RAINBOW RARE EARTHS LIMITED
ANNUAL REPORT & ACCOUNTS 2022
RAINBOW
RARE EARTHS
A STRATEGIC SOURCE
OF RARE EARTH MINERALS
FOR A GROWING MARKET
PAGE TITLE
OVERVIEW
A STRATEGIC SOURCE OF RARE
EARTH MINERALS FOR A
GROWING MARKET
Rainbow Rare Earths Limited (“Rainbow” or “the Company”) is listed on the main market
of the London Stock Exchange and is developing a responsible rare earths supply chain
to drive the green energy transition.
Rainbow’s projects include Phalaborwa in South Africa and Gakara in Burundi. Rainbow
is also investigating other processing projects, such as the opportunity of extracting
rare earth elements from a nitro phosphate process stream at a phosphoric acid
production plant.
Through our processing projects, which have fundamentally
different risk profiles to traditional rare earth mining projects,
we see enormous potential to facilitate near-term access
to sources of critical permanent magnet rare earths,
required to decarbonise energy systems in an
environmentally responsible way.
CONTENTS
Overview
01 Strategy and Business Model
02 Market Overview
Strategic Report
06 Chairman’s Statement
08 Chief Executive’s Statement
10 Operational Review
15 ESG Report
18 Financial Review
19 Government Payments
Corporate Governance
22 Directors’ Report
24 Board of Directors
25 Senior Management
26 Principal Risks and Uncertainties
29 Corporate Governance Statement
Financial Statements
34 Independent Auditors’ Report
40 Consolidated Statement
of Comprehensive Income
41 Consolidated Statement
of Financial Position
42 Consolidated Statement
of Changes in Equity
43 Consolidated Cash Flow Statement
44 Notes to the Consolidated
Financial Statements
IBC Shareholder Information
01
Rainbow Rare Earths Limited Annual Report & Accounts 2022
STRATEGY AND BUSINESS MODEL
OVERVIEW
GROWTH STRATEGY
Rainbow’s strategy is to identify near-term, secondary rare earths production opportunities.
Meeting escalating demand for critical minerals needed for global decarbonisation, we are
focused on producing the magnet rare earth metals neodymium and praseodymium,
dysprosium and terbium.
With our strong project development and operating experience, unique intellectual property
and diversified portfolio, Rainbow will develop a responsible, independent rare earths supply
chain to drive the green energy transition.
BUSINESS MODEL
Achieving responsible,
near-term and efficient
rare earths production from
secondary sources
PROJECT IDENTIFICATION
Assessing potential to create
a responsible rare earths
supply chain
ASSET APPRAISAL
Technical work and
definition of route
to production
PROJECT DEVELOPMENT
Investment to extract and
upgrade in-situ resources
DOWNSTREAM
RARE EARTH OXIDE
PRODUCTION
Producing separated rare
earths oxides using unique
IP and technology
MINING, CRUSHING
AND MILLING
Employing material from
secondary sources, Rainbow removes
these costly, energy-intensive steps
from the business model
NdPr:
DRIVING THE GREEN
REVOLUTION
02
Rainbow Rare Earths Limited Annual Report & Accounts 2022
MARKET OVERVIEW
OVERVIEW
THE GREEN REVOLUTION IS INCREASING DEMAND FOR RARE
EARTH PERMANENT MAGNETS
A shift away from fossil fuel consumption to renewable energies and the
widespread adoption of green technology are essential for the alleviation
of rapid climate change and the wellbeing of the planet. Global wind
power growth must triple by 2030 in order to avoid the worst impacts of
climate change
1
. However, the low-carbon technologies required to drive
the energy transition require an increased and intensive mineral demand.
Central to this mineral demand are rare earth elements – in particular,
neodymium, praseodymium (“NdPr”) dysprosium (“Dy”) and terbium
(“Tb”) – which are used to make compact, high-strength permanent
magnets employed in a variety of modern-day industry, with uses in
hybrid and electric vehicles (“EVs”) and wind turbines, as well as satellite
technology for the aerospace and defence sectors. Permanent
magnets, which accounted for 71% of value and 23% of market volume
in 2021, are one of the most important and growing drivers of medium -
to long-term rare earths demand.
The global expansion of wind power and renewable energy raises the
prospects of growing imbalances in supply and demand for NdPr, Dy
and Tb. Argus forecasts that the offshore wind turbine market will grow
at close to 25% per annum between 2020 and 2030, based on data
from the Global Wind Energy Council (“GWEC”).
The substantial increase in demand driven by 2050 global wind power
targets will only be met if rare earth elements production rises 11 to 26
times over present levels. Some analysts foresee demand for rare earth
elements in China rising 18 times over 2020 levels by 2050
2
.
Rising EV sales forecasts
3
Capacity acceleration in offshore wind market
1 Argus Media Ltd (“Argus”)
2 IRENA - Critical Metals for the Rare Energy Transition: Rare Earth Elements
3 Argus Rare Earths Analytics April 2022
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Plug-in hybrid electric vehicles (“PHEV”) BEV (% share) Battery electric vehicles (“BEV”)
Europe China Asia (ex-China)
North America Other Cumulative total capacity
(right-hand axis)
03
Rainbow Rare Earths Limited Annual Report & Accounts 2022
MARKET OVERVIEW CONTINUED
OVERVIEW
DEMAND IS UNDERPINNED BY GLOBAL MEGATRENDS AND
LEGISLATION
Key global megatrends are driving strong and diversified
demand for NdPr:
• Automation: Accelerating technological progress.
• Low carbon transition: Environmental protection and
climate change.
• Sustainable resource security: Increasing scarcity and
global competition for resources.
• Supply chain security: Against a backdrop of heightened
national protectionism.
Demand accelerated by evolving global emissions legislation
and international sustainability policy and targets:
• Rare earths have been designated as critical and strategic metals
by the US Federal Department of the Interior, the Government
of China, the UK Government and the EU Parliament.
• A policy paper was outlined in July 2022 for the UK’s first critical
minerals strategy including the broad group of rare earth elements
specifically for permanent magnets.
• The EU has announced the Raw Materials Act, a legislative proposal
aimed at building a more resilient supply chain, supporting projects
and attracting more private investment from mining to refining,
processing and recycling.
• The UK’s offshore wind capacity target has been increased from
40GW to 50GW by 2030.
• The EU is targeting at least 30 million EVs by 2030 and is proposing
legislation to completely cut emissions from cars and vans by 2035.
• France aims to produce one million EVs annually by 2025.
• The Biden administration has set a 50% EV sale share target
in the U.S. by 2030.
Passenger vehicle fleet forecast
4
4 Argus
5 International Energy Association, The Role of Critical Minerals in Clean Energy Transitions
6 Argus
7 Magnet rare earth oxides comprise Nd, Pr, Dy and Tb
RARE EARTHS SUPPLY CONSTRAINTS
With production still concentrated in China (accounting for a 90% market
share of the rare earths refining market in 2019
5
) and the long lead time
and high costs associated with bringing traditional hard rock deposits
into production, rare earth supply constraints could derail the success
of global decarbonisation. It is regularly noted that the Chinese
dominance of the rare earths market has resulted in supply chain
uncertainties, and that an ethical and sustainable independent supply
chain for strategic materials is required.
Whilst they are found in abundance throughout the world, rare earths are
typically co-located in small concentrations, with a significant number of
projects being low quality or having high levels of radioactive elements,
making them uneconomical or adding to processing complexity.
Whilst some rare earth supply increase is expected over the next
decade, it is not forecast to meet the growing demand for permanent
magnet materials
6
. According to Argus, new projects will be required
to supply c. 25% of the rare earths market by 2030.
RARE EARTHS PRICING OUTSTRIPPING FORECASTS
Phalaborwa’s rare earths basket price has risen 82% in FY 2022
to US$173.91/kg magnet rare earth oxides
7
at 30 June 2022,
significantly outstripping forecast price rises. Nd prices increased
94% from US$74.50/kg to US$144.75/kg and Pr rose 74%
from US$82.50/kg to US$143.75/kg.
Driven by a ban on importing rare earths from Myanmar to China (lifted
in November 2021) and global logistics pressures, rare earths prices hit
10-year highs in the first quarter of calendar year 2022, with permanent
magnet prices having more than doubled since mid-2021. Post financial
year end, prices have dropped back in line with Argus forecasts.
For the Gakara project this has driven the estimated realisable price per
ton of rare earth concentrate to grow from US$2,767 at 30 June 2021
to US$4,966 at 30 June 2022.
The chart below shows the expected average price per kg of separated
rare earth oxides produced at Phalaborwa through to 2030 based on
the Argus price forecasts:
Forecast Phalaborwa basket price US$/kg rare earth oxide
0.00
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Gasoline
Electric vehicles
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2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
PAGE TITLE
04
Rainbow Rare Earths Limited Annual Report & Accounts 2022
STRATEGIC REPORT
DEVELOPING A
RESPONSIBLE RARE
EARTHS SUPPLY
CHAIN
05
Rainbow Rare Earths Limited Annual Report & Accounts 2022
STRATEGIC REPORT
STRATEGIC REPORT
06 Chairman’s Statement
08 Chief Executive’s Statement
10 Operational Review
15 ESG Report
18 Financial Review
19 Government Payments
06
Rainbow Rare Earths Limited Annual Report & Accounts 2022
CHAIRMAN’S STATEMENT
STRATEGIC REPORT
“WITH OUR NEAR-TERM
DEVELOPMENT OPPORTUNITY
AT PHALABORWA, RAINBOW IS
WELL POSITIONED TO CONTRIBUTE
TO A RESPONSIBLE, INDEPENDENT
SUPPLY CHAIN”
07
Rainbow Rare Earths Limited Annual Report & Accounts 2022
CHAIRMAN’S STATEMENT CONTINUED
STRATEGIC REPORT
From wind turbines to EVs, clean energy is
dependent on unlocking increased supplies of
critical minerals, including rare earths such as
neodymium, praseodymium, dysprosium and
terbium which are fundamental components
in permanent magnets.
Current geopolitical tensions and energy
security risks serve to further highlight the
urgency of the clean energy transition, which
will not be possible without a reliable supply
of minerals. According to the IEA, demand for
rare earth elements by 2040 may rise between
three and seven times from today’s levels.
China currently dominates the global
production of rare earth magnets; however,
many major governments have now
implemented critical and strategic materials
policies, with a focus on creating independent
rare earth supply.
Rainbow has recently become a member
of the European Raw Material Alliance
(“ERMA”) - an essential alliance which is
working to accelerate the green and digital
transition through securing and reinforcing
rare earths supply chains. Aiming to make
Europe economically more resilient, ERMA’s
goal is to diversify supply chains, promote
innovation, create jobs, and attract investment.
With our near-term development opportunity
at Phalaborwa, alongside our unique and
innovative technologies and processes,
we believe Rainbow is well positioned to
contribute to a responsible, independent
supply chain, unlocking sources of critical
permanent magnet rare earths which are
required to drive global decarbonisation.
According to Adamus Intelligence, a major
shortage of NdPr is predicted by 2035 due to
a lack of rare earths sources in the market and
the inability of existing producers to increase
their output. This underscores the compelling
opportunity presented to Rainbow, both at
Phalaborwa and from the wider application
of our proprietary technology, to achieve near-
term, responsible and efficient rare earths
production from secondary sources.
Rare earth prices rose substantially in FY 2022,
with Phalaborwa’s basket price up 82% to
US$173.91 per kg of magnet rare earth oxides.
Whilst prices fell back after the end of the
financial year, they have since moved upwards
again and the long-term supply demand
fundamentals support significant increases
towards the second half of this decade.
We have made significant strides forward
in 2022 with a number of interesting
collaborations and opportunities which
we believe will be central to harnessing value
from rare earths contained within secondary
sources. Rainbow continues to work closely
with K-Technologies Inc. (“K-Tech”) and is
planning on jointly patenting the rare earths
extraction technology we have together
developed. We are also collaborating with
OCP S.A. (“OCP”), the Moroccan world leading
producer of phosphate products, and
Mohammed VI Polytechnic University
(“UM6P”), a Moroccan university, by signing
a Master Agreement in August 2022 on rare
earths extraction from phosphogypsum.
In addition to this, we signed a Memorandum
of Understanding with a major chemicals
company in South Africa in June, as part of
which we are investigating the opportunity
to extract rare earth elements from a nitro
phosphate process stream and identifying
further global opportunities for our unique
rare earth extraction technology.
At our Gakara project in Burundi, which has
been on care and maintenance since June
2021, we continue to engage constructively
with all stakeholders and remain confident
in our ability to resolve the issue and allow
operations to recommence.
On behalf of the Board of Directors, I would
like to extend our gratitude to our shareholders
for their steadfast support, and to Rainbow’s
management team, employees and
contractors for their unwavering commitment
to the business’ success. We also thank our
host governments for their continued
productive engagement. Having contributed
a considerable amount of value to the Board
since we founded the Company in 2011,
Robert Sinclair resigned as a Non-Executive
Director due to health reasons in January
2022. The Board joins me in thanking Robert
for the considerable contribution he has made
to Rainbow.
Our purpose is to produce the critical rare earth
products required to progress the global green
technology revolution in an efficient and
responsible manner and thanks to the good
progress at Phalaborwa, I believe we are
working well towards achieving this goal.
I am encouraged by additional opportunities
to leverage our intellectual property and
technology to extract rare earths from
phosphogypsum. Through our processing
projects, which have fundamentally different
risk profiles to traditional rare earth mining
projects, we see enormous potential to
facilitate near-term access to sources of
critical permanent magnet rare earths, which
are required to decarbonise energy systems
in an environmentally responsible way.
Adonis Pouroulis
Chairman
“Our unique and
innovative technologies will
be instrumental in unlocking
sources of critical permanent
magnet rare earths which are
required to drive global
decarbonisation”
08
Rainbow Rare Earths Limited Annual Report & Accounts 2022
CHIEF EXECUTIVE’S STATEMENT
STRATEGIC REPORT
“WE HAVE BEEN ABLE TO IDENTIFY
AND CONFIRM A NOVEL BUT PROVEN
PROCESS WHICH WILL ALLOW US TO
RECOVER VALUABLE RARE EARTH
OXIDES FROM PHOSPHOGYPSUM IN
A LOW CAPEX AND OPEX MANNER ”
09
Rainbow Rare Earths Limited Annual Report & Accounts 2022
CHIEF EXECUTIVE’S STATEMENT CONTINUED
STRATEGIC REPORT
This has been a year of notable progress for
Rainbow, enabling us to unlock a valuable,
near-term source of the rare earth permanent
magnet metals required so urgently to drive
the global green energy revolution. This has
involved carrying out a programme of detailed
test work at Phalaborwa to better understand
the exciting opportunity presented by this
asset, leading to the development of an
economic flowsheet and the recent
publication of the preliminary economic
assessment (“PEA”).
By concentrating on phosphogypsum
opportunities, the usual, extensive resource
definition period is removed, significantly
reducing the long lead time and risks
associated with bringing a traditional mine
into production. In addition, we benefit from
considerable reductions in capital (“capex”)
and operating costs (“opex”) compared to a
traditional mine, due to the absence of hard
rock mining, mine waste disposal, ore crushing
and milling within the overall project cost base.
Because the rare earth elements are present
in a “cracked” chemical form in the
phosphogypsum, Rainbow’s process will
deliver separated rare earth oxides in a single
process flowsheet at site. This replaces the
multiple stages of reagent intensive
processing usually required to crack a rare
earth mineral concentrate and separate out
the rare earth oxides from a mixed rare earth
carbonate. Rainbow’s process is also expected
to have a number of environmental benefits
covered on page 17.
Phalaborwa’s PEA, which establishes an
NPV
10
1
of US$627 million, an IRR
2
of 40%,
an average operating margin of 75% and a
payback period of only 2 years, corroborates
our long-held view of the operation’s
enormous potential as a low capital intensity,
high margin, near-term rare earths
development project. The base case financial
model presented, using near-term rare earth
price forecasts well below 2022 averages,
demonstrates a robust project with low
sensitivity to changes in both rare earth
prices and costs.
