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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Rainbow Rare Earths Limited | LSE:RBW | London | Ordinary Share | GG00BD59ZW98 | ORD NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.40 | 3.86% | 10.75 | 10.50 | 11.00 | 10.75 | 10.35 | 10.35 | 727,921 | 12:24:12 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Chem,fertlizer Minrl Mng,nec | 0 | -11.98M | -0.0192 | -5.60 | 67.15M |
From Apr 2019 to Apr 2024
TIDMRBW
RNS Number : 6186S
Rainbow Rare Earths Limited
04 October 2017
FOR IMMEDIATE RELEASE
4 October 2017
Rainbow Rare Earths Ltd ('Rainbow' or 'the Company') (LSE: RBW)
Final Results
Rainbow Rare Earths Limited ("Rainbow" or the "Company"), the rare earth element mining company operating in East Africa, announces its audited results for the 12 months ended 30 June 2017.
Highlights
-- Completion of Placing and Admission to the London Stock Exchange Main Market raising gross proceeds of US$8 million (US$7.4 million net)
-- Rapid development of the Company's Gasagwe mining area focused on site preparation and waste stripping
-- Construction and development of the processing plant site at Kabezi underway at year end ahead of commissioning in Q4 2017
-- Commencement of ROM ore extraction at Gasagwe in September 2017 -- First concentrate sales remain on track for Q4 2017
-- Pricing for rare earth elements strengthened markedly during 2017, with Rainbow's basket price as at 3 October 2017 up around 70% since the start of the year
-- Rainbow provides first Production Guidance for 2017-18 of 3,000-4,000 tonnes of ROM ore mined generating 2,250-3,000 tonnes of mineral concentrate for sale
A copy of the annual report will be available during October on the Company's website at www.rainbowrareearths.com.
For further information, please contact:
Hot Features
Premium
Rainbow Rare Earths Ltd Martin Eales Tel: +44 (0) 20 3910
4550
St Brides Partners Ltd Lottie Wadham Tel: +44 (0) 20 7236
Susie Geliher 1177
Arden Partners plc William Vandyk Tel: +44 (0) 20 7614
Benjamin Cryer 5900
Hannam & Partners (Advisory) Neil Passmore Tel: +44 (0) 20 7907
LLP Ben Newman-Sanders 8500
Production Guidance 2017-2018
Following the successful progress of Rainbow's development of its first mining area at Gasagwe and with the processing plant at Kabezi, the Company is pleased to provide forward guidance for the current year ending 30 June 2018. ROM ore production is forecast to be in the range of 3,000-4,000 tonnes which is expected to generate 2,250-3,000 tonnes of mineral concentrate for sale.
The production figures estimated by MSA in the Competent Person's Report contained in the Company's Prospectus dated 25 January 2017 proposed that over 22 months Gasagwe might be capable of generating 3,338 tonnes of ROM ore and 2,503 tonnes of concentrate. Rainbow's revised guidance compares extremely favourably to this estimate which encompasses a time period of only 14 months since first activities at Gasagwe or just over 9 months from the commencement of ore extraction.
The Company is currently assessing a number of different approaches to extraction of ROM ore which affect the contained level of dilution. Consequently there is a relatively large range in the ROM ore tonnage figure anticipated.
CHAIRMAN'S STATEMENT
When Rainbow first obtained its exploration permit for the Gakara rare earth deposit in 2011, we believed that the Company had something special and the potential to become one of the most important rare earth mines in the world. We had the desire to become Africa's first operational rare earth mine.
Since then, we have come a long way, and the journey has been a rewarding one thus far, but not without its particular trials and tribulations. The challenges that we have endured have included a dramatic downturn in the price of rare earths and civil unrest within Burundi in 2015, all in the context of one of the longest bear markets to have faced the mining sector in living memory.
In spite of all this, we have remained unshaken in our confidence in the Gakara project for two principal reasons: first of all, we believe that the demand for rare earths is likely to increase over the coming years, in direct response to growth in usage of electric vehicle technology as well as in many new green technologies; and secondly, we believe in the deposit itself - the grades at Gakara, which have been independently estimated to be between 47-67%, are among the highest anywhere in the world, which in turn allows for cleaner, lower-cost mining techniques.
In the 12 months to 30 June 2017, the Company has been able to take a number of major steps in order to realise the potential of the mine.
The successful IPO, which completed in January 2017, raised a total of US$8 million, and transformed Rainbow into a public company with a Standard Segment listing on the main board of the London Stock Exchange. These funds are now being used to complete the construction of the mine and plant at Gakara, with the first shipment of concentrate still on track for Q4 2017 through our multinational distribution and offtake partner, thyssenkrupp Raw Materials.
We have also been able to put in place a team with the skills and experience, as well as the energy and drive, not only to complete the construction phase, but also to manage the project as it moves from construction into production. I would like to thank our CEO, Martin Eales, who has been instrumental in guiding the project through some of the toughest periods, for his endurance and leadership.
I would also like to thank my fellow Board members, all of whom are also shareholders, for their support in completing the fundraising, as well as for their guidance and advice in the ongoing running of the Company.
Without the support of our staff and communities in which we operate in Burundi, this project would go nowhere. I would like to thank them all for their enthusiasm and positive support of Rainbow. Ultimately we are guests in their country and we hope that we have a long and sustainable partnership with all the people of Burundi and that all of our work and effort yields a net positive result for all stakeholders.
At the time of writing, the construction phase nears completion, but the challenges are far from over, and we need to remain focussed on delivering the project on time and on budget. The fundamentals of both the Gakara project, and the rare earths market, if anything are even more exciting than when we first started this journey.
We look forwarding to delivering to you regular updates on our project as we achieve the various milestones we have set.
Adonis Pouroulis
Chairman
CEO STATEMENT
This is the first CEO Statement I have had the opportunity to write for Rainbow as we mark the end of our first financial year as a public company and I am pleased to be able to report on a transformational 12 months.
Corporate
The most significant event at the corporate level was of course the IPO and Admission of the Company's shares to trading on the Standard segment of the London Stock Exchange at the end of January 2017. The Company raised gross proceeds of US$8 million by placing new shares with a variety of investors and I have enjoyed getting to know many of our shareholders better over the course of the year and keeping them up to date with the Company's progress.
Rainbow maintains a small corporate office in the UK, where I am based with Rainbow's CFO, Jim Wynn, thereby keeping overheads to a minimum, whilst the vast majority of the Company's administration and operating staff are based in Burundi.
Operations - Mining
During the 2016-17 financial year we were only able to commence work in earnest after completion of the IPO, which provided the funding for the development of the Gakara Project. The Company has selected the Gasagwe area to be its first area of mining operations, which is expected to provide ore from mining activities for at least the first two years of production, with other areas (such as Gashirwe) expected to come online thereafter.
A variety of preparatory tasks were required before mining activities could begin at Gasagwe: these included access road construction, updated environmental studies and approvals, negotiation with land holders and settlement of compensation, recruitment and training of workers, and import of machinery. By the end of June 2017 the mining team at Gasagwe had made excellent progress in stripping waste material in order to expose the rare earth bearing veins which will constitute the run of mine ore.
Just after the financial year end, in July 2017, Rainbow hosted an Inauguration Ceremony at Gasagwe where a formal ribbon cutting was undertaken by the President of the Republic of Burundi, His Excellency Pierre Nkurunziza. The ceremony was well attended and we are delighted with the support we have received to date from the Burundi government and local community.
Operations - Processing
Rainbow's production plan involves all run of mine ore being processed into rare earth mineral concentrate by its processing plant located in the Kabezi region, some 20km from the mining areas and about 13km south of Burundi's capital city, Bujumbura. This site is advantageous to Rainbow, being relatively flat because of its location near Lake Tanganyika, and due to its proximity to a main asphalt road, which will provide good transportation links for export of concentrate.
Work has progressed very encouragingly on the Kabezi plant site over the past few months (although not without challenges), with all of the bulk earthworks completed before the end of the financial year followed by civil cement works, and construction of an office block, warehouse, and the processing plant itself all in progress since year end, managed by our EPCM contractors Obsideo from South Africa but utilising local labour at all times. At the time of writing, the completion of construction and commissioning of the plant is expected in the coming weeks, which should allow us to meet our target of shipping first concentrate in Q4 2017.
We have deliberately built in a relatively large amount of volume capacity within the processing plant design, which should enable Rainbow to comfortably increase annual production of concentrate in years to come, should the demand be there, without any significant capital expenditure when new mining areas come on stream.
Corporate Social Responsibility
Rainbow values the strong relationships it has formed in Burundi and we understand that our social licence to operate is only as strong as those relationships. We take great care to include local communities in all our activities, whether it be holding public consultations well in advance of undertaking work on the ground, ensuring that our workforce is sourced locally, or, wherever possible, using Burundian contracting companies for elements of construction and transportation.
In the 2016-17 financial year, Rainbow recruited and trained 108 new employees from the areas around the Gasagwe mine and the Kabezi processing plant with 27 following soon after the year end and also provided work for up to 88 sub-contractor employees at the end of June. Rainbow has also established a catering co-operative alongside its operations which allows local people to prepare food for all of the employees.
Wherever land is appropriated for Rainbow's activities we are diligent in ensuring that the correct compensation is paid to all families that have an interest in land or crops affected, based on a formula set out in Burundian law.
Rainbow is proud to maintain an objective for a zero-harm operation. For the period to 30 June 2017 the Company did not incur a single Lost Time Injury ('LTI'), nor indeed any incident requiring medical assistance. Our staff are encouraged to report all incidents and 'near misses' in order to improve the safety environment for anyone that may be affected by Rainbow's operations.
We were delighted to be able to support the 50th anniversary celebrations of the parish church in Mutambu, the town nearest to Gasagwe, in May 2017, and as part of the Inauguration Ceremony in July 2017 Rainbow organised a football tournament between the local districts.
CSR objectives for the coming year include promotion and sponsorship of academic prizes for all schools within the local area and a tree planting campaign.
