TIDMRBW
RNS Number : 6186S
Rainbow Rare Earths Limited
04 October 2017
FOR IMMEDIATE RELEASE
4 October 2017
Rainbow Rare Earths Ltd ('Rainbow' or 'the Company') (LSE:
RBW)
Final Results
Rainbow Rare Earths Limited ("Rainbow" or the "Company"), the
rare earth element mining company operating in East Africa,
announces its audited results for the 12 months ended 30 June
2017.
Highlights
-- Completion of Placing and Admission to the London Stock
Exchange Main Market raising gross proceeds of US$8 million (US$7.4
million net)
-- Rapid development of the Company's Gasagwe mining area
focused on site preparation and waste stripping
-- Construction and development of the processing plant site at
Kabezi underway at year end ahead of commissioning in Q4 2017
-- Commencement of ROM ore extraction at Gasagwe in September 2017
-- First concentrate sales remain on track for Q4 2017
-- Pricing for rare earth elements strengthened markedly during
2017, with Rainbow's basket price as at 3 October 2017 up around
70% since the start of the year
-- Rainbow provides first Production Guidance for 2017-18 of
3,000-4,000 tonnes of ROM ore mined generating 2,250-3,000 tonnes
of mineral concentrate for sale
A copy of the annual report will be available during October on
the Company's website at www.rainbowrareearths.com.
For further information, please contact:
Rainbow Rare Earths Ltd Martin Eales Tel: +44 (0) 20 3910
4550
St Brides Partners Ltd Lottie Wadham Tel: +44 (0) 20 7236
Susie Geliher 1177
Arden Partners plc William Vandyk Tel: +44 (0) 20 7614
Benjamin Cryer 5900
Hannam & Partners (Advisory) Neil Passmore Tel: +44 (0) 20 7907
LLP Ben Newman-Sanders 8500
Production Guidance 2017-2018
Following the successful progress of Rainbow's development of
its first mining area at Gasagwe and with the processing plant at
Kabezi, the Company is pleased to provide forward guidance for the
current year ending 30 June 2018. ROM ore production is forecast to
be in the range of 3,000-4,000 tonnes which is expected to generate
2,250-3,000 tonnes of mineral concentrate for sale.
The production figures estimated by MSA in the Competent
Person's Report contained in the Company's Prospectus dated 25
January 2017 proposed that over 22 months Gasagwe might be capable
of generating 3,338 tonnes of ROM ore and 2,503 tonnes of
concentrate. Rainbow's revised guidance compares extremely
favourably to this estimate which encompasses a time period of only
14 months since first activities at Gasagwe or just over 9 months
from the commencement of ore extraction.
The Company is currently assessing a number of different
approaches to extraction of ROM ore which affect the contained
level of dilution. Consequently there is a relatively large range
in the ROM ore tonnage figure anticipated.
CHAIRMAN'S STATEMENT
When Rainbow first obtained its exploration permit for the
Gakara rare earth deposit in 2011, we believed that the Company had
something special and the potential to become one of the most
important rare earth mines in the world. We had the desire to
become Africa's first operational rare earth mine.
Since then, we have come a long way, and the journey has been a
rewarding one thus far, but not without its particular trials and
tribulations. The challenges that we have endured have included a
dramatic downturn in the price of rare earths and civil unrest
within Burundi in 2015, all in the context of one of the longest
bear markets to have faced the mining sector in living memory.
In spite of all this, we have remained unshaken in our
confidence in the Gakara project for two principal reasons: first
of all, we believe that the demand for rare earths is likely to
increase over the coming years, in direct response to growth in
usage of electric vehicle technology as well as in many new green
technologies; and secondly, we believe in the deposit itself - the
grades at Gakara, which have been independently estimated to be
between 47-67%, are among the highest anywhere in the world, which
in turn allows for cleaner, lower-cost mining techniques.
In the 12 months to 30 June 2017, the Company has been able to
take a number of major steps in order to realise the potential of
the mine.
The successful IPO, which completed in January 2017, raised a
total of US$8 million, and transformed Rainbow into a public
company with a Standard Segment listing on the main board of the
London Stock Exchange. These funds are now being used to complete
the construction of the mine and plant at Gakara, with the first
shipment of concentrate still on track for Q4 2017 through our
multinational distribution and offtake partner, thyssenkrupp Raw
Materials.
We have also been able to put in place a team with the skills
and experience, as well as the energy and drive, not only to
complete the construction phase, but also to manage the project as
it moves from construction into production. I would like to thank
our CEO, Martin Eales, who has been instrumental in guiding the
project through some of the toughest periods, for his endurance and
leadership.
I would also like to thank my fellow Board members, all of whom
are also shareholders, for their support in completing the
fundraising, as well as for their guidance and advice in the
ongoing running of the Company.
Without the support of our staff and communities in which we
operate in Burundi, this project would go nowhere. I would like to
thank them all for their enthusiasm and positive support of
Rainbow. Ultimately we are guests in their country and we hope that
we have a long and sustainable partnership with all the people of
Burundi and that all of our work and effort yields a net positive
result for all stakeholders.
At the time of writing, the construction phase nears completion,
but the challenges are far from over, and we need to remain
focussed on delivering the project on time and on budget. The
fundamentals of both the Gakara project, and the rare earths
market, if anything are even more exciting than when we first
started this journey.
We look forwarding to delivering to you regular updates on our
project as we achieve the various milestones we have set.
Adonis Pouroulis
Chairman
CEO STATEMENT
This is the first CEO Statement I have had the opportunity to
write for Rainbow as we mark the end of our first financial year as
a public company and I am pleased to be able to report on a
transformational 12 months.
Corporate
The most significant event at the corporate level was of course
the IPO and Admission of the Company's shares to trading on the
Standard segment of the London Stock Exchange at the end of January
2017. The Company raised gross proceeds of US$8 million by placing
new shares with a variety of investors and I have enjoyed getting
to know many of our shareholders better over the course of the year
and keeping them up to date with the Company's progress.
Rainbow maintains a small corporate office in the UK, where I am
based with Rainbow's CFO, Jim Wynn, thereby keeping overheads to a
minimum, whilst the vast majority of the Company's administration
and operating staff are based in Burundi.
Operations - Mining
During the 2016-17 financial year we were only able to commence
work in earnest after completion of the IPO, which provided the
funding for the development of the Gakara Project. The Company has
selected the Gasagwe area to be its first area of mining
operations, which is expected to provide ore from mining activities
for at least the first two years of production, with other areas
(such as Gashirwe) expected to come online thereafter.
A variety of preparatory tasks were required before mining
activities could begin at Gasagwe: these included access road
construction, updated environmental studies and approvals,
negotiation with land holders and settlement of compensation,
recruitment and training of workers, and import of machinery. By
the end of June 2017 the mining team at Gasagwe had made excellent
progress in stripping waste material in order to expose the rare
earth bearing veins which will constitute the run of mine ore.
Just after the financial year end, in July 2017, Rainbow hosted
an Inauguration Ceremony at Gasagwe where a formal ribbon cutting
was undertaken by the President of the Republic of Burundi, His
Excellency Pierre Nkurunziza. The ceremony was well attended and we
are delighted with the support we have received to date from the
Burundi government and local community.
Operations - Processing
Rainbow's production plan involves all run of mine ore being
processed into rare earth mineral concentrate by its processing
plant located in the Kabezi region, some 20km from the mining areas
and about 13km south of Burundi's capital city, Bujumbura. This
site is advantageous to Rainbow, being relatively flat because of
its location near Lake Tanganyika, and due to its proximity to a
main asphalt road, which will provide good transportation links for
export of concentrate.
Work has progressed very encouragingly on the Kabezi plant site
over the past few months (although not without challenges), with
all of the bulk earthworks completed before the end of the
financial year followed by civil cement works, and construction of
an office block, warehouse, and the processing plant itself all in
progress since year end, managed by our EPCM contractors Obsideo
from South Africa but utilising local labour at all times. At the
time of writing, the completion of construction and commissioning
of the plant is expected in the coming weeks, which should allow us
to meet our target of shipping first concentrate in Q4 2017.
We have deliberately built in a relatively large amount of
volume capacity within the processing plant design, which should
enable Rainbow to comfortably increase annual production of
concentrate in years to come, should the demand be there, without
any significant capital expenditure when new mining areas come on
stream.
Corporate Social Responsibility
Rainbow values the strong relationships it has formed in Burundi
and we understand that our social licence to operate is only as
strong as those relationships. We take great care to include local
communities in all our activities, whether it be holding public
consultations well in advance of undertaking work on the ground,
ensuring that our workforce is sourced locally, or, wherever
possible, using Burundian contracting companies for elements of
construction and transportation.
In the 2016-17 financial year, Rainbow recruited and trained 108
new employees from the areas around the Gasagwe mine and the Kabezi
processing plant with 27 following soon after the year end and also
provided work for up to 88 sub-contractor employees at the end of
June. Rainbow has also established a catering co-operative
alongside its operations which allows local people to prepare food
for all of the employees.
Wherever land is appropriated for Rainbow's activities we are
diligent in ensuring that the correct compensation is paid to all
families that have an interest in land or crops affected, based on
a formula set out in Burundian law.
Rainbow is proud to maintain an objective for a zero-harm
operation. For the period to 30 June 2017 the Company did not incur
a single Lost Time Injury ('LTI'), nor indeed any incident
requiring medical assistance. Our staff are encouraged to report
all incidents and 'near misses' in order to improve the safety
environment for anyone that may be affected by Rainbow's
operations.
We were delighted to be able to support the 50th anniversary
celebrations of the parish church in Mutambu, the town nearest to
Gasagwe, in May 2017, and as part of the Inauguration Ceremony in
July 2017 Rainbow organised a football tournament between the local
districts.
CSR objectives for the coming year include promotion and
sponsorship of academic prizes for all schools within the local
area and a tree planting campaign.
The Rare Earths market
The world demand for rare earths is growing each year with
production currently dominated by China. With a producing mine
located outside of China, Rainbow will be important to Western
buyers of rare earth materials concerned about security and
provenance of supply and seeking a non-Chinese source. During the
IPO process, our investors were keen to understand the dynamics of
the rare earths market that we felt were crucial and there are two
in particular that respectively have an impact on either supply or
demand.