The work carried out to date at this asset
demonstrates Rainbow’s ability to overcome
the historical technical, environmental, and
economic challenges related to extracting rare
earths from phosphogypsum. Importantly,
whilst the configuration of the process
flowsheet is innovative, each individual stage
is well tested on a commercial basis, with the
required equipment and reagents being readily
available.
The successful completion of this PEA
represents not only a breakthrough step in the
development of Phalaborwa, demonstrating
the viability of this opportunity, but also
underscores the broader potential to use
our unique IP and technology to extract rare
earths from other phosphogypsum sources
on a global scale. We now intend to advance
to feasibility study, identify all permits required
for Phalaborwa’s development, engage with
the relevant authorities to expedite permitting
and undertake further process optimisation
tests culminating in an extensive process
pilot plant operation.
We are committed to responsible business
practices from an environmental, social and
governance perspective. As a brownfield site,
the development of Phalaborwa provides us
with a significant opportunity to make positive
environmental, social and economic impacts.
Effective stakeholder engagement will be a
fundamental part of project development,
concentrating on understanding key risks and
integrating stakeholder considerations into
project development decisions to create
long-term value.
I believe Phalaborwa’s PEA accurately reflects
the rigour and expertise we apply to project
assessment. As a team, we have led
numerous projects through development and
have significant experience throughout the
asset lifecycle from optimisation and feasibility
to plant construction and commissioning.
I am exceptionally proud of the progress we
have made over the past few years and am
confident that we have the right people in
place to take Phalaborwa’s development
forward. With our proven operating experience,
unique phosphogypsum processing
intellectual property and portfolio of
opportunities, I believe that Rainbow
is well positioned to develop a responsible
rare earths supply chain to drive the green
energy transition.
George Bennett
Chief Executive Officer
1 Net present value using a 10% forward discount rate
2 Internal rate of return
“The PEA represents a
breakthrough step in the
development of Phalaborwa”
10
Rainbow Rare Earths Limited Annual Report & Accounts 2022
OPERATIONS REVIEW
STRATEGIC REPORT
PHALABORWA
SOUTH AFRICA
EXCITING NEAR-TERM
GROWTH OPPORTUNITY
Contribution of TREO by oxide
61%
16%
8%
15%
Nd
Pr
Tb
Dy
Pos t-tax NPV
10
627.4
US$million
Post-tax IRR
40%
Operating margin
75%
Average operating
costs
33.86
US$/kg
Key PEA economic outputs
11
Rainbow Rare Earths Limited Annual Report & Accounts 2022
OPERATIONS REVIEW CONTINUED
STRATEGIC REPORT
Rainbow’s Phalaborwa rare earths project
in South Africa presents the Company with
an exciting near-term opportunity to extract
rare earths from a secondary source.
Contained in phosphogypsum in two
unconsolidated stacks derived from historic
phosphate hard rock mining, the rare earths
are in a “cracked” chemical form allowing
separated rare earth oxides to be produced
at site. With no significant costs associated
with mining, crushing and grinding ore,
or with chemical cracking of the underlying
rare earth minerals, the project economics
are exceptionally strong.
Phalaborwa has an inferred mineral resource
estimate of 30.7Mt at 0.43% TREO, with a rare
earth basket that is weighted towards high
value NdPr oxide, a critical building block for
the global energy transition, which represents
29.1% of the total contained rare earth oxides.
Economic Dy and Tb oxide credits further
enhance its overall value. Phalaborwa’s NdPr
grade is substantially higher than a typical low-
cost ionic clay rare earth project; much closer
to traditional hard rock style deposits.
Fundamental to unlocking the rare earths
contained within the phosphogypsum at
Phalaborwa (and more widely) is the innovative
processing flowsheet developed by Rainbow
in parallel with K-Tech. It represents a
breakthrough in allowing for the economic
extraction of rare earth elements from
phosphogypsum, which has historically
proven to be challenging. The flowsheet will
comprise the following steps (see further detail
on page 15):
• Phosphogypsum will be reclaimed
hydraulically from the existing stacks and
pumped to the processing facility
removing soluble impurities prior to the
leach process.
• A pre-leach regime will be employed to
remove fluoride from the gypsum stream,
allowing rare earth grades in the pregnant
leach solution to be maximised. The
extracted fluoride will produce reagents
for use elsewhere in the processing circuit,
reducing operating costs.
• The fluoride leached phosphogypsum
progresses to a rare earth counter current
sulphuric acid leach system for the
extraction of the target rare earth
elements. This allows for successful
recycling of the various acid streams
to optimise the overall processing costs.
• A rapid consolidation process for the rare
earths in the pregnant leach solution
allows the rare earths to be concentrated
with primary impurity rejection. This
process replaces the originally anticipated
nano filtration system, which significantly
improves the overall acid recycling,
thereby reducing operating costs.
• The rapid consolidation process feeds the
downstream continuous ion exchange
and continuous ion chromatography
processes to deliver separated rare earth
oxides. The flow rates to these processes
are considerably lower than originally
anticipated using nano filtration
techniques resulting in significant capital
and operating cost savings.
Inferred mineral
resource
30.7Mt
at 0.43% total rare earth oxides
High value NdPr
29.1%
of total rare earth oxides
12
Rainbow Rare Earths Limited Annual Report & Accounts 2022
OPERATIONS REVIEW CONTINUED
STRATEGIC REPORT
PHALABORWA
CONTINUED
PHALABORWA PEA
13
Rainbow Rare Earths Limited Annual Report & Accounts 2022
OPERATIONS REVIEW CONTINUED
STRATEGIC REPORT
Rainbow is earning a 70% interest in the
Phalaborwa project by delivering a pre-
feasibility study, which is now in planning
having published the strong economic
outcome from the PEA.
Robust base case economics
The PEA was based on processing 2.2 million
tonnes per annum of phosphogypsum over
a 15-year project life to deliver 26,208 tonnes
of separated rare earth magnet oxides at an
average cost of US$33.86/kg. This delivers
an exceptional 75% operating margin at the
base case basket price of US$137.92 per kg
for the rare earth oxides, based on near term
forecasts well below both 2022 year to date
average prices and long-term market
forecasts.
The base case financial model set out in the
PEA delivered exceptionally robust economic
returns including:
• Post-tax NPV
10
of US$627.4 million,
representing 212% of the US$295.5 million
total capital cost
1
;
• Post-tax IRR of 40%; and
• Post-tax payback of upfront capital
costs after 2.0 years of operations.
Cumulative cash flow
2
1 In addition, pre-production costs totalling US$4.0 million are incurred to
neutralise water from the gypsum stacks for use as processing water.
2 Post-tax, from base case scenario over the total project life.
NPV upside using year-to-date prices
Using 2022 year to date average rare earth
prices or long term forecast rare earth prices,
the PEA delivers an EBITDA operating margin
over 80%, with an NPV of c. US$1 billion and
a payback of 1.7 years.
Minimal sensitivities to cost
The project is insensitive to changes in costs,
including an overall low energy intensity at just
20% of annual operating costs. Against a
backdrop of the anticipated demand strength
and supply constraints for permanent magnet
rare earths forecast over the next decade and
beyond, Phalaborwa is expected to deliver an
independent source of responsibly sourced
rare earth oxides for the green revolution.
Environmental benefits
Studies at Phalaborwa have highlighted the
environmental benefits of the project, which
include very low levels of radioactivity
(exempting Phalaborwa from radioactivity
regulation) and the ability to neutralise the
existing water from the stacks for reuse
in a closed circuit as plant process water. In
processing material from the existing gypsum
stacks at Phalaborwa, we aim to remove
existing environmental liabilities and redeposit
benign gypsum on a new stack, built according
to International Finance Corporation (“IFC”)
Performance Standards and Equator Principles.
Next steps
Following the publication of the PEA, Rainbow
intends to advance the project to feasibility
study, identify all permits required for the
Project to be developed, engage with the
relevant authorities to expedite permitting and
undertake further process optimisation tests
culminating in an extensive process pilot plant
operation. A resource update is also expected
for Phalaborwa following drilling work
undertaken in June 2022.
-500
0
500
1000
1500
2000
Yr -2 Yr -1 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Yr 11 Yr 12 Yr 13 Yr 14
GAKARA BURUNDI
The Gakara rare earths project is located
in Western Burundi covering an area of
approximately 135km². The project benefits
from good infrastructure, with road links
to Dar es Salaam, Tanzania and Mombasa,
Kenya. Trial mining and processing has
demonstrated that a high-grade rare earth
mineral concentrate, with a 19-20% NdPr
content, can be consistently produced via
simple gravity separation from the narrow
high-grade rare earth veins found across
the Gakara licence area.
Gakara was placed on care and
maintenance in June 2021 at the request
of the Government of Burundi, with the
majority of staff placed on suspension and
short-term cash requirements minimised.
Rainbow continues to engage constructively
with all stakeholders to resolve the issue and
allow operations to recommence.
On the expected restart of operations,
Rainbow will assess the available options to
move the project to commercial production.
The successful global transition to clean
energy is reliant on a considerable increase
in supply of critical materials. Rainbow is
focused on identifying the optimal way of
producing rare earths responsibly from
secondary sources, removing significant time,
risk and cost from the overall project timeline.
Phosphate rock is mined all over the world,
with over three quarters of global reserves
located in Northern Africa. Given the
prevalence of phosphate mining,
phosphogypsum is available throughout
the world in large volumes. This makes
it an attractive secondary source of rare
earth elements.
Recognising this enormous potential, our team
is concentrated on securing opportunities for
both collaboration and expertise sharing, as
well as gaining access to new supply.
In June, Rainbow entered into a Memorandum
of Understanding with a diversified chemicals
group based in South Africa to investigate the
opportunity of extracting rare earth elements
from a nitro phosphate process stream at its
phosphoric acid production plant near
Johannesburg in South Africa.
Under the terms of the MoU, Rainbow is
conducting a rare earths extraction pilot study
with the chemicals group, involving initial
grade test work on processing stream material.
This will be followed by a technical programme
to confirm a flowsheet using Rainbow’s unique
knowledge and IP.
The feedstock for the phosphoric acid
production plant originates from the same ore
originally mined by Foskor that generated the
two gypsum stacks at Phalaborwa. Preliminary
sampling of the processing stream indicates a
grade of 0.81% TREO, with a circa 27%
weighting to high-value NdPr, alongside
economic levels of terbium and dysprosium,
similar to Phalaborwa.
Direct costs associated with the pilot study
utilising Rainbow’s exclusive IP and technology
will be financed by the chemicals group.
Subject to a successful outcome, the parties
intend to negotiate terms for a potential joint
venture agreement to extract value from the
rare earths present in the phosphoric acid
processing stream.
Post Year-end, in August 2022, Rainbow
entered into a Master Agreement with OCP, the
Moroccan world leading producer of phosphate
products, and UM6P, a Moroccan university
with a strong focus on science, technology and
innovation, to further investigate and develop
the optimal technique for the extraction of rare
earth elements from phosphogypsum.
Together with the innovative research carried
out by UM6P, OCP has built up significant IP
assets and expertise in the field of
phosphogypsum processing. This provides a
synergistic opportunity for joint development
with Rainbow, given Rainbow’s expertise and
intellectual property on rare earths extraction
and processing gained from work carried out
to date at Phalaborwa. OCP and UM6P will
contribute with their respective expertise,
including adapted complementary separation
technologies. The Parties intend to develop the
optimal route for the extraction of rare earths
from phosphogypsum, and the development
of pilot and industrial-scale extraction of rare
earths from phosphogypsum.
DEVELOPING NEW
SOURCES OF RARE EARTHS
FROM PHOSPHOGYPSUM
14
Rainbow Rare Earths Limited Annual Report & Accounts 2022
OPERATIONS REVIEW CONTINUED
STRATEGIC REPORT
What is
phosphogypsum?
Phosphogypsum is a waste
by-product from the processing
of phosphate rock in plants producing
phosphoric acid and phosphate
fertilisers, such as superphosphate.
Available on a global scale in large
volumes, phosphogypsum is
an attractive secondary
source of rare earth
elements.
OUR PROCESS
15
Rainbow Rare Earths Limited Annual Report & Accounts 2022
OPERATIONS REVIEW CONTINUED
STRATEGIC REPORT
UTILISING OUR
BREAKTHROUGH TECHNOLOGY
The recovery of rare earths from
phosphogypsum arising as a residue from
phosphoric acid production has been the
subject of international research for many
years. However, the process has proven
technically, environmentally and economically
challenging.
In 2022, following a robust international test
work programme, Rainbow confirmed the
successful development of a process
flowsheet to extract rare earth elements
efficiently from the phosphogypsum stacks
at Phalaborwa using an innovative process
developed in collaboration with K-Tech.
Rainbow and K-Tech and are now in the
process of jointly patenting this breakthrough.
The process flowsheet utilises existing
technology, proven at a commercial scale
across a number of industries, in a novel way.
The process includes a number of simple
steps to remove impurities from the
phosphogypsum before leaching the rare
earth elements into a high-grade pregnant
leach solution. Efficient recycling of leach
streams ensures reagent costs are optimised.
The high grade mixed rare earth solution
is ultimately fed into a patented continuous
ion exchange (“CIX”) and continuous ion
chromatography (“CIC”) system. This allows for
the recovery of high purity separated magnet
rare earth oxides with far fewer steps than a
traditional solvent exchange process. Unlike
traditional separation techniques, the process
does not involve the costly separation of low
value products, such as cerium and
lanthanum, before the high value magnet
rare earth oxides can be targeted.
The production of separated magnet rare
earth oxides in a single processing facility,
without the need to ship significant volumes
of low value or waste material between a mine,
cracking plant and separation facility, also
provide significant environmental and cost
benefits when compared to traditional
methods.
CIX and CIC are
patented and proven
processes
Safe, simple to run,
and can operate at a
range of temperatures
Fast, efficient, and
precise extraction of
trace quantities of
target materials from
high volume streams
HYDRAULIC
RECLAMATION
RECLAMATION
WATER
PRE-LEACH
DEWATERING
PRETREATMENT
PROCESS
PRETREATMENT
DEWATERING
IMPURITIES
REMOVAL
NEUTRALISATION
PROCESS
WATER
RARE EARTH
LEACH
Separated
rare earth oxide
production
Substantially fewer steps than
solvent exchange methods
Closed circuit
process
Benign
gypsum
deposited
on new dry
stacks in
line with
IFC
Standards /
Equator
Principles
RE LEACH
DEWATERING
RAPID
CONSOLIDATION
RE CIX/CIC
NEW PG STACK
Nd Pr
OXIDE
Dy
OXIDE
Tb
OXIDE
16
Rainbow Rare Earths Limited Annual Report & Accounts 2022
ENVIRONMENTAL, SOCIAL AND
GOVERNANCE
STRATEGIC REPORT
PRODUCING THE CRITICAL RARE EARTH
PRODUCTS REQUIRED TO PROGRESS THE
GLOBAL GREEN TECHNOLOGY REVOLUTION
IN AN EFFICIENT AND RESPONSIBLE MANNER
ZERO HARM
to our people, to the local population,
to the wider community and the
environment
INTEGRITY
undertaking all our business
dealings and relationships
with the utmost integrity
RESPECT
for our colleagues, for our local
communities and for our
customers and stakeholders
ACCOUNTABILITY
to be willing to take responsibility
for all our actions
TRANSPARENCY
to conduct all of our business
dealings to the highest level of
transparency
COURAGE
to be prepared to persevere
when others would not
OUR CORE VALUES
17
Rainbow Rare Earths Limited Annual Report & Accounts 2022
ENVIRONMENTAL, SOCIAL AND
GOVERNANCE CONTINUED
STRATEGIC REPORT
PEOPLE
Health and safety
Our primary objective is to achieve a zero-
harm working environment. Strong
occupational health and safety management
will always remain a core priority as we
progress with the development of Phalaborwa,
and we are committed to supporting
employee health.
Governance, ethics and values
We uphold strong corporate governance and
are committed to ethical business practices,
underpinned by our policies, including the
Group Code of Conduct. Clear anti-bribery
and whistleblowing procedures are in place,
with further detail on page 29. Our core values
aim to inform a constructive and positive
culture at Rainbow. Based on six key
principles, our values guide behaviour
and business practices.
