP exchange rate ruling on 30 June 2020.
On 21 February 2020, 2,000,000 warrants were issued to Pipestone Capital Inc (“Pipestone”), 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 four 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 in the Year included under Finance Income as set out in note 6.
As noted above, the Pipestone warrants are classified as a financial liability and are revalued at each period end using a Black-Scholes model,
which is categorised as a level 3 fair value measurement in accordance with IFRS 13. The inputs into the model were:
Share price (GBP pence)
Exercise price (GBP pence)
Expected volatility
Risk free rate
Rate of Exchange
Time to exercise (years)
At 30 June
2023
9.50
4.55
44.44%
4.35%
1.22
0.58
At 30 June
2022
12.38
4.55
52.07%
1.87%
1.22
1.50
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.
23. RESERVES
Reserve Purpose
Share capital Value of shares issued less costs of issuance
Share-based payment reserve Fair value of share options 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 RMB and 3% interest Gilbert
Midende has in Rainbow Burundi SPRL at 30 June 2023. 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.
80 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
CONTINUED
24. NON-CONTROLLING INTERESTS
The Group has subsidiaries with non-controlling interests ("NCI") as follows:
•
•
The State of Burundi has a non-dilutable 10% interest in RMB
Gilbert Midende has a 3% interest in Rainbow Burundi SPRL
Summarised financial information in relation to these subsidiaries, before intra-group eliminations, is presented below together with the attributable NCI.
Name of subsidiary Rainbow Burundi SPRL
Country Burundi
Effective non-controlling interest 3%
Rainbow Mining Burundi SM
Burundi
10%
Total Group
Year ended
Year ended
30 June 2023 30 June 2022 30 June 2023 30 June 2022 30 June 2023 30 June 2022
US$’000
Year ended
Year ended
Year ended
Year ended
US$’000
US$’000
US$’000
US$’000
US$’000
Income statement
Administrative expenses
Impairment
Depreciation
Net finance income/(costs)
Tax
Loss and total comprehensive loss for the period
Total comprehensive loss attruted to NCI
Dividends paid to NCI
Cashflows
Cashflow from operating activities
Cashflow from investing activities
Cashflow from financing activities
Net cashflows
Balance Sheet
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Intra-group loans
Net assets
Accumulated non-controlling interest
25. CAPITAL COMMITMENTS
-
-
-
-
-
-
-
-
-
-
-
-
-
1
-
-
-
-
-
-
-
-
-
-
-
-
-
1
-
-
(295)
(294)
(9)
-
-
(295)
(294)
(9)
(276)
(8,242)
(368)
76
(8,810)
(881)
-
(357)
-
(78)
(435)
37
878
(361)
(572)
(19,117)
(541)
(60)
(375)
(75)
(4)
(1,055)
(105)
-
(548)
-
(86)
(634)
8,403
1,200
(425)
(806)
(18,696)
(276)
(8,242)
(368)
76
-
(8,810)
(881)
-
(357)
-
(78)
(435)
37
879
(361)
(572)
(19,412)
(541)
(60)
(375)
(75)
(4)
(1,055)
(105)
-
(548)
-
(86)
(634)
8,403
1,201
(425)
(806)
(18,991)
(19,135)
(10,324)
(19,429)
(10,618)
(1,913)
(1,032)
(1,922)
(1,041)
There were no capital commitments on 30 June 2023 (2022: nil). Under the terms of the Gakara Mining Convention there are no minimum
expenditure commitments in respect of exploration and evaluation activities.
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
81
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
CONTINUED
26. RELATED PARTY TRANSACTIONS
Year to 30 June 2023 Year to 30 June 2022
Gilbert Midende 1
Benzu Minerals (Proprietary) Limited 2
Pipestone Capital Inc 3
MPD Consulting Limited 4
Magna Capital (Guernsey) Limited 5
Total
Balance as at
Charged in year Settled in year 30 June 2023 Charged in year
US$’000
50
48
52
13
-
163
US$’000
-
(1)
-
(4)
(73)
(78)
US$’000
-
1
-
5
73
79
US$’000
-
-
-
1
-
1
Settled in year
US$’000
(50)
(48)
(1,061)
(13)
-
(1,172)
Balance as at
30 June 2022
US$’000
-
-
-
-
-
-
1.
In the year ended 30 June 2022 Gilbert Midende received a retirement settlement of US$50k. Gilbert Midende continues to hold 3% of Rainbow Burundi SPRL as set out in note 27.
2. Benzu Minerals (Proprietary) Limited is connected to Cesare Morelli who is currently engaged as the acting General Manager of Rainbow Mining Burundi. 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 (Proprietary) Limited and is included in remuneration disclosures in note 9.
3. Pipestone Capital Inc, in which George Bennett, the Company’s CEO, had a beneficial interest, provided a bridging loan to the Group which totalled US$1,009k at 1 July 2021 on which interest totalling US$52k accrued during
the year ended 30 June 2022. The loan was fully settled via a mixture of cash and shares in December 2021.
