This report is an updated version of the report published on 27^th April 2022 at 09:58 AM GMT+1

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

• Positive Industry Dynamics: The rising demand for renewable sources of energy would foster the growth of the rare earth metals market. With reference to the centre for climate change and energy solutions, renewables are expected to make up 45% of global electricity generation by 2040.
• 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.
• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.
• Federal Reserve Meeting: Federal Reserve Chairman, Jerome Powell, had hinted at an 0.5% increase in interest rates in the next Federal Reserve meeting due in early May 2022.
• Record UK Inflation: British inflation hit a 30-year high of around 7.0% in March 2022, which may cause a further interest rate hike.
• Weak Global Growth Forecast: The World Bank has reduced its global growth forecast for 2022 from 4.1% to 3.2%.

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.       

H1 FY22 Financial Highlights (for the six months ended 31 December 2021, as of 08 March 2022)

(Source: Company Filings)

• Balance Sheet: 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.
• Fundraising: 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 27 April 2022 at 09:02 AM GMT+1, RBW’s shares were trading at GBX 14.00, up by around 1.45% against the previous day closing price. Stock 52-week High and Low were GBX 18.50 and GBX 10.50, respectively.

On a daily chart, the stock price is sustained between the lower Bollinger band and the middle Bollinger band. Hence, there could be an uptick in the stock price in the near term. Moreover, the 14-days RSI of ~39.85 reflects an oversold territory.

Business Outlook

The Company’s typical basket prices for both the Gakara and Phalaborwa projects grew by approximately 80% during H1 FY22 and continued to increase post the end of 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. Nevertheless, the Company aims to generate revenue driven by the shift away from fossil fuels towards the increased utilisation of renewable energies and widespread adoption of green technology.

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, shift towards renewable sources of energy, 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 14.00 (as of 27 April 2022 at 09:02 AM 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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