Rainbow Rare Earths Limited (LON: RBW), the high-grade rare earth producer, has today announced a proposed placing by way of an accelerated bookbuild to raise a minimum of US$5.0 million (net of expenses).
Highlights
· The Company intends to raise a minimum of US$5.0 million (net of expenses) through the proposed Placing of new Ordinary Shares arranged by Arden Partners plc and Turner Pope Investments Limited (TPI) with new and existing investors at a price of not less than 3p per Placing Share.
· The Placing will allow the Company to invest in increasing production growth at its fully operational Gakara Rare Earth Project in Burundi through the opening of new mining sites
· Funding will also strengthen the Group’s balance sheet by providing additional stability during the ramp-up of production from the new mining areas over the coming months
· Minimum net proceeds will be applied in the following principal areas:
o Purchase of new mining fleet to replace locally rented equipment
o Development and opening of two new mining areas
o Providing working capital prior to additional mining areas delivering production
· Excessive demand for Placing shares will be used for
o Additional drilling campaign focused on larger-scale, lower grade Kiyenzi area alongside metallurgical testwork focused on efficient processing of this ore
o Strengthening balance sheet
· Rainbow’s largest shareholder, Pella Ventures Limited (in which the Company’s Chairman, Adonis Pouroulis has a beneficial interest), is converting its US$700,000 loan, as announced on 7 May 2019, at the Placing Price.
· Rainbow’s Board and management have agreed that a total of £145,789 in fees and deferred cash bonuses which were outstanding as of 30 June 2019, shall be satisfied by the issue to them of new Ordinary Shares, determined by reference to the Placing Price, as well as directly subscribing for at least a further £10,000 of Ordinary Shares by reference to the Placing Price
Completion of the Placing remains subject to a number of conditions, inter alia, publication of a Prospectus and the approval by Shareholders of a special resolution to authorise the issue of new Ordinary Shares (in connection with the Placing, as well as the other issuances of new Ordinary Shares as set out above) which will be sought at an extraordinary general meeting of the Company to be convened for that purpose, details of which can be found below.
Further details of the Placing
Arden Partners and Turner Pope are acting as joint brokers in connection with the Placing. Pursuant to the terms of the Placing Agreement, Arden Partners and Turner Pope are acting as joint bookrunners in connection with the Placing.
The Placing, which will be undertaken by way of an accelerated bookbuild, will be launched immediately following the release of this Announcement and will be made available to eligible existing Shareholders and new institutional investors. The timing of the closing of the Bookbuilding Process will be at the sole discretion of the Joint Bookrunners. The completion of the Bookbuilding Process containing details of the Placing Price and the number of Placing Shares will be announced as soon as practicable.
The obligations of the Joint Brokers pursuant to the Placing Agreement remain subject to the terms and satisfaction of certain conditions set out in the appendix to this Announcement. The Placing is not underwritten.
Under the terms of the Placing, the Company intends to place the Placing Shares with eligible existing Shareholders and new institutional and High net worth investors. The Placing is not being made generally available to members of the public.
By choosing to participate in the Placing and by making an oral legally-binding offer to acquire Placing Shares, investors will be deemed to have read and understood this Announcement in its entirety, including the Appendix, and to be making such offer on the terms and subject to the conditions contained herein and to be making the representations, warranties, undertakings and acknowledgements contained in the Appendix.
The Placing Shares, when issued, will be fully paid and will rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after the date of issue.
Following publication of the Prospectus and the passing of a special resolution at the Extraordinary General Meeting, application will be made for Admission.
If the special resolution is not approved at the Extraordinary General Meeting, the Placing will not be able to proceed, in which case the Company would require up to approximately US$5 million (£4.0 million) net of expenses to make up the shortfall required for the Company to have sufficient working capital for at least the next twelve months following the expected date of the Prospectus, and to deliver the stated production strategy.
Admission is expected to take place on or around 8.00 a.m. on 22 July 2019 and settlement is expected to occur on or around 22 July 2019. The Placing is conditional on, inter alia, the Placing Agreement becoming unconditional in all respects and not being terminated and Admission becoming effective on or before 8.00 a.m. on 22 July 2019 (or such later time and/or date as the Company, and the Joint Brokers may agree).
The Appendix sets out further information relating to the Placing and the terms and conditions of the Placing.