4. MPD Consulting Limited, in which Pete Gardner, the Company’s CFO, has a beneficial interest, has recharged certain costs relating to travel to Burundi and UK support incurred on behalf of the Group.
5. Magna Capital (Guernsey) Limited (“Magna”), in which Adonis Pouroulis, the non-executive Chairman of the Board of Directors, has a beneficial interest, was engaged in December 2022 to assist the Company with its strategy
to consolidate ownership of the Phalaborwa project and lift the notarial bonds in South Africa issued in favour of third parties which may have impacted the ability of Bosveld Phosphates (Pty) Limited to transfer the rights
to the Phalaborwa project to a new entity as envisaged. The transaction was concluded in July 2023 as set out in note 29. In addition to the amounts disclosed a success fee of £500k was paid to Magna in July 2023.
27. INVESTMENT IN SUBSIDIARIES
The shareholdings in the Group’s subsidiaries for each year are set out below:
% Share Capital Held
Name of Company Principal Activity Country of Incorporation
Rainbow International Resources Rare earth exploration Guernsey
Rainbow Burundi SPRL Rare earth exploration Republic of Burundi
Rainbow Mining Burundi SM Rare earth mining Republic of Burundi
Rainbow Rare Earths Zimbabwe (Private) Limited Rare earth exploration Zimbabwe
Rainbow Rare Earths (Proprietary) Limited Group support services South Africa
2023
100%
97%
90%
100%
100%
2022
100%
97%
90%
100%
100%
a. Rainbow International Resources Limited is 100% owned by Rainbow Rare Earths Limited.
b. Gilbert Midende holds a 3% interest in Rainbow Burundi SPRL.
c. 97% of shares in Rainbow Burundi SPRL and 90% of shares in Rainbow Mining Burundi SM are held by Rainbow International Resources Limited.
d. The government of Burundi has a 10% interest in Rainbow Mining Burundi SM granted in accordance with the Mining Code of Burundi.
e. Rainbow Rare Earths Zimbabwe (Private) Limited is dormant and not trading.
f. Rainbow Rare Earths (Proprietary) Ltd is 100% owned by Rainbow Rare Earths Limited.
28. CONTINGENT LIABILITIES
There were no contingent liabilities at 30 June 2023 (30 June 2022: nil).
29. POST BALANCE SHEET EVENTS
On 28 June 2023, the Company announced an agreement with Bosveld Phosphates (Pty) Limited (“Bosveld”) to secure a path to 100% ownership
of the Phalaborwa project. As a result, in July 2023 the Company paid US$5 million to Barak Fund SPC Limited on behalf of Bosveld as a result of
which the Company secured an immediate 85% interest in the Phalaborwa project and was granted an option to acquire the remaining 15% via the
issue of US$7 million in shares. As a result of the transaction a success fee of £500,000 was paid to Magna in July 2023 as set out in note 26.
On 17 July 2023, the Company announced that it had entered into a memorandum of understanding with Mosaic to jointly develop a process
flowsheet and conduct a preliminary economic assessment related to the extraction of rare earth elements from Mosaic's phosphogypsum
stack in the Uberaba area of Minas Gerais in Brazil.
On 27 September 2023, the Company announced the successful completion of a private placement raising £4.5 million (approximately US$5.5 million)
via the issue of 30 million new Ordinary Shares of no par value at an issue price of £0.15 per share. The initial tranche of 25,786,541 shares was allotted
and admitted to trading on 5 October 2023 under the disapplication of pre-emption rights granted at the Company’s last Annual General Meeting held
on 22 November 2022. The final tranche of 4,213,459 shares are subject to the approval of shareholders at the next Annual General Meeting to be held
in November 2023.
82 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
CONTINUED
30. 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 2023, 99% of funds were held with a bank with a long-term A- credit rating (2022: 99%).
Market risk
Market risk arises from the Group’s use of interest bearing, tradable and foreign currency financial instruments. It is the risk that the fair value
or future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk), foreign exchange rates
(currency risk) or other market factors (other price risk).
Currency risk
Currency risk refers to the risk that fluctuations in foreign currencies cause losses to the Group.
The Group is exposed to foreign exchange risk arising from various currency exposures primarily with respect to Sterling and the Burundian Franc.
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 matching the currency profile of cash holdings to expected future cash outflows.