The Rare Earths market
The world demand for rare earths is growing each year with production currently dominated by China. With a producing mine located outside of China, Rainbow will be important to Western buyers of rare earth materials concerned about security and provenance of supply and seeking a non-Chinese source. During the IPO process, our investors were keen to understand the dynamics of the rare earths market that we felt were crucial and there are two in particular that respectively have an impact on either supply or demand.
Firstly it has become very clear that the Chinese government has made strenuous efforts to clamp down on so called illegal production of rare earths in China, both to enforce environmental standards and to consolidate production within the hands of six state-approved groups. This, combined with falling inventory levels, has contributed to much tighter supply in recent months and consequently increasing prices.
Secondly, virtually every week we now receive news reports concerning the potential rapid increase in production of and demand for electric vehicles, whether mandated by national governments as part of environmental policies or by car manufacturers themselves, with some such as Volvo announcing that all new models after 2019 will be electric or hybrid vehicles. Whilst car manufacture is already a large consumer of rare earth materials, the basic fact is that each electric vehicle will use even more - principally due to the permanent magnets incorporated in the motor. When added to the considerable demand for rare earth magnets also created by the wind turbine industry, it is clear to see that the increasing movement towards green energy will stimulate further demand for rare earth materials.
Rainbow team
We have a small team of truly committed individuals, who have pulled together over the last 12 months to give Rainbow the best possible start to life as a public company. I would like to pay particular thanks to Rainbow's Executive Committee: Gilbert Midende (General Manager), Braam Jankowitz (Project Manager), Cesare Morelli (Technical Director) and Jim Wynn (Chief Financial Officer) who provide such support and wise counsel to me, however I am grateful to all our employees for the hard work and dedication they show every day and I feel proud to work with you all.
Outlook for 2017-18
The current financial year is likely to be even more momentous for Rainbow than the last and should see the first sales of our rare earth concentrate through thyssenkrupp Raw Materials in Q4 2017, with production and sales then ramping up on a steady basis through 2018. We have seen increases in prices of the various rare earth elements in the oxide and metal forms over the course of 2017, with our 'basket price' for Gasagwe concentrate increasing by around 70% in 2017 so far, which bodes very well for the future returns from the Gakara Project as we seek to develop one of the very few non-Chinese sources of rare earths. An exciting year lies ahead.
Martin Eales
Chief Executive Officer
OPERATIONS REVIEW
Preparation work for the IPO
Between July 2016 and January 2017, activity at the Gakara project was restricted to maintaining the Company's good standing in Burundi and providing information and support for the independent Competent Person's Report ('CPR') which was completed by MSA Group ('MSA') in October 2016. This document was first and foremost a requirement of the IPO and listing process, but also provides the Company and its investors with a detailed independent report of the project and its context.
Despite considerable historic mining activities, the Gakara Project was considered by MSA to be an Exploration Target(1) , as defined in the JORC Code, rather than a Mineral Resource, which was estimated as consisting of between 20,000 and 80,000 tonnes of mineralised material grading 47-67% TREO. MSA also recommended that a period of Trial Mining be conducted at key locations (notably Gasagwe and Gashirwe West) in order to confirm procedures and methodologies to be applied in full-scale commercial mining of a project.
The CPR was published together with the IPO prospectus on 25 January 2017. By February 2017, US$8 million in gross proceeds had been raised, and work began to bring the Gakara Project into production, with a target date of shipping first concentrate in Q4 2017.
Consistent with the recommendations in the CPR, the Directors decided that the amount of additional exploration work required to declare a Mineral Resource or a maiden Ore Reserve would be uneconomic at the stage of the Company's development.
In addition, the Directors believed that exploration information regarding the deposit at Gakara, together with historic project and production data, underlined the continuity of the mineralisation as well as the appropriateness of the mining and processing techniques, and that the commencement of operations was therefore commercially viable from the outset.
Construction work at Gakara
Following the IPO, work began on the Gakara Project. Operations were divided into two main areas - mining activities, which initially focused at the Gasagwe deposit within the mining permit; and work on the processing plant site at Kabezi.
Gasagwe mine site
In Q2 2017, earth-moving equipment was selected and ordered (consisting of two Tractor Loader Backhoes 'TLBs', one tractor and a trailer), while work commenced on site preparation using locally-hired workers and contractors.
Initial activity included basic site preparation, such as obtaining suitable accommodation and facilities, developing access routes, and recruiting a local workforce. In addition, preliminary exposure of the vein at Gasagwe continued using manual techniques, in order to remove overburden and identify the scale of the deposit ahead of full scale waste removal activities.
Mine preparation activities at the site commenced in April 2017, and by the end of June 2017 a total workforce of 114 staff and 2 expatriate managers had been recruited.
Although the TLBs had cleared customs only just prior to the end of the period, considerable progress had been made on site, with some 4,595 tonnes of pre-stripping completed using hand tools and wheelbarrows.
The upper levels of the Gasagwe vein had been exposed, which indicated a strike length of the 'main vein' in excess of 80 metres, with a number of smaller side veins adding to the overall size of the deposit.
The fact that the 'main vein' appears to be significantly larger than initial estimates has been extremely encouraging, as has the testwork of its composition (which in August 2017 indicated that the upper portions had an average grade of 62% TREO, compared to MSA guidance of between 47-67%). However, progress of operations has been hampered by a number of practical challenges including the availability of fuel, reliability of contractor equipment, delays to importation of equipment, and the slow progress of receiving final formal approval for full scale mining operations.
In spite of this, the stripping of waste material has progressed well. The extraction of ore from this vein commenced in earnest once the ROM stockpile bunkers were completed at the Kabezi plant site in September 2017. This will allow management to meet its target of first production of mineral concentrate in Q4 2017.
Kabezi plant site
After considering various alternatives, a site for the plant location was chosen near Kabezi, approximately 13km south of Bujumbura next to the RN3 road. Although approximately 20km from the mine site areas, given the relatively low volumes of ROM ore to be transported to the plant from the mine (typically a single truck per day), the advantages of good road connectivity, sources of water, and flatter terrain outweighed the extra haul distances.
The site was acquired in April 2017, and clearance of vegetation began in May 2017. Bulk earthworks were undertaken by a local contractor and completed in June, and concrete works were substantially completed in September.
In March 2017, a fixed-price EPCM contract was signed with Obsideo Consulting for the design, procurement, construction and commissioning of its processing plant. Under the terms of the contract, Obsideo would be responsible for delivering and commissioning a plant designed to process the Gakara ROM ore into a mineral concentrate, for a price of approximately US$1.8 million.
At the end of June 2017, work had progressed in line with expectations, with parts having been selected from individual suppliers and shipments due to be transported to the plant site between July and October 2017.
The first containers that arrived encountered minor delays while clearance documentation was finalised, however as more goods have arrived, the process has become smoother.
A local contractor was engaged to perform the civils and concrete works at site, the bulk of which was completed in August and September. Practical challenges faced by the Company included the availability of building materials as well as trained workers, however this work is still expected to be completed in order to meet the target of producing first ore in Q4 2017.
As at 3 October 2017, the majority of civils work has been completed and most of the plant equipment has arrived on site. Construction and commissioning is therefore expected to be completed in time to meet the overall target for exporting the first shipment of mineral concentrate in Q4 2017.
Safety and Health
Since commencement of activities on the ground in Gasagwe and Kabezi, all employees, contractors and sub-contractors have been mandatorily inducted in safety procedures. By the end of June 2017, not only had no LTIs been reported, but no 'near misses' or incidents requiring medical treatment have occurred. A total of 74,000 LTI-free man hours had been worked during this period.
FINANCIAL REVIEW
Profit and loss
During the year ended 30 June 2017, activity within the Company focused on fundraising and documentation prior to the IPO in January 2017, followed by exploration, mine preparation and construction activity. There were no sales during the year, therefore no revenue has been reported, and expenditure has been split between those costs that have been expensed to the income statement (including corporate and support activities), and those that have been capitalised as part of the construction costs of the Gakara mine.
Administration expenses of US$1.3 million (2016: US$0.6 million) included corporate salaries of US$0.3 million, US$0.2 million relating to IPO costs, US$0.5 million representing the accounting charges for share options issued in the year and US$0.3 million of other administrative and corporate costs. The increase compared to the prior year reflects the increase in activity levels, particularly connected with and subsequent to the IPO.
Exploration support costs, which are not capitalised, totalled US$0.1 million in the year (including travelling and salaries), slightly higher than the previous year.
Finance costs of US$0.2 million relate mainly to the effective interest charges on the Pala Loan which was repaid in the year. Finance income refers to the gain on extinguishment of the Pala Loan of US$0.2 million.
No taxation charges were recognised in either the year ended 30 June 2017 or 2016. The Group generated a loss after tax of US$1.4m, an increase of some 17% compared with the year ending 30 June 2016. This increase reflects the costs expensed associated with IPO and the significant change in support activity levels following the raising of funding in January 2017.
Balance sheet
The Company's Non-current assets of US$6.0 million relate to the capitalised exploration and mine development costs of the Gakara Project in Burundi. During the year, this increased by approximately US$2.2 million, essentially as a result of capex in the year. The Gakara Project was reclassified from exploration and evaluation assets to mine development costs within property, plant and equipment in the year as the project was considered to have reached commercial and technical feasibility for development.
The Company had total liabilities of US$0.4 million (2016: US$2.4 million), of which US$0.3 million related to amounts owed to staff, shareholders and in respect of payroll taxes due at year end.
During the year, the Company repaid in full the Pala Loan settling the liability in cash for US$1.7 million.
Cashflow
Net cash in the 12 months to 30 June 2017 increased by US$3.0 million.
Cash outflows included operating expenses and net movements in receivables and payables (net cashflow from operating activities) totalling US$0.8 million, US$2.1 million on exploration and mining capex, and the repayment of the Pala loan for US$1.7 million.
