Half-year Report

RNS Number : 9438A

Rainbow Rare Earths Limited

30 March 2017

 

30 March 2017

RAINBOW RARE EARTHS LIMITED

Half Yearly Report for the Six Months ended 31 December 2016

(Unaudited)

Highlights

Rainbow Rare Earths Limited ("Rainbow" or the "Company"), the rare earth element development company operating in East Africa, announces its unaudited results for the six months ended 31 December 2016:

·   Post period end completion of Placing and Admission to the London Stock Exchange Main Market raising gross proceeds of US$8.0 million (US$7.25 million net)

·   All period end borrowings totalling US$2.01 million repaid in cash and shares leaving the Company fully financed for development of the Gakara Project and debt free

·   Work already underway at the initial mining area at Gasagwe allowing stockpiling of ore prior to process plant commissioning

·   First concentrate sales on track for Q4 2017

Enquiries:

Rainbow Rare Earths Ltd	Martin Eales	[phone]
St Brides Partners Ltd	Lottie Brocklehurst Susie Geliher	[phone]

Introduction

The six month reporting period to 31 December 2016 saw a very low level of activity by the Group whilst it completed preparations for its IPO and Admission to trading on the London Stock Exchange.

On 30 January 2017, the Company's entire issued share capital of 152,025,807 shares was admitted to trading on the London Stock Exchange's Main Market for listed securities following a Placing of 65,036,958 new ordinary shares which raised gross proceeds for the Company of approximately US$8.0 million (US$7.25 million net). 

Operations

During the period, activity on the Company's Gakara Project was kept at a deliberately low level in order to conserve cash prior to the IPO, although Rainbow continued to engage with key stakeholders in Burundi to keep them updated with its progress and strategy for the project.

The Company's Exploration Licence for the 95km² area surrounding the Mining Licence was renewed during the reporting period by the Ministry of Mines and Energy in Burundi for a further term of 2 years.  A limited amount of exploration activity within this area was undertaken during the reporting period.

Financial position

At 31 December 2016 the Group had cash and cash equivalents of approximately US$5,000 and net debt of approximately US$2.01 million.

Following the IPO and Admission, which raised gross proceeds of $8.0 million, the Directors believe that the capital available at the date of this report together with anticipated sales revenues scheduled to commence in late 2017 is sufficient for the Company and the Group to continue operations for the foreseeable future.

On Admission, the convertible unsecured loan of US$250,000 from Alpha Future Investment Limited was converted into 2,868,151 new ordinary shares at a 10 per cent. discount to the Placing Price of 10p per share. Following Admission, the Company repaid Pala Investments Limited an amount of US$1.7 million in full and final settlement of the existing loan facility in accordance with the terms of an amendment letter dated 19 December 2016.  The Company is now debt free.

Outlook

As discussed in the Company's Operations Update on 21 March 2017, activity has already commenced at the initial Gasagwe minesite with a view to stockpiling run of mine (ROM) ore prior to the commissioning and handover of the processing plant.  The Company's mining fleet has been ordered and is expected to be in operation within the coming weeks.

The Company has signed a fixed-price EPCM contract with Obsideo Consulting of South Africa for design, procurement, construction and commissioning of its processing plant.

The Company continues to target Q4 2017 for first sales of its rare earths concentrate product in line with the timetable set out at the time of its IPO.

Financial Review

Overview

Income statement

Administrative expenses of US$0.15 million (31 December 2015: US$0.43 million, 30 June 2016: $0.62 million) comprise staff and office costs, Directors' remuneration and professional fees which were kept at a deliberately low level in the run up to the IPO.

Finance costs of US$0.26 million (31 December 2015: US$ 0.07 million, 30 June 2016: US$0.53 million) principally represented the uncapitalised portion of professional fees incurred in relation to the IPO and interest on the Pala Loan Facility.

Loss of US$0.42 million (30 December 2015: loss of US$0.54 million, 30 June 2016: loss of US$1.2 million) primarily reflects the total of administrative expenses incurred during the period plus finance costs.

Balance sheet

The cash position of US$5,000 as at 31 December 2016 decreased from US$70,000 at 30 June 2016 principally due to administration costs expenditure and certain IPO costs during the period after taking account of the receipt of the unsecured short term loan of US$250,000 from Alpha Future Investments Limited. Net debt, which included cash and cash equivalents less short-term borrowings, increased to US$2.01 million at 31 December 2016 compared to US$1.58 million at 30 June 2016 following receipt of the loan from Alpha Future Investment Limited and accrued interest on the Pala Loan Facility.