Firstly it has become very clear that the Chinese government has
made strenuous efforts to clamp down on so called illegal
production of rare earths in China, both to enforce environmental
standards and to consolidate production within the hands of six
state-approved groups. This, combined with falling inventory
levels, has contributed to much tighter supply in recent months and
consequently increasing prices.
Secondly, virtually every week we now receive news reports
concerning the potential rapid increase in production of and demand
for electric vehicles, whether mandated by national governments as
part of environmental policies or by car manufacturers themselves,
with some such as Volvo announcing that all new models after 2019
will be electric or hybrid vehicles. Whilst car manufacture is
already a large consumer of rare earth materials, the basic fact is
that each electric vehicle will use even more - principally due to
the permanent magnets incorporated in the motor. When added to the
considerable demand for rare earth magnets also created by the wind
turbine industry, it is clear to see that the increasing movement
towards green energy will stimulate further demand for rare earth
materials.
Rainbow team
We have a small team of truly committed individuals, who have
pulled together over the last 12 months to give Rainbow the best
possible start to life as a public company. I would like to pay
particular thanks to Rainbow's Executive Committee: Gilbert Midende
(General Manager), Braam Jankowitz (Project Manager), Cesare
Morelli (Technical Director) and Jim Wynn (Chief Financial Officer)
who provide such support and wise counsel to me, however I am
grateful to all our employees for the hard work and dedication they
show every day and I feel proud to work with you all.
Outlook for 2017-18
The current financial year is likely to be even more momentous
for Rainbow than the last and should see the first sales of our
rare earth concentrate through thyssenkrupp Raw Materials in Q4
2017, with production and sales then ramping up on a steady basis
through 2018. We have seen increases in prices of the various rare
earth elements in the oxide and metal forms over the course of
2017, with our 'basket price' for Gasagwe concentrate increasing by
around 70% in 2017 so far, which bodes very well for the future
returns from the Gakara Project as we seek to develop one of the
very few non-Chinese sources of rare earths. An exciting year lies
ahead.
Martin Eales
Chief Executive Officer
OPERATIONS REVIEW
Preparation work for the IPO
Between July 2016 and January 2017, activity at the Gakara
project was restricted to maintaining the Company's good standing
in Burundi and providing information and support for the
independent Competent Person's Report ('CPR') which was completed
by MSA Group ('MSA') in October 2016. This document was first and
foremost a requirement of the IPO and listing process, but also
provides the Company and its investors with a detailed independent
report of the project and its context.
Despite considerable historic mining activities, the Gakara
Project was considered by MSA to be an Exploration Target(1) , as
defined in the JORC Code, rather than a Mineral Resource, which was
estimated as consisting of between 20,000 and 80,000 tonnes of
mineralised material grading 47-67% TREO. MSA also recommended that
a period of Trial Mining be conducted at key locations (notably
Gasagwe and Gashirwe West) in order to confirm procedures and
methodologies to be applied in full-scale commercial mining of a
project.
The CPR was published together with the IPO prospectus on 25
January 2017. By February 2017, US$8 million in gross proceeds had
been raised, and work began to bring the Gakara Project into
production, with a target date of shipping first concentrate in Q4
2017.
Consistent with the recommendations in the CPR, the Directors
decided that the amount of additional exploration work required to
declare a Mineral Resource or a maiden Ore Reserve would be
uneconomic at the stage of the Company's development.
In addition, the Directors believed that exploration information
regarding the deposit at Gakara, together with historic project and
production data, underlined the continuity of the mineralisation as
well as the appropriateness of the mining and processing
techniques, and that the commencement of operations was therefore
commercially viable from the outset.
Construction work at Gakara
Following the IPO, work began on the Gakara Project. Operations
were divided into two main areas - mining activities, which
initially focused at the Gasagwe deposit within the mining permit;
and work on the processing plant site at Kabezi.
Gasagwe mine site
In Q2 2017, earth-moving equipment was selected and ordered
(consisting of two Tractor Loader Backhoes 'TLBs', one tractor and
a trailer), while work commenced on site preparation using
locally-hired workers and contractors.
Initial activity included basic site preparation, such as
obtaining suitable accommodation and facilities, developing access
routes, and recruiting a local workforce. In addition, preliminary
exposure of the vein at Gasagwe continued using manual techniques,
in order to remove overburden and identify the scale of the deposit
ahead of full scale waste removal activities.
Mine preparation activities at the site commenced in April 2017,
and by the end of June 2017 a total workforce of 114 staff and 2
expatriate managers had been recruited.
Although the TLBs had cleared customs only just prior to the end
of the period, considerable progress had been made on site, with
some 4,595 tonnes of pre-stripping completed using hand tools and
wheelbarrows.
The upper levels of the Gasagwe vein had been exposed, which
indicated a strike length of the 'main vein' in excess of 80
metres, with a number of smaller side veins adding to the overall
size of the deposit.
The fact that the 'main vein' appears to be significantly larger
than initial estimates has been extremely encouraging, as has the
testwork of its composition (which in August 2017 indicated that
the upper portions had an average grade of 62% TREO, compared to
MSA guidance of between 47-67%). However, progress of operations
has been hampered by a number of practical challenges including the
availability of fuel, reliability of contractor equipment, delays
to importation of equipment, and the slow progress of receiving
final formal approval for full scale mining operations.
In spite of this, the stripping of waste material has progressed
well. The extraction of ore from this vein commenced in earnest
once the ROM stockpile bunkers were completed at the Kabezi plant
site in September 2017. This will allow management to meet its
target of first production of mineral concentrate in Q4 2017.
Kabezi plant site
After considering various alternatives, a site for the plant
location was chosen near Kabezi, approximately 13km south of
Bujumbura next to the RN3 road. Although approximately 20km from
the mine site areas, given the relatively low volumes of ROM ore to
be transported to the plant from the mine (typically a single truck
per day), the advantages of good road connectivity, sources of
water, and flatter terrain outweighed the extra haul distances.
The site was acquired in April 2017, and clearance of vegetation
began in May 2017. Bulk earthworks were undertaken by a local
contractor and completed in June, and concrete works were
substantially completed in September.
In March 2017, a fixed-price EPCM contract was signed with
Obsideo Consulting for the design, procurement, construction and
commissioning of its processing plant. Under the terms of the
contract, Obsideo would be responsible for delivering and
commissioning a plant designed to process the Gakara ROM ore into a
mineral concentrate, for a price of approximately US$1.8
million.
At the end of June 2017, work had progressed in line with
expectations, with parts having been selected from individual
suppliers and shipments due to be transported to the plant site
between July and October 2017.
The first containers that arrived encountered minor delays while
clearance documentation was finalised, however as more goods have
arrived, the process has become smoother.
A local contractor was engaged to perform the civils and
concrete works at site, the bulk of which was completed in August
and September. Practical challenges faced by the Company included
the availability of building materials as well as trained workers,
however this work is still expected to be completed in order to
meet the target of producing first ore in Q4 2017.
As at 3 October 2017, the majority of civils work has been
completed and most of the plant equipment has arrived on site.
Construction and commissioning is therefore expected to be
completed in time to meet the overall target for exporting the
first shipment of mineral concentrate in Q4 2017.
Safety and Health
Since commencement of activities on the ground in Gasagwe and
Kabezi, all employees, contractors and sub-contractors have been
mandatorily inducted in safety procedures. By the end of June 2017,
not only had no LTIs been reported, but no 'near misses' or
incidents requiring medical treatment have occurred. A total of
74,000 LTI-free man hours had been worked during this period.
FINANCIAL REVIEW
Profit and loss
During the year ended 30 June 2017, activity within the Company
focused on fundraising and documentation prior to the IPO in
January 2017, followed by exploration, mine preparation and
construction activity. There were no sales during the year,
therefore no revenue has been reported, and expenditure has been
split between those costs that have been expensed to the income
statement (including corporate and support activities), and those
that have been capitalised as part of the construction costs of the
Gakara mine.
Administration expenses of US$1.3 million (2016: US$0.6 million)
included corporate salaries of US$0.3 million, US$0.2 million
relating to IPO costs, US$0.5 million representing the accounting
charges for share options issued in the year and US$0.3 million of
other administrative and corporate costs. The increase compared to
the prior year reflects the increase in activity levels,
particularly connected with and subsequent to the IPO.
Exploration support costs, which are not capitalised, totalled
US$0.1 million in the year (including travelling and salaries),
slightly higher than the previous year.
Finance costs of US$0.2 million relate mainly to the effective
interest charges on the Pala Loan which was repaid in the year.
Finance income refers to the gain on extinguishment of the Pala
Loan of US$0.2 million.
No taxation charges were recognised in either the year ended 30
June 2017 or 2016. The Group generated a loss after tax of US$1.4m,
an increase of some 17% compared with the year ending 30 June 2016.
This increase reflects the costs expensed associated with IPO and
the significant change in support activity levels following the
raising of funding in January 2017.
Balance sheet
The Company's Non-current assets of US$6.0 million relate to the
capitalised exploration and mine development costs of the Gakara
Project in Burundi. During the year, this increased by
approximately US$2.2 million, essentially as a result of capex in
the year. The Gakara Project was reclassified from exploration and
evaluation assets to mine development costs within property, plant
and equipment in the year as the project was considered to have
reached commercial and technical feasibility for development.
The Company had total liabilities of US$0.4 million (2016:
US$2.4 million), of which US$0.3 million related to amounts owed to
staff, shareholders and in respect of payroll taxes due at year
end.
During the year, the Company repaid in full the Pala Loan
settling the liability in cash for US$1.7 million.
Cashflow
Net cash in the 12 months to 30 June 2017 increased by US$3.0
million.
Cash outflows included operating expenses and net movements in
receivables and payables (net cashflow from operating activities)
totalling US$0.8 million, US$2.1 million on exploration and mining
capex, and the repayment of the Pala loan for US$1.7 million.
Cash inflow related to the equity placement which raised US$7.4
million net of costs and a US$0.3 million loan drawn in the period
and subsequently settled in equity at IPO.
Financing
The IPO listing resulted in the settlement of the Pala loan,
which had been the Company's principal outstanding loan during the
year.