Cash inflow related to the equity placement which raised US$7.4 million net of costs and a US$0.3 million loan drawn in the period and subsequently settled in equity at IPO.
Financing
The IPO listing resulted in the settlement of the Pala loan, which had been the Company's principal outstanding loan during the year.
Taxation
The corporation tax rate in Burundi is 30%, however no revenues were earned during the period, and therefore no taxable profits reported.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
(a) the preliminary financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union, and give a true and fair view of the assets, liabilities, financial position and loss of the Group for the Year; and
(b) the preliminary management report for the Year includes a fair review of the information required by the FCA's Disclosure and Transparency Rules (DTR 4.1.8 R and 4.1.9 R).
By order of the Board
Martin Eales
Chief Executive Officer
3 October 2017
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2017
Year ended Year ended
30 June 30 June
Notes 2017 2016
US$'000 US$'000
Operating expenses:
Administration expenses (1,336) (623)
Exploration expenditure (95) (51)
------------- ------------
TOTAL OPERATING EXPENSES (1,431) (674)
Loss from operating activities 4 (1,431) (674)
Finance income 5 185 -
Finance costs 5 (156) (526)
Loss before tax (1,402) (1,200)
------------- ------------
Income tax expense 8 - -
Total loss after tax and comprehensive expense for the year (1,402) (1,200)
============= ============
Total loss after tax and comprehensive expense for the year is attributable to:
Non-controlling interest 19 (13) (6)
Owners of parent (1,389) (1,194)
(1,402) (1,200)
------------- ------------
The results of each year are derived from continuing operations
Loss per share
Basic 9 (0.01) (0.01)*
Diluted 9 (0.01) (0.01)*
* Adjusted for share consolidation in 2017
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2017
Year ended Year ended
Notes 30 June 30 June
2017 2016
US$'000 US$'000
Non-current assets
Exploration and evaluation assets 10 - 3,827
Plant, property and equipment 11 5,791 1
Prepayments 12 182 -
Total non-current assets 5,973 3,828
Current assets
Prepayments 12 22 -
Cash and cash equivalents 13 3,198 70
-------------- -------------
Total current assets 3,220 70
Total assets 9,193 3,898
-------------- -------------
Current liabilities
Borrowings 14 (20) (1,653)
Trade and other payables 15 (429) (765)
-------------- -------------
Total current liabilities (449) (2,418)
Total liabilities (449) (2,418)
-------------- -------------
NET ASSETS 8,744 1,480
=============
Equity and liabilities
Share capital 16 13,186 5,042
Share based payment reserve 18 494 -
Other reserves 40 40
Retained loss (4,982) (3,621)
-------------- -------------
Equity attributable to the parent 8,738 1,461
Non-controlling interest 19 6 19
TOTAL EQUITY 8,744 1,480
============== =============
These financial statements were approved and authorised for issue by the Board of Directors on 3 October 2017 and signed on its behalf by:
Martin Eales
Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2017
Share Share Equity Other Accum- Attribut- Non-controlling Total
capital Based reserve reserves ulated able interest
Payments losses to the
parent
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 01 July
2015 4,942 - - - (2,497) 2,445 25 2,470
Total
comprehensive
expense
Loss and total
comprehensive
loss for year - - - - (1,194) (1,194) (6) (1,200)
Transactions with
owners
Issue of
convertible loan
note - - 70 - - 70 - 70
Extinguishment of
convertible loan
note - - (70) - 70 - - -
Issue of
warrants(note 18) - - - 40 - 40 - 40
Issue of shares
during the year
(net of costs) 100 - - - - 100 - 100
Balance at 30 June
2016 5,042 - - 40 (3,621) 1,461 19 1,480
Total
comprehensive
expense
Loss and total
comprehensive
loss for year - - - - (1,389) (1,389) (13) (1,402)
Transactions with
owners
Extinguishment of
convertible loan
(notes 5 and 16c) - - - - 28 28 28
IPO Transaction
costs (note 16e) (778) - - - (778) - (778)
Share Based
payment reserve
(note 18) - 494 - - - 494 - 494
Issue of shares
during the year
(note 16) 8,922 - - - - 8,922 - 8,922
--------- ---------- --------- ---------- --------- ----------- ----------------- ---------
Balance at 30 June
2017 13,186 494 - 40 (4,982) 8,738 6 8,744
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 30 June 2017
Notes For year ended For year ended
30 June 30 June
2017 2016
US$'000 US$'000
Cash flow from operating activities
Loss after tax for the year (1,402) (1,200)
Adjustments for:
Share based payment charge 18 494 -
Finance costs 5 156 526
Finance income 5 (185) -
Net (increase)/decrease in prepayments (16) 19
Net increase/(decrease) in trade and other payables 109 (35)
Net cash used in operating activities (844) (690)
---------------- ----------------
Cash flow from investing activities
Purchase of exploration and evaluation assets 10, 26 (769) (583)
Purchase of property, plant & equipment 11, 26 (1,363) -
Net cash used in investing activities (2,132) (583)
---------------- ----------------
Cash flow from financing activities
Proceeds of new borrowings 16c 250 1,264
Repayment of borrowings 14 (1,700) -
Proceeds from the issuance of ordinary shares 16d 7,854 71
Transaction costs of issuing new equity (444) -
Net cash generated by financing activities 5,960 1,335
---------------- ----------------
Net increase in cash and cash equivalents 2,984 62
Cash & cash equivalents at the beginning of the year 70 8
Foreign exchange gains on cash and cash equivalents 144 -
Cash & cash equivalents at the end of the year 3,198 70
================ ================
NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION
Reporting entity
Rainbow Rare Earths Limited ('the Company' or 'Rainbow') is a company domiciled in Guernsey and incorporated on 5 August 2011, with company registration number 53831, and is a company limited by shares. The address of the Company's registered office is Trafalgar Court, Admiral Park, St Peter Port, Guernsey. The consolidated financial statements of the Company for the years ended 30 June 2017 and 30 June 2016 comprise the Company and its subsidiaries together referred to as the 'Group'.
2. ACCOUNTING POLICIES
Basis of preparation
The Financial Statements of the Company and its subsidiaries ("the Group") are prepared in accordance with International Financial Reporting Standards ("IFRS") (IFRS and IFRIC Interpretations) issued by the International Accounting Standards Board ("IASB"), as adopted by the European Union. The financial information for the year ended 30 June 2017 set out in this announcement does not constitute statutory accounts
The financial information set out above does not constitute the Company's statutory accounts for the year ended 30 June 2017 or 2016, but is derived from those accounts. The Auditor has reported on those accounts. The 2017 and 2016 reports were unqualified but the 2016 audit report did contain an emphasis of matter paragraph in respect of going concern.
Going Concern
In January 2017, the Company raised US$8 million, to be used to finance the construction of the Gakara mine, which is expected to enter into production and generate first sale proceeds during Q4 2017.
The Board have considered detailed cash flow forecasts and sensitivity analysis for a period to 31 December 2018. The forecasts demonstrate that provided revenues from the first shipment are received towards the earlier part of Q4 2017, the Group will maintain positive cash headroom throughout the next 12 months. If sales revenues are delayed, for example due to issues in the commissioning and ramp-up at the plant, or difficulties in exporting the first shipments of mineral concentrate, it is likely that existing cash balances will be insufficient. Accordingly, the Board have considered reasonable and stress case sensitivity scenarios to assess the potential funding required under such eventualities, notwithstanding that the Board continues to anticipate production and sale proceeds being received in the earlier part of Q4 2017.
To protect against such an eventuality, during September 2017, the Company agreed in principle an overdraft facility with Finbank SA, a Burundian bank, for up to US$1.5m, which would provide adequate headroom throughout the period in the event of such a scenario materialising. In addition, the Company has received a letter of support from Pella Resources, the Company's largest shareholder confirming that it will make available funding to the Company should the need arise, for a period up until 31 December 2018.
For this reason, the Board considers the Going Concern basis to be appropriate for the preparation of the accounts for the year ended 30 June 2017.
Standards in issue but not effective
The standards which were issued and effective for periods starting on or after 1 July 2016 have been adopted in the year and have not had a material impact to the Group financial statements.
The Group has elected not to early adopt the following revised and amended standards, which are not yet mandatory in the EU.
Standard Description Effective date ---------------------- -------------------------------------------------------------------- ---------------- IFRS 9 Financial instruments 1 January 2018 ---------------------- -------------------------------------------------------------------- ---------------- IFRS 15 Revenue from Contracts with Customers 1 January 2018 ---------------------- -------------------------------------------------------------------- ---------------- IFRS 16* Leases 1 January 2019 ---------------------- -------------------------------------------------------------------- ---------------- IFRIC 22 Foreign Currency Translations and Advance Consideration 1 January 2018 ---------------------- -------------------------------------------------------------------- ---------------- Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions 1 January 2018 ---------------------- -------------------------------------------------------------------- ----------------
* not yet adopted by the European Union
The Group is currently assessing the impact of these standards on the financial statements for future periods including the impact on the measurement and presentation of its financial instruments.
IFRS 15 Revenue from contracts with customers
The new standard was issued in May 2014. IFRS 15 is intended to introduce a single framework for revenue recognition and clarify principles of revenue recognition. This standard modifies the determination of when to recognise revenue and how much revenue to recognise. The new standard becomes mandatory for financial years beginning on or after 1 January 2018. The effect of applying IFRS 15 will be assessed and disclosure will be made once the Group has commenced sales of concentrate.
IFRS 9 Financial instruments
The complete standard was issued in July 2014 including the requirements previously issued and additional amendments. The new standard replaces IAS 39 and includes a new expected loss impairment model, changes to the classification and measurement requirements of financial assets as well as to hedge accounting. The new standard becomes effective for financial years beginning on or after 1 January 2018. The Group is currently assessing the impact of this standard however based on current operations do not expect this standard to have a material impact on the financial statements.