Fair employment
Rainbow prioritises responsible and fair
employment practices and looks to provide
a working environment in which everyone
is treated with respect. Rainbow is an equal
opportunity employer and we do not tolerate
discrimination against any of our employees
on any grounds (including race, creed, gender,
sexuality) and will treat any instances of
discrimination as serious misconduct.
ENVIRONMENT
Through environmentally responsible
production of rare earths, with a specific focus
on NdPr, Rainbow is contributing to the clean
energy transition. NdPr are fundamental
components in permanent magnets for use
in EVs and wind turbines and are therefore
critical to global decarbonisation.
Rainbow’s unique IP allows us to process
rare earth oxides from phosphogypsum
in an efficient and responsible way. By
retreating secondary material, Rainbow’s
process at Phalaborwa is expected to have
the following environmental benefits:
• Treatment of acidic water currently
contained within the gypsum stacks
for use in closed circuit in the
processing plant;
• Lower use of energy and reagents
when compared to traditional hard rock
mining deposits;
• Cleaning up historical contamination
by redepositing clean, benign gypsum on
a new stack, designed in accordance with
IFC Standards / Equator Principles; and
• Potential use of the gypsum by-product
in the building and other industries.
As we progress to development, we are
committed to sound environmental
management and endeavouring to minimise
any negative impacts of our operations on the
physical environment.
COMMUNITY
Rainbow looks to make a positive contribution
to the communities in which we operate
through the provision of local employment
opportunities, the support of local supply
chains, community assistance and the
transparent payment of taxes and royalties.
Stakeholder engagement will be a
fundamental part of project development
as the Company progresses Phalaborwa.
Our primary aims will be focused on building
mutual trust and respect, opening clear lines
of communication, understanding key risks
and integrating stakeholder considerations
into project development decisions to create
long-term value.
PRODUCING THE CRITICAL RARE
EARTHS REQUIRED TO PROGRESS
THE GLOBAL GREEN TECHNOLOGY
REVOLUTION IN AN EFFICIENT AND
RESPONSIBLE MANNER
18
Rainbow Rare Earths Limited Annual Report & Accounts 2022
FINANCIAL REVIEW
STRATEGIC REPORT
PROFIT AND LOSS
With Rainbow’s strategic focus on processing rare earths from
secondary sources, predominantly at Phalaborwa in South Africa,
and the Gakara project remaining on care and maintenance throughout
the year, the income statement represents the administrative costs for
the Group for the year.
Income statement costs associated with maintaining the Gakara project
on care and maintenance totalled US$1.3 million (FY 2021: US$0.8
million). The increase is due to the change in treatment of costs previously
capitalised within exploration and evaluation assets. In FY 2021 a total
of US$1.9 million was spent at Gakara, of which US$1.1 million was
capitalised comprising US$0.4 million of net costs associated with trial
mining and processing, US$0.3 million of depreciation on the mining
fleet and US$0.4 million of direct exploration costs. With the project on
care and maintenance throughout FY 2022, all costs associated with
Gakara are recognised within the income statement as they do not
represent costs incurred to evaluate the commercial viability of
extracting the mineral resource at the Gakara project. The reduced
overall cost base at Gakara in FY 2022 includes costs associated with
suspending staff contracts up to 31 December 2021, following which
the team was reduced to a core of 22 staff to safeguard the assets
and maintain the administration in country. All staff with terminated
employment contracts received redundancy payments in accordance
with Burundi law.
The Group’s corporate costs grew in FY 2022. With the expected fast
track development of Phalaborwa, the administrative structures for the
Group are being strengthened, and a new administrative hub has been
established in South Africa. FY 2022 costs totalled US$2.3 million,
increasing from US$1.9 million in FY 2021, predominantly driven
by staff costs.
Net finance costs of US$0.3 million (FY 2021: US$nil) relate primarily
to foreign exchange differences. Gains on movements between the
Burundian Franc (“BIF”) and US dollars, the functional currency of the
Group, were offset in FY 2022 by losses on movements between GB
Pounds, which the Group holds to match future expected costs, and US
dollars. Finance costs also include US$0.1 million (FY 2021: US$0.1 million)
associated with the FinBank loan in Burundi.
The corporation tax rate in Burundi is 30%. In the absence
of taxable profit, a minimum tax is charged calculated as 1% of revenue.
The tax charge in the year represents an adjustment to minimum tax
from prior periods.
BALANCE SHEET
The Group balance sheet includes US$9.8 million of non-current
assets at 30 June 2022 relating to Gakara, including US$8.6 million
of exploration and evaluation costs and tangible fixed assets with
a net book value of US$1.0 million. The Gakara cash generating unit also
includes US$0.9 million of inventory, carried at cost, primarily relating to
the stock of available for sale rare earth concentrate in Burundi. Whilst
the Gakara project remains on care and maintenance, the Directors are
confident that the issues with the Government of Burundi will be
resolved, allowing the asset to recommence operations.
A total of US$0.8 million of exploration and evaluation assets were
capitalised in the year relating to Phalaborwa, leaving a closing
capitalised cost of US$1.9 million. The Group is earning a 70% interest
in the Phalaborwa project by completing a pre-feasibility study and at
the balance sheet date has no tangible fixed assets and no obligations
for environmental closure at the Phalaborwa site.
The Group balance sheet includes US$0.3 million of tax receivables
relating to the historic overpayment of royalties and VAT recoverable
in Burundi, both measured at expected recoverable value. There are
also US$0.5 million of tax and government liabilities in Burundi.
During the year, the Group significantly strengthened its balance sheet,
raising US$8.5 million, net of costs, at a price of 15 pence per new
Ordinary Share in October 2021. This funding allowed the Pipestone loan
to be fully repaid, including accrued interest, via US$0.9 million cash and
US$0.2 million equity at 15p per new Ordinary Share. The sole remaining
long-term financial liability is the US$0.6 million FinBank loan in Burundi,
on which capital repayments are currently being deferred. At 30 June
2022, the Group has US$4.1 million of cash which is predominantly held
with Barclays Bank in London.
19
Rainbow Rare Earths Limited Annual Report & Accounts 2022
FINANCIAL REVIEW CONTINUED
STRATEGIC REPORT
GOVERNMENT PAYMENTS
Rainbow is committed to full payment of its tax and fiscal obligations wherever it operates, as this supports the social licence to operate, and ensures
a fair contribution to local economies.
The table below sets out the key payments to government in the period arising as a result of Rainbow’s activity, including direct taxes (such as land
taxes, duties etc) and indirect taxes (such as payroll taxes, withholding tax, and net VAT paid).
FY 2022 FY 2021
US$’000 South Africa Burundi Total UK Burundi Total
Royalties - - - - 36 36
Permit and land taxes - - - - - -
Corporation tax - 2 2 - - -
Duties & other - - - - 22 22
Total tax borne - 2 2 - 58 58
Payroll tax 44 78 122 91 154 245
Withholding tax - - - - 13 13
Net VAT (21) (4) (26) - (12) (12)
Total net payments to government 22 76 22 91 213 304
Royalty payments relate to the Burundi government royalty of 4% charged on the value of exports of rare earths mineral concentrate.
No royalties were paid in the current year as operations in Burundi, including all exports, are suspended by the Government.
Permits and land taxes include annual taxes payable to the Government of Burundi under the terms of the Mining Convention for the Mining Permit
at Gakara – no payments were made during the current financial year as the Burundi operations are suspended, with the annual cost accrued in the
financial statements.
Corporation tax is payable in Burundi based on a minimum 1% of turnover whilst the local operating entity remains loss making. No turnover
was reported in the current year with the reported tax payments relating to payments on account to be off-set against future tax liabilities.
Payroll taxes and VAT (net of recovered amounts) are included as they represent funds paid by the Group to the government either directly
or via suppliers.
PAGE TITLE
20
Rainbow Rare Earths Limited Annual Report & Accounts 2022
CORPORATE GOVERNANCE
WE ARE COMMITTED
TO THE HIGHEST
STANDARDS
OF CORPORATE
GOVERNANCE
21
Rainbow Rare Earths Limited Annual Report & Accounts 2022
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
22 Directors’ Report
24 Board of Directors
25 Senior Management
26 Principal Risks and Uncertainties
29 Corporate Governance Statement
22
Rainbow Rare Earths Limited Annual Report & Accounts 2022
DIRECTORS’ REPORT
CORPORATE GOVERNANCE
The Directors present their annual report and the financial
statements of the Group for the year ended 30 June 2022.
General
was established in Guernsey on 5 August 2011. On 30 January 2017,
its shares were listed on the Standard segment of the Main Market
of the London Stock Exchange.
Principal activity
Business model
The basis on which the Company seeks to preserve and generate value
is through the investment of its funds in the development of rare earth
minerals projects to become a globally significant and responsible
producer of rare earth metals. Once operational, the net cash generated
from the Group’s projects will be used to service the Company’s
financing, re-invested in further rare earth project development
opportunities, or (where appropriate) repaid to investors in the form
of dividends.
In the short term, this strategy is focused on the Phalaborwa rare earths
Project in South Africa, where an inferred mineral resource has been
defined contained within gypsum stacks derived from historic
phosphate hard rock mining. The recently announced preliminary
economic assessment has confirmed that the Phalaborwa development
opportunity represents an economically attractive potential source of
rare earth oxides. The Gakara Project in Burundi is currently on care and
maintenance as set out in the Operations Review on page 13.
Business review
A review of the business during the year is included in the Chairman’s
statement, the CEO’s statement, and in the Operating and Financial
Reviews. The Group’s business and operations and the results thereof
are reflected in the attached financial statements.
Business risks
A review of the key risks to the Company is set out on pages 26 to 27.
Advisers
The Company’s advisers are set out on the inside back cover.
Financial results
During the 12 months ended 30 June 2022, the Company reported
a net loss of US$3,985k (year ended 30 June 2020: net loss
of US$2,742k).
No dividends have been declared in respect of the years ending
30 June 2022 or 2021.
Directors
A list of the Directors of the Company is set out on page 24.
No Director shall be requested to vacate office at any time by reason
of any specific age attained. The Board considers that there is a balance
of skills within the Board and that each of the Directors contributes
effectively.
Robert A.G. Sinclair retired on 18 January 2022
as Non-executive Director.
George Bennett’s salary was increased with effect from 1 April 2021 from
US$250k per annum to US$325k per annum. He is not entitled to any
other benefits. George also received a cash settled bonus during the
current year.
Non-executive Directors’ fees were increased with effect from
1 April 2021 as follows:
• Adonis Pouroulis fees as Non-executive Chairman were increased
from £42.5k/annum to £70.0k/annum.
• Other Non-executive Director fees were increased from
£27.5k/annum to £35k/annum, with an additional £5k per annum
paid to Non-executive Directors (excluding the Non-executive
Chairman) who are chairmen on formal Board Committees
as set out on page 30.
Atul Bali (Non-executive Director) was appointed as Chairman
of the Audit Committee during the year and therefore his fees
increased from £35.0k to £40.0k in February 2022.
Directors’ remuneration
Salary/fees (US$’000) Bonus (US$’000) Total (US$’000)
June 2022 June 2021 June 2022 June 2021 June 2022 June 2021
Executive Directors
George Bennett
1
325 269 134 - 459 269
Non-Executive Chairman
Adonis Pouroulis 93 68 - - 93 68
Non-Executive Directors
Alexander Lowrie 53 42 - - 53 42
Atul Bali 49 40 - - 49 40
J Peter Pham 47 6 - - 47 6
Shawn McCormick 53 42 - - 53 42
Robert Sinclair 30 42 - - 30 42
Total 650 509 134 - 784 509
1. In addition to salary, as set out in note 18 to the Financial Statements, Pipestone Capital Inc, in which George Bennett has a beneficial interest, earned interest on an unsecured bridge loan,
which was settled in December 2021 by cash and shares issued.
23
Rainbow Rare Earths Limited Annual Report & Accounts 2022
DIRECTORS’ REPORT CONTINUED
CORPORATE GOVERNANCE
Directors’ responsibility statement
The Companies (Guernsey) Law, 2008 requires the Directors to prepare
financial statements for each financial period, which give a true and fair
view of the state of affairs of the Group for that period and of the profit
or loss of the Group for that period. Under that law they have elected
to prepare the financial statements in accordance with International
Financial Reporting Standards as adopted by the EU and applicable law.
In preparing those financial statements the Directors are required to:
• Select suitable accounting policies and then apply them
consistently;
• Make judgments and estimates that are reasonable and prudent;
• State whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the
financial statements; and
• Prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Group will continue in
business.
The Directors are responsible for keeping proper accounting records
which disclose with reasonable accuracy at any time the financial
position of the Group and to enable them to ensure that the financial
statements have been properly prepared in accordance with the
Companies (Guernsey) Law, 2008. They are also responsible for
safeguarding the assets of the Group and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
The Directors confirm that they have complied with the
above requirements in preparing the financial statements.
So far as each of the Directors are aware, there is no relevant audit
information of which the Group’s auditor is unaware; having taken all
the steps the Directors ought to have taken to make themselves aware
of any relevant audit information and to establish that the Group’s auditor
is aware of that information.
Principal shareholders
A list of shareholders who beneficially hold more than 5%
of the Company’s shares at 21 October 2022 is as follows:
Number % of
of ordinary Share
Name of Shareholder shares Capital
Pella Group
(beneficially owned by Adonis Pouroulis) 76,478,864 14.6%
Pipestone Capital Inc
(beneficially owned by George Bennett) 35,601,683 6.8%
Robert Kampf 28,753,578 5.5%
Interests of Directors and senior managers
The interests (all of which are beneficial and include related parties)
of the Directors and senior managers in the Company’s issued share
capital at 21 October 2022 are as follows:
Number % of
of ordinary Share
Position shares Capital
Adonis Pouroulis
Non-executive Chairman 76,478,864 14.6%
George Bennett
Chief Executive Officer 35,601,683 6.8%
Alexander Lowrie
Non-executive Director 6,075,124 1.2%
Atul Bali
Non-executive Director 3,657,992 0.7%
J Peter Pham
Non-executive Director 250,000 0.0%
Shawn McCormick
Non-executive Director 9,316,571 1.8%
Pete Gardner
Senior manager 200,000 0.0%
Total 131,580,234 25.1%
Website publication
The Directors are responsible for ensuring that the annual report
and the financial statements are made available on a website.
Financial statements are published on the Company’s website
(www.rainbowrareearths.com) in accordance with applicable legislation
in Guernsey governing the preparation and dissemination of financial
statements, which may vary from legislation in other jurisdictions.
The maintenance and integrity of the Company’s website is the
responsibility of the Directors. The Directors’ responsibility also extends
to the ongoing integrity of the financial statements contained therein.
Going concern
The Directors have reviewed the Group’s cash flow forecasts
for at least 12 months following the reporting date, together with
appropriate sensitivities and mitigating actions. A full analysis
of the Directors analysis of the going concern status of the Group
is set out in note 2 to the Financial Statements.
After considering available cash, loan facilities anticipated to remain
available, forecast cash flows and anticipated fundraising activities the
Directors consider that the Group will have adequate resources to
continue its operational existence for the foreseeable future. However,
the cash flow forecast includes additional fundraising which is not yet
in place. The Directors believe that the need to raise further funds
represents a material uncertainty that casts doubt on this assumption.
Nevertheless, the Directors continue to adopt the going concern basis
in preparing the consolidated financial statements.
Auditor
BDO LLP has expressed its willingness to continue in office as auditors
and a resolution to re-appoint BDO LLP will be proposed at the
forthcoming annual general meeting.
Signed on behalf of the Board of Directors on
21 October 2022
George Bennett
Chief Executive Officer
24
Rainbow Rare Earths Limited Annual Report & Accounts 2022
BOARD OF DIRECTORS
CORPORATE GOVERNANCE
Adonis Pouroulis
(Non-executive Chairman)
Adonis is an entrepreneur whose expertise lies in the discovery,
exploration and development of natural resources across Africa. Having
worked in the sector for over 25 years he has extensive experience and
a wide network of industry relationships across the continent. Adonis is
founder and CEO of Chariot Oil & Gas (AIM: CHAR), founder and
chairman of the Pella Resources Group, and was the founder and
chairman of Petra Diamonds (LSE: PDL). Adonis holds a Bachelor
of Science Degree (Honours).