Taxation
The corporation tax rate in Burundi is 30%, however no revenues
were earned during the period, and therefore no taxable profits
reported.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
(a) the preliminary financial statements have been prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union, and give a true and fair view of the
assets, liabilities, financial position and loss of the Group for
the Year; and
(b) the preliminary management report for the Year includes a
fair review of the information required by the FCA's Disclosure and
Transparency Rules (DTR 4.1.8 R and 4.1.9 R).
By order of the Board
Martin Eales
Chief Executive Officer
3 October 2017
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2017
Year ended Year ended
30 June 30 June
Notes 2017 2016
US$'000 US$'000
Operating expenses:
Administration expenses (1,336) (623)
Exploration expenditure (95) (51)
------------- ------------
TOTAL OPERATING EXPENSES (1,431) (674)
Loss from operating activities 4 (1,431) (674)
Finance income 5 185 -
Finance costs 5 (156) (526)
Loss before tax (1,402) (1,200)
------------- ------------
Income tax expense 8 - -
Total loss after tax and comprehensive expense for the year (1,402) (1,200)
============= ============
Total loss after tax and comprehensive expense for the year is attributable to:
Non-controlling interest 19 (13) (6)
Owners of parent (1,389) (1,194)
(1,402) (1,200)
------------- ------------
The results of each year are derived from continuing operations
Loss per share
Basic 9 (0.01) (0.01)*
Diluted 9 (0.01) (0.01)*
* Adjusted for share consolidation in 2017
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2017
Year ended Year ended
Notes 30 June 30 June
2017 2016
US$'000 US$'000
Non-current assets
Exploration and evaluation assets 10 - 3,827
Plant, property and equipment 11 5,791 1
Prepayments 12 182 -
Total non-current assets 5,973 3,828
Current assets
Prepayments 12 22 -
Cash and cash equivalents 13 3,198 70
-------------- -------------
Total current assets 3,220 70
Total assets 9,193 3,898
-------------- -------------
Current liabilities
Borrowings 14 (20) (1,653)
Trade and other payables 15 (429) (765)
-------------- -------------
Total current liabilities (449) (2,418)
Total liabilities (449) (2,418)
-------------- -------------
NET ASSETS 8,744 1,480
=============
Equity and liabilities
Share capital 16 13,186 5,042
Share based payment reserve 18 494 -
Other reserves 40 40
Retained loss (4,982) (3,621)
-------------- -------------
Equity attributable to the parent 8,738 1,461
Non-controlling interest 19 6 19
TOTAL EQUITY 8,744 1,480
============== =============
These financial statements were approved and authorised for
issue by the Board of Directors on 3 October 2017 and signed on its
behalf by:
Martin Eales
Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2017
Share Share Equity Other Accum- Attribut- Non-controlling Total
capital Based reserve reserves ulated able interest
Payments losses to the
parent
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 01 July
2015 4,942 - - - (2,497) 2,445 25 2,470
Total
comprehensive
expense
Loss and total
comprehensive
loss for year - - - - (1,194) (1,194) (6) (1,200)
Transactions with
owners
Issue of
convertible loan
note - - 70 - - 70 - 70
Extinguishment of
convertible loan
note - - (70) - 70 - - -
Issue of
warrants(note 18) - - - 40 - 40 - 40
Issue of shares
during the year
(net of costs) 100 - - - - 100 - 100
Balance at 30 June
2016 5,042 - - 40 (3,621) 1,461 19 1,480
Total
comprehensive
expense
Loss and total
comprehensive
loss for year - - - - (1,389) (1,389) (13) (1,402)
Transactions with
owners
Extinguishment of
convertible loan
(notes 5 and 16c) - - - - 28 28 28
IPO Transaction
costs (note 16e) (778) - - - (778) - (778)
Share Based
payment reserve
(note 18) - 494 - - - 494 - 494
Issue of shares
during the year
(note 16) 8,922 - - - - 8,922 - 8,922
--------- ---------- --------- ---------- --------- ----------- ----------------- ---------
Balance at 30 June
2017 13,186 494 - 40 (4,982) 8,738 6 8,744
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 30 June 2017
Notes For year ended For year ended
30 June 30 June
2017 2016
US$'000 US$'000
Cash flow from operating activities
Loss after tax for the year (1,402) (1,200)
Adjustments for:
Share based payment charge 18 494 -
Finance costs 5 156 526
Finance income 5 (185) -
Net (increase)/decrease in prepayments (16) 19
Net increase/(decrease) in trade and other payables 109 (35)
Net cash used in operating activities (844) (690)
---------------- ----------------
Cash flow from investing activities
Purchase of exploration and evaluation assets 10, 26 (769) (583)
Purchase of property, plant & equipment 11, 26 (1,363) -
Net cash used in investing activities (2,132) (583)
---------------- ----------------
Cash flow from financing activities
Proceeds of new borrowings 16c 250 1,264
Repayment of borrowings 14 (1,700) -
Proceeds from the issuance of ordinary shares 16d 7,854 71
Transaction costs of issuing new equity (444) -
Net cash generated by financing activities 5,960 1,335
---------------- ----------------
Net increase in cash and cash equivalents 2,984 62
Cash & cash equivalents at the beginning of the year 70 8
Foreign exchange gains on cash and cash equivalents 144 -
Cash & cash equivalents at the end of the year 3,198 70
================ ================
NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION
Reporting entity
Rainbow Rare Earths Limited ('the Company' or 'Rainbow') is a
company domiciled in Guernsey and incorporated on 5 August 2011,
with company registration number 53831, and is a company limited by
shares. The address of the Company's registered office is Trafalgar
Court, Admiral Park, St Peter Port, Guernsey. The consolidated
financial statements of the Company for the years ended 30 June
2017 and 30 June 2016 comprise the Company and its subsidiaries
together referred to as the 'Group'.
2. ACCOUNTING POLICIES
Basis of preparation
The Financial Statements of the Company and its subsidiaries
("the Group") are prepared in accordance with International
Financial Reporting Standards ("IFRS") (IFRS and IFRIC
Interpretations) issued by the International Accounting Standards
Board ("IASB"), as adopted by the European Union. The financial
information for the year ended 30 June 2017 set out in this
announcement does not constitute statutory accounts
The financial information set out above does not constitute the
Company's statutory accounts for the year ended 30 June 2017 or
2016, but is derived from those accounts. The Auditor has reported
on those accounts. The 2017 and 2016 reports were unqualified but
the 2016 audit report did contain an emphasis of matter paragraph
in respect of going concern.
Going Concern
In January 2017, the Company raised US$8 million, to be used to
finance the construction of the Gakara mine, which is expected to
enter into production and generate first sale proceeds during Q4
2017.
The Board have considered detailed cash flow forecasts and
sensitivity analysis for a period to 31 December 2018. The
forecasts demonstrate that provided revenues from the first
shipment are received towards the earlier part of Q4 2017, the
Group will maintain positive cash headroom throughout the next 12
months. If sales revenues are delayed, for example due to issues in
the commissioning and ramp-up at the plant, or difficulties in
exporting the first shipments of mineral concentrate, it is likely
that existing cash balances will be insufficient. Accordingly, the
Board have considered reasonable and stress case sensitivity
scenarios to assess the potential funding required under such
eventualities, notwithstanding that the Board continues to
anticipate production and sale proceeds being received in the
earlier part of Q4 2017.
To protect against such an eventuality, during September 2017,
the Company agreed in principle an overdraft facility with Finbank
SA, a Burundian bank, for up to US$1.5m, which would provide
adequate headroom throughout the period in the event of such a
scenario materialising. In addition, the Company has received a
letter of support from Pella Resources, the Company's largest
shareholder confirming that it will make available funding to the
Company should the need arise, for a period up until 31 December
2018.
For this reason, the Board considers the Going Concern basis to
be appropriate for the preparation of the accounts for the year
ended 30 June 2017.
Standards in issue but not effective
The standards which were issued and effective for periods
starting on or after 1 July 2016 have been adopted in the year and
have not had a material impact to the Group financial
statements.
The Group has elected not to early adopt the following revised
and amended standards, which are not yet mandatory in the EU.
Standard Description Effective date
---------------------- -------------------------------------------------------------------- ----------------
IFRS 9 Financial instruments 1 January 2018
---------------------- -------------------------------------------------------------------- ----------------
IFRS 15 Revenue from Contracts with Customers 1 January 2018
---------------------- -------------------------------------------------------------------- ----------------
IFRS 16* Leases 1 January 2019
---------------------- -------------------------------------------------------------------- ----------------
IFRIC 22 Foreign Currency Translations and Advance Consideration 1 January 2018
---------------------- -------------------------------------------------------------------- ----------------
Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions 1 January 2018
---------------------- -------------------------------------------------------------------- ----------------
* not yet adopted by the European Union
The Group is currently assessing the impact of these standards
on the financial statements for future periods including the impact
on the measurement and presentation of its financial
instruments.
IFRS 15 Revenue from contracts with customers
The new standard was issued in May 2014. IFRS 15 is intended to
introduce a single framework for revenue recognition and clarify
principles of revenue recognition. This standard modifies the
determination of when to recognise revenue and how much revenue to
recognise. The new standard becomes mandatory for financial years
beginning on or after 1 January 2018. The effect of applying IFRS
15 will be assessed and disclosure will be made once the Group has
commenced sales of concentrate.
IFRS 9 Financial instruments
The complete standard was issued in July 2014 including the
requirements previously issued and additional amendments. The new
standard replaces IAS 39 and includes a new expected loss
impairment model, changes to the classification and measurement
requirements of financial assets as well as to hedge accounting.
The new standard becomes effective for financial years beginning on
or after 1 January 2018. The Group is currently assessing the
impact of this standard however based on current operations do not
expect this standard to have a material impact on the financial
statements.
IFRS 16 Leases
The new standard was issued in January 2016 replacing the
previous leases standard, IAS 17 Leases, and related
Interpretations. IFRS 16 establishes the principles for the
recognition, measurement, presentation and disclosure of leases for
the customer ('lessee') and the supplier ('lessor'). IFRS 16
eliminates the classification of leases as either operating or
finance as is required by IAS 17 and, instead, introduces a single
lessee accounting model requiring a lessee to recognise assets and
liabilities for all leases unless the underlying asset has a low
value or the lease term is twelve months or less. This new standard
applies to annual reporting periods beginning on or after 1 January
2019 subject to EU endorsement. This new standard, based on the
Group's current operations, is not expected to have a material
impact on the financial statements.