Exploration and evaluation ("E&E") assets of US$3.96 million (31 December 2015: US$3.62 million, 30 June 2016: US$3.83 million) represent the carrying value of the Group's investment in E&E assets as at 31 December 2016.  The balance all relates to the Company's Gakara project in Burundi.  Additions of US$0.13 million during the period related to costs connected with maintaining the good standing of the Company's licences and some limited exploration work.

Short-term borrowings as at 31 December 2016 were US$2.01 million (31 December 2015: US$1.16 million, 30 June 2016: US$1.65 million). Borrowings consisted of a loan facility from Pala Investments Limited of US$1.50 million principal plus accrued interest plus a further unsecured loan facility of US$250,000 from Alpha Future Investments Limited.

The US$1.12 million of trade and other payables as of 31 December 2016 (31 December 2015: US$0.76 million, 30 June 2016: US$0.76 million) represent US$0.58 million (31 December 2015: US$0.55 million, 30 June 2016: US$0.49 million) of other creditors and US$0.54 million of accruals (31 December 2015: US$0.21 million, 30 June 2016: US$0.27 million), with the increased balance principally being due to costs associated with the IPO.

Cash flow statement

The Consolidated Cash Flow Statement shows operating cash outflow of US$0.10 million (31 December 2015: outflow US$0.50 million, 30 June 2016: outflow US$0.69 million), principally being due to costs associated with the IPO and administrative costs.

The Group had capital expenditure of US$0.12 million on Exploration and Evaluation ("E&E") assets for the six months ended 31 December 2016 (31 December 2015: US$0.34 million, 30 June 2016: US$0.58 million).

During the period, the Group continued to finance its trading operations with short-term borrowings and for the six months ended 31 December 2016 proceeds from loans amounted to US$0.25 million (31 December 2015: US$1.28 million, 30 June 2016: US$1.26 million).

Commitments

Other than repayment of debt, there has not been any significant change in the commitments and contingencies reported as at 30 June 2016 (refer to page 103 of the Prospectus dated 25 January 2017 (the "Prospectus")).

Treasury

The Group continually monitors its exposure to currency risk. It maintains a portfolio of cash and cash equivalent balances mainly in pounds sterling and US dollars, which it holds primarily in Guernsey in call deposits.

Going concern

The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Condensed Consolidated and Company Financial Statements. For further detail refer to the detailed discussion of the assumptions outlined in note 2(a) to the Condensed Consolidated Financial Statements.

Cautionary Statement:

The business review and certain other sections of this Half Yearly Report contain forward looking statements that have been made by the Directors in good faith based on the information available to them up to the time of their approval of this report. However they should be treated with caution due to inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information and no statement should be construed as a profit forecast.

Risks and uncertainties

There are a number of potential risks and uncertainties inherent in the mining sector which could have a material impact on the long-term performance of the Company and which could cause the actual results to differ materially from expected and historical results. The Company has taken reasonable steps to mitigate these where possible. Full details are disclosed on pages 69 to 71 of the Prospectus. There have been no changes to the risk profile during the first half of the year. The risks and uncertainties are summarised below:

Operational risks

·              Health, safety, and environment

·              Development and expansion costs

·              Production costs and efficiency

·              Life of mine

Financial risks

·              Market risk

·              Commodity risk

·              Credit risk

·              Liquidity risk

·              Foreign exchange risk

Corporate risks

·              Regulatory and licence issues

·              Burundian economic and political environment

·              Insurance risk

Director's Responsibility Statement

We confirm that to the best of our knowledge:

(a) the Condensed set of Interim Financial Statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

(b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year);

(c) the interim management report includes a fair review of the information required by DTR 4.2.8R  (disclosure of related parties' transactions and changes therein); and

(d) the condensed set of interim financial statements, which has been prepared in accordance with the applicable set of accounting standards, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer, or the undertakings included in the consolidation as a whole as required by DTR 4.2.4R.