George Bennett
(Chief Executive Officer)
With over 25 years’ experience in mining, finance and management,
George has led a number of mining and energy companies, including
Shanta Gold Ltd (which he successfully listed on the London Stock
Exchange in 2005), OreCorp Ltd (which he seed funded and helped raise
the initial capital as a Non-executive Director) and most recently Karo
Power (Pvt) Ltd.
In 2006, George established MDM Engineering Ltd, which he
successfully listed on the London Stock Exchange in 2008. MDM
Engineering Ltd is a mining engineering company building mineral
process plants and mining infrastructure throughout Africa. In 2014,
George was instrumental in selling the business to Foster Wheeler
Limited for US$120 million.
In addition, George has been a partner and director with a number
of leading financial, broking and advisory businesses including
Fergusson Bros, Simpson Mckie, and HSBC Securities Africa (Pty) Ltd.
Alexander Lowrie
(Non-executive Director)
Alex is the co-founder of Telemark Capital LLP, a partnership focusing
on capital advisory and asset management. Through its consulting
subsidiary, Gunnerside Advisors, Alex is also involved in providing
governance services as an independent investment committee
member to a variety of advisory panels. Prior to this Alex worked for 13
years in investment banking. He was a director at Deutsche Bank and
then RBS from 2004 to 2012, having started his banking career in 1998
at ABN AMRO. Through these positions, he has gained extensive market
experience in primary and secondary equity offerings including bringing
companies to market through IPOs (including structuring, marketing,
and distribution). Alex graduated from Durham University with a BA
(hons) in Combined Social Sciences, and he is also in the process of
completing an executive MBA from Henley Business School.
Shawn McCormick
(Non-executive Director)
Shawn is an International Affairs specialist with more than 20 years’
political and extractive industries sector experience having served in
The White House as Director for African Affairs on the National Security
Council (Washington), Political Affairs Director of BP (London) and Vice
President of TNK-BP (Moscow). He is currently Managing Director of
a strategic advisory services company and an adviser to the Pella
Resources Group.
Atul Bali
(Non-executive Director)
Atul is a corporate CEO and board member with extensive experience
in tech, government contracting and regulated industries operating on
all six continents. Over more than 20 years, he has led in excess of 50
M&A and JV transactions in over 25 countries and both managed and
served on the boards of several highly regulated businesses. Currently
he advises a number of high-growth technology companies, is
chairman of the Football Pools and a non-executive director of Everi
Holdings Inc (NYSE:EVRI). He has previously held divisional CEO or
president positions with IGT (NYSE), Aristocrat (ASX), and Real Networks
(NASDAQ), as well as a venture capital firm. He trained as a Chartered
Accountant with KPMG in the UK.
J. Peter Pham
(Non-executive Director)
J. Peter Pham is a scholar and practitioner of International Affairs with
more than 20 years of experience in Africa. Most recently, he served
until January 2021 as first-ever United States Special Envoy for the
Sahel Region with the personal rank of Ambassador. He had previously
served as the US Special Envoy for the Great Lakes Region of Africa
from 2018-2020.
Ambassador Pham is currently a Distinguished Fellow at the Atlantic
Council, a preeminent American foreign policy think tank, where he was
Vice President for Research and Regional Initiatives and Director of the
Council’s Africa Center before his service in government. He is the author
of several books and more than 300 articles, essays and reviews
on African politics, security, and economic issues. He is also a member
of the Board of the Smithsonian National Museum of African Art in
Washington, DC, serving between 2016-2021 as Vice Chair,
as well as a Non-Executive Director of Africell Global Holdings.
25
Rainbow Rare Earths Limited Annual Report & Accounts 2022
SENIOR MANAGEMENT
CORPORATE GOVERNANCE
Pete Gardner
Chief Financial Officer
Pete is a qualified Chartered Accountant with a breadth of experience
in financial management and corporate finance in the natural resources
sector. He was the Finance Director of Amara Mining plc from October
2009 managing the corporate and financial development of the
company culminating in its acquisition by Perseus Mining, and former
Chief Finance Officer for Piran Resources, Chaarat Gold Holdings and
Alexander Mining plc.
Dave Dodd
Technical Director
Dave has 45 years of extractive metallurgy experience covering
research and development, technical sales and predominantly
metallurgical project development and execution. He was Technical
Director and co-founder of MDM Engineering between 1987-2014.
Dave has designed and commissioned plants across Africa and the
rest of the world, covering minerals from REEs to gold, platinum,
diamonds, copper, zinc, phosphate, cobalt and many others.
Chris Attwood
Project Manager - Gakara
Chris has more than 20 years’ experience in mining and extractive
industries. He is a qualified mining engineer (Cambourne School
of Mines) and has worked throughout Africa (including Tanzania
and Eritrea) as well as the rest of the world. As well as rare earths,
Chris has experience with gold, tin, coal, and quarrying operations.
Charles Graham
Project Manager - Phalaborwa
Charles is a Mechanical Engineer with 20 years’ experience in project
management delivering multidisciplinary mining and infrastructure
projects in remote and logistically challenging geographical regions.
He has successfully completed multiple feasibility studies across Africa
and has a proven track record of increasing project value by reducing
capital and operating costs during project life cycle from study
to execution.
The above names have been designated as Persons Discharging
Managerial Responsibility (“PDMRs”).
26
Rainbow Rare Earths Limited Annual Report & Accounts 2022
PRINCIPAL RISKS AND
UNCERTAINTIES
CORPORATE GOVERNANCE
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
Project definition
risk including
exploration and
extractive
metallurgy
Comment
At Phalaborwa, the Company has
announced a preliminary economic
assessment which has confirmed
a processing flowsheet capable of
economically extracting the magnet rare
earth metals from the gypsum stacks
in a low capital and low operating cost
environment. Further test work, including
pilot test work to confirm the efficacy of the
processing flowsheet, will be required to
provide sufficient confidence for project
development, which may not deliver results
in line with the preliminary economic
assessment.
At Gakara, the Company does not currently
have a code-compliant Mineral Resource
or Reserve due to the complexity of the
underlying geological mineralisation.
It is possible that the quantity of rare earths
present in the licence area is less than
management expectations with resulting
impacts on plans to develop a long-term
commercial operation at Gakara.
Business impact
High
Mitigation
The Company’s technical team has designed
and commissioned numerous commercial
plants in Africa, including rare earth projects.
A number of alternative options and
technologies are considered for each step
of the extractive process to ensure that the
final flow sheet chosen for the Phalaborwa
Project can be delivered.
At Gakara, throughout the 2020-21 financial
year trial mining of ore, sourced using both
mechanical and manual mining methods
from across the licence area, confirmed near
vein continuity and quality. Batch processing
of this material demonstrated the ability to
produce a high-grade rare earth concentrate
via simple gravity separation for all ore
sources identified to date. Subject to
operations re-starting, the Company expects
to use operating cash flow to define further
low-cost exploration techniques to improve
confidence in the Gakara mineralisation.
Political risk in
Burundi
On 12 April 2021, the Government of Burundi
temporarily suspended the export of
concentrate produced at Gakara. This was
followed on 29 June 2021 with a suspension
of all trial mining and exploration activity.
All operations remain on care and
maintenance at October 2022. There has
been no attempt to remove the mining
licence for the Gakara project.
High Management understands that the concerns
of the Government of Burundi relate
principally to the pricing of the rare earth
concentrate sold, which was addressed
comprehensively in an independent report
commissioned by the World Bank in 2019 and
accepted by the Government in 2020.
Although the situation has persisted longer
than originally anticipated, management
notes significant changes in the political
landscape in Burundi which occurred in
September 2022, which have led to further
engagement with the authorities. Accordingly,
management expects operations at Gakara
to resume in the near term.
Financing risk High
The strong economic returns set out in the
recently announced preliminary economic
assessment for Phalaborwa are expected
to ensure funding is available to progress
with a feasibility study for that project.
At Gakara, the Company expects funds
received from the sale of current mineral
concentrate to be available to finance the
re-commencement of trial mining
operations, which at current rare earth prices
would not be expected to require further
funding to maintain.
Longer term, management maintains strong
relationships with key sources of finance.
Rainbow has a history of securing funding
required for the Company’s growth plans,
including support from its cornerstone
investors, and management expects to be
able to secure additional funding as required.
27
Rainbow Rare Earths Limited Annual Report & Accounts 2022
PRINCIPAL RISKS AND
UNCERTAINTIES CONTINUED
CORPORATE GOVERNANCE
Risk
Rare earth prices
Comment
Rainbow’s strategy is to identify near-term,
secondary rare earths production
opportunities. Meeting escalating demand
for critical minerals needed for global
decarbonisation, we are focused on
producing the magnet rare earth metals
NdPr, Dy and Tb.
Whilst analysts are predicting strong growth
in demand for rare earths, prices have been
volatile in the past. If the underlying rare earth
basket price of the Group’s development
projects fall, this reduces potential revenue
that will impact the long-term profitability
of the project and could impact the
commercial viability of any development.
The Company currently has an off-take
agreement with ThyssenKrupp for the Gakara
Project trial mining activities in Burundi,
selling rare earth concentrate at a discount
of approximately 70% to the quoted price
of the underlying metal oxides.
Business impact
High
Mitigation
The recently announced preliminary
economic assessment for the Phalaborwa
Project in South Africa, has confirmed a
simple, low-cost operation due to the nature
of the rare earth mineral resource contained
in a chemical form in two gypsum stacks,
which will not require many of the processes
associated with a primary mineral ore body
for the extraction of rare earths. The resulting
operating margin will allow Phalaborwa to
generate strong returns in a lower rare earth
price environment. The Company will aim to
negotiate off-take arrangements if required
to ensure a commercial development is
viable in the interests of all stakeholders.
At Gakara the Company expects to
re-commence operations, which are not
expected to require further funding to
maintain at current rare earth prices. In the
event of lower market prices, the Company
would seek to defend its margins by
reviewing its operating cost base, where
possible, reducing discretionary expenditure
and optimising the scale of developments to
minimise the impact of fixed costs and
marginal ore.
Civil unrest Burundi has experienced civil unrest,
including most recently in 2015. South Africa
experienced some civil unrest in 2021.
Any subsequent instances of civil unrest
could impact the long-term operations
of the Company’s development projects,
including the ability to obtain supplies,
export production and manage
administrative matters.
Medium
Although civil unrest is beyond the control
of management, the Company maintains
strict political neutrality in all countries
in which it operates.
In the event of unrest, management would
prioritise 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.
Currency controls in
Burundi
At Gakara, the Company has received sale
proceeds in US dollars, which, are repatriated
to an account in the Burundi Central Bank.
Burundi has experienced shortages of
foreign currency reserves in the past,
and it is therefore possible that access
to US dollars held in country might be
difficult. This would affect the Company’s
ability to meet ongoing foreign currency
obligations including international suppliers,
servicing of international debt and
repatriation of profits.
Medium
The Company has the right, under its Mining
Convention with the Burundian Government,
to unfettered access to its foreign currencies.
The Company will continue to monitor
currency issues in country and will
negotiate flexible terms with the
Government as far as possible.
PRINCIPAL RISKS AND
UNCERTAINTIES CONTINUED
28
Rainbow Rare Earths Limited Annual Report & Accounts 2022
CORPORATE GOVERNANCE
THROUGH RESPONSIBLE
PRODUCTION OF RARE
EARTHS, RAINBOW
IS CONTRIBUTING TO
THE CLEAN ENERGY
TRANSITION
29
Rainbow Rare Earths Limited Annual Report & Accounts 2022
CORPORATE GOVERNANCE
STATEMENT
CORPORATE GOVERNANCE
As a Guernsey-registered Company, trading on the Standard List of the
Main Market of the London Stock Exchange, the UK Corporate
Governance Code published by the Financial Reporting Council does not
apply to the Company. However, whilst the Company does not apply the
UK Corporate Governance Code, the Directors recognise the importance
of good corporate governance and have implemented corporate
governance practices having consideration to the recommendations
and principles of the UK Corporate Governance Code as far as is
appropriate bearing the size and nature of the Company in mind.
The Board oversees the performance of the Group’s activities. It
comprises experienced Board members who have held senior positions
in a number of public and private companies. The Board is responsible to
shareholders for the proper management of the Group. The Non-
executive Directors have particular responsibility to ensure that the
strategies proposed by the Executive Director are carefully considered.
The Board meets regularly and met seven times in the year to 30 June
2022. Prior to such meetings taking place, an agenda and board papers
are circulated to the Directors so that they are adequately prepared for
the meetings.
To enable the Board to discharge its duties, all Directors have full and
timely access to all relevant information.
There is no agreed formal procedure for the Board (or members thereof)
to seek independent professional advice but, pursuant to their letters of
appointment, the Non-executive Directors may, where appropriate, take
independent professional advice at the Group’s expense.
In accordance with the Company’s Articles of Associations, the Directors
submit themselves for re-election every three years at the Company’s
Annual General Meeting.
The composition of the Board will be reviewed regularly to ensure that
the Board has the appropriate mix of expertise and experience. The
Articles provide that the number of Directors that may be appointed may
not be fewer than two. Two Directors present at a Board meeting will
constitute a quorum.
The Board ensures it is aware of the views of major shareholders through
regular meetings in person (where appropriate), as well as through
discussions with the Company’s brokers and market analysts. Where
such information has been obtained by the CEO, this information is
disseminated to the rest of the Board in a timely manner.
Review of internal control and risk management systems
The Board has reviewed the Company’s internal control and risk
management systems.
Rainbow has a relatively small team of management and financial staff
and is therefore able to retain a tight control over its financial reporting
activities. The Board does not consider it appropriate to have a separate
internal audit function, however a number of internal controls and
reviews have been put in place to provide the Board (and the Audit
Committee) with assurance that the risks inherent to operating a natural
resource company in more than one jurisdiction are managed
appropriately. These controls include the following:
• Budgets and forecasts are prepared by finance staff in conjunction
with operating teams and are reviewed and approved by senior
management (and in the case of the Budget, by the Board).
• Actual results are reported against budget and forecast, and
variances examined.
• All banking transactions must be initiated and authorised by at least
two staff members, one of whom is a senior manager (CEO or CFO).
Since the retirement of the General Manager in Burundi, all
payments are approved by the CEO or CFO prior to payment being
made locally. For international payments, all payments are approved
in the on-line banking system by the CFO following sign-off by the
CEO.
• Financial operations in Burundi are reviewed regularly by the CFO,
both on visits to Burundi and online. During the current financial
year, reviews have primarily been conducted in an online
environment and in-country visits limited to discussions with the
Burundi Government.
• The Group uses a central financial reporting system (Xero) which
records all transactions, capturing third party documents (e.g.
invoices) which are reviewed by head office on a monthly basis.
• Senior management regularly discuss material developments
(normally weekly) and consider financial and reporting implications
of any matters arising.
In addition to formal Audit Committee meetings, the CFO has regular
interaction with the Audit Committee chairman to discuss control and
reporting matters in more detail.
30
Rainbow Rare Earths Limited Annual Report & Accounts 2022
CORPORATE GOVERNANCE
STATEMENT CONTINUED
CORPORATE GOVERNANCE
Board of Directors
The Company had one Executive Director and five Non-executive Directors at 30 June 2022. All major decisions relating to the Group are made
by the Board as a whole. Operations are conducted by the subsidiaries of the Company. In Burundi, the Company is represented on the board
of Rainbow Mining Burundi SM by the CEO and CFO.
The Board reviews key business risks regularly, including the financial risks facing the Group in the operation of its business. These matters include,
but are not limited to, the following:
• Determining the strategy for the Company;
• Approving the annual budget;
• Discussing and approving financing, including new debt and equity;
• Setting the dividend policy;
• Mergers and acquisitions activity and significant transactions;
• Risk management; and
• Considering and, if appropriate, approving the recommendations of Board Committees.