Basis of consolidation
Where the Company has control over an investee, it is classified
as a subsidiary. The Company controls an investee if all three of
the following elements are present: power over the investee,
exposure to variable returns from the investee, and the ability of
the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate
that there may be a change in any of these elements of control.
The consolidated financial statements present the results of the
Company and its subsidiaries as if they formed a single entity.
Intercompany transactions and balances between Group companies are
therefore eliminated in full.
The results of undertakings acquired or disposed of are
consolidated from or to the date when control passes to or from the
Group. The results of subsidiaries acquired or disposed of during
the year are included in the Consolidated Statement of
Comprehensive Income from the date that control commences until the
date that control ceases.
Where necessary, adjustments are made to the results of
subsidiaries to bring the accounting policies they use into line
with those used by the Group.
Non-controlling interests in the net assets of consolidated
subsidiaries are identified separately from the Group's equity.
Non-controlling interests consist of the non-controlling
shareholder's share of changes in equity. The non-controlling
interests' share of losses, where applicable, are attributed to the
non-controlling interests irrespective of whether the
non-controlling shareholders have a binding obligation and are able
to make an additional investment to cover the losses. On
acquisition of a non-controlling interest the relevant
non-controlling interest share of equity is extinguished and the
difference between the fair value of consideration paid and the
relevant carrying value of the non-controlling interest is recorded
in retained earnings.
Foreign currency
The consolidated financial statements are presented in US
dollars, which is also the functional currency of the company and
its subsidiaries. The Group's strategy is focused on developing a
rare earth project in the Republic of Burundi which will generate
revenues in United States Dollars and is funded by shareholder
equity and other financial liabilities which are principally
denominated in United States Dollars.
Transactions in foreign currencies are translated to the
functional currency of the Group entity at the rates of exchange
prevailing on the dates of the transactions. At each reporting
date, monetary assets and liabilities that are denominated in
foreign currencies are retranslated to the functional currency at
the rates prevailing on the reporting date. Exchange differences on
all transactions are recognised in the consolidated statement of
comprehensive income in the year in which they arise.
Rare earth exploration and evaluation assets
All exploration and appraisal costs incurred are accumulated in
respect of each identifiable project area. The costs historically
accumulated related to one identifiable project area, the Gakara
Project. These 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.
Pre-licence/project costs are written off immediately. Other
costs are also written off unless the Board has determined that the
project is commercially viable and technically feasible for
extraction, or the determination process has not been completed.
Accumulated cost in relation to an abandoned area are written off
in full to the statement of comprehensive income in the year in
which the decision to abandon the area is made.
Exploration and evaluation assets associated with an
identifiable project area are transferred from intangible fixed
assets to tangible fixed assets as 'mine development costs' when
the commercial viability and technical feasibility of extracting
the deposit has been established. This includes consideration of a
variety of factors such as whether the mining permit has been
awarded, whether funding required for development is sufficiently
certain of being secured, whether an appropriate mining method and
mine development plan is established and the results of exploration
data including internal and external assessments.
Property, plant and equipment
Property, plant and equipment consists of mine development
costs, process plant, mining equipment and vehicles, computer
equipment, motor vehicles, 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.
Depreciation
Property, plant and equipment is depreciated over the shorter of
the estimated useful life of the asset using the straight-line
method, or the life of mine using the unit of production method and
life of mine tonnes. Residual values and useful lives are reviewed
on an annual basis and changes are accounted for over the remaining
lives.
The applicable depreciation rates are as follows:
Description within mining and other equipment Useful life
----------------------------------------------- --------------
Mine development costs Life of mine
----------------------------------------------- --------------
Process plant Life of mine
----------------------------------------------- --------------
Mining equipment and vehicles 5 years
----------------------------------------------- --------------
Computer equipment 3 years
----------------------------------------------- --------------
Office furniture and fittings 7 years
----------------------------------------------- --------------
Deferred stripping costs
Stripping costs incurred during the development phase of the
mine as part of initial removal of overburden are capitalised as
mine development costs within property, plant and equipment and
depreciated on a units of production basis.
Stripping costs incurred during the production stage of the mine
are included within the cost of inventory produced (ie the ROM
stockpile) however may be accounted for as a non-current deferred
stripping asset, depending on the expectation of when the benefit
of the stripping activity is realised through the processing of
ore.
To the extent that the bene t from the stripping activity is
realised in the form of inventory produced in the current period,
the directly attributable costs of that mining activity is treated
as part of the ore stockpile inventory.
To the extent that the bene t from the stripping activity is the
improved access to ore that will be mined in future periods and the
cost is material, the directly attributable costs are treated as a
non-current 'stripping activity asset' and depreciated over the
relevant section of the ore body.
Impairment of exploration and evaluation assets
Exploration and evaluation assets are reviewed regularly for
indicators of impairment following the guidance in IFRS 6
'Exploration for and Evaluation of Mineral Resources' and tested
for impairment where such indicators exist. In addition, these
assets are tested for impairment prior to transfers to mine
development costs.
In accordance with IFRS 6 the Group considers the following
facts and circumstances in their assessment of whether the Group's
exploration and evaluation assets may be impaired:
-- whether the period for which the Group has the right to
explore in a specific area has expired during the period or will
expire in the near future, and is not expected to be renewed;
-- whether substantive expenditure on further exploration for
and evaluation of mineral resources in a specific area is neither
budgeted nor planned;
-- whether exploration for and evaluation of reserves in a
specific area have not led to the discovery of commercially viable
quantities of mineable material and the Group has decided to
discontinue such activities in the specific area; and
-- whether sufficient data exists to indicate that although a
development in a specific area is likely to proceed, the carrying
amount of the exploration and evaluation assets is unlikely to be
recovered in full from successful development or by sale.
If any such facts or circumstances are noted, the Group, as a
next step, perform an impairment test in accordance with the
provisions of IAS 36. In such circumstances the aggregate carrying
value of the exploration and evaluation asset is compared against
the expected recoverable amount of the cash generating unit. The
recoverable amount is the higher of value in use and the fair value
less costs to sell.
Any impairment arising is recognised in the Income Statement for
the year.
Impairment of property, plant and equipment
A review is carried out at each balance sheet date to determine
whether there is any indication that tangible fixed assets should
be impaired. Assets are assessed for indicators of impairment (and
subsequently tested for impairment if an indicator exists) at the
level of a Cash Generating Unit ('CGU'). A CGU is the smallest
group of assets that generates cash inflows from continuing use. If
an indication of impairment exists, the recoverable amount of the
asset or CGU is determined. The recoverable amount is the higher of
value in use and the fair value less cost to sell. In assessing the
value in use the expected future cash flows from the assets are
determined based on estimates of the life of mine production plans
together with estimates of future rare earth prices, capital
expenditure necessary to extract the deposit included in the life
of mine plan, cash costs and applying a discount rate to the
anticipated risk adjusted future cash flows.
An impairment is recognised immediately as an expense to the
extent that the carrying amount exceeds the assets' recoverable
amount. Where there is a reversal of the conditions leading to an
impairment, the impairment is reversed through the income
statement.
Environmental rehabilitation costs
An obligation to incur restoration, rehabilitation and
environmental costs arises when environmental disturbance is caused
by the development or ongoing production of a mining property. Such
costs arising from the decommissioning of plant and other site
preparation work, discounted to their net present values, are
provided for in full as soon as the obligation to incur such costs
arises and can be quantified. On recognition of a full provision,
an addition is made to property, plant and equipment of the same
amount; this addition is then charged against profits on a unit of
production basis over the life of the mine. Closure provisions are
updated annually for changes in cost estimates as well as for
changes to life of mine, with the resulting adjustments made to
both the provision balance and the net book value of the associated
non-current asset.
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.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the corresponding tax bases
used in the computation of taxable profit. It is accounted for
using the balance sheet liability method. Deferred tax liabilities
are recognised for all taxable temporary differences and deferred
tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible
temporary differences can be utilised. The carrying amount of
deferred tax assets is reviewed at each reporting date and reduced
to the extent that it is no longer probable that sufficient taxable
profits will be available to allow all or part of the asset to be
recovered.
Convertible loan notes
Upon issue of a new convertible loan, where the convertible
option involves the receipt of a fixed amount of proceeds for a
fixed number of shares to be issued on any conversion, the net
proceeds received from the issue of convertible loan notes are
split between a liability element and an equity component at the
date of issue. The fair value of the liability component is
estimated by discounting the contractual future cash flows at the
prevailing market interest rate for similar non-convertible debt.
The difference between the proceeds of issue of the convertible
loan notes and the fair value assigned to the liability component,
representing the embedded option to convert the liability into
equity of the Group, is included in equity and is not
re-measured.
Subsequent to the initial recognition the liability component is
measured at amortised cost using the effective interest method.
On conversion, the liability is reclassified to equity and no
gain or loss is recognised in the profit or loss. The finance costs
recognised in respect of the convertible borrowings includes the
accretion of the liability.
Where there are amendments to the contractual loan note terms
that are considered to represent a significant modification to the
loan note, without representing an inducement to convert, the Group
treats the transaction as an extinguishment of the existing
convertible loan note and replaces the instrument with a new
convertible loan note. An income statement charge is recorded based
on the fair value of the new instrument attributable to
extinguishing the original liability component. An adjustment to
equity is recorded based on the fair value of the new instrument
attributable to extinguishing the original equity component and the
previous equity reserve is reclassified to accumulated loss.
When the terms of a new convertible loan arrangement are such
that the option will not be settled by the Company in exchange for
a fixed number of its own equity instruments for a fixed amount of
cash, the convertible loan (the host contract) is accounted for as
a hybrid financial instrument and the option to convert is an
embedded derivative.