This Announcement should be read in its entirety. In particular, investors should read and understand the information provided in the “Important Notices” section of this Announcement and the detailed terms, conditions and additional information relating to the Placing described in the Appendix.
Circular and notice of Extraordinary General Meeting
A circular containing details and notice of the Extraordinary General Meeting, to be held on 19 July 2019 to, inter alia, pass the resolutions required to enable the Company to issue the New Ordinary Shares (including the Placing Shares), is expected to be published and despatched to Shareholders today. Following its publication, the circular will be available on the Company’s website www.rainbowrareearths.com.
Background to and reasons for the Placing
Rainbow’s focus is the Gakara Project, one of the highest-grade (47%-67% total rare earth oxide) rare earths projects globally. The Company listed on the London Stock Exchange in January 2017 with the intention to fast-track the fully permitted Gakara Project to production ahead of targeted first sales of concentrate by the end of 2017. This was achieved on time and followed by concentrate production increasing during 2018 with 475 tonnes of concentrate sold between January and June 2018; and 650 tonnes of concentrate sold between July and December 2018. Rainbow has a ten-year distribution and offtake agreement with multinational thyssenkrupp Materials Trading secured for the sale of up to 10,000tpa concentrate produced.
The Gakara basket is weighted heavily towards the magnet rare earths, including neodymium and praseodymium, which are driving demand and account for approximately 70% of annual global rare earth element sales due to their use in vital components in motors, generators, wind turbines, and electric vehicles.
In both January and May 2019, the Company announced that production of concentrate had fallen behind initial expectation and remained challenging. Rainfall during the six months to March 2019 disrupted mining operations as the locally-rented haul trucks available proved incapable of performing in wet conditions which limited waste stripping and dumping. The replacement of the inadequate rented machines with newer more suitable models is a critical component in Rainbow’s plans to address mining performance issues.
The Gakara Project provides Rainbow with the unique combination of extracting extremely high-grade ore, allowing for a short and foreseeable path to positive cash flows, as well as a high volume deposit at Kiyenzi indicating significant long-term opportunity for further exploration in our concession area. The Company has therefore developed a strategy to operate additional mining areas in order to de-risk the fluctuations caused by operating at a limited scale and to deliver profitability.
Utilising the net Placing proceeds, the Company will swiftly move to secure new mining fleet capable of working efficiently in Burundi’s conditions and to develop mining operations at the Kiyenzi and Gomvyi Centre areas. As previously announced, the Company expects both areas to be in operation in the latter half of calendar 2019. A further new mining area is planned to be in operation in 2020, to replace Gasagwe which, as originally planned, is expected to reach the end of its life in the next 12 months. It is the Company’s intention that a minimum of four pits are in operation continuously to smooth individual pit production variances.
The Company’s 2018 exploration campaign revealed a previously unknown larger low-grade area at Kiyenzi. It is now proposed to conduct a much larger drilling and exploration campaign on this area with the intention of being able to define a multi-million tonne resource. In addition, further laboratory testing is required on the full extent of all 2018 drill core in order to identify any previously unconsidered rare earth mineralisation, alongside metallurgical testing to best identify the appropriate processing route for this lower-grade ore.
The Board therefore believes this placement will deliver long term value for existing and new Shareholders.
Current trading and prospects
As announced by the Company on 7 May 2019, production from the existing two mining areas, Gasagwe and Murambi, during the first part of the year was disappointing and principally caused by issues related to poor quality locally-rented machinery which proved incapable of operating efficiently in wet conditions.
Although Burundi’s dry season has now commenced, enabling a much more consistent rate of operational activity from the existing rented fleet, there is inevitably a backlog of waste removal to be completed before Gasagwe and Murambi are operating at normal production levels. This will be the focus for July and August prior to utilising any new machinery due to be purchased with the proceeds of the Placing, which is expected to be on site prior to the next rainy season in Burundi. Total concentrate production in the year to 30 June 2019 was 800 tonnes, as forecast in early May.
The prices for separated rare earth materials rose sharply in May and June 2019 following the imposition by Chinese authorities of a ban on imported rare earth production from Myanmar (a proportion of which was rumoured to be illegal Chinese production) and following announcements by China that it might consider seeking ways to restrict or ban exports of certain rare earths products as part of the well-publicised ‘trade war’ with the USA.
