Rainbow Rare Earths Ltd

Rainbow Rare Earths Limited (RBW) is a mining company. The group is involved in the development and exploration of the Gakara project. This project is one of the leading rare earths projects globally and the only African producer. The company's subsidiaries include Rainbow Burundi SPRL and Rainbow International Resources Limited.

Q3 FY2019 Update
RBW has secured a new funding agreement with Pella Ventures (its largest shareholder), of an unsecured 12-month loan for US$0.7m in order to function as a bridge for RBW’s operations. In addition to this, RBW has agreed to pause any further tranches under the existing equity drawdown facility, the Lind Partners. The new funds will be used for general corporate purposes, while Rainbow considers the most appropriate and efficient structure required to finance Rainbow’s proposed new fleet and mining areas but is intended to convert into equity, along with interest at 15% per annum, due to the course on equivalent terms agreed with any new investors.

RBW now plans to purchase specialist mining trucks to cope with these conditions. Due to the reduced operating conditions, RBW only sold 100 tonnes of concentrate, but produced 371 tonnes; however, due to timing, only 100 tonnes were exported in Q3.
Financial Highlights (H1 FY2019, US$’000)



(Source: Interim Reports, Company Filing, LSE)

The company reported revenue was US$1.2 million against the US$1.0 million for the twelve months to June 30, 2018, while revenue was nil for the six months to December 31, 2017. EBITDA was a loss of US$1.4 million as compared with the loss of US$2.0 million for the year to 30 June 2018 and US$0.8 million for the six months to 31 December 2017.

Reported pre-tax losses were US$3.1 million, against the loss of US$2.5 million for the year to 30 June 2018 and the loss of US$1.1 million in six months to 31 December 2017. Total loss after tax stood at US$3.2 million as compared with losses of US$2.6 million for the year to 30 June 2018 and US$1.1 million in six months to 31 December 2017, due to the commercial production announced from 1 July 2018 and all production costs were expensed.

Share Price Performance

Daily Chart as at June-07-19, before the market closed (Source: Thomson Reuters)

On 7^th June 2019, at the time of writing (before the market close, GMT 12:05 PM), RBW shares were trading at GBX 7.385, up by 19.11 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 19.20/GBX 1.55.

Key Risks and Uncertainties
Production issues, Geological risk, Rare earth prices, Soil instability in mining areas and/or access routes, Civil unrest, Financing risk, and Currency controls.

Conclusion
RBW has guided 800-900 tonnes of concentrate for the year. Mining operations continued to take place at only two sites.  RBW will need to raise further funds to purchase new trucks and develop additional mining areas. RBW is targeting four mining areas and believe this, alongside replacement of the inadequate rented machines with newer, more suitable models, will help to address mining performance issues.

Rainbow plans to rapidly bring Gomvyi Centre and Kiyenzi into production during 2019, helping RBW to hit its targeted run-rate of 400tpm of concentrate by the calendar year 2019. The presence of a JORC Resource will give RBW greater certainty in its mine plan and hopefully lead to RBW achieving its breakeven of 250 tonnes per month. Keeping in mind the serious headwinds faced in the Energy Services business, the company is making progress in assessing the options for its future.

Based on the above factors and macro headwinds, we recommend investors to keep a cautious “Watch” on the Rainbow Rare Earths Ltd stock at the current price of GBX 7.385 (as on 7th June 2019), with support from few catalysts needs to be evaluated at a later stage.

Mkango Resources Ltd

Mkango Resources Ltd (MKA) is a mineral development and exploration company that offers exploration of associated minerals and rare earth elements. The company holds interest in two properties in the Republic of Malawi and Africa, including the Phalombe exploration license (Phalombe License) and the Thambani exploration license (Thambani License), among others. Mkango Resources is headquartered in Calgary, Alberta, Canada.

Financial Highlights (Q1 FY2019, US$)


(Source: Quarterly Report, Company Website)

The company had no revenue. Net loss decreased from $1,153 thousand in Q1 FY18 to $697 thousand in Q1 FY19, due to the decrease in the total expenses of $834 thousand and other items. The company’s attributable net loss stood at $697 thousand in Q1 FY19. Basic and diluted loss per share was $0.006 cents, a decline from the previous year data. Total assets increased by $8,570 thousand to $11,255 thousand as compared to $2,686 thousand in FY18. Total Liabilities reduced to $1,298 thousand from $1,545 thousand in FY18. Total shareholders’ equity of the parent company stood at $19,806 thousand.

Share Price Performance

Daily Chart as at June-07-19, before the market closed (Source: Thomson Reuters)

On 7^th June 2019, at the time of writing (before the market close, GMT 1:39 PM), MKA shares were trading at GBX 9.5, up by 6.15 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 11.50/GBX 6.53.

Key Risks
The Company’s management monitors and manages the financial risks relating to the operations of the Company. The company is subject to numerous risks and uncertainties, including the impact of general economic and political conditions, industry conditions, volatility of commodity prices, currency fluctuations, accuracy of drilling and other exploration results, environmental risks, changes in environmental, tax and royalty legislation or other government regulation, the speculative nature of strategic metal exploration and development including the risks of contests over title to properties, the risks associated with obtaining necessary licences or permits, including and not limited to approval of any future mining licence applications and exploration licence extensions, operating or technical difficulties in connection with development activities.

Conclusion
An adverse movement in the commodity prices has the potential to negatively impact the profitability and economic viability of the company’s projects. Profitability margins were in the negative zone. The company operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors.

Based on the above factors and macro headwinds, we recommend investors to keep a cautious “Watch” on the Mkango Resources Ltd stock at the current price of GBX 9.5 (as on 7th June 2019), with support from few catalysts needs to be evaluated at a later stage.

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