The embedded derivative is separated from the host contract as
its risks and characteristics are not closely related to those of
the host contract. At each reporting date, the embedded derivative
is measured at fair value with changes in fair value recognised in
the income statement as they arise. The host contract carrying
value on initial recognition is based on the net proceeds of
issuance of the convertible loan reduced by the fair value of the
embedded derivative and is subsequently carried at each reporting
date at amortised cost. The embedded derivative and host contract
are presented under separate headings in the statement of financial
position.
Prior to conversion the embedded derivative is revalued at fair
value. Upon conversion of the loan, the liability, including the
derivative liability, is derecognised in the statement of financial
position. At the same time, an amount equal to the redemption value
is recognised within share capital. Any resulting difference is
recognised in retained earnings.
Financial instruments
Financial assets and financial liabilities are recognised on the
statement of financial position when the Group becomes a party to
the contractual provisions of the instrument.
- Financial assets
Cash and cash equivalents comprise cash held by the Group and
short-term bank deposits with a maturity of three months or
less.
Trade and other receivables are measured at initial recognition
at fair value and are subsequently measured at amortised cost using
the effective interest method. A provision is established when
there is objective evidence that the Group will not be able to
collect all amounts due. The amount of any provision is recognised
in the income statement.
- Financial liabilities
Loans, borrowings and trade and other payables are initially
measured at fair value and are subsequently measured at amortised
cost using the effective interest rate method. They are classified
as current liabilities unless the company has an unconditional
right to defer settlement of the liability for at least 12 months
after the statements of financial position date.
Convertible loan notes are assessed to determine whether the
conversion element meets the fixed-for-fixed criterion. Where this
is met, the instrument is accounted for as a compound financial
instrument with appropriate presentation of the liability and
equity components, see accounting policy detailed above.
Equity instruments issued to a creditor to extinguish all or
part of a financial liability are initially recognised at their
fair value. If their fair value cannot be determined, the equity
instruments are measured to reflect the fair value of the financial
liability extinguished. The difference between the carrying amount
of the financial liability extinguished and the consideration paid
is recognised in profit or loss.
Share capital
Ordinary shares are classified as equity and are recorded at the
proceeds received, net of any direct issue costs.
Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision maker has been identified as the Chief
Executive Officer. It is considered that there is only one segment
of the Group being the exploration and evaluation of rare
earths.
Share options
Equity-settled share based payments to employees and Directors
are measured at the fair value of the equity instrument. The fair
value of the equity-settled transactions with employees and
Directors is recognised as an expense over the vesting period. The
fair value of the equity instruments are determined at the date of
grant, taking into account market based vesting conditions.
The fair values of share options are measured using the Black
Scholes model. The expected life used in the models is adjusted,
based on management's best estimate of the effects of
non-transferability, exercise restrictions and behavioural
considerations.
The cost of equity-settled transactions is recognised, together
with a corresponding increase in equity, over the period in which
the performance and/or service conditions are fulfilled, ending on
the date on which the relevant employees (or other beneficiaries)
become fully entitled to the award ('the vesting date').
The cumulative expense recognised for equity-settled
transactions at each reporting date until the vesting date reflects
the extent to which the vesting period has expired and the
Company's best estimate of the number of equity instruments that
will ultimately vest.
The income statement charge or credit for a period represents
the movement in cumulative expense recognised as at the beginning
and end of that period.
No expense is recognised for awards that do not ultimately vest,
except for awards where vesting is conditional upon a market
condition, which are treated as vesting irrespective of whether or
not 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 charge is expensed on a straight-line basis over the
vesting period. The fair value is measured using the Black-Scholes
model. Where warrants are considered to represent a transaction
cost attributable to a debt issue, the fair value is recorded in
the warrant reserve and deducted from the debt liability and
subsequently amortised through the effective interest rate.
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 estimation
uncertainty and judgment are:
Exploration and evaluation asset recognition (note 10)
Qualifying exploration and evaluation costs are initially
classified and held as intangible fixed assets rather than being
expensed. In recording costs as exploration and evaluation assets,
judgment is required as to the extent to which the costs are
attributable to the discovery of specific mineral resources and
include both internal and external costs.
The carrying values of intangible exploration and evaluation
assets were assessed for indicators of impairment prior to transfer
to plant, property and equipment and at 30 June 2016 based on an
estimation of the recoverability of the cost pool from expected
future development and production of the related rare earth
potential reserves and resources. In forming this assessment, the
Group considered the external Competent Person's Report into the
project, the status of its permits and internal economic models and
financing which supported the carrying value of the project. No
triggers of impairment were identified at the point of transfer to
plant, property and equipment or at 30 June 2016.
Transfer to plant, property and equipment (note 11)
On 30 June 2017 the Group transferred the Gakara Project
exploration and evaluation asset to mine development costs. The
determination that the project had reached a stage of being
commercially viable and technically feasible for extraction
notwithstanding its classification as an Exploration Target under
JORC rules represented a key judgment. In forming this judgment,
the Board considered factors including: a) the mine permit had been
awarded; b) the Project had secured funding for development and
construction of the plant; c) the production phase due to commence
in Q4 2017 is anticipated to be profitable and cash generative; d)
the mine development plan had been established; and e) the results
of exploration data including internal and external
assessments.
Carrying value of plant, property and equipment (note 11)
The group assessed at 30 June 2017 whether there was any
indication that these assets may be impaired. If such indication
exists, the group estimates the recoverable amount of the asset.
The recoverable amount is assessed by reference to the higher of
'value in use' (being the net present value of expected future cash
flows of the relevant cash generating unit) and 'fair value less
cost to sell'.
At 30 June 2017, the carrying value of the Company's fixed
assets was US$6.0 million, considerably lower than its net asset
value according to management forecasts. The impairment indicator
review initially assessed the market capitalisation of the Company
which was in excess of the carrying value of net assets. In
addition by 3 October 2017, the basket price for the Company's rare
earth concentrate had risen over 80% since 1 January 2017,
construction work is proceeding largely on schedule, and geological
discoveries have been consistently better than initial
expectations.
In addition, as part of the impairment indicator assessment,
Management have assessed the life of mine plan and its associated
future discounted cash flows which involves a number estimates and
assumptions. This model supports the carrying value but required
estimates of rare earth reserves and resources with reference to
the Competent Person's Report and internal geological data, future
production, estimates of market prices realisable by the mine,
operating and capital costs associated with the project and
discount rates. The model assessed for the purposes of identifying
potential impairment indicators was prepared using a minimum
production target significantly below the upper end range of 80,000
tonnes of material grading identified in the Competent Person's
Report and for which management and the Competent Person's Report
forecast further upside as the geology of the ore body is further
explored. It is noted that the project is currently categorised at
an Exploration Target by the Competent Person's Report and
therefore does not qualify as a measured resource. However, given
the nature of the deposit, internal studies and historical data the
Board consider the minimum production target to be
conservative.
Management therefore concluded that these facts did not indicate
that a trigger for impairment existed and no impairments were
recognised.
Share based payments (note 18)
Share based payments relate primarily to share options issued by
the Company, in relation to employee share benefit schemes. The
grant date fair value of such options are calculated using a
Black-Scholes model whose input assumptions are derived from market
and other internal estimates. The key estimates include volatility
rates and the expected life of the options, together with the
likelihood of non-market performance conditions being achieved.
IPO related costs
Costs associated with the IPO included both costs that were
directly attributable to the share placing which has been recorded
as a deduction against equity, costs directly attributable to the
IPO process excluding the share placing, which have been expensed
and costs which supported both the listing of existing shares and
the new equity placing. These latter costs have been allocated
between the two categories based on the ratio of new share issues
versus the enlarged shares in issue post IPO. The ratio applied and
the allocation of such costs required judgment. In total US$0.3
million of costs were expensed and US$0.8 million of costs were
deducted from equity.
Decommissioning, site rehabilitation and environmental costs
The Group's mining and exploration activities are subject to
various laws and regulations governing the protection of the
environment. The Group recognises management's best estimate of the
rehabilitation costs in the period in which they are incurred.
Actual costs incurred in future periods could differ materially
from the estimates. Additionally, future changes to environmental
laws and regulations, life of mine estimates and discount rates
could affect the carrying amount of this provision. The Board
assessed the extent of rehabilitation and decommissioning required
as at 30 June 2017 and concluded that the effect was immaterial
given the nature of the works that had been performed at that date
and the requirements under legislation, the mining permit and
Environmental Management Plan.
4. LOSS FROM OPERATING ACTIVITIES
Operating loss includes:
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
Professional fees in relation to the IPO (284) -
Share based payment (494) -
Audit of the Group and Company financial statements (42) -
Non-audit related service fees (87) (8)
Foreign exchange gain 229 52
5. FINANCE COSTS AND INCOME
FINANCE COSTS Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
Effective interest charge on borrowings 128 191
Loss on extinguishment of convertible loan notes (note 14) - 335
Fair value movement in derivative and interest charge on convertible loan notes
(note 16c) 28 -
156 526
--------------- ---------------
FINANCE INCOME
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
Gain on extinguishment of convertible loan notes (note 14) 185 -
Total finance income 185 -
--------------- ---------------
The interest charge related primarily to the Pala loan facility,
which was repaid during the year, see note 14. The credit of
US$185k recognised on repayment of that loan related to interest
and fees which had been accrued for but which were released
following the negotiation of a final settlement figure of US$1.7
million.
6. REMUNERATION OF KEY MANAGEMENT PERSONNEL
Key management personnel are defined as being Executive and
Non-executive Directors and Persons Discharging Managerial
Responsibility ('PDMRs'), who are in effect the members of the
Executive Committee.
Their remuneration for the 12 months ended 30 June 2016 and 30
June 2017 is summarised as follows:
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
Wages and salaries 693 249
Benefits 15 -
Share based payments 483 -
Total remuneration of key management personnel 1,191 249
============== ===============
Benefits paid to employees include healthcare and pension
contributions.
7. TOTAL EMPLOYEE REMUNERATION (INCLUDING KEY MANAGEMENT PERSONNEL)
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
Wages and salaries 877 415
Benefits 20 -
Share-based payments 494 -
Total employee remuneration 1,391 415
=============== ===============
The average number of employees during the period were made up as follows:
Directors 5 4
Management and administration 7 4
Mining, processing and exploration staff 16 -
--------------- ---------------
28 8
--------------- ---------------
Following the IPO in January 2017, the Company began the
recruitment of management and operating staff. By 30 June 2017, the
Company had 123 employees, including 6 Directors, 9 management and
administration staff, and 108 mining, processing and exploration
staff.