The following table lists the names, positions and ages of the Directors, the year they were appointed, and current committee memberships:
Name Age1 Position Appointed Audit Remuneration Nomination SHEC
Adonis Pouroulis 52 Chairman 5 Aug 2011 - Member Chair -
George Bennett 61 CEO 27 Aug 2019 - - - Member
Alexander Lowrie 47 Non-exec 16 Nov 2016 Member Chair - Member
Atul Bali 51 Non-exec 29 Mar 2017 Chair - Member -
J. Peter Pham 51 Non-exec 17 May 2021 - - Member -
Shawn McCormick 55 Non-exec 4 Feb 2016 Member - - Chair
1 Ages at 30 June 2022
The Company does not consider Adonis Pouroulis to be independent by virtue of being a significant shareholder. The other Non-executive Directors
are considered to be independent, in terms of character and judgment, notwithstanding the following:
• All the Non-executives are shareholders in the Company (see Directors’ Report for details).
• All the Non-executives held share options during the year ended 30 June 2022 (see Note 22 for details).
The table below shows the attendance at board and committee meetings during the year ended 30 June 2022:
Name Board Audit Remuneration Nomination SHEC
Adonis Pouroulis 7/7 N/A 1/1 0/0 N/A
George Bennett 7/7 N/A N/A N/A 1/1
Alexander Lowrie 7/7 3/3 1/1 n/a 1/1
Atul Bali 6/7 3/3 N/A 0/0 N/A
J. Peter Pham 6/7 N/A N/A 0/0 N/A
Shawn McCormick 7/7 1/1 N/A N/A 1/1
Robert Sinclair 3/3 2/2 1/1 N/A N/A
The membership of Board committees was updated in the year following the resignation of Robert Sinclair in January 2022. The table of Board
committee attendance is based on the Board committee appointments at the time of the relevant meeting. The Board is regularly informed of
developments outside formal Board meetings, through update calls and meetings, reports and one-to-one discussions with the CEO and other
management.
The deliberations of the various committees, referred to below, do not reduce the individual and collective responsibilities of Board members with
regard to their fiduciary duties and responsibilities, and they must continue to exercise due care and judgment in accordance with their statutory
obligations.
These terms of reference are subject to the provisions of the Articles and any other applicable law or regulatory provision in force in Guernsey,
and the Listings Rules.
In addition to the Audit, Remuneration, Nomination and Safety, Health and Environment Committees which have formally delegated duties
and responsibilities within written terms of reference, the Board may set up additional Committees as appropriate.
31
Rainbow Rare Earths Limited Annual Report & Accounts 2022
CORPORATE GOVERNANCE
STATEMENT CONTINUED
CORPORATE GOVERNANCE
Audit Committee
The Board has established an Audit Committee with formally delegated
duties and responsibilities. The Audit Committee is chaired by Atul Bali
since January 2022 following the retirement of Robert Sinclair. Alexander
Lowrie has been a member of the committee throughout the year.
Shawn McCormick was appointed as a member following the retirement
of Robert Sinclair.
The Audit Committee should meet not less than two times a year and
is responsible for ensuring the financial performance of the Company
is properly reported on and monitored, including reviews of the annual
and interim accounts, results announcements, internal control systems
and procedures and accounting policies.
It is also responsible for keeping the categorisation, monitoring and
overall effectiveness of the Company's risk assessment and internal
control processes under review.
The Audit Committee was formally established in January 2017 and
met three times during 2021/22. During these meetings, the following
matters were considered:
• The audit of the year ended 30 June 2021 was planned and the
key areas of audit risk were discussed ahead of the relevant audit
procedures being undertaken.
• The financial statements for the year ended 30 June 2021, and the
interim financial statements for the six months ended 31 December
2021, were reviewed. Following due consideration, the Audit
Committee recommended to the Board that these Financial
Statements be approved
The Audit Committee also considered the conduct of the external audit
by BDO LLP, which was considered to be appropriate. The Committee
therefore resolved to propose BDO LLP for reappointment at the next
AGM for a period of 12 months. It was noted that BDO LLP had been
auditors of the Company since October 2016.
The Audit Committee also considered the independence and objectivity
of BDO LLP. The Committee considered the composition of the BDO
audit team, together with the duration of service of the partner and
senior audit team members on the Company’s audit and concluded that
BDO LLP was sufficiently independent to conduct the audit. The only
non-audit service during the year was the informal review of the interim
financial statements for the six months to 31 December 2021.
Nomination Committee
The Nomination Committee is chaired by Adonis Pouroulis, with the
other members comprising Atul Bali and J. Peter Pham.
The Nomination Committee is normally expected to meet only as
required. The Nomination Committee is responsible for reviewing, within
the agreed terms of reference, the structure, size, and composition of
the Board, undertaking succession planning, leading the process for
new Board appointments, and making recommendations to the Board
on all new appointments and re-appointments of existing directors.
The Nomination Committee did not meet during 2021/22.
Remuneration Committee
The Remuneration Committee members are Alex Lowrie (Chairman)
and Adonis Pouroulis. Robert Sinclair was a member of the committee
until his retirement in January 2022. It is normally expected to meet at
least once a year. The Remuneration Committee has responsibility for
determining, within agreed terms of reference, the Group’s policy on the
remuneration of senior executives and specific remuneration packages
for Executive Directors and the Non-executive Chairman.
The remuneration of Non-executive Directors is a matter
for the Board. No Director may be involved in any discussions
as to their own remuneration.
The Remuneration Committee met once during 2021/22 to discuss
a proposal for an award under the short-term and long-term incentive
plans for senior management.
Safety, Health, and Environment Committee (“SHEC”)
The SHEC is responsible for developing and reviewing the Group’s
framework, policies and guidelines on safety, health and environmental
management, monitoring key indicators on accidents and incidents
within the Group’s operations and considering developments in relevant
safety, health and environmental practices and regulations.
The SHEC is chaired by Shawn McCormick. The other members
of the committee are George Bennett and Alexander Lowrie.
The SHEC met once during 2021/22 to discuss the Terms of Reference
for the committee, the Company’s policies and ESG priorities and
regulatory developments.
Share dealing policy
The Company has a share dealing policy requiring all Directors and
senior executives to obtain prior written clearance from either the
Chairman or the Chief Executive Officer to deal in linked shares.
The Chairman requires prior written clearance from the Chairman of the
Audit Committee. Close periods (as defined in the share dealing policy)
are observed as required by Market Abuse Regulations and other rules
that apply to the Company by virtue of the market on which its shares
are listed. During these periods, the Company’s directors, executives and
inside employees are not permitted to deal in the Company’s securities.
Additional close periods are enforced when the Company or its
applicable employees are in possession of inside information.
Anti-Bribery Policy
The Company has adopted an Anti-Bribery Policy and procedures
(including whistleblowing), which apply to the Group, its officers and
staff anywhere in the world. The policy and procedures have been
developed following an assessment of the risks applicable to the Group’s
business and include a process for reporting suspicious conduct,
financial limits on gifts and hospitality, procedures for financial
record-keeping and for dealing with contracts with third parties, and a
prohibition on charitable or political donations without Board approval.
Pete Gardner acts as the Group’s Anti-Bribery Officer. The Anti-Bribery
Officer oversees the day-to-day operation of the Anti-Bribery Policy and
procedures. The Board also regularly reviews the operation of the Anti-
Bribery Policy and procedures and the Anti-Bribery Officer reports to the
Board on any specific issues that may arise.
All personnel are required to receive guidance and training in relation to
the Group’s Anti-Bribery Policy and procedures. Senior staff have already
received this training, and training for junior staff continues as an
ongoing process.
The Anti-Bribery Officer also undertakes due diligence on third parties
as appropriate that are to be engaged by the Group to do business
on its behalf. The Group requires third parties to take account of the
anti-bribery policy and to act in accordance with its provisions.
Signed on behalf of the Board of Directors on
21 October 2022
George Bennett
Chief Executive Officer
PAGE TITLE
32
Rainbow Rare Earths Limited Annual Report & Accounts 2022
FINANCIAL STATEMENTS
OPPORTUNITY TO
ACHIEVE ADDITIONAL
VALUE FROM FURTHER
DOWNSTREAM
PROCESSING
33
Rainbow Rare Earths Limited Annual Report & Accounts 2022
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
34 Independent Auditors’ Report
40 Consolidated Statement of Comprehensive Income
41 Consolidated Statement of Financial Position
42 Consolidated Statement of Changes in Equity
43 Consolidated Cash Flow Statement
44 Notes to the Consolidated Financial Statements
34
Rainbow Rare Earths Limited Annual Report & Accounts 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF RAINBOW RARE EARTHS LIMITED
FINANCIAL STATEMENTS
Opinion on the financial statements
In our opinion, the financial statements:
• give a true and fair view of the state of the Group’s affairs as at 30 June 2022 and of its loss for the year then ended;
• have been properly prepared in accordance with IFRSs as adopted by the European Union; and
• have been properly prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.
We have audited the financial statements of Rainbow Rare Earths Limited (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year
ended 30 June 2022 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position,
the Consolidated Statement of Changes in Equity, the Consolidated Cash Flow Statement and the notes to the financial statements, including
a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
Following the recommendation of the audit committee, we were appointed by the audit committee on the 03 October 2016 to audit the financial
statements for the year ending 30 June 2016 and subsequent financial periods. The period of total uninterrupted engagement including retenders
and reappointments is 7 years, covering the years ending 30 June 2016 to 30 June 2022. We remain independent of the Group and the Parent
Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical
Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
The non-audit services prohibited by that standard were not provided to the Group or the Parent Company.
Material uncertainty relating to going concern
We draw attention to note 2 to the financial statements concerning the Group’s ability to continue as a going concern. As stated in note 2 the Group
has forecasted that it will need to raise additional funding to complete a feasibility study at Phalaborwa. These conditions, along with the other matters
set out in Note 2 indicate the existence of a material uncertainty which may cast significant doubt over the Group’s ability to continue as a going
concern. Our opinion is not modified in respect of this matter.
We identified going concern as a key audit matter based on our assessment of the significance of the risk and the effect on our audit strategy.
Our evaluation of the Directors’ assessment of the entity’s ability to continue to adopt the going concern basis of accounting and in response
to the key audit matter is described below.
• Critically assessing Director’s cash flow forecast and the underlying assumptions which have been approved by the Board. This included stress
testing and applying sensitivities to the base cashflow forecast. Our testing included testing the integrity of the model, comparing forecast costs
to historical actuals, evaluating the consistency of the forecast capital and exploration expenditure within the Group’s strategic plans,
and considering the reasonableness of the sensitivities applied and outcome of the reverse stress tests.
• Verifying cash balances used in the forecast close to the date of sign off of these financial statements, by tracing cash positions against bank
statements.
• Agreeing future cash outflows in respect of loans to underlying agreements. This included assessing the FinBank addendum that confirmed
capital repayments are not required until after January 2023 and ensuring the timing of the capital repayments and interest charges was
appropriately reflected in cashflows commencing from January 2023.
• Assessing the reasonableness of the cash outflows for the corporate overhead, which included some contingency and considering
the completeness of the costs included in the forecast.
• Assessing the level of cash outflows assumed for the Gakara mine, which was assumed to remain on care and maintenance for the entire
forecast period. This involved comparing forecast cash outflows to prior year actuals and considering the completeness of the costs included
in the forecast.
• We considered the ability of the group securing additional funds based on its history of successful fundraising and its share price performance
and assessed the alternative actions available to management should they be unable to access additional funds.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.
35
Rainbow Rare Earths Limited Annual Report & Accounts 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF RAINBOW RARE EARTHS LIMITED
CONTINUED
FINANCIAL STATEMENTS
Overview
Coverage 93% (2021: 99%) of Group loss before tax
96% (2021: 100%) of Group total assets
Key audit matters 2022 2021
1. Carrying value of Burundi assets
2. Going concern
Materiality Group financial statements as a whole
US$160k (2021: US$130k) based on 4% of loss before tax. In the prior year materiality was based
on 1% of total assets. The change in materiality basis is based on the increased focus of the
Group on the Phalaborwa asset which has a low proportion of total assets. Therefore, loss before
tax would be a more appropriate materiality base as this represents the costs incurred to fund
the group in the pre-revenue phase of operation.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of internal control,
and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal
controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement.
Whilst Rainbow Rare Earths Limited is a Company registered in Guernsey and listed on the Standard Segment of the London Stock Exchange
in the UK, the Group’s principal operations are located in South Africa and Burundi . In approaching the audit we considered how the Group is
organised and managed. We assessed the business as being two projects comprising of the Gakara and the Phalaborwa Projects, and a
corporate head office function.
Our Group audit scope focused on the Group’s principle operating entities, Rainbow Rare Earths Limited, Rainbow Mining Burundi and Rainbow
International Resources. We have identified these entities as significant components for the purposes of our financial statement audit, based on their
relative share of total assets. The significant components accounted for 96% of total assets and were subject to full scope audits conducted by the
group engagement team, using a team with experience of auditing African exploration entities. Full scope audits were performed on these significant
components.
The remaining components of the Group were considered non-significant, and these components were principally subject to analytical review
procedures with specific procedures for any significant balances impacting the Group results.
All audit work (full scope audit or review work) was conducted by the group engagement team, with the exception of the inventory count which
was carried out by BDO member firm.
36
Rainbow Rare Earths Limited Annual Report & Accounts 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF RAINBOW RARE EARTHS LIMITED
CONTINUED
FINANCIAL STATEMENTS
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, including
those which had the greatest effect on the overall audit strategy, the allocation of resources in the audit, and directing the efforts of the engagement
team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. In addition to the matter described in the Conclusions related to going concern, we have determined
the matter below to be the key audit matter to be communicated in our report.
Key audit matter: Carrying Value of Burundi Assets (Exploration Assets, Inventory and the Royalty Receivable)
Refer to Note 3, 12, 14 & 15
The exploration assets are the most significant assets on the Group’s balance sheet and relate to the exploration licence acquisition costs
and subsequently capitalised exploration expenditure incurred on the Group’s Projects, Gakara and Phalaborwa.
As at 30 June 2022, the Group’s capitalised exploration costs amounted to US$10,588k (30 June 2021: US$9,751k), of which US$8,635k
(2021: US$ 8,635k) relates to the Gakara asset in Burundi.
In June 2021, the Burundian Government put a suspension on trial mining operations. This followed an export ban that was put in place
by the Burundian Government in March 2021. As a result, since June 2021 the mine has been on care and maintenance and there have
been no changes in operations since then. No additional costs were capitalised to Gakara in the 2022 period.
In addition to the capitalised exploration costs, the Group holds rare earths inventory produced during 2021 that remains unsold as at 30 June 2022
from the Gakara asset of US$717k (2021: US$717k), and has a royalty receivable from the Burundian Government arising from overpayment of
royalties on exported rare earths sales of US$109k as at 30 June 2022 (2021: US$178k), amounts are reflected net of the impairment provision raised.
Should the suspension and export ban not be lifted, operations may not restart and the value of the Gakara exploration asset, rare earths inventory
and royalty receivable asset may not be recoverable and require impairing to their recoverable amount.
Given the judgement involved in assessing this, the carrying value of these assets is a key audit matter.
37
Rainbow Rare Earths Limited Annual Report & Accounts 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF RAINBOW RARE EARTHS LIMITED
CONTINUED
FINANCIAL STATEMENTS
How the scope of our audit addressed the key audit matter
To assist us in determining whether the carrying amount of the exploration and evaluation asset, inventory and royalty receivable is recoverable,
we have undertaken the following procedures:
• We made inquiries of Management regarding the suspension of mining operations and export ban imposed by the Government of Burundi
and read board minutes, public announcements and correspondence with the Burundi Government and legal advisers.
Exploration and evaluation assets:
We evaluated Management’s impairment indicator assessment and formed our own assessment of impairment indicators by considering
the requirements of IFRS 6- Exploration for and Evaluation of Mineral Resources. In doing so we:
• Confirmed the Group continues to hold valid title to the Gakara Project by inspecting the licence agreements;
• Reviewed strategic plans to confirm that further expenditure on exploration to evaluate mineral resources in the specific area is planned,
and reviewed the assumptions in management’s economic model that indicated the carrying amount of the exploration and evaluation asset
is likely to be recovered, subject to the suspension from trial mining operations and export ban being lifted;
• Considered the reasonableness under the accounting standard of expensing costs incurred opposed to capitalising them by assessing the
nature of the costs incurred in relation to the capitalisation criteria. This included making inquiries of management and operational staff to
understand the nature of the trial mining and processing activities so we could evaluate management’s conclusion that they did not contribute
to the exploration and evaluation activities; and
• Assessed the financial statement disclosures, specifically including the uncertainty of the project given the suspension of operations
and the export ban imposed by the Government of Burundi.