IFRS 16 Leases
The new standard was issued in January 2016 replacing the previous leases standard, IAS 17 Leases, and related Interpretations. IFRS 16 establishes the principles for the recognition, measurement, presentation and disclosure of leases for the customer ('lessee') and the supplier ('lessor'). IFRS 16 eliminates the classification of leases as either operating or finance as is required by IAS 17 and, instead, introduces a single lessee accounting model requiring a lessee to recognise assets and liabilities for all leases unless the underlying asset has a low value or the lease term is twelve months or less. This new standard applies to annual reporting periods beginning on or after 1 January 2019 subject to EU endorsement. This new standard, based on the Group's current operations, is not expected to have a material impact on the financial statements.
Basis of consolidation
Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.
The consolidated financial statements present the results of the Company and its subsidiaries as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full.
The results of undertakings acquired or disposed of are consolidated from or to the date when control passes to or from the Group. The results of subsidiaries acquired or disposed of during the year are included in the Consolidated Statement of Comprehensive Income from the date that control commences until the date that control ceases.
Where necessary, adjustments are made to the results of subsidiaries to bring the accounting policies they use into line with those used by the Group.
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity. Non-controlling interests consist of the non-controlling shareholder's share of changes in equity. The non-controlling interests' share of losses, where applicable, are attributed to the non-controlling interests irrespective of whether the non-controlling shareholders have a binding obligation and are able to make an additional investment to cover the losses. On acquisition of a non-controlling interest the relevant non-controlling interest share of equity is extinguished and the difference between the fair value of consideration paid and the relevant carrying value of the non-controlling interest is recorded in retained earnings.
Foreign currency
The consolidated financial statements are presented in US dollars, which is also the functional currency of the company and its subsidiaries. The Group's strategy is focused on developing a rare earth project in the Republic of Burundi which will generate revenues in United States Dollars and is funded by shareholder equity and other financial liabilities which are principally denominated in United States Dollars.
Transactions in foreign currencies are translated to the functional currency of the Group entity at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated to the functional currency at the rates prevailing on the reporting date. Exchange differences on all transactions are recognised in the consolidated statement of comprehensive income in the year in which they arise.
Rare earth exploration and evaluation assets
All exploration and appraisal costs incurred are accumulated in respect of each identifiable project area. The costs historically accumulated related to one identifiable project area, the Gakara Project. These costs, which are classified as intangible fixed assets are only carried forward to the extent that they are expected to be recovered through the successful development of the area or where activities in the area have not yet reached a stage which permits reasonable assessment as to whether the deposit is commercially viable and technically feasible for extraction.
Pre-licence/project costs are written off immediately. Other costs are also written off unless the Board has determined that the project is commercially viable and technically feasible for extraction, or the determination process has not been completed. Accumulated cost in relation to an abandoned area are written off in full to the statement of comprehensive income in the year in which the decision to abandon the area is made.
Exploration and evaluation assets associated with an identifiable project area are transferred from intangible fixed assets to tangible fixed assets as 'mine development costs' when the commercial viability and technical feasibility of extracting the deposit has been established. This includes consideration of a variety of factors such as whether the mining permit has been awarded, whether funding required for development is sufficiently certain of being secured, whether an appropriate mining method and mine development plan is established and the results of exploration data including internal and external assessments.
Property, plant and equipment
Property, plant and equipment consists of mine development costs, process plant, mining equipment and vehicles, computer equipment, motor vehicles, and office furniture and fittings.
Property, plant and equipment is initially recognised at cost and subsequently stated at cost less accumulated depreciation and any impairment. The cost of acquisition is the purchase price and any directly attributable costs of acquisition or construction required to bring the asset to the location and condition necessary for the asset to be capable of operating in the manner intended by management.
Depreciation
Property, plant and equipment is depreciated over the shorter of the estimated useful life of the asset using the straight-line method, or the life of mine using the unit of production method and life of mine tonnes. Residual values and useful lives are reviewed on an annual basis and changes are accounted for over the remaining lives.
The applicable depreciation rates are as follows:
Description within mining and other equipment Useful life ----------------------------------------------- -------------- Mine development costs Life of mine ----------------------------------------------- -------------- Process plant Life of mine ----------------------------------------------- -------------- Mining equipment and vehicles 5 years ----------------------------------------------- -------------- Computer equipment 3 years ----------------------------------------------- -------------- Office furniture and fittings 7 years ----------------------------------------------- --------------
Deferred stripping costs
Stripping costs incurred during the development phase of the mine as part of initial removal of overburden are capitalised as mine development costs within property, plant and equipment and depreciated on a units of production basis.
Stripping costs incurred during the production stage of the mine are included within the cost of inventory produced (ie the ROM stockpile) however may be accounted for as a non-current deferred stripping asset, depending on the expectation of when the benefit of the stripping activity is realised through the processing of ore.
To the extent that the bene t from the stripping activity is realised in the form of inventory produced in the current period, the directly attributable costs of that mining activity is treated as part of the ore stockpile inventory.
To the extent that the bene t from the stripping activity is the improved access to ore that will be mined in future periods and the cost is material, the directly attributable costs are treated as a non-current 'stripping activity asset' and depreciated over the relevant section of the ore body.
Impairment of exploration and evaluation assets
Exploration and evaluation assets are reviewed regularly for indicators of impairment following the guidance in IFRS 6 'Exploration for and Evaluation of Mineral Resources' and tested for impairment where such indicators exist. In addition, these assets are tested for impairment prior to transfers to mine development costs.
In accordance with IFRS 6 the Group considers the following facts and circumstances in their assessment of whether the Group's exploration and evaluation assets may be impaired:
-- whether the period for which the Group has the right to explore in a specific area has expired during the period or will expire in the near future, and is not expected to be renewed;
-- whether substantive expenditure on further exploration for and evaluation of mineral resources in a specific area is neither budgeted nor planned;
-- whether exploration for and evaluation of reserves in a specific area have not led to the discovery of commercially viable quantities of mineable material and the Group has decided to discontinue such activities in the specific area; and
-- whether sufficient data exists to indicate that although a development in a specific area is likely to proceed, the carrying amount of the exploration and evaluation assets is unlikely to be recovered in full from successful development or by sale.
If any such facts or circumstances are noted, the Group, as a next step, perform an impairment test in accordance with the provisions of IAS 36. In such circumstances the aggregate carrying value of the exploration and evaluation asset is compared against the expected recoverable amount of the cash generating unit. The recoverable amount is the higher of value in use and the fair value less costs to sell.
Any impairment arising is recognised in the Income Statement for the year.
Impairment of property, plant and equipment
A review is carried out at each balance sheet date to determine whether there is any indication that tangible fixed assets should be impaired. Assets are assessed for indicators of impairment (and subsequently tested for impairment if an indicator exists) at the level of a Cash Generating Unit ('CGU'). A CGU is the smallest group of assets that generates cash inflows from continuing use. If an indication of impairment exists, the recoverable amount of the asset or CGU is determined. The recoverable amount is the higher of value in use and the fair value less cost to sell. In assessing the value in use the expected future cash flows from the assets are determined based on estimates of the life of mine production plans together with estimates of future rare earth prices, capital expenditure necessary to extract the deposit included in the life of mine plan, cash costs and applying a discount rate to the anticipated risk adjusted future cash flows.
An impairment is recognised immediately as an expense to the extent that the carrying amount exceeds the assets' recoverable amount. Where there is a reversal of the conditions leading to an impairment, the impairment is reversed through the income statement.
Environmental rehabilitation costs
An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the development or ongoing production of a mining property. Such costs arising from the decommissioning of plant and other site preparation work, discounted to their net present values, are provided for in full as soon as the obligation to incur such costs arises and can be quantified. On recognition of a full provision, an addition is made to property, plant and equipment of the same amount; this addition is then charged against profits on a unit of production basis over the life of the mine. Closure provisions are updated annually for changes in cost estimates as well as for changes to life of mine, with the resulting adjustments made to both the provision balance and the net book value of the associated non-current asset.
Taxation
Current tax is based on the estimated taxable profit for the period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding tax bases used in the computation of taxable profit. It is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Convertible loan notes
Upon issue of a new convertible loan, where the convertible option involves the receipt of a fixed amount of proceeds for a fixed number of shares to be issued on any conversion, the net proceeds received from the issue of convertible loan notes are split between a liability element and an equity component at the date of issue. The fair value of the liability component is estimated by discounting the contractual future cash flows at the prevailing market interest rate for similar non-convertible debt. The difference between the proceeds of issue of the convertible loan notes and the fair value assigned to the liability component, representing the embedded option to convert the liability into equity of the Group, is included in equity and is not re-measured.
Subsequent to the initial recognition the liability component is measured at amortised cost using the effective interest method.
On conversion, the liability is reclassified to equity and no gain or loss is recognised in the profit or loss. The finance costs recognised in respect of the convertible borrowings includes the accretion of the liability.
Where there are amendments to the contractual loan note terms that are considered to represent a significant modification to the loan note, without representing an inducement to convert, the Group treats the transaction as an extinguishment of the existing convertible loan note and replaces the instrument with a new convertible loan note. An income statement charge is recorded based on the fair value of the new instrument attributable to extinguishing the original liability component. An adjustment to equity is recorded based on the fair value of the new instrument attributable to extinguishing the original equity component and the previous equity reserve is reclassified to accumulated loss.
When the terms of a new convertible loan arrangement are such that the option will not be settled by the Company in exchange for a fixed number of its own equity instruments for a fixed amount of cash, the convertible loan (the host contract) is accounted for as a hybrid financial instrument and the option to convert is an embedded derivative.
The embedded derivative is separated from the host contract as its risks and characteristics are not closely related to those of the host contract. At each reporting date, the embedded derivative is measured at fair value with changes in fair value recognised in the income statement as they arise. The host contract carrying value on initial recognition is based on the net proceeds of issuance of the convertible loan reduced by the fair value of the embedded derivative and is subsequently carried at each reporting date at amortised cost. The embedded derivative and host contract are presented under separate headings in the statement of financial position.