8. INCOME TAX EXPENSE
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
Current tax expense - -
Deferred tax expense - -
Total tax expense for the year - -
--------------- ---------------
The difference between the total tax expense shown above and the
amount calculated by applying the standard rate of corporation tax
to the loss before tax is as follows:
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
Loss for the year (1,402) (1,200)
- -
Income tax using the Guernsey rate of 0% :
Effects of:
Differences in tax rates (163) (120)
Tax losses carried forward 163 120
- -
--------------- ---------------
Rainbow Rare Earths Limited and Rainbow International Resources
Limited are subject to 0% income tax in Guernsey and the British
Virgin Islands respectively. Rainbow Rare Earths UK Limited, which
was established on 1 April 2017, is subject to an income tax rate
in United Kingdom of 19%. In Burundi, Rainbow Burundi SPRL and
Rainbow Mining Burundi SM are subject to corporation tax at
30%.
No deferred tax asset has been recognised in respect of the tax
losses carried forward as the recoverability of this benefit is
dependent on the future profitability of the Company, the timing of
which is considered insufficiently certain. The total unrecognised
potential deferred tax assets in respect of losses carried forward
in Rainbow Rare Earths UK Ltd are US$1k (30 June 2016: US$nil),
Rainbow Burundi SPRL US$103k (30 June 2016: US$97k), and in respect
of Rainbow Mining Burundi SM they are US$60k (30 June 2016:
US$23k).
9. LOSS PER SHARE
The earnings per share calculations for 30 June 2017 reflect the
changes to the number of ordinary shares during the period. On 9
January 2017, each ordinary share was subdivided into 66 new
shares, which increased the number of shares by 80,640,516. On 30
January 2017, the Company underwent an Initial Public Offering,
which included the allotment of 65,036,958 new shares to
subscribers, and 5,126,507 shares to settle outstanding creditors,
while on 1 February 2017, 2,600,665 shares were issued in respect
of commissions and underwriting discounts. Earnings per share have
been calculated using the weighted average of ordinary shares,
adjusted for the effect of the share subdivision, in order for the
calculations of basic and diluted earnings per share for all
periods presented to be comparable. The Company was loss making for
all periods presented, therefore the dilutive effect of share
options has not been taken account of in the calculation of diluted
earnings per share, since this would decrease the loss per share
for each of the period reported.
Weighted number of ordinary shares
At 1 June 2016 81,834,808
------------------ ------------------------------------
At 30 June 2017 112,135,616
------------------ ------------------------------------
Basic Diluted
2017 2016 2017 2016
Loss for the year (US$'000) (1,402) (1,200) (1,402) (1,200)
Weighted average number of ordinary shares in issue
during the year 112,135,616 81,834,808 112,135,616 81,834,808
Loss per share (cents) 0.01 0.01 0.01 0.01
------------- ------------ ------------- ------------
The weighted average number of shares for 2016 has been adjusted
for the effect of the share sub-division during 2017. The
previously presented weighted average number of ordinary shares in
2016 was 1,218,105, equivalent to 81,834,808 if the share
consolidation had taken place at the start of 2016. At 30 June
2017, there were 10,120,324 (2016: 427,924) potentially dilutive
shares in issue through warrants and options.
10. EXPLORATION AND EVALUATION ASSETS
Total
US$'000
At 1 July 2015 3,275
Additions 552
At 30 June 2016 3,827
---------
At 1 July 2016 3,827
Additions in year 776
Transfer to plant, property and equipment (note 11) (4,603)
---------
At 30 June 2017 -
---------
The Group has a 100% interest, held through its wholly owned
subsidiary, Rainbow International Resources Limited, in the
135km(2) Gakara rare earths exploration licence in Burundi which
was granted by Presidential decree in May 2011 for an initial
licence period of 3 years and was renewed in June 2014 for a period
of 2 years and was further renewed in September 2016 for 2
years.
The Group, through its 90% owned Burundian subsidiary, Rainbow
Mining Burundi SM, was granted a 25 year mining licence in April
2015 for a 39km(2) portion of the Gakara project area.
At 30 June 2017, the total value of exploration costs previously
capitalised as intangible assets in respect of the Gakara project
were transferred to plant, property and equipment, in accordance
with the Company's accounting policies (see Note 2).
11. PLANT, PROPERTY AND EQUIPMENT
Office
Mine development costs Plant and machinery Vehicles equipment Total
------------------------ --------------------- ---------- ------------
Year ended 30 June 2017 US$'000 US$'000 US$'000 US$'000 US$'000
----------------------------- ------------------------ --------------------- ---------- ------------ ---------
Cost
At 1 July 2016 - - - 1 1
Transfer from exploration
and evaluation assets 4,603 - - - 4,603
Additions - 1,016 169 2 1,187
At 30 June 2017 4,603 1,016 169 3 5,791
------------------------------ ------------------------ --------------------- ---------- ------------ ---------
Depreciation
At 1 July 2016 - - - - -
Charge for year - - - - -
At 30 June 2017 - - - - -
----------------------------- ------------------------ --------------------- ---------- ------------ ---------
Net Book Value at 30 June 2017 4,603 1,016 169 3 5,791
------------------------------ ------------------------ --------------------- ---------- ------------ ---------
Net Book Value at 30 June 2016 - - - 1 1
------------------------------ ------------------------ --------------------- ---------- ------------ ---------
Net Book Value at 30 June 2016 - - - 1 1
------------------------------ ------------------------ --------------------- ---------- ------------ ---------
During the year, capitalised costs of US$4.6 million, which had
previously been classified under intangible assets, were
transferred to tangible fixed assets (see note 10 above).
No depreciation charge was applied during the year, as the
Gakara project had not yet entered into production. Assets will be
depreciated over their useful economic lives, in accordance with
the Company's accounting policies, once production commences
(expected to be during Q4 2017).
12. PREPAYMENTS
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US US$'000
Non-current prepayments 182 -
Current prepayments 22 -
Total prepayments 204 -
--------------- ---------------
Non-current prepayments relate to advance payments on equipment
for the Gakara project.
13. CASH AND CASH EQUIVALENTS
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
Cash at bank and in hand 3,198 70
3,198 70
=============== ===============
No cash amounts were restricted at 30 June 2017 (30 June 2016:
nil).
14. BORROWINGS
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
Current
Arc Securities (A) 20 20
Pala Investments Limited (B) - 1,633
--------------- ---------------
20 1,653
--------------- ---------------
(A) Terms of Loan - Arc Securities
The US$20k loan from Arc Securities is unsecured, bears no
interest and is repayable on demand, and was drawn in March 2014.
Arc Securities is a related party (see Note 21)
(B) Terms of Convertible Loan - Pala Investments Limited
On 31 October 2015 the Group entered into a US$6m loan facility
agreement with Pala Investments Limited. Upon entering into the
agreement the Group issued US$1.5m of convertible loan notes, which
were convertible at any time prior to maturity at the discretion of
the holder, into Ordinary Shares with the number of shares
equivalent to the principal divided by US$14.407 per share.
On 5 April 2016 the Group agreed with Pala Investments Limited
to vary the terms of the agreement. The maturity date was amended
to 31 January 2017 and the loan notes could only be converted if
the Group defaulted on the loan on this date. The conversion rate
remained unchanged. The convertible loan notes were extinguished
and replaced with an amended convertible loan. The fair value of
the equity component of the revised convertible loan note was
considered to be immaterial. The fair value of the liability
component of the new convertible loan was US$1.6m discounted at a
market rate of 13%. The variation of terms gave rise to a loss on
extinguishment of the liability of US$335k which substantially
related to unamortised original transaction costs. The interest
charge accreted over the loan period with US$191k (old and new
instrument) having been charged for the period to 30 June 2016.
Pursuant to an amendment agreement dated 19 December 2016, this
loan was repaid in the amount of US$1.7m on 31 January 2017. The
carrying value of the loan at date of repayment was US$1.76m with a
total of $1.89m due to Pala (including fees of US$132k and accrued
effective interest of US$263k). The fees were waived and upon final
settlement a gain of $185k recognised in finance income. The
interest charged for the period to 31 January 2017 was US$128k
recognised in finance costs.
15. TRADE AND OTHER PAYABLES
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
Trade payable 61 127
Accrued expenses 64 96
Payroll taxes 17 18
Amounts due to staff and management 135 338
Pension contributions 10 -
Amounts owed to shareholders 126 170
Other payables 16 16
--------------- ---------------
Total trade and other payables 429 765
--------------- ---------------
The average terms for trade and other payables are 30 days.
The Directors consider that the carrying value of trade and
other payables approximate to their fair value.
16. SHARE CAPITAL
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
Share Capital 13,186 5,042
Issued Share Capital 13,186 5,042
============== ==============
The shares issued have no par value.
The table below shows a reconciliation of share capital movement
in the year:
Note Number of shares Value (US$'000)
------------------ -----------------
At 30 June 2015 1,211,826 4,942
------------------ -----------------
July 2015 - rights issue a 10,000 100
At 30 June 2016 1,221,826 5,042
------------------ -----------------
January 2017 - 1:67 share subdivision b 80,640,516 -
January 2017 - share allotments to settle debt and other creditors c 5,126,507 602
January 2017 - share allotment as part of IPO d 65,036,958 8,000
January 2017 - IPO costs relating to new shares e - (778)
February 2017 - share allotments f 2,600,665 320
------------------ -----------------
At 30 June 2017 154,626,472 13,186
------------------ -----------------
Shares issued during the year
a. On 17 June 2015 the Company undertook a rights issue to
existing shareholders of 8.25 shares for every 1,000 shares held.
The rights issue subscription was opened on 17 June 2015 and closed
on 16 July 2015. Share subscriptions totalling US$100k were
received for the issue of 10,000 shares at US$10 per share.
b. On 9 January 2017, the Company subdivided each of its
existing ordinary shares (1,221,826) into 67 ordinary shares
(81,862,342).
c. On 30 January 2017, the Company issued 2,868,151 ordinary
shares at 10p (12.3 cents) per share to various creditors and key
management personnel shown below to settle amounts owing. On the
same day, it also issued 2,258,356 ordinary shares to Alpha Future
Investments at a discounted price of 9p (11.1 cents) per share on
the conversion of its loan as explained below.