This Half Yearly Report consisting of pages 1 to 13 has been approved by the Board and signed on its behalf by:

Martin Eales
Chief Executive Officer
29 March 2017
 

Condensed Consolidated Statement of Comprehensive Income
Six months ended 31 December 2016

	Six months ended 31 December							Year ended
				2016		2015		30 June   2016
				US$'000 Unaudited		US$'000 Unaudited		US$'000 Audited
Operating expenses:
Administration expenses				(148)		(429)		(622)
Exploration expenditure				(20)		(34)		(51)
TOTAL OPERATING EXPENSES				(168)		(463)		(673)
Loss from operating activities				(168)		(463)		(673)
Finance costs				(255)		(72)		(527)
Loss before tax				(423)		(535)		(1,200)
Income tax expense				-		-		-
Total loss after tax and comprehensive expense for the period				(423)		(535)		(1,200)
Total loss after tax and comprehensive expense for the period is attributable to:
Non-controlling interest				(4)		(5)		(6)
Owners of parent				(419)		(530)		(1,194)
				(423)		(535)		(1,200)

The results of each period are derived from continuing operations.

Loss per share
Basic				(0.34)		(0.43)		(0.98)
Diluted				(0.34)		(0.43)		(0.98)

Condensed Consolidated Statement of Financial Position
Six months ended 31 December 2016

			Six months ended 31 December					Year ended
				2016		2015		30 June 2016
			Notes	US$'000 Unaudited		US$'000 Unaudited		US$'000 Audited
Non-current assets
Intangible Fixed Assets				3,961		3,618		3,827
Property, plant and equipment				1		1		1
Total non-current assets				3,962		3,619		3,828
Current assets
Cash and cash equivalents				5		442		70
Total current assets				5		442		70
Total assets				3,967		4,061		3,898
Current liabilities
Borrowings			4	(2,013)		(1,158)		(1,655)
Trade and other payables			5	(1,116)		(758)		(763)
Total current liabilities				(3,129)		(1,916)		(2,418)
Total Liabilities				(3,129)		(1,916)		(2,418)
NET ASSETS				838		2,145		1,480
Equity
Share capital				5,042		5,042		5,042
Other reserves				40		40		40
Share Premium				(219)		-		-
Retained loss				(4,040)		(2,957)		(3,621)
Equity attributable to the  parent				823		2,125		1,461
Non-controlling interest				15		20		19
TOTAL EQUITY				838		2,145		1,480

Condensed Consolidated Cash Flow Statement
Six months ended 31 December 2016

	Six months ended 31 December					Year ended
		2016		2015		30 June 2016
		US$'000 Unaudited		US$'000 Unaudited		US$'000 Audited
Cash flow from operating activities
Loss after tax for the period		(423)		(535)		(1,200)
Add back of finance costs		255		72		526
Net increase in other receivables		-		19		19
Net increase/(decrease) in other payables		65		(60)		(35)
Net cash flow from operating activities		(103)		(504)		(690)
Cash flow from investing activities
Purchase of exploration and evaluation assets		(123)		(339)		(584)
Net cash used in investing activities		(123)		(339)		(584)
Cash flow from financing activities
Net proceeds of new borrowings		247		1,276		1,264
Proceeds from the issuance of ordinary shares		-		-		71
IPO Transactional Costs		(86)		-		-
Net cash generated by financing activities		161		1,276		1,335
Net (decrease)/increase in cash and cash equivalents		(65)		433		61
Cash & cash equivalents at the beginning of the period		70		9		9
Cash & cash equivalents at the end  of the period		5		442		70

Condensed Consolidated Statement of Changes in Equity
Six months ended 31 December 2016

	Share capital	Share premium	Retained Earnings	Equity reserve	Other reserves	Attributable to the parent	Non- controlling interest	Total
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Balance at 1 July 2015	4,942	-	(2,498)	-	-	2,444	25	2,469
Total comprehensive expense
Total comprehensive loss	-	-	(530)	-	-	(530)	(5)	(535)
Transactions with owners
Issue of convertible loan note	-	-	-	71	-	71	-	71
Extinguishment of convertible loan note	-	-	71	(71)	-	-	-	-
Issue of warrants	-	-	-	-	40	40	-	40
Issue of shares (net of costs)	100	-	-	-	-	100	-	100
Balance at 31 December 2015 (unaudited)	5,042	-	(2,957)	-	40	2,125	20	2,145
Total comprehensive loss	-	-	(664)	-	-	(664)	(1)	(665)
Balance at 30 June 2016	5,042	-	(3,621)	-	40	1,461	19	1,480
Total comprehensive loss	-		(419)	-	-	(419)	(4)	(423)
IPO Transaction costs	-	(219)	-	-	-	(219)	-	(219)
Balance at 31 December 2016 (unaudited)	5,042	(219)	(4,040)	-	40	823	15	838

Notes to the Condensed Financial Statements
Six months ended 31 December 2016

1. General information

Rainbow Rare Earths Limited (the 'Company', together with its subsidiaries the 'Group'), is incorporated in Guernsey as a non-cellular company limited by shares. The address of the registered office is c/o Trafalgar Court, Admiral Park, St Peter Port, Guernsey GY1 3EL. The nature of the Group's operations and its principal activities are set out in the Operations Review and the Financial Review on pages 2 to 5.