Inventory:
The inventory on hand is made up of 420 tonne rare earth minerals. There is a risk that inventory on hand is overvalued and cannot be realised
if the export ban is not lifted. In addressing this risk, we performed the following procedures:
• A BDO member firm attended an inventory count at the year-end where the number of bags of sealed and unsealed inventory were counted.
The contents of the rare earth material was confirmed by evaluating plunge samples using a handheld X-Ray Fluorescence scanner.
• We assessed the net realisable value of a basket of rare earth by comparing the historical and forecasted realisable value against the carrying
amount of inventory held, to consider whether the stock was appropriately valued at the lower of cost and net realisable value.
• We assessed the financial statement disclosures, specifically including the uncertainty of the project given the current export ban imposed
by the Government of Burundi.
Royalty receivable:
At the year-end the Group held a receivable of $109k, net of provisions raised. In respect of historically overpaid royalties arising from the sale
of rare earth concentrate. There is a risk that the receivable is overvalued and cannot be recovered. In addressing this risk, we performed the
following procedures:
• We considered the gross value of the receivable. As no sales took place in the year due to the ongoing export ban, no additional royalty
payments were incurred. In addition, none of the receivable was settled in the period.
• For the royalty recoverable in respect of overpayments made in prior years we agreed the gross balance to correspondence from the
Government that confirmed that the amounts recognised were repayable to the company.
• We assessed Management’s assumptions to determine the recoverable amount of the receivable given the time that has elapsed with
no payments being received. We recalculated the impairment which involved probability weighting potential different outcomes of the manner
of recovery, including recovering the asset by offset against future payments discounted for the time value of money, and no amounts being
recovered.
• We assessed the financial statement disclosures, specifically including the uncertainty of the project given the suspension of operations
and the current export ban.
Key observations:
Based on procedures performed, we consider that managements judgement in respect of the carrying value of these assets is reasonable,
and that the disclosure included within the financial statements details the significant uncertainty over when the suspension from mining
operations and the export ban will be lifted, which may impact the recoverability of the carrying value of the Gakara exploration and evaluation
assets, inventory and royalty receivable.
38
Rainbow Rare Earths Limited Annual Report & Accounts 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF RAINBOW RARE EARTHS LIMITED
CONTINUED
FINANCIAL STATEMENTS
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality
to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the
basis of the financial statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance
materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial
as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect
on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows:
Group financial statements
2022 2021
US$’000 US$’000
Materiality 160,000 130,000
Basis for determining materiality 4% of loss before tax 1% total assets
Rationale for the benchmark applied We considered loss before tax to be the
most significant determinant of the
Group’s financial performance given the
increased focus on Phalaborwa which
makes up a low proportion of the group’s
total assets, and the costs incurred to
keep Gakara on care and maintenance
being expensed in the period. Therefore,
loss before tax would be a more
appropriate materiality base as this
represents the costs incurred to fund
the group in the pre-revenue phase
of operation.
Performance materiality 112,000 91,000
Basis for determining performance materiality Performance materiality was set at 70% (2021: 70%) of the materiality level based on
our assessment of a number of factors including the expected total value of known
and likely misstatements (based on past experience), our knowledge of internal control
and management’s attitude towards proposed adjustments.
Component materiality
We set materiality for each component of the Group based on a percentage of 75% of Group materiality to ensure that the risk of errors exceeding
component materiality was appropriately mitigated; this was capped due to aggregation risk in line with the ISAs (UK). Component materiality was
US$120,000 for each component (2021: US$86,600). In the audit of each component, we further applied performance materiality levels of 70%
(2021: 70%) of the component materiality.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of US$3,200 (2020: US$2,600).
We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.
Other information
The directors are responsible for the other information. The other information comprises the information included in the Annual Report and Accounts,
other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and,
except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read
the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements, or our
knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or
apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements
themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required
to report that fact.
We have nothing to report in this regard.
Other Companies (Guernsey) Law, 2008 reporting
We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:
• proper accounting records have not been kept by the Company; or
• the financial statements are not in agreement with the accounting records; or
• we have failed to obtain all the information and explanations which, to the best of our knowledge and belief,
are necessary for the purposes of our audit.
We consider total assets to be the most
significant determinant of the Group’s
financial performance on the basis that
the Group’s principal activity is the
exploration of mining assets, and it is the
value of assets that is of the greatest
interest to the users of the financial
statements.
39
Rainbow Rare Earths Limited Annual Report & Accounts 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF RAINBOW RARE EARTHS LIMITED
CONTINUED
FINANCIAL STATEMENTS
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement within the Directors Report, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine
is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the
Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable
of detecting irregularities, including fraud is detailed below:
Our testing also included, but was not limited to:
• Gaining an understanding of the legal and regulatory framework applicable to the Group and the industry in which it operates through review
of minutes of meetings and public available information and considering the risk of acts by the Group which were contrary to applicable laws
and regulations, including fraud. These included but were not limited to compliance with the Companies (Guernsey) Law, 2008 and international
accounting standards, as well as Burundian and South African mining, environmental and taxation legislation.
• We assessed that the accounts could be susceptible to fraud through management override of controls, including bribery.
• Communicating relevant and identified laws, regulation, and potential fraud risks to all engagement team members and remaining alert to any
indicators of fraud or non-compliance with laws and regulations throughout the audit. The engagement partner assessed the engagement
team’s collective competence and capabilities to be appropriate to identify or recognise non-compliance with laws and regulations.
• Fraud enquiries were held with operational staff to identify whether any instances of fraud was noted in the period.
• Testing the financial statement disclosures to supporting documentation, performing testing on account balances which were considered
to be a greater risk of susceptibility to fraud. These balances relate to our key audit matters as disclosed above.
• Obtaining an understanding of the control environment in monitoring compliance with laws and regulations through review of minutes
of meetings and enquiries put to Management.
• Making enquiries of management as to whether there was any correspondence with regulators and the Government,
in so far as the correspondence related to the financial statements and reviewed this correspondence.
• Performing targeted journal entry testing based on identified characteristics the audit team considered could be indicative of fraud to address
the presumed risk of management override of controls, including bribery. For example, we tested capitalisation to property plant and equipment
or exploration assets with the opposite entry being processed against bank and cash accounts and not against liability accounts.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting
a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by,
for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further
removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely
we are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at:
https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, 2008.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company
and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Peter Acloque
For and behalf of BDO LLP, Chartered Accountants and Recognised Auditor
London, United Kingdom
21 October 2022
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
40
Rainbow Rare Earths Limited Annual Report & Accounts 2022
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
30 June 2022 30 June 2021
Notes US$’000 US$’000
Revenue - 639
Cost of sales - (639 )
Gross profit - -
Administration expenses (3,654 ) (2,707 )
Loss from operating activities 4 (3,654 ) (2,707 )
Finance income 6 216 433
Finance costs 7 (543 ) (466 )
Loss before tax (3,981 ) (2,740 )
Income tax expense 10 (4 ) (2 )
Total loss after tax and comprehensive expense for the year (3,985 ) (2,742 )
Total loss after tax and comprehensive expense for the year is attributable to:
Non-controlling interest 24 (105 ) (52 )
Owners of parent (3,880 ) (2,690 )
(3,985 ) (2,742 )
The results of each year are derived from continuing operations
Loss per share (cents)
Basic 11 (0.76 ) (0.60 )
Diluted 11 (0.76 ) (0.60 )
Notes on pages 44 to 66 form part of these financial statements.
41
Rainbow Rare Earths Limited Annual Report & Accounts 2022
CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
AS AT 30 JUNE 2022
FINANCIAL STATEMENTS
30 June 2022 30 June 2021
Notes US$’000 US$’000
Non-current assets
Exploration and evaluation assets 12 10,588 9,751
Property, plant and equipment 13 1,043 1,354
Right of use assets 19 108 70
Total non-current assets 11,739 11,175
Current assets
Inventory 14 858 863
Trade and other receivables 15 401 441
Cash and cash equivalents 16 4,134 573
Total current assets 5,393 1,877
Total assets 17,132 13,052
Current liabilities
Trade and other payables 17 (909 ) (1,009 )
Borrowings 18 (235 ) (1,231 )
Lease liabilities 19 (32 ) (14 )
Total current liabilities (1,176 ) (2,254 )
Non-current liabilities
Borrowings 18 (518 ) (662 )
Lease liabilities 19 (81 ) (69 )
Provisions 20 (61 ) (61 )
Total non-current liabilities (660 ) (792 )
Total liabilities (1,836 ) (3,046 )
Net assets 15,296 10,006
Equity
Share capital 21 41,442 32,465
Share-based payment reserve 23 1,467 1,295
Other reserves 23 - 60
Retained loss (26,572 ) (22,878 )
Equity attributable to the parent 16,337 10,942
Non-controlling interest 24 (1,041 ) (936 )
Total equity 15,296 10,006
These financial statements were approved and authorised for issue by the Board of Directors on 21 October 2022 and signed on its behalf by:
George Bennett
Director
Notes on pages 44 to 66 form part of these financial statements.
42
Rainbow Rare Earths Limited Annual Report & Accounts 2022
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
Share- Share Attributable Non-
Share based warrant Other Accumulated to the controlling
capital payments reserve reserves losses parent interest Total
Note US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Balance at 1 July 2020 28,132 1,099 40 60 (20,542 ) 8,789 (884 ) 7,905
Total comprehensive expense
Loss and total comprehensive loss for year - - - - (2,690 ) (2,690 ) (52 ) (2,742 )
Transactions with owners
Shares placed during the year for cash consideration 21 3,423 - - - - 3,423 - 3,423
Share placing transaction costs 21 (85 ) - - - - (85 ) - (85 )
Non-cash issue of shares during the period 21 250 250 - 250
Share warrants expired in the year 21 - - (40 ) - 40 - - -
Fair value of employee share options in year 22 - 510 - - - 510 - 510
Share options exercised in the year, net of costs 21 745 (314 ) - - 314 745 - 745
Balance at 30 June 2021 32,465 1,295 - 60 (22,878 ) 10,942 (936 ) 10,006
Total comprehensive expense
Loss and total comprehensive loss for year - - - - (3,880 ) (3,880 ) (105 ) (3,985 )
Transactions with owners
Shares placed during the year for cash consideration 21 8,779 - - - - 8,779 - 8,779
Share placing transaction costs 21 (240 ) - - - - (240 ) - (240 )
Non-cash issue of shares during the period, net of costs 21 157 - - - - 157 - 157
Eliminate historic discount on extinguishment of interest
free bridge loan - - - (60 ) 60 - - -
Fair value of employee share options in year 22 - 298 - - - 298 - 298
Share options exercised in the year, net of costs 21 281 (126 ) - - 126 281 - 281
Balance at 30 June 2022 41,442 1,467 - - (26,572 ) 16,337 (1,041 ) 15,296
Notes on pages 44 to 66 form part of these financial statements.
43
Rainbow Rare Earths Limited Annual Report & Accounts 2022
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
30 June 2022 30 June 2021
Notes US$’000 US$’000
Cash flow from operating activities
Loss from operating activities (3,654 ) (2,707 )
Adjustments for:
Depreciation 380 37
Impairment of royalties receivable 69 128
Share-based payment charge 22 297 510
Operating loss before working capital changes (2,908 ) (2,032 )
Net decrease/(increase) in inventory 14 5 (121 )
Net increase in trade and other receivables 15 (29 ) (190 )
Net(decrease)/increase in trade and other payables 17 (100 ) 136
Cash used by operations (3,032 ) (2,207 )
Realised foreign exchange gains 186 359
Finance income 6 - -
Finance costs 7 - (23 )
Taxes paid 10 (2 ) -
Net cash used in operating activities (2,848 ) (1,871 )
Cash flow from investing activities
Purchase of property, plant & equipment 13 (42 ) (690 )
Exploration and evaluation costs 12 (837 ) (2,024 )
Net cash used in investing activities (879 ) (2,714 )
Cash flow from financing activities
Proceeds of new borrowings 18 - 275
Repayment of borrowings 18 (1,009 ) (438 )
Interest payments on borrowings 18 (138 ) (104 )
Payment of lease liabilities 19 (24 ) (56 )
Proceeds from the issuance of ordinary shares 21 9,077 4,727
Transaction costs of issuing new equity 21 (275 ) (85 )
Net cash generated by financing activities 7,631 4,319
Net increase/(decrease) in cash and cash equivalents 3,904 (266 )
Cash & cash equivalents at the beginning of the year 573 788
Foreign exchange (loss)/gains on cash and cash equivalents (343 ) 51
Cash & cash equivalents at the end of the year 16 4,134 573
Notes on pages 44 to 66 form part of these financial statements.
44
Rainbow Rare Earths Limited Annual Report & Accounts 2022
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
1. GENERAL INFORMATION
Reporting entity
number 53831, and is a company limited by shares. The Company’s registered office is Connaught House, St Julian’s Avenue, St Peter Port, Guernsey,
subsidiaries.
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 consolidated financial statements have been prepared on a historical cost basis, except for financial instruments measured at fair value through
profit or loss.
Going Concern
As at 30 September 2022, the Group had total cash of US$2.9 million.
The Board have reviewed a range of potential cash flow forecasts for the period to 31 December 2023, including reasonable possible downside
scenarios. This has included the following assumptions:
Corporate:
The forecast includes US$2.5 million of ongoing general and administrative costs of the Group over the 18-month period from 1 July 2022
to 31 December 2023, based on the current administrative costs of the Group. The budget excludes any significant expenditure on new
business opportunities beyond early costs totalling US$39k over the 18-month period.
Management’s reasonably plausible downside scenario includes a 10% contingency for unexpected costs plus a further US$500k for business
development costs.
Phalaborwa:
This forecast includes all costs required for the completion of the Phalaborwa PEA (announced in October 2022) and the ongoing resource update
estimated at US$583k. The forecast also includes salary and consultant costs of US$623k for the core project team tasked with advancing the project.
A budget for the further work required to deliver a feasibility study at Phalaborwa, including pilot test work, has not yet been defined. Management’s
reasonably plausible downside scenario includes US$7.6 million for further work at Phalaborwa during the 18-month forecast period.
Gakara:
The cash flow forecasts assume ongoing care and maintenance costs totalling US$746k. Further, in the event that the Gakara project returns to
operations, stock of rare earth concentrates with an estimated gross sales value of US$1.6 million would be sold to provide the funds to re-commence
operations. The forecasts show that, with the current productive capacity of the operations, the Gakara project would not require additional financial
support from Rainbow Rare Earths Limited at current rare earth prices. At 30 June 2022 the Group has US$557k of undiscounted financing liabilities
relating to a term loan from FinBank in Burundi. Capital repayment of this loan is formally suspended until 31 December 2022, with interest of US$7k
per month being paid in cash. Whilst operations at Gakara remain suspended, management expect the repayment of principal to remain suspended.
Notwithstanding, the forecast includes repayment at a rate of US$21k per month from 1 January 2023, including interest, within the care and
maintenance costs for the Gakara project.
Conclusion
The base case forecast includes a total cash outflow over the Period of US$4,735k, compared to a cash balance at 1 July 2022 of US$4,134k,
which confirms that the Group will need to raise additional finance before 31 December 2023. Management’s reasonably plausible downside scenario,
which includes the discretionary costs to progress a feasibility study at the Phalaborwa project and an allowance for other business development
opportunities, suggests that a total of US$9.2 million will need to be raised.
The Board is confident that this funding will be secured, based on its history of successful fundraising. However, it also acknowledges that this funding
is not, at the present time, in place. Accordingly, the Board acknowledges that the need for additional funding represents a material uncertainty which
may cast significant doubt on the ability of the Company to continue as a going concern and, therefore, that it may be unable to realise its assets and
discharge its liabilities in the normal course of business. The financial statements do not include any adjustments that would result if the Group was
unable to continue as a going concern.