No of shares US$'000
Cesare Morelli* 612,559 75
Gilbert Midende* 746,647 91
Martin Eales* 786,579 96
Alpha Future Investments 2,258,356 250
Other creditors 722,366 90
-------------- ---------
5,126,507 602
On 17 October 2016 the Group entered into a loan agreement with
Alpha Future Investments to fund working capital and expenditure
requirements. Upon entering into the agreement the Group issued
US$0.25m of convertible loan notes, which were convertible upon IPO
at a 10% discount to the IPO price. If the IPO had not completed
before 31 January 2017 Alpha could elect to convert the loan at a
20% discount to the IPO price or continue to extend the loan on an
unsecured basis on which interest would accrued at 13% per annum
from 1 February 2017. The principal and accrued interest would be
due for repayment on 31 January 2019.
The terms of the agreement were such that a variable number of
shares could be issued. The option to convert to a variable number
of shares represented an immaterial embedded derivative. The IPO on
30 January triggered conversion of the loan notes. Prior to
conversion the embedded derivative was fair valued. The loan
liability was converted into 2,258,356 new ordinary shares at the
placing price of $0.11 (GBP0.09) in accordance with the agreed
terms noted above. The loan note and embedded derivative were
derecognised and included in equity. At the date of conversion no
loan interest had accrued in line with the agreement.
d. On 30 January 2017, the Company successfully listed on the
London Stock Exchange (RBW: LSE) and issued 65,036,958 ordinary
shares at admission price of 10p (12.3 cents) per share raising $8m
share capital (the Group incurred $0.15m in foreign exchange
following the settlement of the funds).
e. Costs in relation to the allotment of new shares as part of
the IPO amounted to US$778k. This amount has been set off against
share capital.
f. On 2 February 2017, the Company issued 2,600,665 ordinary
shares for commissions and early subscription discounts in relation
to the issuance of the 65 million shares, as follows:
No of shares US$'000
Early subscription discounts
Alexander Lowrie (including related parties)* 333,333 41
Other members of Lowrie family 627,776 77
961,109 118
Commissions
Alexander Lowrie* 380,126 47
Atul Bali* 339,430 42
Other commissions 920,000 113
1,639,556 202
2,600,665 320
-------------- ---------
* are transactions with related parties (see note 21).
17. RESERVES
Reserve Purpose
Share capital Value of shares issued less costs of issuance
Share-based payment reserve Fair value of share options issued
Equity reserve Fair value of proceeds on the issue of convertible debt attributable to the equity
conversion
component i.e. the option to convert the debt into share capital, less amounts
removed from
the reserve on extinguishment of the convertible loan note
Other reserves Includes fair value of warrants issued
Accumulated losses Cumulative net losses recognised in the statement of comprehensive income
Amounts attributable to the 10% interest the State of Burundi has in Rainbow Mining
Non-controlling interest Burundi
SM and 3% interest Gilbert Midende has in Rainbow Burundi SPRL at 30 June 2017. Refer
to note
19 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.
18. SHARE OPTIONS AND WARRANTS
Employee share options
The Company issued a total of 9,692,400 share options in the
year in two tranches: 6,692,400 on 30 January 2017 at a grant price
of 10 pence, and 3,000,000 share options on 27 June 2017 at a grant
price of 12.75 pence.
Options Exercised/ Granted Options Exercise Date of Date from
held at 30 cancelled during held at 30 price grant which
June 2016 during the the June 2017 (pence) exercisable(1)
period period
--------------- ------------- ------------- ----------- ------------ ------------ ------------ ----------------
A Pouroulis - - 402,000 402,000 10.00 30-Jan-17 30-Jan-17
C Morelli - - 944,700 944,700 10.00 30-Jan-17 30-Jan-17
G Midende - - 944,700 944,700 10.00 30-Jan-17 30-Jan-17
M Eales(2) - - 3,500,000 3,500,000 10.00 30-Jan-17 30-Jan-17
R Sinclair - - 350,000 350,000 10.00 30-Jan-17 30-Jan-17
S McCormick - - 350,000 350,000 10.00 30-Jan-17 30-Jan-17
J Wynn(2) - 1,500,000 1,500,000 12.75 27-Jun-17 27-Jun-17
B
Jankowitz(2) - - 1,500,000 1,500,000 12.75 27-Jun-17 27-Jun-17
Others - - 201,000 201,000 10.00 30-Jan-17 30-Jan-17
- - 9,692,400 9,692,400 10.85
------------- ----------------------------- ----------- ------------ ------------ ------------ ----------------
1 - All awards made in the year vest and are exercisable in
three equal tranches: the first on the date of award, and the
second and third 12 and 24 months later respectively.
2 - 4,333,333 share options awarded to M Eales, J Wynn and B
Jankowitz are subject to performance conditions (on tranche 2 and 3
above) related to safety, and operational and strategic targets,
which are required to be met if exercise of vested options are to
be permitted by the Remuneration Committee. These performance
conditions are forecast to vest based on Management's best
estimate.
At 30 June 2017, the following share options are exercisable and
outstanding:
Number Average weighted exercise price Fair value (US$'000)
----------------------------------------- ----------- --------------------------------- ----------------------
Outstanding at 1 July 2016 - - -
Granted during the year 9,692,400 10.85 pence 1,033
Exercised in the year - - -
Cancelled or expired in the year - - -
----------------------------------------- ----------- --------------------------------- ----------------------
Outstanding at 30 June 2017, of which: 9,692,400 10.85 pence 1,033
* Exercisable 3,230,800 10.85 pence 344
* Not exercisable 6,461,600 10.85 pence 689
----------------------------------------- ----------- --------------------------------- ----------------------
Warrants
On 9 November 2015 Rainbow Rare Earths issued 6,293 warrants for
services with an exercise price of US$14.30 per warrant and a
contractual life of 5 years. The separable warrants were issued as
consideration for arranging the Pala funding. Following the share
sub-division, the total warrants and exercise price have been
adjusted on a pro rata basis in accordance with the existing
agreement.
At 30 June 2017, the following share warrants were
outstanding:
Number Exercise price Fair value (US$'000)
Outstanding at 1 July 2016 6,293 US$14.30 40
January 2017 - 1:67 share subdivision 421,631 - -
Exercisable at 30 June 2017 427,924 US$0.21 40
---------------------------------------- --------- ---------------- ----------------------
The Fair Value of share options and warrants awarded in the
current and prior year was estimated using a Black-Scholes model.
The inputs into the Black--Scholes were:
Share Options awarded 30 January 2017 Share Options awarded 27 June 2017 Warrants
--------------------------- --------------------------------------- ------------------------------------ ----------
Share price (GBP) 0.10 0.1275 10.83
Exercise price (GBP) 0.10 0.1275 10.83
Expected volatility 90% 90% 50%
Risk--free rate 1.8% 1.8% 1.8%
Rate of Exchange 1.23 1.30273 1.32
Contractual life (years) 7 7 5
--------------------------- --------------------------------------- ------------------------------------ ----------
Expected volatility was determined by the volatility of a basket
of similar listed companies. The expected life used in the model
has been on management's best estimate for the effects of exercise
restrictions and behaviour.
19. NON-CONTROLLING INTEREST
The non-controlling interests of the Group's partners in its
operations are presented in the table below:
Name of subsidiary Rainbow Burundi SPRL Rainbow Mining Burundi SM
Country Burundi Burundi
US$'000 US$'000
Effective non-controlling interest 2016 3% 10%
As at 1 July 2015 3 (28)
Loss for year 2 4
---------------------- ---------------------------
At 30 June 2016 5 (24)
Effective non-controlling interest 2017 3% 10%
As at 1 July 2016 5 (24)
Loss for year 1 12
---------------------- ---------------------------
At 30 June 2017 6 (12)
Assets at year-end:
30 June 2016 1,179 180
30 June 2017 1,229 2,358
Liabilities at year-end:
30 June 2016 1,469 (64)
30 June 2017 1,539 2,237
Loss for the year to:
30 June 2016 53 43
30 June 2017 20 123
20. CAPITAL COMMITMENTS
On 10 March 2017, the Company entered into an agreement with
Obsideo Consulting Pty Ltd for the design, supply, and installation
of a rare earths concentrator plant, for a total of ZAR 23.3
million (US$1.8 million). As at 30 June 2017, a total of US$1.0
million had been incurred under this contract, therefore US$0.8
million should be considered a capital commitment at the year
end.
21. RELATED PARTY TRANSACTIONS
2017 2016
Charged in Balance as Charged in Balance as Related party Description
year at 30 June year at 30 June
US$'000 US$'000 US$'000 US$'000
Artemis 56 76 32 120 R Sinclair Company
Trustees secretarial
Limited services to the
Group
Alexander 88 - - - A Lowrie Shares allotted
Lowrie as underwriting
discount (see
Note 16)
Advance to the
Arc Company (see
Securities - 20 - 20 B Smit Note 14)
Atul Bali 42 - - - A Bali Shares allotted
for equity
raised (see
below and Note
16)
Gilbert 34 2 - 104 G Midende Rental of
Midende accommodation
for staff, plus
acquisition of
land for plant
site
Martin Eales - 122 - 125 M Eales Balance of
settlement for
waiver of
profit-share
agreement
Pella
Resources London office
Limited 20 43 22 37 A Pouroulis rental
Sutton - - - 1 B Smit Consulting
Consulting disbursements
owed
Uvumbuzi 54 8 46 70 C Morelli Exploration
Resources activity (ground
Limited magnetic survey
in Burundi)
Benzu Exploration
Minerals 12 - 18 24 C Morelli activity
--------------- -------------- --------------- -------------- --------------- ------------------
306 271 118 501
--------------- -------------- --------------- -------------- --------------- ------------------
-- During the year, shares were issued in order to settle
commissions due to Atul Bali for bringing investors into the IPO,
and to Alexander Lowrie as a discount for committing early to the
fundraising (see note 16 for details).
-- The US$122k due to Martin Eales at year end relates to the
unsettled amount in respect of his waived entitlement to a
profit-share agreement under his previous contract.