The financial information for the year ended 30 June 2016 does not constitute accounts, but is derived from those accounts.

This Half Yearly Report has not been audited or reviewed in accordance with the Auditing Practices Board guidance on 'Review of Interim Financial Information'.  

A copy of this Half Yearly Report has been published and may be found on the Company's website at www.rainbowrareearths.com

2. Basis of preparation  

The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards ('IFRS') as issued by the International Accounting Standards Board ('IASB') and as adopted by the European Union ('EU').  These Condensed Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting.

The same accounting policies and methods of computation are followed in the condensed interim financial statements as were followed in the most recent annual financial statements of the Group, which were included in the Prospectus issued on 25 January 2017.

The Group has not early adopted any amendment, standard or interpretation that has been issued but is not yet effective. It is expected that where applicable, these standards and amendments will be adopted on each respective effective date.

The Group has adopted the standards, amendments and interpretations effective for annual periods beginning on or after 1 January 2015. The adoption of these standards and amendments did not have a material effect on the financial statements of the Group.

(a) Going concern

The Directors have continued to use the going concern basis in preparing these condensed financial statements. The Group's business activities, together with the factors likely to affect future development, performance and position are set out in the Operations Review. The financial position of the Group, its cash flow and liquidity position are described in the Financial Review.

The Group's cash balance at 31 December 2016 was US$5,000 (30 June 2016: US$70,000). Following the IPO and Admission which raised gross proceeds of US$8.0 million the Directors believe that the funds available at the date of the issue of these financial statements are sufficient for the Group to manage its business risks successfully.

The Group's forecasts and projections, taking into account reasonably possible mining production and sales of rare earths concentrate, show that there are reasonable expectations that the Group will be able to operate on funds currently held and those generated internally, for a period not less than 12 months from the date of this report.

After making enquiries and considering the uncertainties described above, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for a period not less than 12 months from the date of this reportand consider the going concern basis of accounting to be appropriate and, thus, they continue to adopt the going concern basis of accounting in preparing the financial statements.

(b) Foreign currencies

The consolidated financial statements are presented in US dollars, which is also the functional currency of the company and its subsidiaries. 

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 gains and losses on short-term borrowings and deposits are included within finance costs. Exchange differences on all other transactions are recognised within the operating loss.

(c) Dividend

The Directors do not recommend the payment of a dividend for the period (31 December 2015: $nil; 30 June 2016: $nil).

(d) Segment Reporting

Operating segments are reported in a manner consistent with internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identified as the Chief Executive Officer ("CEO"). It is considered that there is only one segment of the Group being the exploration & evaluation of rare earths. Exploration and evaluation ("E&E") assets of US$3.96 million (31 December 2015: US$3.62 million, 30 June 2016: US$3.83 million) represent the carrying value of the Group's investment in E&E assets as at 31 December 2016, relating to the Gakara project in Burundi.

3.    Loss per ordinary share

Loss per ordinary share is calculated by dividing the net loss for the period attributable to Ordinary equity holders of the parent by the weighted average number of Ordinary shares outstanding during the period. The calculation of the basic loss per share is based on the following data:

	Six months ended 31 December							Year ended
				2016		2015		30 June 2016
Loss attributable to the owners of the Company				US$'000		US$'000		US$'000
The loss for the period attributable to ordinary equity holders of the parent company				(419)		(530)		(1,194)
				Number		Number		Number
Number of Shares				'000		'000		'000
Weighted average number of Ordinary shares for the purposes of basic and diluted loss per share				1,222		1,222		1,222
(Loss) per Ordinary share				Cent		Cent		Cent
Basic				(0.34)		(0.43)		(0.98)
Diluted				(0.34)		(0.43)		(0.98)

4. Short-term borrowings

In the period prior to the IPO and Admission, the Group continued to use short-term borrowings to finance its activities. Short-term borrowings as at 31 December 2016 were US$2.01 million (31 December 2015: US$1.16 million, 30 June 2016: US$1.65 million). Borrowings consisted of a loan facility from Pala Investments Limited of US$1.50 million (principal) plus a further unsecured loan facility of US$0.25 million from Alpha Future Investments Limited.

