Rainbow Rare Earths (LSE: RBW) announces the results of the Preliminary Economic Assessment for the Company’s Phalaborwa Rare Earths Project in South Africa, marking an important milestone in the project’s development.

The PEA demonstrates a long life and financially robust opportunity for Phalaborwa to become a significant supplier of high purity rare earth oxides.

Rainbow Rare Earths – Phalaborwa Gypsum stacks.

Rainbow Rare Earths	LSE: RBW
Stage	Exploration, development
Metals	Rare Earth Elements
Market cap	£67 m @ 12.85p
Location	South Africa, Burundi

RNS Number : 4539B

Rainbow Rare Earths Limited

03 October 2022

3 October 2022

Rainbow Rare Earths Limited

(“Rainbow” or “the Company”)

LSE: RBW

Preliminary Economic Assessment Confirms Robust Economics for Phalaborwa Rare Earths Project

Rainbow Rare Earths (LSE: RBW) announces the results of the Preliminary Economic Assessment (“PEA”)[1] for the Company’s Phalaborwa Rare Earths Project in South Africa, marking an important milestone in the project’s development. The PEA demonstrates a long life and financially robust opportunity for Phalaborwa to become a significant supplier of high purity rare earth oxides to the rapidly expanding permanent magnet market, to support global decarbonisation and the growing demand for electric vehicles and offshore wind turbines. The PEA was conducted by METC Engineering, the minerals processing engineering company based in Johannesburg, with key contributions from independent consultants as required.

Key highlights, an overview, and the executive summary are provided below, with the report available on the Company’s website at www.rainbowrareearths.com/investors/results-reports-presentations/

PEA highlights

· Total production of 26,208 tonnes of separated magnet rare earth oxides[2] with a weighted average sales value of US$137.92/kg[3] generating US$3.6 billion of revenue over 14.2 years.

· Under the base case scenario,[4] the 2.2 million tonne per annum processing operation underscores the very robust project economics:

o Post tax NPV₁₀ of US$627 million.[5]

o Post tax IRR of 40%.

o Average annual revenue of US$254.8 million; US$117.91 per tonne of gypsum processed.

o Operating costs averaging US$33.86/kg of separated magnet rare earth oxides are expected to be one of the lowest of all Western rare-earth projects and current producers.

o Average EBITDA of US$192.2 million per annum, delivering an EBITDA operating margin of 75%.[6]

o Capital expenditure of US$295.5 million, with payback period of 2 years; significantly below that of a traditional hard rock rare earth mining project.

· Using 2022 year to date (“YTD”) average rare earth prices (28% higher than base case), the PEA delivers an:

o EBITDA operating margin over 80%

o NPV₁₀ of US$934 million and a payback of 1.7 years.

· Using long-term rare earth price forecasts provided by Argus Media Group (“Argus”), underpinned by compelling supply/demand fundamentals, the PEA delivers an NPV₁₀ over US$1 billion.

· The positive results of the PEA support the continued development of Phalaborwa, with the next steps including the publication of a resource update and the definition of a work programme for a feasibility study.

Rainbow Rare Earths CEO, George Bennett, commented:

“Establishing a base case NPV₁₀ of US$627 million, an IRR of 40%, an average EBITDA operating margin of 75%, and a payback period of only 2 years, this PEA corroborates our long-held view of Phalaborwa’s enormous potential as a low capital intensity, high margin, near-term rare earth development project.

“The base case financial model presents a robust project with low sensitivity to costs, which is particularly relevant in the current inflationary environment, and which can generate strong returns in any foreseeable rare earth oxide pricing environment.

“At 2022 year-to-date average prices (which are around 28% higher than the base case), the economics are exceptionally strong with an NPV of US$934 million and a payback of 1.7 years.

“As a brownfield site, the development of Phalaborwa provides us with a significant opportunity to make positive environmental, social and economic impacts.

“The successful completion of this PEA represents not only a breakthrough step in the development of Phalaborwa, demonstrating the viability of this opportunity, but also underscores the broader potential to use our unique IP and technology to extract separated rare earth oxides from other phosphogypsum sources on a global scale.

“Leveraging the expertise we have built up at Phalaborwa, we aim to accelerate the shift in our business model to processing rare earths from secondary sources. At a time when governments around the world are designating rare earths as critical minerals, with the EU stating an anticipated fivefold increase in demand by 2030, our strategy aims to facilitate near-term access to these elements which are so fundamental to global decarbonisation.

“Our focus on phosphogypsum as a source of magnet rare earths importantly differentiates Rainbow from a risk perspective when compared with traditional hard rock rare earth mining companies.

“I believe Phalaborwa’s PEA accurately reflects the rigour and expertise we apply to project assessment. As we progress to a feasibility study at Phalaborwa, I am confident that we have the right team, skills, and technology to unlock this valuable source and contribute to a responsible, independent, Western rare earths supply chain.”.

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PEA overview

The PEA was based on processing 2.2 million tonnes per annum of phosphogypsum over a 14.2-year project life to deliver 26,208 tonnes of separated magnet rare earth oxides at an average cost of US$33.86/kg.

This delivers an exceptional 75% EBITDA operating margin at the base case basket price of US$137.92 per kg, with first production assumed for 2026, established on near term forecasts well below both 2022 YTD average prices and long-term market forecasts.

Using 2022 YTD average rare earth prices or long-term rare earth price forecasts provided by Argus delivers stronger returns. Phalaborwa’s strong margins are underpinned by a low operating cost base, with a very low sensitivity to changes in costs.

Applying the 2022 YTD average rare earth oxide prices to the project delivers an NPV of US$933.7 million with an IRR of 51% and a payback period of 1.7 years.

Long-term price forecasts received from Argus, underpinned by robust magnet rare earths supply and demand fundamentals, suggest a higher long-term basket price, demonstrating that the project can be expected to generate strong returns in a market supported by strong demand growth for the separated magnet rare earth oxides produced.

The sensitivities also show that using a lower average rare earth oxide price, such as the average prices from 2021, deliver a robust project with solid operating margins and a fast payback period. This demonstrates that the Phalaborwa Project can be expected to generate strong returns in any foreseeable rare earth oxide pricing environment.

Phalaborwa Rare Earths Project

The Phalaborwa Rare Earths Project, located in South Africa, comprises an Inferred Mineral Resource Estimate of 30.7Mt at 0.43% TREO contained within unconsolidated gypsum stacks derived from historic phosphate hard rock mining.

High value NdPr oxide represents 29.1% of the total contained rare earth oxides, with economic Dysprosium and Terbium oxide credits enhancing the overall value of the rare earth basket in the stacks.

The rare earths are contained in chemical form in the gypsum stacks, which allows high-value separated rare earth oxides to be produced in a single processing plant at site with lower operating costs than a typical rare earth mineral project.

To read the full news release, please click HERE

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