-- Remuneration with key management personnel has been disclosed in note 6.
22. INVESTMENT IN SUBSIDIARIES
The shareholdings in the Group's subsidiaries for each year are
set out below:
Name of Company Principal Activity Country of
Incorporation % Share Capital Held % Share Capital Held
2017 2016
Rainbow
International Rare earth British Virgin
Resources Ltd exploration Islands 100% 100%
Rainbow Rare Earths Service Company United Kingdom 100% -
UK Ltd
Rare earth
Rainbow Burundi SPRL exploration Republic of Burundi 97% 97%
Rare earth
Rainbow Mining exploration and
Burundi SM mining Republic of Burundi 90% 90%
a. Rainbow International Resources Limited is 100% owned by Rainbow Rare Earths Limited.
b. Rainbow Rare Earths UK Ltd is 100% owned by Rainbow Rare Earths Limited.
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. Gilbert Midende holds a 3% interest in Rainbow Burundi SPRL.
23. CONTINGENT LIABILITIES
There were no contingent liabilities at 30 June 2017 (30 June
2016: nil).
24. POST BALANCE SHEET EVENTS
There were no post balance sheet events.
25. FINANCIAL RISK MANAGEMENT
The Group's financial liabilities at each period end consist of
convertible loan notes, related party loans and trade and other
payables. All liabilities are measured at amortised cost. These are
detailed in notes 14 and 15.
The Group has various financial assets, being other receivables
and cash, which arise directly from its operations. All are
classified as loans and receivables. These are detailed in notes 12
and 13.
The fair values of the Group's cash, other receivables,
borrowings, and trade and other payables 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 a counterparty will default
on its contractual obligations resulting in financial loss to the
Group. The Group does not have any significant credit risk
exposure.
The Group makes allowances for impairment of receivables where
there is an identified event.
The credit risk on liquid funds (cash) is considered to be
limited because the counterparties are financial institutions with
high and good credit ratings assigned by international credit
rating agencies in the UK and Burundi.
The carrying amount of financial assets, other receivables and
cash held with financial institutions recorded in the financial
statements represents the maximum exposure to credit risk for the
group. There are no material past due unimpaired assets.
Market risk
- Currency risk
Currency risk refers to the risk that fluctuations in foreign
currencies cause losses to the Group.
The Group is exposed to foreign exchange risk arising from
various currency exposures primarily with respect to Sterling and
the Burundian Franc. However, management monitors the exchange rate
fluctuations on a continuous basis and acts accordingly. The
financial assets and liabilities that include significant foreign
currency denominated balances are shown below.
Cash and cash equivalents
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
US dollars 1,250 56
GB pounds 1,937 9
Burundi Francs 11 5
3,198 70
============== ==============
Trade and other payables
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
South African Rand 5 3
GB pounds 320 287
Burundi Francs 42 12
367 302
============== ==============
A 10% movement in the US$:GBP rate would have resulted in a gain
or loss of US$0.2m in the income statement in relation to the cash
and cash equivalents as at 30 June 2017.
- Interest rate risk
Interest rate risk refers to the risk that fluctuations in
interest rates cause losses to the Company.
The Group and Company have no exposure to interest rate risk
except on cash and cash equivalent which carry variable interest
rates. The Group has no material sensitivity to reasonable changes
in variable interest rates. The group monitor the variable interest
risk accordingly.
The Group's borrowings bear fixed rates of interest.
Liquidity risk
Liquidity risk refers to the risk that the Group has
insufficient cash resources to meet working capital requirements.
The Group manages its liquidity requirements by using both short
and long-term cash flow projections. Ultimate responsibility for
liquidity risk management rests with the Board of Directors, who
have built an appropriate liquidity risk management framework for
the management of the Group's short, medium and long-term funding
and liquidity management requirements. The Group closely monitors
and manages its liquidity risk. For further details on the Group's
liquidity position, please refer to the going concern paragraph in
Note 1 of these accounts.
Capital management
In managing the capital, the Group's primary objective is to
maintain a sufficient funding base, through debt and equity, to
enable the Group to meet its working capital and strategic
investment needs. In making decisions to adjust its capital
structure to achieve these aims the Group consider not only its
short term position but also its long term operational and
strategic objectives.
The Group's primary capital management measure is net debt
(borrowings less cash) to total equity, measured as follows:
Net debt/(net cash) to equity 30 June 2017 30 June 2016
US$'000 US$'000
Total borrowings (note 14) 20 1,655
Less: Cash and cash equivalents (note 13) (3,198) (70)
Net debt/(net cash) (3,178) 1,585
Total equity 8,744 1,480
Ratio -36% 107%
26. NON CASH TRANSACTIONS
Material non cash transactions were as follows:
Year end 30 June 2016
-- The difference between cash additions to exploration and
evaluation costs and note 10, representing movements in capital
accruals
-- Finance costs as detailed in note 5 including the loss on
extinguishment of the convertible loan note
Year end 30 June 2017
-- The difference between cash additions to exploration and
evaluation costs and note 10, representing movements in capital
accruals
-- The difference between cash additions to property, plant and
equipment and note 11, representing movements in capital
accruals
-- Finance costs and the finance income as detailed in note 5
-- Share based payments, which have been recognised in income statement
-- Shares issued in settlement of liabilities, shares issued for
commissions and early settlement discounts per note 16.
27. ULTIMATE CONTROLLING PARTY
The Company does not have a single controlling party.
BUSINESS RISKS
The Directors regularly assess and discuss the principal risks
facing the company, including those that would threaten its
business model, future performance, solvency or liquidity.
The key risks affecting the Company are set out below:
Risk Comment Business Mitigation
impact
------------------- --------------------------------- --------- --------------------------------
Construction The Gakara processing High Management liaise closely
and commissioning plant is expected with Obsideo, who are
risk to be commissioned responsible for constructing
in Q4 2017. Construction and commissioning the
of a processing plant plant (as well as its
involves inherent design). Any potential
risks of delays and issues are anticipated
overruns. and addressed before
they impact timelines,
These include the wherever possible.
risk of materials
and workforce not
being available, customs
issues delaying parts
being imported, and
teething problems
encountered during
the ramp-up.
------------------- --------------------------------- --------- --------------------------------
Production The production of High Management will monitor
issues rare earth mineral ongoing risks as far
concentrate involves as possible to mitigate
a series of processes, potential issues arising
from the mining of which might impact production.
the ore at the mine Exco convene weekly
site near Mutambu, to discuss current concerns,
to the processing and monthly reports
of material at the are shared with the
Kabezi plant. Board which highlight
the key issues facing
Mining operations operations.
are subject to a number
of risks, including
mechanical outages,
supply issues (eg
fuel), interruptions
due to weather, among
many others.
------------------- --------------------------------- --------- --------------------------------
Civil unrest Burundi has experienced Medium Although civil unrest
civil unrest, including is beyond the control
most recently in 2015. of management, the Company
Any subsequent instances maintains strict political
of civil unrest could neutrality in order
impact the operation to minimise the risk
of the mine, including of association with
its ability to obtain any party.
supplies or export
its material, or even In the event of unrest,
access its bank accounts management would prioritise
in country. the safety of its staff,
and if it were deemed
safe to continue in
operation, would work
to ensure the security
of its assets and supplies.
------------------- --------------------------------- --------- --------------------------------
Rare earth The Company produces High In the event of lower
prices rare earth mineral market prices, the Company
concentrate which would seek to defend
is sold at a market its margins by reviewing
price less a discount its operating cost base,
(negotiated with each where possible, and
customer). Rare earth cut back on discretionary
prices have been volatile expenditure.
in the past. If the
underlying rare earth Under the terms of the
basket price falls, agreement, thyssenkrupp
this reduces revenue Raw Materials are responsible
and will impact the for negotiating with
profitability of the end customers of the
mine. The current Company's concentrate,
discount rate is expected and are incentivised
to be between 68-73%, to obtain the best price.
however this may vary
with new customers
or as terms are renegotiated.
------------------- --------------------------------- --------- --------------------------------
Geological The Company does not Low Rainbow's models are
risk currently have a JORC-compliant based on conservative
Mineral Resource or assumptions of the quantity
Reserve, and therefore and size of rare earth
the scale of its mineral veins within the Gakara
deposit cannot be licence area. Once in
stated with certainty. production, the Company
It is possible that will continue its exploration
the quantity of rare activities to improve
earths present in its understanding of
the licence area is the orebody, to minimise
less than management this risk.
expectations.
------------------- --------------------------------- --------- --------------------------------
Financing The Company currently Medium Management is in advanced
risk forecasts limited discussions with its
financial headroom bankers and key shareholders
before entering into to put in place overrun
profitable, cash-generative facilities, which it
production. If this expects to be concluded
period is prolonged, shortly after the issuance
eg due to delays in of this report, or as
commissioning, the soon as required. It
headroom may not be believes these facilities
sufficient and financing will provide funding
may be required in even in the most conservative
order to continue downside scenario.
in operation.
------------------- --------------------------------- --------- --------------------------------
Currency The Company will receive Medium The Company has the
controls proceeds in US dollars, right, under its Mining
which, under the Burundian Convention with the
Mining Code, must Burundian Government,
be repatriated into to have unfettered access
Burundi. to its foreign currencies.
Burundi has experienced The Company will continue
shortages of foreign to monitor currency
currency reserves issues in country, and
in the past, and it will negotiate flexible
is therefore possible terms with the Government
that access to US as far as possible.
dollars held in country
might be difficult.
This would affect
the Company's ability
to meet ongoing foreign
currency obligations
(eg corporate costs,
and any debt payments
in US dollars).
------------------- --------------------------------- --------- --------------------------------
(1) An Exploration Target is defined as a statement of the
exploration potential of a mineral deposit in a defined geological
setting for which there has been insufficient exploration to
estimate a Mineral Resource. MSA Group concluded "that the
characteristics of the REE veins [within the Gakara Project] with
respect to their width, spatial continuity and compositional
variability cannot be easily quantified to the level of confidence
required for the reporting of a Mineral Resource".
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKNDPCBDDCKK
(END) Dow Jones Newswires
October 04, 2017 02:00 ET (06:00 GMT)
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