45
Rainbow Rare Earths Limited Annual Report & Accounts 2022
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES CONTINUED
New and amended standards and interpretations adopted by the Group
No material changes to accounting policies arose as a result of new standards applied by the Group from 1 July 2021.
New standards, interpretations, and amendments not yet effective
Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2022 reporting periods and have
not been early adopted by the Group. These standards include:
• IAS 37 - Onerous Contracts – Cost of Fulfilling a Contract amending the standard regarding costs a company should include as the cost
of fulfilling a contract when assessing whether a contract is onerous. These amendments are mandatorily effective for periods beginning
on or after 1 January 2022.
• IFRS Standards 2018 to 2020 – Annual Improvements – The affected standards are: IFRS 1 (First-time Adoption of IFRS, IFRS 9
(Financial Instruments), IFRS 16 (Leases) and IAS 41 (Agriculture). The amendments are effective for annual reporting periods beginning
after 1 January 2022, with early application permitted.
• IAS 16 - Property, Plant and Equipment - Proceeds before Intended Use regarding proceeds from selling items produced while bringing
as asset into the location and condition necessary for it to be capable of operating in the manner intended by management. These amendments
are mandatorily effective for periods beginning on or after 1 January 2022.
• IFRS 3 Amendments – Reference to the Conceptual Framework – Effective for annual reporting periods beginning after 1 January 2022.
• IAS 1 – Presentation of Financial statements – The classification of liabilities as current or non-current basing the classification on contractual
arrangements at the reporting date. These amendments are effective for periods beginning on or after 1 January 2023.
• IAS 1 and IFRS Practise Statement 2 – Disclosure of Accounting Policies – Amendments to “Presentation of Financial Statements” and an update
to “Making Materiality Judgements” to help assist with providing useful accounting policy disclosures. The amendments are effective from
1 January 2023 but may be applied earlier.
• IAS 8 Amendments – Definition of Accounting Estimate - The amendments introduce a new definition for accounting estimates: clarifying
that they are monetary amounts in the financial statements that are subject to measurement uncertainty. The amendments also clarify the
relationship between accounting policies and accounting estimates by specifying that a company develops an accounting estimate to achieve
the objective set out by an accounting policy. The amendments are effective for periods beginning on or after 1 January 2023, with earlier
application permitted, and will apply prospectively to changes in accounting estimates and changes in accounting policies occurring on
or after the beginning of the first annual reporting period in which the company applies the amendments.
With the exception of the amendment to IAS16, which will impact the future accounting treatment of revenue generated during the commissioning
phase of a commercial development at any of the Group’s projects, these amendments are not expected to have a material impact on the Group.
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 all of its subsidiaries.
The Group’s strategy is focused on developing rare earth projects in South Africa and the Republic of Burundi, which will generate revenue in United
States Dollars. All support services are charged between group companies in United States Dollars. The Group is funded by various financial liabilities
which are principally denominated in United States Dollars and shareholder equity.
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.
46
Rainbow Rare Earths Limited Annual Report & Accounts 2022
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES CONTINUED
Revenue recognition
The Company produces and sells rare earth concentrate from its Gakara project in Burundi. Once concentrate has been produced at the Kabezi
plant in Burundi, it is bagged, sampled, and loaded into containers for transportation to a port, normally in East Africa, for shipment.
The Company currently has a 10-year distribution and offtake agreement with its customer, ThyssenKrupp, which commenced in January 2018,
under which the majority of production has been sold. Under the terms of the contract, the Company’s performance obligation is considered to be
satisfied and associated revenue from customers is recorded when the legal title for a shipment is transferred to ThyssenKrupp, normally at a port
in East Africa, after which the Company has no responsibility for the onward shipment of the concentrate.
The price for each shipment is established in accordance with the terms of the offtake agreement, by reference to the market price and quantities
of rare earth oxides in each shipment. Shipping and other fees are deducted from net proceeds by ThyssenKrupp. The Company is entitled to
payment for 90% of the shipment on transfer of title with 10% payable subsequently net of any adjustments to reflect quality testing. The Company
recognises 100% of the revenue on transfer of title where it is considered highly probable there will be no reversals, having consideration of the
independent quality tests performed prior to shipment.
Rare earth exploration and evaluation assets
All exploration and evaluation costs incurred are accumulated in respect of each identifiable project area. 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. Costs associated with exploration and evaluation include costs related to trial mining and processing when such
activity is focused on improving the understanding of the ore body. Such costs include the cost of mining, processing and sales costs for concentrate
produced as a result of trial mining activities, excluding any costs associated with year-end inventory.
Costs incurred prior to the legal right to a mineral project being obtained are written off immediately. 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 requisite permits have 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 plant and machinery, mine development costs, motor vehicles, computer equipment, 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.
The Company assesses the stage of a mine development project to determine when it has reached commercial production, at which point the
relevant assets begin to be depreciated. The criteria used to assess the date at which commercial production is achieved, being the point at which
the mine is ready for its intended use and operating in the manner intended by management, include completion of a reasonable period of testing,
the ability to sustain commercial levels of production, and engineering sign off on the plant performance. In the case of new mining sites, commercial
production is deemed to have been met when the site has received all necessary permits and approvals (including a certificate of environmental
conformity) and is in operation as a mine. Prior to this period, any costs associated with the mine site are capitalised.
Depreciation
Property, plant and equipment is depreciated on a straight-line basis over the estimated useful life of the asset. 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 Useful life
Plant, machinery, and mine infrastructure 5 years
Vehicles 5 years
Computer equipment 3 years
Office furniture and fittings 7 years
Depreciation incurred on equipment used in exploration is capitalised to exploration and evaluation costs.
47
Rainbow Rare Earths Limited Annual Report & Accounts 2022
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES CONTINUED
Impairment of non-financial assets including 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 transfer 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 performs an impairment test in accordance with the provisions of IAS 36. In such
circumstances the aggregate carrying value of the exploration and evaluation asset, together with any associated property, plant and equipment held
within the relevant cash generating unit, 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.
Where the carrying amount of an asset or cash generating unit exceeds its recoverable amount, the asset or cash generating unit is considered
impaired and is written down to its recoverable amount. Impairment losses are recognised in the Income Statement. Impairment losses recognised
for a cash generation are recognised against goodwill (if any) and then to identifiable assets on a pro-rata basis.
A previously recognised impairment loss is reversed if the recoverable amount increases as a result of a reversal of the conditions that originally
resulted in the impairment. This reversal is recognised in the Income Statement and is limited to the carrying amount that would have been
determined, net of depreciation, had no impairment loss been recognised in prior years.
Leases
At inception the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control
the use of an identified asset, for a period of time, in exchange for consideration. To assess whether a contract conveys the right to control the use of
an identified asset, the Group assesses whether:
• the contract involves the use of an identified asset. This may be specified explicitly or implicitly and should be physically distinct or represent
substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified;
• the Group has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and
• the Group has the right to direct the use of the asset. The Group has the right when it has the decision-making rights that are most relevant to
changing how and for what purposes the asset is used. In rare cases where the decision about how and for what purpose the assets is used is
predetermined, the Group has the right to direct the use of the asset if either:
- the Group has the right to operate the asset; or
- the Group designed the asset in a way that predetermines how and for what purpose it will be used.
At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease
component on the basis of their relative stand-alone prices.
The right-of-use asset is initially measured at the present value of the remaining lease payments, discounted using the incremental borrowing rate.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term.
In addition, impairment indictors for the right-of-use asset is assessed annually and will be adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the remaining lease payments, discounted using the incremental borrowing rate.
The liability is subsequently measured at amortised cost using the effective interest method. Lease payments are apportioned between the
finance charges and reduction of the lease liability using the incremental borrowing rate implicit in the lease to achieve a constant rate of
interest on the remaining balance of the liability.
48
Rainbow Rare Earths Limited Annual Report & Accounts 2022
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES CONTINUED
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 project. 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 tangible or intangible fixed assets of the same amount. Upon commercial production this addition is then charged against profits over the life
of the project. Closure provisions are updated annually for changes in cost estimates as well as for changes to the anticipated life of the project, with
the resulting adjustments made to both the provision balance and the net book value of the associated non-current asset.
Inventory
Stockpiles of ore (whether Run of Mine “RoM” ore, concentrate stockpiles pre-shipment, or concentrate in transit but not yet sold) are valued at the
lower of historic cost and net realisable value. Historic cost is based on an allocation of mining costs and (in the case of concentrates) processing costs
incurred in bringing the stockpiles to their finished condition for transportation at the period end (including plant running costs, haulage costs from the
mine site to the plant, and transportation costs to the port of sale). Realisable value is based on an estimate of selling price less shipment costs,
royalties, and other fees to be incurred in the course of the sales process. Inventory stockpile costs do not include an allocation of support costs.
Inventory spares (including tools, parts for equipment, and stocks of consumables) are also valued at the lower of historic cost and realisable value,
where material. Spares are reviewed at each period end for obsolescence, with provisions applied to those stock lines where realisable value is
considered to be lower than historic cost.
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.
When no taxable profit arises, current tax includes a minimum tax charge in Burundi calculated as 1% of revenue.
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.
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, to the extent they represent financial assets, 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 Group assesses on a forward-looking basis the expected credit loss, defined as the difference between the contractual cash flows and the
cash flows that are expected to be received, associated with its assets carried at amortised cost. The impairment methodology applied depends
on whether there has been a significant increase in credit risk. For trade receivables only, the simplified approach permitted by IFRS 9 is applied,
which requires expected lifetime losses to be recognised from initial recognition of the receivables.
Losses are recognised in the income statement. When a subsequent event causes the amount of impairment loss to decrease, the decrease
in impairment loss is reversed through the income statement
49
Rainbow Rare Earths Limited Annual Report & Accounts 2022
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES CONTINUED
Financial instruments continued
- 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 statement of financial position date.
A financial liability is removed from the balance sheet when it is extinguished, being when the obligation is discharged, cancelled, or expired.
On extinguishment of a financial liability, any difference between the carrying amount of the liability and the consideration paid, including any
non-cash assets transferred or liabilities assumed, is recognised in profit or loss. A modification or exchange of a financial liability is either
accounted for as an extinguishment of the original financial liability or a renegotiation of the original financial liability. An extinguishment or
substantial modification of a financial liability results in de-recognition of the original financial liability and any unamortised transaction costs
associated with the original financial liability are immediately expensed to the profit and loss account. Where the change in the terms of the
modified financial liability are not substantial, it is accounted for as a modification of the original liability, with the modified financial liability
measured at amortised cost using the original effective interest rate. To determine whether the terms of the modified liability are substantially
different from those of the original one, a qualitative assessment is performed. If it is not already clear from a qualitative assessment that a
modification has resulted in a substantial change, then quantitative assessment is performed. This includes consideration whether the
discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the
original effective interest rate, is at least 10% different from the discounted present value of the remaining cash flows of the original financial
liability.
Share capital
Ordinary shares are classified as equity and are recorded at the proceeds received, net of any direct issue costs.
The nature of the Company’s reserves is set out in note 23.
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 values of the equity instruments are
determined at the date of grant, considering market-based vesting conditions.
The fair values of share options are measured at fair value at the date of grant by use of an option pricing model. Where the share options only contain
service conditions or non-market conditions, a Black – Scholes model is used. Where the share options contain market conditions, a Monte Carlo
simulation model is used and reflected in the fair value of the options granted. Details of the assumptions used in those models are included in Note 22
Share based payments.
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 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 fair value is measured using the Black-Scholes model. Where warrants are issued
in respect of services provided, the fair value is expensed on a straight-line basis over the vesting period (if applicable). Where warrants are considered
to represent a transaction cost attributable to a liability recorded at amortised cost the fair value is deducted from the liability and amortised
subsequently through the effective interest rate. Where a fixed number of warrants are issued, and the exercise price is in the functional currency of the
issuer the warrant fair value is credited to equity. Where the number of warrants is fixed but the exercise price is in a currency other than the functional
currency of the issuer the instrument fails the “fixed-for-fixed” criteria and is recognised as a financial liability at fair value through profit and loss.
50
Rainbow Rare Earths Limited Annual Report & Accounts 2022
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
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 judgment and estimation uncertainty are:
Accounting treatment of exploration and evaluation costs
Significant accounting judgement
Judgment was required in determining how to treat costs incurred during the year for the Group’s development projects in South Africa and Burundi.
For the Phalaborwa asset management note that the project is based on a JORC compliant mineral resource contained within gypsum stacks at the
Phalaborwa site. The Group has signed a legal agreement to earn a 70% economic interest in the project. Accordingly, all costs associated with
defining the technical feasibility and commercial viability of the project are being capitalised under IFRS6. For the Gakara asset management note that
the project has been on care and maintenance throughout the year. Accordingly, none of the costs incurred have been focused on improving the
understanding of the ore body, and as such all costs have been recognised in the income statement in the year.
Impairment indicator assessment for exploration and evaluation assets and associated assets (notes 12 and 13)
Significant accounting judgement
Judgment was required in determining whether indicators of impairment existed at 30 June 2022 for the Group’s exploration and evaluation assets.
The Board assessed factors including the remaining licence term, the plans for future exploration and the results of activities to date together with the
strategic plans for the asset against the criteria set out in IFRS 6. For the Phalaborwa asset management note the recently announced preliminary
economic assessment has confirmed a processing flow sheet capable of economically extracting the magnet rare earth metals from the gypsum
stacks in a low capital and low operating cost environment with strong economic returns. Accordingly, management do not consider there to be any
indicators of impairment for the Phalaborwa asset. For the Gakara cash generating unit management considerations for each of the criteria set out in
IFRS 6 were as follows:
1. The period for which the entity has the right to explore in the specific area has expired during the period or will expire in the near future
and is not expected to be renewed
The Gakara mining licence is valid until 2040. Management considered the current political situation in Burundi, which has led to a suspension of
operations at Gakara, noting that this is in contravention of the legally binding mining convention in place between the Government of Burundi and
the Group’s Burundi subsidiary, Rainbow Mining Burundi SM. Whilst formal negotiations to allow the operations to re-start have not yet delivered a
positive result, numerous discussions have been held with the Government of Burundi indicating that the suspension does not constitute a long-
term threat to the integrity of the licence. Management notes significant changes in the political landscape in Burundi which occurred in
September 2022, which have led to further engagement with the authorities. Management is confident that operations will be allowed to re-start
following discussions with the Government of Burundi and, accordingly, do not consider this to be an indicator of impairment for the Gakara asset.
2. Substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor
planned.
A budget has been prepared for the re-start of trial mining and processing activities at Gakara, which shows that at current rare earth prices,
positive cash flow is expected at the project. This cashflow will be re-invested in Burundi to further expand the productive capacity of the trial
mining operation to fully utilise the pilot plant capacity and allow exploration to expand into new areas across the licence. Notwithstanding the
current suspension of activities in Burundi, this intention remains.
3. Exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities
of mineral resources and the entity has decided to discontinue such activities in the specific area.
An updated JORC compliant exploration target for the Gakara project was announced in October 2020, which showed considerable potential
for commercially viable quantities of mineral resources to be defined. Subject to Government support exploration and evaluation work is expected
to re-commence in the 2022/2023 financial year.
4. Sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the
exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale.
The Gakara mining licence covers an area of 39km
2
over which numerous occurrences of rare earth mineralisation have been detected from both
surface sampling/mapping and geophysical surveys. Due to the complex nature of the stockwork vein systems much of the focus since 2017 has
been on trial mining and processing to demonstrate the ability to recover a saleable concentrate from the vein hosted mineralisation and to define
the best mining methodology to exploit these types of structures. At the point of suspension of activities recent investment had delivered a
pathway which is expected allow this work to fund further exploration activity across the licence. Despite the capacity of the current pilot plant not
representing commercial scale production, management are confident that at current rare earth prices ongoing production utilising the full
capacity of the pilot plant would allow the full recovery of the carrying amount of the non-financial assets in the Gakara cash generating unit. This
does not remove the intention to undertake further exploration and evaluation work to allow a full commercial scale operation to be developed.