Minimal cash is held in Burundian Francs. The table below shows the currency profiles of cash and cash equivalents:
Cash and cash equivalents
US Dollars
GB Pounds
SA Rands
Burundi Francs
Total
Year ended
Year ended
30 June 2023 30 June 2022
US$’000
1,623
1,778
716
17
4,134
US$’000
7,212
670
224
1
8,107
The table below shows an analysis of the currency of the monetary liabilities in the functional currency of the Group (US dollars):
US Dollars
GB Pounds
Burundi Francs
South African Rand
Australian Dollars
Total
Year ended
Year ended
30 June 2023 30 June 2022
US$’000
336
187
1,040
189
22
1,774
US$’000
503
260
679
215
-
1,657
The largest monetary liability exposure and the least stable currency is the Burundi Franc. A 10% movement in the US$:BIF rate would have resulted
in a gain or loss of approximately US$0.1m (2022: approximately US$0.1m) in the income statement in relation to the cash and cash equivalents
and trade payables as at 30 June 2023.
Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
83
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2023
CONTINUED
30. FINANCIAL RISK MANAGEMENT CONTINUED
Interest rate risk
Interest rate risk refers to the risk that fluctuations in interest rates cause losses to the Group.
The Group and Company have no exposure to interest rate risk except on cash and cash equivalents which carry variable interest rates.
The Group has no material sensitivity to reasonable changes in variable interest rates. The group monitors the variable interest risk accordingly.
The Group’s borrowings bear fixed rates of interest.
Liquidity risk
Liquidity risk refers to the risk that the Group has insufficient cash resources to meet working capital requirements. The Group manages its liquidity
requirements by using both short and long-term cash flow projections. The following table sets out the contractual maturities (representing
undiscounted contractual cash-flows) of financial liabilities:
As at 30 June 2023
As at 30 June 2022
Trade and other payables
Loans and borrowings
Lease liabilities
Total
Due in
2 to 5
years
Due in
1 to 2
years
Due
within 1
years
Due in
5 to 10
years
US$’000 US$’000 US$’000 US$’000
-
-
-
-
1,250
127
28
1,405
-
223
5
228
-
127
18
145
Due
within 1
years
US$’000
909
235
32
1,176
Due in
1 to 2
years
US$’000
-
469
34
503
Due in
2 to 5
years
US$’000
-
49
46
95
Due in
5 to 10
years
US$’000
-
-
-
-
Ultimate responsibility for liquidity risk management rests with the Directors, who have built an appropriate liquidity risk management framework for
the management of the Group’s short, medium, and long-term funding and liquidity management requirements. The Group closely monitors and
manages its liquidity risk. For further details on the Group’s liquidity position, please refer to the going concern paragraph in note 2 of these accounts.
Capital management
In managing the capital, the Group’s primary objective is to maintain a sufficient funding base, through debt and equity, to enable the Group to meet its
working capital and strategic investment needs. This includes ensuring sufficient funds are available to service the Group’s borrowings as they fall due.
No funds are held in restricted or designated accounts for future debt servicing requirements. In making decisions to adjust its capital structure to
achieve these aims the Group consider not only its short-term position but also its long term operational and strategic objectives.
The Group’s primary capital management measure is net debt (borrowings less cash) to total equity, measured as follows:
Net debt/(net cash) to equity
Total borrowings (note 18)
Less: Cash and cash equivalents
Net (cash) / debt
Total equity
Ratio
31. NON-CASH TRANSACTIONS
Material non-cash transactions were as follows:
Year ended
Year ended
30 June 2023 30 June 2022
US$’000
753
(4,134)
(3,381)
15,345
(22.03%)
US$’000
486
(8,107)
(7,621)
12,251
(62.21%)
Year end 30 June 2023
•
Impairment of intangible fixed assets, tangible fixed assets, inventory and trade and other
receivables associated with the Gakara project in Burundi as set out in notes 12, 13, 14 and 15.
Recognition of a right of use asset under a lease agreement as set out in note 19.
•
Year end 30 June 2022
•
•
Settlement of the Pipestone Loan Balance in shares as set out in note 21.
Recognition of a right of use asset under a lease agreement as set out in note 19.
32. ULTIMATE CONTROLLING PARTY
The Company does not have a single controlling party.
84 Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
Executive Director
George Bennett – Chief Executive Officer
Non-Executive Directors
Adonis Pouroulis – Chairman
Alex Lowrie
Shawn McCormick
Atul Bali
J Peter Pham
Darryl Castle
Company Secretary
Scorpio Secretarial Services Limited (Guernsey)
Registered office
Connaught House, St Julian’s Avenue
St Peter Port, Guernsey GY1 1GZ
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 (UK)
FinBank S.A (Burundi)
Standard Bank of South Africa Limited (South Africa)
Brokers
Joh. Berenberg, Gossler & Co. KG (UK)
Independent Auditors
BDO LLP (UK)
Solicitors
K&L Gates LLP (UK)
Legal Solutions Chambers (Burundi)
Cliffe Dekker Hoffmeyer Inc. (South Africa)
Designed and produced by effektiv
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Rainbow Rare Earths Limited
Annual Report & Financial Statements 2023
85
RAINBOW
RARE EARTHS
Rainbow Rare Earths Limited
Registered office
Trafalgar Court, Admiral Park, St Peter Port,
Guernsey GY1 3EL
www.rainbowrareearths.com