Rainbow Rare Earths Ltd (LON: RBW)

Rainbow Rare Earths Ltd is an LSE listed Company that is a worldwide significant producer of rare earth metals. The Phalaborwa Rare Earths Project comprises an Inferred Mineral Resource Estimate of 38.3Mt at 0.43% total rare earths oxides ("TREO") located in South Africa. The Company's Gakara Project in Burundi s weighted heavily toward Neodymium-Praseodymium (Nd/Pr).

Growth Prospects

• Recent Collaborations: The Company had signed a property licencing agreement with K-Technologies, Inc. to use its rare earths separation technology in the Southern African Development Community region.
• Positive Phalaborwa Test Work Update: On 08 February 2022, the Company had announced positive results from the ongoing phased test work programme at the Phalaborwa Project. Furthermore, the Company has incurred low capital and operating costs expected compared to a traditional hard rock rare earth mining project.

Key Risks 

• Negligible Revenue: RBW is generating negligible revenue as the mining operations are not commenced yet.
• Interest Rate Hike: The Federal Reserve announced a first interest rate hike (by 0.25%) in over three years and indicated seven rate hikes in 2022.
• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.
• Record UK Inflation: British inflation hit a 30-year high of around 6.2% during February 2022, which may cause a further interest rate hike.

Key Fundamental and Shareholders Statistics of Rainbow Rare Earths Ltd.

Pouroulis (Adonis) is the most significant shareholder as it holds nearly 76.48 million shares as of 31 December 2021.          

Financial Highlights (for the six months ended 31 December 2021, as of 17 March 2022)

(Source: Company Filings)

• Cash & Cash Equivalents: The cash & cash equivalents had increased from USD 0.57 million as of 30 June 2021 to USD 6.37 million as of 31 December 2021.
• Balance Sheet: The Company had strengthened its balance sheet by raising USD 8.5 million, net of costs, at a price of 15 pence per new Ordinary Share.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 30 March 2022 at 12:03 PM GMT+1, RBW’s shares were trading at GBX 15.72, down by around 1.75% against the previous day closing price. Stock 52-week High and Low were GBX 21.00 and GBX 10.50, respectively.

RBW's prices are trading in an ascending channel formation for the past 9 months and recently started to move upside after testing the lower band of the formation, indicating the possibility of further upside movement. On the weekly chart, the leading indicator RSI (14-period) is recovering from lower levels and showing a reading of 50.25 The CMP is above the trend-following indicator 50-period SMA (at GBX 14.91) supporting a positive bias; however, below the 21-period SMA (at GBX 16.07) which may act as the resistance level for the stock.

Business Outlook

The Company had made accelerated progress regarding Gakara Project and Phalaborwa Rare Earths Project during H1 FY22. Moreover, the positive Phalaborwa test results indicated strong recoveries through a simple acid leaching process expected to allow 65-70% of the rare earths contained in the Phalaborwa gypsum stacks to be recovered in solution. However, the Company had witnessed a supply deficit of the raw materials required to drive the clean energy transition. In a nutshell, RBW has a long-term strategy to generate superior returns for the stakeholders by providing a source of critical minerals for the permanent magnets used in offshore wind generation, electric vehicles, mobile phones, electric scooters, bicycles, and other green technologies.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the strong liquidity profile, decent leverage position, positive rare earth basket price momentum, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Rainbow Rare Earths Ltd at the current price of GBX 15.72 (as of 30 March 2022 at 12:03 PM GMT+1).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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