The Pala Loan Facility

The Company and Pala Investments Limited entered into a term loan facility agreement dated 7 April 2015, pursuant to which Pala made a loan of up to US$6,000,000 available to the Company, consisting of two tranches. The Pala Loan Facility was amended on 5 April 2016 and subsequently on 19 December 2016 by letters of waiver executed by all parties to the Pala Loan Facility.

An amount of US$1.50 million was drawn down on 30 October 2015 and, at the period end, a total of approximately US$1.90 million including interest and fees remained outstanding.

Conditional on Admission occurring on or before 31 January 2017, Pala was to accept a payment of US$1.70 million as full and final repayment of all amounts outstanding under the Pala Loan Facility, provided that payment was made in full by no later than 31 January 2017. With such repayment, the Pala Loan Facility would be terminated.

Alternatively, the Company had the option to pay not less than US$750,000, by no later than 31 January 2017, and the repayment date for the balance outstanding would be extended by 12 months to 31 January 2018.

The Alpha Future Investments Loan

The unsecured loan from Alpha Future Investments Limited was convertible upon the IPO of the Company at a 10 per cent discount to the IPO price per share.  In the absence of an IPO the loan would accrue interest from 1 February 2017 at 13 per cent per annum and be repayable on 31 January 2019.

5. Trade and other payables

The US$1.12 million of trade and other payables as of 31 December 2016 (31 December 2015: US$0.76 million, 30 June 2016: US$0.76 million) includes US$0.58 million (31 December 2015: US$0.55 million, 30 June 2016: US$0.49 million) of other creditors and US$0.54 million of accruals (31 December 2015: US$0.21 million, 30 June 2016: US$0.27 million), with the increased balance principally being due to costs associated with the IPO.

6. Related party transactions

Transactions between the Group and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. During the period, Group companies entered into the following transactions with related parties who are not members of the Group:

			Six months ended 31 December		Year ended 30 June
			2016 US$'000	2015  US$'000	2016  US$'000
	Transactions		35	30	54
	Amounts owed to related parties		210	205	191

The amounts outstanding are unsecured and will be settled in cash.

7. Post balance sheet events

On 9 January 2017, the Company subdivided each of its existing ordinary shares into 67 ordinary shares, conditional upon the IPO and Admission.  Also on 9 January 2017 certain creditors of the Company agreed, conditional on Admission, to accept settlement of US$339,006 of liabilities accrued in the balance sheet at 31 December 2016 in the form of new ordinary shares at the Placing Price of 10p.  Included in the total was US$96,749 in respect of amounts owed to Martin Eales, CEO.

The Company and Pella Resources Limited entered into an agreement on 9 January 2017, pursuant to which, conditional on Admission, Pella would make a total of US$1,300,000 available to drawdown between 3 January 2018 and 31 January 2018, which would enable the Company to repay any amount of the Pala Loan Facility that remained outstanding on 31 January 2018. The term of the loan was to be the date of drawdown until 31 January 2019, after which any amount drawn down by the Company will be repayable to Pella. The terms of this agreement were as follows:

·    The Company would pay a monthly availability fee of US$5,000 from Admission;

·    If not otherwise repaid, on 31 January 2019, the Company would pay an amount of 13 per cent. of the weighted average loan outstanding during the period from drawdown to 31 January 2019.;

·    The Company was able make early repayment of the loan at any time. 


This agreement terminated automatically when the Pala Loan Facility was repaid in full from the proceeds of the Fundraising (see below). 


On 30 January 2017 the Company's entire issued share capital of 152,025,807 shares was admitted to trading on the London Stock Exchange's Main Market for listed securities following a Placing of 65,036,958 new ordinary shares which raised gross proceeds for the Company of approximately US$8.0 million.  On 1 February 2017 the Company issued a further 2,600,665 new ordinary shares in connection with services provided to the Company's Admission, increasing the enlarged issued share capital to 154,626,472 ordinary shares.

On Admission, the convertible unsecured loan of US$250,000 due to Alpha Future Investment Limited was converted into 2,258,356 new ordinary shares at a 10 per cent. discount to the Placing Price of 10p per share.

Following Admission, the Company repaid Pala Investments Limited an amount of US$1.7 million in full and final settlement of the existing loan facility in accordance with the terms of an amendment letter dated 19 December 2016.

8. Commitments and contingencies

Other than described in Note 7 above there have been no significant changes to the commitments and contingencies reported on page 103 of the Prospectus.

 

END

 

 

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