Prior to conversion the embedded derivative is revalued at fair value. Upon conversion of the loan, the liability, including the derivative liability, is derecognised in the statement of financial position. At the same time, an amount equal to the redemption value is recognised within share capital. Any resulting difference is recognised in retained earnings.
Financial instruments
Financial assets and financial liabilities are recognised on the statement of financial position when the Group becomes a party to the contractual provisions of the instrument.
- Financial assets
Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with a maturity of three months or less.
Trade and other receivables are measured at initial recognition at fair value and are subsequently measured at amortised cost using the effective interest method. A provision is established when there is objective evidence that the Group will not be able to collect all amounts due. The amount of any provision is recognised in the income statement.
- Financial liabilities
Loans, borrowings and trade and other payables are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method. They are classified as current liabilities unless the company has an unconditional right to defer settlement of the liability for at least 12 months after the statements of financial position date.
Convertible loan notes are assessed to determine whether the conversion element meets the fixed-for-fixed criterion. Where this is met, the instrument is accounted for as a compound financial instrument with appropriate presentation of the liability and equity components, see accounting policy detailed above.
Equity instruments issued to a creditor to extinguish all or part of a financial liability are initially recognised at their fair value. If their fair value cannot be determined, the equity instruments are measured to reflect the fair value of the financial liability extinguished. The difference between the carrying amount of the financial liability extinguished and the consideration paid is recognised in profit or loss.
Share capital
Ordinary shares are classified as equity and are recorded at the proceeds received, net of any direct issue costs.
Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision maker has been identified as the Chief Executive Officer. It is considered that there is only one segment of the Group being the exploration and evaluation of rare earths.
Share options
Equity-settled share based payments to employees and Directors are measured at the fair value of the equity instrument. The fair value of the equity-settled transactions with employees and Directors is recognised as an expense over the vesting period. The fair value of the equity instruments are determined at the date of grant, taking into account market based vesting conditions.
The fair values of share options are measured using the Black Scholes model. The expected life used in the models is adjusted, based on management's best estimate of the effects of non-transferability, exercise restrictions and behavioural considerations.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees (or other beneficiaries) become fully entitled to the award ('the vesting date').
The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company's best estimate of the number of equity instruments that will ultimately vest.
The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance and/or service conditions are satisfied.
Warrants
Warrants issued are recognised at fair value at the date of grant. The charge is expensed on a straight-line basis over the vesting period. The fair value is measured using the Black-Scholes model. Where warrants are considered to represent a transaction cost attributable to a debt issue, the fair value is recorded in the warrant reserve and deducted from the debt liability and subsequently amortised through the effective interest rate.
3. ACCOUNTING JUDGMENTS AND ESTIMATIONS
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects both current and future periods. Key sources of estimation uncertainty and judgment are:
Exploration and evaluation asset recognition (note 10)
Qualifying exploration and evaluation costs are initially classified and held as intangible fixed assets rather than being expensed. In recording costs as exploration and evaluation assets, judgment is required as to the extent to which the costs are attributable to the discovery of specific mineral resources and include both internal and external costs.
The carrying values of intangible exploration and evaluation assets were assessed for indicators of impairment prior to transfer to plant, property and equipment and at 30 June 2016 based on an estimation of the recoverability of the cost pool from expected future development and production of the related rare earth potential reserves and resources. In forming this assessment, the Group considered the external Competent Person's Report into the project, the status of its permits and internal economic models and financing which supported the carrying value of the project. No triggers of impairment were identified at the point of transfer to plant, property and equipment or at 30 June 2016.
Transfer to plant, property and equipment (note 11)
On 30 June 2017 the Group transferred the Gakara Project exploration and evaluation asset to mine development costs. The determination that the project had reached a stage of being commercially viable and technically feasible for extraction notwithstanding its classification as an Exploration Target under JORC rules represented a key judgment. In forming this judgment, the Board considered factors including: a) the mine permit had been awarded; b) the Project had secured funding for development and construction of the plant; c) the production phase due to commence in Q4 2017 is anticipated to be profitable and cash generative; d) the mine development plan had been established; and e) the results of exploration data including internal and external assessments.
Carrying value of plant, property and equipment (note 11)
The group assessed at 30 June 2017 whether there was any indication that these assets may be impaired. If such indication exists, the group estimates the recoverable amount of the asset. The recoverable amount is assessed by reference to the higher of 'value in use' (being the net present value of expected future cash flows of the relevant cash generating unit) and 'fair value less cost to sell'.
At 30 June 2017, the carrying value of the Company's fixed assets was US$6.0 million, considerably lower than its net asset value according to management forecasts. The impairment indicator review initially assessed the market capitalisation of the Company which was in excess of the carrying value of net assets. In addition by 3 October 2017, the basket price for the Company's rare earth concentrate had risen over 80% since 1 January 2017, construction work is proceeding largely on schedule, and geological discoveries have been consistently better than initial expectations.
In addition, as part of the impairment indicator assessment, Management have assessed the life of mine plan and its associated future discounted cash flows which involves a number estimates and assumptions. This model supports the carrying value but required estimates of rare earth reserves and resources with reference to the Competent Person's Report and internal geological data, future production, estimates of market prices realisable by the mine, operating and capital costs associated with the project and discount rates. The model assessed for the purposes of identifying potential impairment indicators was prepared using a minimum production target significantly below the upper end range of 80,000 tonnes of material grading identified in the Competent Person's Report and for which management and the Competent Person's Report forecast further upside as the geology of the ore body is further explored. It is noted that the project is currently categorised at an Exploration Target by the Competent Person's Report and therefore does not qualify as a measured resource. However, given the nature of the deposit, internal studies and historical data the Board consider the minimum production target to be conservative.
Management therefore concluded that these facts did not indicate that a trigger for impairment existed and no impairments were recognised.
Share based payments (note 18)
Share based payments relate primarily to share options issued by the Company, in relation to employee share benefit schemes. The grant date fair value of such options are calculated using a Black-Scholes model whose input assumptions are derived from market and other internal estimates. The key estimates include volatility rates and the expected life of the options, together with the likelihood of non-market performance conditions being achieved.
IPO related costs
Costs associated with the IPO included both costs that were directly attributable to the share placing which has been recorded as a deduction against equity, costs directly attributable to the IPO process excluding the share placing, which have been expensed and costs which supported both the listing of existing shares and the new equity placing. These latter costs have been allocated between the two categories based on the ratio of new share issues versus the enlarged shares in issue post IPO. The ratio applied and the allocation of such costs required judgment. In total US$0.3 million of costs were expensed and US$0.8 million of costs were deducted from equity.
Decommissioning, site rehabilitation and environmental costs
The Group's mining and exploration activities are subject to various laws and regulations governing the protection of the environment. The Group recognises management's best estimate of the rehabilitation costs in the period in which they are incurred. Actual costs incurred in future periods could differ materially from the estimates. Additionally, future changes to environmental laws and regulations, life of mine estimates and discount rates could affect the carrying amount of this provision. The Board assessed the extent of rehabilitation and decommissioning required as at 30 June 2017 and concluded that the effect was immaterial given the nature of the works that had been performed at that date and the requirements under legislation, the mining permit and Environmental Management Plan.
4. LOSS FROM OPERATING ACTIVITIES
Operating loss includes:
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
Professional fees in relation to the IPO (284) -
Share based payment (494) -
Audit of the Group and Company financial statements (42) -
Non-audit related service fees (87) (8)
Foreign exchange gain 229 52
5. FINANCE COSTS AND INCOME
FINANCE COSTS Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
Effective interest charge on borrowings 128 191
Loss on extinguishment of convertible loan notes (note 14) - 335
Fair value movement in derivative and interest charge on convertible loan notes
(note 16c) 28 -
156 526
--------------- ---------------
FINANCE INCOME
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
Gain on extinguishment of convertible loan notes (note 14) 185 -
Total finance income 185 -
--------------- ---------------
The interest charge related primarily to the Pala loan facility, which was repaid during the year, see note 14. The credit of US$185k recognised on repayment of that loan related to interest and fees which had been accrued for but which were released following the negotiation of a final settlement figure of US$1.7 million.
6. REMUNERATION OF KEY MANAGEMENT PERSONNEL
Key management personnel are defined as being Executive and Non-executive Directors and Persons Discharging Managerial Responsibility ('PDMRs'), who are in effect the members of the Executive Committee.
Their remuneration for the 12 months ended 30 June 2016 and 30 June 2017 is summarised as follows:
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
Wages and salaries 693 249
Benefits 15 -
Share based payments 483 -
Total remuneration of key management personnel 1,191 249
============== ===============
Benefits paid to employees include healthcare and pension contributions.
7. TOTAL EMPLOYEE REMUNERATION (INCLUDING KEY MANAGEMENT PERSONNEL)
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
Wages and salaries 877 415
Benefits 20 -
Share-based payments 494 -
Total employee remuneration 1,391 415
=============== ===============
The average number of employees during the period were made up as follows:
Directors 5 4
Management and administration 7 4
Mining, processing and exploration staff 16 -
--------------- ---------------
28 8
--------------- ---------------
Following the IPO in January 2017, the Company began the recruitment of management and operating staff. By 30 June 2017, the Company had 123 employees, including 6 Directors, 9 management and administration staff, and 108 mining, processing and exploration staff.
8. INCOME TAX EXPENSE
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
Current tax expense - -
Deferred tax expense - -
Total tax expense for the year - -
--------------- ---------------
The difference between the total tax expense shown above and the amount calculated by applying the standard rate of corporation tax to the loss before tax is as follows:
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
Loss for the year (1,402) (1,200)
- -
Income tax using the Guernsey rate of 0% :
Effects of:
Differences in tax rates (163) (120)
Tax losses carried forward 163 120
- -
--------------- ---------------
Rainbow Rare Earths Limited and Rainbow International Resources Limited are subject to 0% income tax in Guernsey and the British Virgin Islands respectively. Rainbow Rare Earths UK Limited, which was established on 1 April 2017, is subject to an income tax rate in United Kingdom of 19%. In Burundi, Rainbow Burundi SPRL and Rainbow Mining Burundi SM are subject to corporation tax at 30%.