As at 3 July 2019 the reference ‘basket price’ for Rainbow’s concentrate was estimated to be US$11.83/kg, which has increased 14% since 1 May 2019. Rainbow has direct exposure to these increasing prices through the structure of its Distribution and Offtake Agreement with ThyssenKrupp Materials Trading, which references the published prices for separated rare earth oxides. Rainbow takes an approximately 70 per cent. discount to published prices on its concentrate.
Use of proceeds
The minimum net proceeds of the Placing shall be used as follows:
· purchase of new mining fleet to replace and expand the capacity of the existing rented equipment and to allow for additional mining areas (US$1.8 million (£1.4 million));
· mine development and exploration costs to bring additional mining areas into production (US$1.6 million (£1.3 million));
· working capital for operational and corporate purposes during the development period of the two new pits (US$1.6 million (£1.3 million));
To the extent that funds are raised in excess of the minimum amount, the Company may use the excess for either or both of:
· enhanced drilling and exploration work across the Gakara Project, including the lower grade area at Kiyenzi but also additional high-grade vein areas;
· restructuring of the balance sheet by reducing debt/creditors.
The Placing Agreement
Pursuant to the Placing Agreement, the Joint Brokers have agreed to use their respective reasonable endeavours as the placing agents of the Company to procure subscribers for the Placing Shares at the Placing Price.
The Placing Agreement provides, inter alia, for payment by the Company to the Joint Brokers of commissions based on the number of Placing Shares placed by the Joint Brokers multiplied by the Placing Price.
Pursuant to the Placing Agreement, the Company has given the Joint Brokers certain warranties, representations and undertakings as to the business and operations of the Group as well as the share capital of the Company, including the Placing Shares. The Company has also agreed to indemnify the Joint Brokers for certain loss and in respect of claims which may arise out of the Placing. The Placing Agreement may be terminated in customary circumstances, including in the event of a material adverse change in the financial markets or the circumstances of the Group.
The Company will bear all other expenses of, and incidental to, the Placing including the fees of the London Stock Exchange, registrars’ fees, all legal and accounting fees incurred by the Company and the Joint Brokers and all relevant stamp duty and other taxes and duties payable. The Placing is not being underwritten by the Joint Brokers.
The terms and conditions of participation in the Placing are set out in the Appendix.
Conversion and Subscriptions by Directors
On 7 May 2019 Rainbow announced that it had entered into a convertible loan facility of US$700,000 with its largest shareholder, Pella Ventures Limited, in which the Company’s Chairman Adonis Pouroulis has a beneficial interest. The terms of the convertible loan facility allow for Rainbow to convert the balance and any outstanding interest into new Ordinary Shares at the same price as any equity fundraising and consequently Rainbow will issue new Ordinary Shares to Pella Ventures Limited following completion of the Placing (such number being determined by reference to the Placing Price) in full satisfaction of the Pella Convertible Loan.
Alex Lowrie who is a director of the Company have indicated that he intends to subscribe for £10,000 at the Placing Price.
In addition, the Board of Directors and certain Senior Managers of the Company have agreed to accept new Ordinary Shares at the Placing Price in lieu of outstanding fees and deferred cash bonuses in the following amounts:
| Name | Position | Amount £ |
| Adonis Pouroulis | Chairman | 14,167 |
| Shawn McCormick | Non-Executive Director | 9,167 |
| Atul Bali | Non-Executive Director | 9,167 |
| Robert Sinclair | Non-Executive Director | 9,167 |
| Martin Eales | CEO | 35,477 |
| Jim Wynn | CFO | 25,341 |
| Gilbert Midende | Director General, Burundi | 24,094 |
| Cesare Morelli | Technical Director | 19,209 |
| TOTAL | 145,789 |
Expected Timetable of Events
| Announcement of the Placing and Bookbuild commences | 3 July 2019 |
| Announcement of the closing of the Placing and Bookbuild | 3 July 2019 |
| Publication of Prospectus | On or around 10 July 2019 |
| EGM of the Company | 19 July 2019 |
| Admission and commencement of dealings in the New Ordinary Shares (including the Placing Shares) on the Official List | On or around 8.00 a.m. on 22 July 2019 |
| New Ordinary Shares credited to CREST members’ accounts | 22 July 2019 |
| Despatch of definitive share certificates in certificated form | within 10 business days of Admission |
Each of the times and dates above refer to London time and are subject to change by the Company. Any such change will be notified to Shareholders by an announcement through a Regulatory Information Service.