No deferred tax asset has been recognised in respect of the tax losses carried forward as the recoverability of this benefit is dependent on the future profitability of the Company, the timing of which is considered insufficiently certain. The total unrecognised potential deferred tax assets in respect of losses carried forward in Rainbow Rare Earths UK Ltd are US$1k (30 June 2016: US$nil), Rainbow Burundi SPRL US$103k (30 June 2016: US$97k), and in respect of Rainbow Mining Burundi SM they are US$60k (30 June 2016: US$23k).
9. LOSS PER SHARE
The earnings per share calculations for 30 June 2017 reflect the changes to the number of ordinary shares during the period. On 9 January 2017, each ordinary share was subdivided into 66 new shares, which increased the number of shares by 80,640,516. On 30 January 2017, the Company underwent an Initial Public Offering, which included the allotment of 65,036,958 new shares to subscribers, and 5,126,507 shares to settle outstanding creditors, while on 1 February 2017, 2,600,665 shares were issued in respect of commissions and underwriting discounts. Earnings per share have been calculated using the weighted average of ordinary shares, adjusted for the effect of the share subdivision, in order for the calculations of basic and diluted earnings per share for all periods presented to be comparable. The Company was loss making for all periods presented, therefore the dilutive effect of share options has not been taken account of in the calculation of diluted earnings per share, since this would decrease the loss per share for each of the period reported.
Weighted number of ordinary shares
At 1 June 2016 81,834,808
------------------ ------------------------------------
At 30 June 2017 112,135,616
------------------ ------------------------------------
Basic Diluted
2017 2016 2017 2016
Loss for the year (US$'000) (1,402) (1,200) (1,402) (1,200)
Weighted average number of ordinary shares in issue
during the year 112,135,616 81,834,808 112,135,616 81,834,808
Loss per share (cents) 0.01 0.01 0.01 0.01
------------- ------------ ------------- ------------
The weighted average number of shares for 2016 has been adjusted for the effect of the share sub-division during 2017. The previously presented weighted average number of ordinary shares in 2016 was 1,218,105, equivalent to 81,834,808 if the share consolidation had taken place at the start of 2016. At 30 June 2017, there were 10,120,324 (2016: 427,924) potentially dilutive shares in issue through warrants and options.
10. EXPLORATION AND EVALUATION ASSETS
Total
US$'000
At 1 July 2015 3,275
Additions 552
At 30 June 2016 3,827
---------
At 1 July 2016 3,827
Additions in year 776
Transfer to plant, property and equipment (note 11) (4,603)
---------
At 30 June 2017 -
---------
The Group has a 100% interest, held through its wholly owned subsidiary, Rainbow International Resources Limited, in the 135km(2) Gakara rare earths exploration licence in Burundi which was granted by Presidential decree in May 2011 for an initial licence period of 3 years and was renewed in June 2014 for a period of 2 years and was further renewed in September 2016 for 2 years.
The Group, through its 90% owned Burundian subsidiary, Rainbow Mining Burundi SM, was granted a 25 year mining licence in April 2015 for a 39km(2) portion of the Gakara project area.
At 30 June 2017, the total value of exploration costs previously capitalised as intangible assets in respect of the Gakara project were transferred to plant, property and equipment, in accordance with the Company's accounting policies (see Note 2).
11. PLANT, PROPERTY AND EQUIPMENT
Office
Mine development costs Plant and machinery Vehicles equipment Total
------------------------ --------------------- ---------- ------------
Year ended 30 June 2017 US$'000 US$'000 US$'000 US$'000 US$'000
----------------------------- ------------------------ --------------------- ---------- ------------ ---------
Cost
At 1 July 2016 - - - 1 1
Transfer from exploration
and evaluation assets 4,603 - - - 4,603
Additions - 1,016 169 2 1,187
At 30 June 2017 4,603 1,016 169 3 5,791
------------------------------ ------------------------ --------------------- ---------- ------------ ---------
Depreciation
At 1 July 2016 - - - - -
Charge for year - - - - -
At 30 June 2017 - - - - -
----------------------------- ------------------------ --------------------- ---------- ------------ ---------
Net Book Value at 30 June 2017 4,603 1,016 169 3 5,791
------------------------------ ------------------------ --------------------- ---------- ------------ ---------
Net Book Value at 30 June 2016 - - - 1 1
------------------------------ ------------------------ --------------------- ---------- ------------ ---------
Net Book Value at 30 June 2016 - - - 1 1
------------------------------ ------------------------ --------------------- ---------- ------------ ---------
During the year, capitalised costs of US$4.6 million, which had previously been classified under intangible assets, were transferred to tangible fixed assets (see note 10 above).
No depreciation charge was applied during the year, as the Gakara project had not yet entered into production. Assets will be depreciated over their useful economic lives, in accordance with the Company's accounting policies, once production commences (expected to be during Q4 2017).
12. PREPAYMENTS
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US US$'000
Non-current prepayments 182 -
Current prepayments 22 -
Total prepayments 204 -
--------------- ---------------
Non-current prepayments relate to advance payments on equipment for the Gakara project.
13. CASH AND CASH EQUIVALENTS
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
Cash at bank and in hand 3,198 70
3,198 70
=============== ===============
No cash amounts were restricted at 30 June 2017 (30 June 2016: nil).
14. BORROWINGS
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
Current
Arc Securities (A) 20 20
Pala Investments Limited (B) - 1,633
--------------- ---------------
20 1,653
--------------- ---------------
(A) Terms of Loan - Arc Securities
The US$20k loan from Arc Securities is unsecured, bears no interest and is repayable on demand, and was drawn in March 2014. Arc Securities is a related party (see Note 21)
(B) Terms of Convertible Loan - Pala Investments Limited
On 31 October 2015 the Group entered into a US$6m loan facility agreement with Pala Investments Limited. Upon entering into the agreement the Group issued US$1.5m of convertible loan notes, which were convertible at any time prior to maturity at the discretion of the holder, into Ordinary Shares with the number of shares equivalent to the principal divided by US$14.407 per share.
On 5 April 2016 the Group agreed with Pala Investments Limited to vary the terms of the agreement. The maturity date was amended to 31 January 2017 and the loan notes could only be converted if the Group defaulted on the loan on this date. The conversion rate remained unchanged. The convertible loan notes were extinguished and replaced with an amended convertible loan. The fair value of the equity component of the revised convertible loan note was considered to be immaterial. The fair value of the liability component of the new convertible loan was US$1.6m discounted at a market rate of 13%. The variation of terms gave rise to a loss on extinguishment of the liability of US$335k which substantially related to unamortised original transaction costs. The interest charge accreted over the loan period with US$191k (old and new instrument) having been charged for the period to 30 June 2016.
Pursuant to an amendment agreement dated 19 December 2016, this loan was repaid in the amount of US$1.7m on 31 January 2017. The carrying value of the loan at date of repayment was US$1.76m with a total of $1.89m due to Pala (including fees of US$132k and accrued effective interest of US$263k). The fees were waived and upon final settlement a gain of $185k recognised in finance income. The interest charged for the period to 31 January 2017 was US$128k recognised in finance costs.
15. TRADE AND OTHER PAYABLES
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
Trade payable 61 127
Accrued expenses 64 96
Payroll taxes 17 18
Amounts due to staff and management 135 338
Pension contributions 10 -
Amounts owed to shareholders 126 170
Other payables 16 16
--------------- ---------------
Total trade and other payables 429 765
--------------- ---------------
The average terms for trade and other payables are 30 days.
The Directors consider that the carrying value of trade and other payables approximate to their fair value.
16. SHARE CAPITAL
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
Share Capital 13,186 5,042
Issued Share Capital 13,186 5,042
============== ==============
The shares issued have no par value.
The table below shows a reconciliation of share capital movement in the year:
Note Number of shares Value (US$'000)
------------------ -----------------
At 30 June 2015 1,211,826 4,942
------------------ -----------------
July 2015 - rights issue a 10,000 100
At 30 June 2016 1,221,826 5,042
------------------ -----------------
January 2017 - 1:67 share subdivision b 80,640,516 -
January 2017 - share allotments to settle debt and other creditors c 5,126,507 602
January 2017 - share allotment as part of IPO d 65,036,958 8,000
January 2017 - IPO costs relating to new shares e - (778)
February 2017 - share allotments f 2,600,665 320
------------------ -----------------
At 30 June 2017 154,626,472 13,186
------------------ -----------------
Shares issued during the year
a. On 17 June 2015 the Company undertook a rights issue to existing shareholders of 8.25 shares for every 1,000 shares held. The rights issue subscription was opened on 17 June 2015 and closed on 16 July 2015. Share subscriptions totalling US$100k were received for the issue of 10,000 shares at US$10 per share.
b. On 9 January 2017, the Company subdivided each of its existing ordinary shares (1,221,826) into 67 ordinary shares (81,862,342).
c. On 30 January 2017, the Company issued 2,868,151 ordinary shares at 10p (12.3 cents) per share to various creditors and key management personnel shown below to settle amounts owing. On the same day, it also issued 2,258,356 ordinary shares to Alpha Future Investments at a discounted price of 9p (11.1 cents) per share on the conversion of its loan as explained below.
No of shares US$'000
Cesare Morelli* 612,559 75
Gilbert Midende* 746,647 91
Martin Eales* 786,579 96
Alpha Future Investments 2,258,356 250
Other creditors 722,366 90
-------------- ---------
5,126,507 602
On 17 October 2016 the Group entered into a loan agreement with Alpha Future Investments to fund working capital and expenditure requirements. Upon entering into the agreement the Group issued US$0.25m of convertible loan notes, which were convertible upon IPO at a 10% discount to the IPO price. If the IPO had not completed before 31 January 2017 Alpha could elect to convert the loan at a 20% discount to the IPO price or continue to extend the loan on an unsecured basis on which interest would accrued at 13% per annum from 1 February 2017. The principal and accrued interest would be due for repayment on 31 January 2019.
The terms of the agreement were such that a variable number of shares could be issued. The option to convert to a variable number of shares represented an immaterial embedded derivative. The IPO on 30 January triggered conversion of the loan notes. Prior to conversion the embedded derivative was fair valued. The loan liability was converted into 2,258,356 new ordinary shares at the placing price of $0.11 (GBP0.09) in accordance with the agreed terms noted above. The loan note and embedded derivative were derecognised and included in equity. At the date of conversion no loan interest had accrued in line with the agreement.
d. On 30 January 2017, the Company successfully listed on the London Stock Exchange (RBW: LSE) and issued 65,036,958 ordinary shares at admission price of 10p (12.3 cents) per share raising $8m share capital (the Group incurred $0.15m in foreign exchange following the settlement of the funds).
e. Costs in relation to the allotment of new shares as part of the IPO amounted to US$778k. This amount has been set off against share capital.
f. On 2 February 2017, the Company issued 2,600,665 ordinary shares for commissions and early subscription discounts in relation to the issuance of the 65 million shares, as follows:
No of shares US$'000
Early subscription discounts
Alexander Lowrie (including related parties)* 333,333 41
Other members of Lowrie family 627,776 77
961,109 118
Commissions
Alexander Lowrie* 380,126 47
Atul Bali* 339,430 42
Other commissions 920,000 113
1,639,556 202
2,600,665 320
-------------- ---------
* are transactions with related parties (see note 21).
17. RESERVES
Reserve Purpose
Share capital Value of shares issued less costs of issuance
Share-based payment reserve Fair value of share options issued
Equity reserve Fair value of proceeds on the issue of convertible debt attributable to the equity
conversion
component i.e. the option to convert the debt into share capital, less amounts
removed from
the reserve on extinguishment of the convertible loan note
Other reserves Includes fair value of warrants issued
Accumulated losses Cumulative net losses recognised in the statement of comprehensive income
Amounts attributable to the 10% interest the State of Burundi has in Rainbow Mining
Non-controlling interest Burundi
SM and 3% interest Gilbert Midende has in Rainbow Burundi SPRL at 30 June 2017. Refer
to note
19 for further details and non-controlling interests for earlier periods
Details in the movements of these reserves are set out in the Statement of Changes in Equity.
18. SHARE OPTIONS AND WARRANTS
Employee share options
The Company issued a total of 9,692,400 share options in the year in two tranches: 6,692,400 on 30 January 2017 at a grant price of 10 pence, and 3,000,000 share options on 27 June 2017 at a grant price of 12.75 pence.
Options Exercised/ Granted Options Exercise Date of Date from
held at 30 cancelled during held at 30 price grant which
June 2016 during the the June 2017 (pence) exercisable(1)
period period
--------------- ------------- ------------- ----------- ------------ ------------ ------------ ----------------
A Pouroulis - - 402,000 402,000 10.00 30-Jan-17 30-Jan-17
C Morelli - - 944,700 944,700 10.00 30-Jan-17 30-Jan-17
G Midende - - 944,700 944,700 10.00 30-Jan-17 30-Jan-17
M Eales(2) - - 3,500,000 3,500,000 10.00 30-Jan-17 30-Jan-17
R Sinclair - - 350,000 350,000 10.00 30-Jan-17 30-Jan-17
S McCormick - - 350,000 350,000 10.00 30-Jan-17 30-Jan-17
J Wynn(2) - 1,500,000 1,500,000 12.75 27-Jun-17 27-Jun-17
B
Jankowitz(2) - - 1,500,000 1,500,000 12.75 27-Jun-17 27-Jun-17
Others - - 201,000 201,000 10.00 30-Jan-17 30-Jan-17
- - 9,692,400 9,692,400 10.85
------------- ----------------------------- ----------- ------------ ------------ ------------ ----------------
1 - All awards made in the year vest and are exercisable in three equal tranches: the first on the date of award, and the second and third 12 and 24 months later respectively.
2 - 4,333,333 share options awarded to M Eales, J Wynn and B Jankowitz are subject to performance conditions (on tranche 2 and 3 above) related to safety, and operational and strategic targets, which are required to be met if exercise of vested options are to be permitted by the Remuneration Committee. These performance conditions are forecast to vest based on Management's best estimate.
At 30 June 2017, the following share options are exercisable and outstanding:
Number Average weighted exercise price Fair value (US$'000)
----------------------------------------- ----------- --------------------------------- ----------------------
Outstanding at 1 July 2016 - - -
Granted during the year 9,692,400 10.85 pence 1,033
Exercised in the year - - -
Cancelled or expired in the year - - -
----------------------------------------- ----------- --------------------------------- ----------------------
Outstanding at 30 June 2017, of which: 9,692,400 10.85 pence 1,033
* Exercisable 3,230,800 10.85 pence 344
* Not exercisable 6,461,600 10.85 pence 689
----------------------------------------- ----------- --------------------------------- ----------------------
Warrants
On 9 November 2015 Rainbow Rare Earths issued 6,293 warrants for services with an exercise price of US$14.30 per warrant and a contractual life of 5 years. The separable warrants were issued as consideration for arranging the Pala funding. Following the share sub-division, the total warrants and exercise price have been adjusted on a pro rata basis in accordance with the existing agreement.
At 30 June 2017, the following share warrants were outstanding:
Number Exercise price Fair value (US$'000)
Outstanding at 1 July 2016 6,293 US$14.30 40
January 2017 - 1:67 share subdivision 421,631 - -
Exercisable at 30 June 2017 427,924 US$0.21 40
---------------------------------------- --------- ---------------- ----------------------
The Fair Value of share options and warrants awarded in the current and prior year was estimated using a Black-Scholes model. The inputs into the Black--Scholes were:
Share Options awarded 30 January 2017 Share Options awarded 27 June 2017 Warrants
--------------------------- --------------------------------------- ------------------------------------ ----------
Share price (GBP) 0.10 0.1275 10.83
Exercise price (GBP) 0.10 0.1275 10.83
Expected volatility 90% 90% 50%
Risk--free rate 1.8% 1.8% 1.8%
Rate of Exchange 1.23 1.30273 1.32
Contractual life (years) 7 7 5
--------------------------- --------------------------------------- ------------------------------------ ----------
Expected volatility was determined by the volatility of a basket of similar listed companies. The expected life used in the model has been on management's best estimate for the effects of exercise restrictions and behaviour.
19. NON-CONTROLLING INTEREST
The non-controlling interests of the Group's partners in its operations are presented in the table below:
Name of subsidiary Rainbow Burundi SPRL Rainbow Mining Burundi SM
Country Burundi Burundi
US$'000 US$'000
Effective non-controlling interest 2016 3% 10%
As at 1 July 2015 3 (28)
Loss for year 2 4
---------------------- ---------------------------
At 30 June 2016 5 (24)
Effective non-controlling interest 2017 3% 10%
As at 1 July 2016 5 (24)
Loss for year 1 12
---------------------- ---------------------------
At 30 June 2017 6 (12)
Assets at year-end:
30 June 2016 1,179 180
30 June 2017 1,229 2,358
Liabilities at year-end:
30 June 2016 1,469 (64)
30 June 2017 1,539 2,237
Loss for the year to:
30 June 2016 53 43
30 June 2017 20 123
20. CAPITAL COMMITMENTS
On 10 March 2017, the Company entered into an agreement with Obsideo Consulting Pty Ltd for the design, supply, and installation of a rare earths concentrator plant, for a total of ZAR 23.3 million (US$1.8 million). As at 30 June 2017, a total of US$1.0 million had been incurred under this contract, therefore US$0.8 million should be considered a capital commitment at the year end.
21. RELATED PARTY TRANSACTIONS
2017 2016
Charged in Balance as Charged in Balance as Related party Description
year at 30 June year at 30 June
US$'000 US$'000 US$'000 US$'000
Artemis 56 76 32 120 R Sinclair Company
Trustees secretarial
Limited services to the
Group
Alexander 88 - - - A Lowrie Shares allotted
Lowrie as underwriting
discount (see
Note 16)
Advance to the
Arc Company (see
Securities - 20 - 20 B Smit Note 14)
Atul Bali 42 - - - A Bali Shares allotted
for equity
raised (see
below and Note
16)
Gilbert 34 2 - 104 G Midende Rental of
Midende accommodation
for staff, plus
acquisition of
land for plant
site
Martin Eales - 122 - 125 M Eales Balance of
settlement for
waiver of
profit-share
agreement
Pella
Resources London office
Limited 20 43 22 37 A Pouroulis rental
Sutton - - - 1 B Smit Consulting
Consulting disbursements
owed
Uvumbuzi 54 8 46 70 C Morelli Exploration
Resources activity (ground
Limited magnetic survey
in Burundi)
Benzu Exploration
Minerals 12 - 18 24 C Morelli activity
--------------- -------------- --------------- -------------- --------------- ------------------
306 271 118 501
--------------- -------------- --------------- -------------- --------------- ------------------
-- During the year, shares were issued in order to settle commissions due to Atul Bali for bringing investors into the IPO, and to Alexander Lowrie as a discount for committing early to the fundraising (see note 16 for details).
-- The US$122k due to Martin Eales at year end relates to the unsettled amount in respect of his waived entitlement to a profit-share agreement under his previous contract.
-- Remuneration with key management personnel has been disclosed in note 6.
22. INVESTMENT IN SUBSIDIARIES
The shareholdings in the Group's subsidiaries for each year are set out below:
Name of Company Principal Activity Country of
Incorporation % Share Capital Held % Share Capital Held
2017 2016
Rainbow
International Rare earth British Virgin
Resources Ltd exploration Islands 100% 100%
Rainbow Rare Earths Service Company United Kingdom 100% -
UK Ltd
Rare earth
Rainbow Burundi SPRL exploration Republic of Burundi 97% 97%
Rare earth
Rainbow Mining exploration and
Burundi SM mining Republic of Burundi 90% 90%
a. Rainbow International Resources Limited is 100% owned by Rainbow Rare Earths Limited.
b. Rainbow Rare Earths UK Ltd is 100% owned by Rainbow Rare Earths Limited.
c. 97% of shares in Rainbow Burundi SPRL and 90% of shares in Rainbow Mining Burundi SM are held by Rainbow International Resources Limited.
d. The government of Burundi has a 10% interest in Rainbow Mining Burundi SM granted in accordance with the Mining Code of Burundi.
e. Gilbert Midende holds a 3% interest in Rainbow Burundi SPRL.
23. CONTINGENT LIABILITIES
There were no contingent liabilities at 30 June 2017 (30 June 2016: nil).
24. POST BALANCE SHEET EVENTS
There were no post balance sheet events.
25. FINANCIAL RISK MANAGEMENT
The Group's financial liabilities at each period end consist of convertible loan notes, related party loans and trade and other payables. All liabilities are measured at amortised cost. These are detailed in notes 14 and 15.
The Group has various financial assets, being other receivables and cash, which arise directly from its operations. All are classified as loans and receivables. These are detailed in notes 12 and 13.
The fair values of the Group's cash, other receivables, borrowings, and trade and other payables are considered to approximate book value.
The risks arising from the Group's financial instruments are credit risk, liquidity risk and market risk (including interest risk and currency risk). The risk management policies employed by the Group to manage these risks are discussed below:
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group does not have any significant credit risk exposure.
The Group makes allowances for impairment of receivables where there is an identified event.
The credit risk on liquid funds (cash) is considered to be limited because the counterparties are financial institutions with high and good credit ratings assigned by international credit rating agencies in the UK and Burundi.
The carrying amount of financial assets, other receivables and cash held with financial institutions recorded in the financial statements represents the maximum exposure to credit risk for the group. There are no material past due unimpaired assets.
Market risk
- Currency risk
Currency risk refers to the risk that fluctuations in foreign currencies cause losses to the Group.
The Group is exposed to foreign exchange risk arising from various currency exposures primarily with respect to Sterling and the Burundian Franc. However, management monitors the exchange rate fluctuations on a continuous basis and acts accordingly. The financial assets and liabilities that include significant foreign currency denominated balances are shown below.
Cash and cash equivalents
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
US dollars 1,250 56
GB pounds 1,937 9
Burundi Francs 11 5
3,198 70
============== ==============
Trade and other payables
Year Ended Year Ended
30 June 2017 30 June 2016
US$'000 US$'000
South African Rand 5 3
GB pounds 320 287
Burundi Francs 42 12
367 302
============== ==============
A 10% movement in the US$:GBP rate would have resulted in a gain or loss of US$0.2m in the income statement in relation to the cash and cash equivalents as at 30 June 2017.
- Interest rate risk
Interest rate risk refers to the risk that fluctuations in interest rates cause losses to the Company.
The Group and Company have no exposure to interest rate risk except on cash and cash equivalent which carry variable interest rates. The Group has no material sensitivity to reasonable changes in variable interest rates. The group monitor the variable interest risk accordingly.
The Group's borrowings bear fixed rates of interest.
Liquidity risk
Liquidity risk refers to the risk that the Group has insufficient cash resources to meet working capital requirements. The Group manages its liquidity requirements by using both short and long-term cash flow projections. Ultimate responsibility for liquidity risk management rests with the Board of Directors, who have built an appropriate liquidity risk management framework for the management of the Group's short, medium and long-term funding and liquidity management requirements. The Group closely monitors and manages its liquidity risk. For further details on the Group's liquidity position, please refer to the going concern paragraph in Note 1 of these accounts.
Capital management
In managing the capital, the Group's primary objective is to maintain a sufficient funding base, through debt and equity, to enable the Group to meet its working capital and strategic investment needs. In making decisions to adjust its capital structure to achieve these aims the Group consider not only its short term position but also its long term operational and strategic objectives.
The Group's primary capital management measure is net debt (borrowings less cash) to total equity, measured as follows:
Net debt/(net cash) to equity 30 June 2017 30 June 2016
US$'000 US$'000
Total borrowings (note 14) 20 1,655
Less: Cash and cash equivalents (note 13) (3,198) (70)
Net debt/(net cash) (3,178) 1,585
Total equity 8,744 1,480
Ratio -36% 107%
26. NON CASH TRANSACTIONS
Material non cash transactions were as follows:
Year end 30 June 2016
-- The difference between cash additions to exploration and evaluation costs and note 10, representing movements in capital accruals
-- Finance costs as detailed in note 5 including the loss on extinguishment of the convertible loan note
Year end 30 June 2017
-- The difference between cash additions to exploration and evaluation costs and note 10, representing movements in capital accruals
-- The difference between cash additions to property, plant and equipment and note 11, representing movements in capital accruals
-- Finance costs and the finance income as detailed in note 5 -- Share based payments, which have been recognised in income statement
-- Shares issued in settlement of liabilities, shares issued for commissions and early settlement discounts per note 16.
27. ULTIMATE CONTROLLING PARTY
The Company does not have a single controlling party.
BUSINESS RISKS
The Directors regularly assess and discuss the principal risks facing the company, including those that would threaten its business model, future performance, solvency or liquidity.
The key risks affecting the Company are set out below:
Risk Comment Business Mitigation
impact
------------------- --------------------------------- --------- --------------------------------
Construction The Gakara processing High Management liaise closely
and commissioning plant is expected with Obsideo, who are
risk to be commissioned responsible for constructing
in Q4 2017. Construction and commissioning the
of a processing plant plant (as well as its
involves inherent design). Any potential
risks of delays and issues are anticipated
overruns. and addressed before
they impact timelines,
These include the wherever possible.
risk of materials
and workforce not
being available, customs
issues delaying parts
being imported, and
teething problems
encountered during
the ramp-up.
------------------- --------------------------------- --------- --------------------------------
Production The production of High Management will monitor
issues rare earth mineral ongoing risks as far
concentrate involves as possible to mitigate
a series of processes, potential issues arising
from the mining of which might impact production.
the ore at the mine Exco convene weekly
site near Mutambu, to discuss current concerns,
to the processing and monthly reports
of material at the are shared with the
Kabezi plant. Board which highlight
the key issues facing
Mining operations operations.
are subject to a number
of risks, including
mechanical outages,
supply issues (eg
fuel), interruptions
due to weather, among
many others.
------------------- --------------------------------- --------- --------------------------------
Civil unrest Burundi has experienced Medium Although civil unrest
civil unrest, including is beyond the control
most recently in 2015. of management, the Company
Any subsequent instances maintains strict political
of civil unrest could neutrality in order
impact the operation to minimise the risk
of the mine, including of association with
its ability to obtain any party.
supplies or export
its material, or even In the event of unrest,
access its bank accounts management would prioritise
in country. the safety of its staff,
and if it were deemed
safe to continue in
operation, would work
to ensure the security
of its assets and supplies.
------------------- --------------------------------- --------- --------------------------------
Rare earth The Company produces High In the event of lower
prices rare earth mineral market prices, the Company
concentrate which would seek to defend
is sold at a market its margins by reviewing
price less a discount its operating cost base,
(negotiated with each where possible, and
customer). Rare earth cut back on discretionary
prices have been volatile expenditure.
in the past. If the
underlying rare earth Under the terms of the
basket price falls, agreement, thyssenkrupp
this reduces revenue Raw Materials are responsible
and will impact the for negotiating with
profitability of the end customers of the
mine. The current Company's concentrate,
discount rate is expected and are incentivised
to be between 68-73%, to obtain the best price.
however this may vary
with new customers
or as terms are renegotiated.
------------------- --------------------------------- --------- --------------------------------
Geological The Company does not Low Rainbow's models are
risk currently have a JORC-compliant based on conservative
Mineral Resource or assumptions of the quantity
Reserve, and therefore and size of rare earth
the scale of its mineral veins within the Gakara
deposit cannot be licence area. Once in
stated with certainty. production, the Company
It is possible that will continue its exploration
the quantity of rare activities to improve
earths present in its understanding of
the licence area is the orebody, to minimise
less than management this risk.
expectations.
------------------- --------------------------------- --------- --------------------------------
Financing The Company currently Medium Management is in advanced
risk forecasts limited discussions with its
financial headroom bankers and key shareholders
before entering into to put in place overrun
profitable, cash-generative facilities, which it
production. If this expects to be concluded
period is prolonged, shortly after the issuance
eg due to delays in of this report, or as
commissioning, the soon as required. It
headroom may not be believes these facilities
sufficient and financing will provide funding
may be required in even in the most conservative
order to continue downside scenario.
in operation.
------------------- --------------------------------- --------- --------------------------------
Currency The Company will receive Medium The Company has the
controls proceeds in US dollars, right, under its Mining
which, under the Burundian Convention with the
Mining Code, must Burundian Government,
be repatriated into to have unfettered access
Burundi. to its foreign currencies.
Burundi has experienced The Company will continue
shortages of foreign to monitor currency
currency reserves issues in country, and
in the past, and it will negotiate flexible
is therefore possible terms with the Government
that access to US as far as possible.
dollars held in country
might be difficult.
This would affect
the Company's ability
to meet ongoing foreign
currency obligations
(eg corporate costs,
and any debt payments
in US dollars).
------------------- --------------------------------- --------- --------------------------------
(1) An Exploration Target is defined as a statement of the exploration potential of a mineral deposit in a defined geological setting for which there has been insufficient exploration to estimate a Mineral Resource. MSA Group concluded "that the characteristics of the REE veins [within the Gakara Project] with respect to their width, spatial continuity and compositional variability cannot be easily quantified to the level of confidence required for the reporting of a Mineral Resource".
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKNDPCBDDCKK
(END) Dow Jones Newswires
October 04, 2017 02:00 ET (06:00 GMT)
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