At 30 June 2022 the Directors consider that no formal indicators of impairment exist under the framework of IFRS6 for the Gakara project and,
accordingly, that no formal impairment review is required for either the intangible or tangible fixed assets in the Gakara cash generating unit. This
judgement also extends to the expected net realisable value of the inventory at Gakara. However, the Directors note there is a significant uncertainty
relating to the current political situation in Burundi and have added disclosure relating to this uncertainty in the appropriate places within the financial
statements as set out below.
51
Rainbow Rare Earths Limited Annual Report & Accounts 2022
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
3. ACCOUNTING JUDGMENTS AND ESTIMATIONS CONTINUED
Recoverability of royalty receivable (note 15)
Key sources of estimation uncertainty
Rainbow Mining Burundi SM has historically overpaid royalties arising from the sale of rare earth concentrate. Whilst the Government has accepted
in writing that the overpaid royalties are recoverable, no repayment has been received to date. The Directors have impaired the royalty receivable
based on an assessment of the likelihood that the overpayment will be recovered, considering a range of possible outcomes including recovery
against future royalty liabilities. The impairment has been recognised in administrative expenses. The assessment was updated at 30 June 2022
and further impairment of US$69k has been recognised in the year. The discount rate used and estimated timing of recovery of the royalty
receivable are both management’s best estimates and future recovery may differ.
Valuation of available for sale mineral concentrate (note 14)
Significant accounting judgement
Trial mining and processing operations at the Gakara project in Burundi are currently on care and maintenance at the request of the Government
of Burundi. At 30 June 2022 the operation has 421t of available for sale mineral concentrate with an estimated sale value of US$1.6 million carried
at cost of US$717k on the Group balance sheet. This concentrate cannot be sold due to an export ban imposed by the Government of Burundi.
Judgement was needed in assessing whether the current export ban would be lifted, allowing the value of the concentrate to be realised.
Management made judgements on the political situation in Burundi and assess that it is probable that the current export ban will be lifted
in due course, and that the timing of the likely sale would not impact the carrying value of the mineral concentrate at the balance sheet date.
Decommissioning, site rehabilitation and environmental costs (note 20)
Key sources of estimation uncertainty
The Group’s mining and exploration activities are subject to various laws and regulations governing the protection of the environment. Estimation
and experience are used in determining the expected timing, closure, and decommissioning methods, which can vary in response to changes
in the relevant legal requirements or decommissioning technologies. No provision was deemed necessary for the Group’s Phalaborwa project
as on-site activities have not yet commenced and historical environmental liabilities associated with the site remain with the previous owners.
The discounted provision recognised for the Group’s Gakara project represents management’s best estimate of the rehabilitation costs that will
be incurred, discounted from the period in which they are judged to be 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.
Share based payments (note 22)
Key sources of estimation uncertainty
The valuation of share options issued in the year has been based on a Black-Scholes model. The inputs to the model represent the Director’s best
estimates for the likely exercise behaviour of the option holders. The expected future share price volatility was estimated based on the historical
volatility of the Company’s share price and a representative peer group of similar companies.
4. LOSS FROM OPERATING ACTIVITIES
Operating loss includes:
30 June 2022 30 June 2021
US$’000 US$’000
Employee remuneration (excluding share options) (1,936) (1,025)
Share-based payment charge (298) (510)
Audit of the Group financial statements
1
(150) (136)
Non-audit service fees paid to Company auditor - (2)
Depreciation (380) (37)
Impairment of Royalties Receivable (69) (128)
Taxes and duties - (175)
1. Audit fees include US$132k for the current year and US$18k for the prior year.
52
Rainbow Rare Earths Limited Annual Report & Accounts 2022
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
5. SEGMENTAL INFORMATION
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.
The chief operating decision maker has been identified as the Chief Executive Officer. It is considered that the Group has two reportable segments:
• Phalaborwa – a gypsum stack re-treatment project for the recovery of rare earths in South Africa.
• Gakara – a high-grade rare-earth project in Burundi.
Unallocated costs include corporate costs, which are not reported by entity to the Board.
Year ended 30 June 2022:
Phalaborwa Gakara Unallocated Total
US$’000 US$’000 US$’000 US$’000
Revenue - - - -
Production and sales costs - - - -
Administration expenses - (1,368) (2,286) (3,654)
Loss from operating activities - (1,368) (2,286) (3,654)
Finance income - 22 194 216
Finance costs - (97) (446) (543)
Loss before tax - (1,443) (2,538) (3,981)
Income tax expense - (4) - (4)
Loss after tax - (1,447) (2,538) (3,985)
Segmental assets 2,198 10,985 3,949 17,132
Exploration and evaluation assets 1,953 8,635 - 10,588
Property, plant and equipment - 1,042 1 1,043
Other assets - 108 - 108
Current assets 245 1,200 3,948 5,393
Segmental liabilities (133) (1,232) (471) (1,836)
Capital expenditure 837 - 1 838
Year ended 30 June 2021:
Phalaborwa Gakara Unallocated Total
US$’000 US$’000 US$’000 US$’000
Revenue - 639 - 639
Production and sales costs - (639) - (639)
Administration expenses - (806) (1,901) (2,707)
Loss from operating activities - (806) (1,901) (2,707)
Finance income - 345 88 433
Finance costs - (126) (340) (466)
Loss before tax - (587) (2,153) (2,740)
Income tax expense - (2) - (2)
Loss after tax - (589) (2,153) (2,742)
Segmental assets 1,116 11,352 584 13,052
Exploration and evaluation assets 1,116 8,635 - 9,751
Property, plant and equipment - 1,353 1 1,354
Other assets - 70 - 70
Current assets - 1,294 583 1,877
Segmental liabilities - (1,209) (1,837) (3,046)
Capital expenditure 1,116 1,484 - 2,600
53
Rainbow Rare Earths Limited Annual Report & Accounts 2022
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
6. FINANCE INCOME
30 June 2022 30 June 2021
US$’000 US$’000
Interest received - -
Foreign exchange gains 216 433
Total 216 433
Foreign exchange gains in the current and prior periods mainly relate to gains on translation of funds from US dollars to Burundian Francs (“BIF”)
plus the settlement of liabilities in Burundi denominated in BIF.
7. FINANCE COSTS
30 June 2022 30 June 2021
US$’000 US$’000
Change in fair value of warrant liability (notes 18 and 22) 109 (256)
Interest on Pipestone bridge loan (note 18) (52) (140)
Interest on bank borrowing (note 18) (86) (99)
Interest on short term bridge loan (note 18) - (5)
Bank charges - (24)
Reversal of accrued finance costs associated with Lind facility - 75
Interest on lease liabilities (13) (17)
Foreign exchange losses (501) -
Total (543) (466)
Foreign exchange losses in the current period arise principally from GBP and ZAR bank accounts, which the Group holds to match future expected
cash outflows, which depreciated in value against the US dollar during the year.
8. REMUNERATION OF KEY MANAGEMENT PERSONNEL
Key management personnel are defined as being Executive and Non-executive Directors and Persons Discharging Managerial Responsibility
(“PDMRs”), who are set out on pages 24 to 25. Directors' emoluments are set out on page 22.
Their remuneration for the 12 months ended 30 June 2022 and 30 June 2021 is summarised as follows:
30 June 2022 30 June 2021
US$’000 US$’000
Wages and salaries 1,330 1,110
Bonus 218 -
Benefits 8 16
Share- based payments 274 510
Total remuneration of key management personnel 1,830 1,636
Benefits paid to key management personnel include pension contributions.
54
Rainbow Rare Earths Limited Annual Report & Accounts 2022
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
9. TOTAL EMPLOYEE REMUNERATION (INCLUDING KEY MANAGEMENT PERSONNEL)
30 June 2022 30 June 2021
US$’000 US$’000
Wages and salaries 1,914 2,048
Bonus 218 -
Benefits 43 69
Share-based payments 287 510
Total employee remuneration 2,462 2,627
Benefits paid to employees include healthcare and pension contributions.
Staff costs include US$239k capitalised within Exploration and Evaluation assets in the year (2021: US$1,048k).
The average number of employees during the period were made up as follows
30 June 2022 30 June 2021
Directors 7 6
Management and administration 28 20
Mining, processing, and exploration staff - 235
Total 35 261
10. INCOME TAX EXPENSE
30 June 2022 30 June 2021
US$’000 US$’000
Current tax expense - 2
Prior year tax adjustment 4 -
Total tax expense for the year 4 2
The income tax charge in the year relates to a minimum tax in Burundi for accounting periods where no taxable profits are reported calculated
as 1% of revenue (2021: 1% of revenue).
The difference between the total tax expense shown above and the amount calculated by applying the standard rate of corporation tax to the loss
before tax is as follows:
30 June 2022 30 June 2021
US$’000 US$’000
Loss for the year before tax (3,981) (2,740)
Income tax using the Guernsey rate of 0%: - -
Effects of:
Differences in tax rates (337) (215)
Differences in capital allowances (289) 42
Differences in treatment of exploration and evaluation costs - (178)
GAAP differences 3 -
Tax losses carried forwards 623 351
Minimum income tax based on revenue in Burundi - 2
Adjustment of Burundi tax in respect of prior years 4 -
Total 4 2
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 (Proprietary) Limited, which was established on 3 March 2022, is subject to an income tax rate in South Africa of
28%. In Burundi, Rainbow Burundi SPRL and Rainbow Mining Burundi SM are subject to corporation tax in Burundi 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 individual entities within the Group, the timing of which is considered insufficiently certain. The total unrecognised potential deferred
tax assets in respect of losses carried forward are Rainbow Rare Earths (Proprietary) Limited US$18k, Rainbow Burundi SPRL US$Nil (30 June 2021:
US$1k) and Rainbow Mining Burundi SM US$3,727k (30 June 2021: US$3,127k).
The tax losses for Rainbow Mining Burundi SM expire after five accounting periods based on a 31 December tax year-end. The tax losses for Rainbow
Rare Earths (Proprietary) Limited have no expiry. The unrecognised deferred tax asset for Rainbow Mining Burundi SM expires as follows: US$1,063k
on 31 December 2022, US$608k on 31 December 2023, US$821k on 31 December 2024, US$345k on 31 December 2025, US$568k on 31 December
2026 and US$323k on 31 December 2027.
55
Rainbow Rare Earths Limited Annual Report & Accounts 2022
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
11. LOSS PER SHARE
The earnings per share calculations for 30 June 2022 reflect the changes to the number of ordinary shares during the period.
At the start of the year, 476,411,434 shares were in issue. During the year, a total of 9,598,875 new shares were allotted (see note 21 Share Capital)
and on 30 June 2022, 524,405,810 shares were in issue. The weighted average of shares in issue in the year was 508,566,911.
The loss per share has been calculated using the weighted average number of ordinary shares in issue. The Company was loss making for all periods
presented, therefore the dilutive effect of share options has not been accounted for in the calculation of diluted earnings per share, since this would
decrease the loss per share for each reporting period.
Basic and diluted
2022 2021
Loss for the year (US$’000) attributable to ordinary equity holders (3,880) (2,690)
Weighted average number of ordinary shares in issue during the year 508,566, 911 450,749,572
Loss per share (cents) (0.76) (0.60)
12. EXPLORATION AND EVALUATION ASSETS
Gakara Phalaborwa Total
US$’000 US$’000 US$’000
At 1 July 2020 7,572 - 7,572
Additions 1,102 1,116 2,218
Adjustment of rehabilitation provision (39) - (39)
At 30 June 2021 8,635 1,116 9,751
Additions - 837 837
At 30 June 2022 8,635 1,953 10,588
Only costs relating to the Phalaborwa Project were capitalised during the financial year. The Burundi Project has been under care & maintenance
throughout the year and, accordingly, none of the costs meet the requirements under the Group’s accounting policy for capitalisation.
The Phalaborwa project represents an opportunity to extract rare earth elements from the chemical re-treatment of gypsum stacks. A JORC
compliant rare earth resource was declared on 17 June 2021 and the costs of establishing the commercial viability of development for the project
are being capitalised as exploration and evaluation assets under IFRS 6. Additions in the year include costs associated with process development
to deliver an economic and technically viable route to recovering rare earths. Additions in 2021 included US$750k consideration payable under the
earn-in agreement payable in cash and shares together with costs associated with the definition of the inferred mineral resource, metallurgical test
work and technical support.
On 12 April 2021 RMB received notification from the Ministry of Hydraulics, Energy and Mines of the Republic of Burundi of a temporary suspension on
the export of concentrate produced from the trial mining and processing operations at the Gakara Project. On 29 June 2021 a further notification was
received suspending all trial mining and processing operations pending negotiations on the terms of the Gakara mining convention signed in 2015.
Following face to face meetings in Burundi in April 2022 the Company presented a detailed plan to the Government for the export of the current
stock of rare earth concentrate along with responses to all questions raised by the Government relating to the Company’s operations in Burundi.
The Company is awaiting a formal response to this export plan, noting increased engagement following significant changes in the political landscape
in Burundi in September 2022. The Directors have also received confirmation from independent legal advisors that the mining convention in place
between RMB and the Government of Burundi remains legally binding on both parties, and that the actions of the Government of Burundi have not
been in accordance with that legally binding agreement.
Based on an assessment of both the legal and political position, the Directors have a reasonable expectation that the current temporary suspension
does not represent a threat to the licence and activities will be allowed to re-start. Accordingly, the Directors do not believe this uncertainty represents
an indication of impairment of the exploration and evaluation assets at Gakara, or the associated property, plant and equipment or inventory within the
Gakara cash generating unit. The royalty recoverable, which also forms part of the Gakara cash generating unit, is considered separately as set out in
note 15. As set out in note 3 the Directors do not consider there to be any indicators of impairment for the Gakara cash generating unit, however they
note that the current suspension of activities could result in future losses for the Group if it is not resolved as anticipated.
FinBank SA hold security over the fixed and floating assets of Rainbow Mining Burundi SM (“RMB”) which include US$7.3 million of exploration
and evaluation assets associated with the Gakara mining permit in Burundi.
56
Rainbow Rare Earths Limited Annual Report & Accounts 2022
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
13. PROPERTY, PLANT AND EQUIPMENT
Mine
development Plant and Office
US$’000 costs machinery Vehicles equipment Total
Cost
At 1 July 2020 183 2,665 1,074 45 3,967
Additions - 182 508 - 690
At 30 June 2021 183 2,847 1,582 45 4,657
Additions - 42 - - 42
At 30 June 2022 183 2,889 1,582 45 4,699
Depreciation
At 1 July 2020 47 2,665 298 15 3,025
Charge for year 26 2 241 9 278
At 30 June 2021 73 2,667 539 24 3,303
Charge for the year 26 1 316 10 353
At 30 June 2022 99 2,668 855 34 3,656
Net Book Value at 30 June 2022 84 221 727 11 1,043
Net Book Value at 30 June 2021 110 180 1,043 21 1,354
Net Book Value at 30 June 2020 136 - 776 30 942
Depreciation of US$Nil (2021: US$269k) relating to mining vehicles, plant and machinery and site infrastructure was capitalised in the year as part
of Exploration and Evaluation costs.
FinBank SA hold security over the fixed and floating assets of Rainbow Mining Burundi SA which include US$1,042k (2021: US$1,353k) of property,
plant, and equipment in Burundi.
As set out in note 12 the Directors recognise the uncertainty relating to the temporary suspension of trial mining and processing activities in Burundi
which could impact the carrying value of the property, plant and equipment within the Gakara cash generating unit, which comprises US$1,042k of
the net book value at the balance sheet date.
14. INVENTORY
30 June 2022 30 June 2021
US$’000 US$’000
Finished goods 717 717
Consumables 141 146
Total inventory 858 863
Finished goods represents 421 tonnes (2021: 421 tonnes) of rare earth concentrate available for export at the Kabezi processing plant.
The cost is considered to be below the net realisable value and no provision for impairment has been made at 30 June 2022 (2021: US$Nil).
As set out in note 12, the Directors recognise the uncertainty relating to the temporary suspension of trial mining and processing activities in Burundi
which could impact the carrying value of the inventory within the Gakara cash generating unit, which comprises all of the inventory held at the
balance sheet date.
57
Rainbow Rare Earths Limited Annual Report & Accounts 2022
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
15. TRADE AND OTHER RECEIVABLES
30 June 2022 30 June 2021
US$’000 US$’000
VAT recoverable 214 189
Prepayments 70 66
Royalty receivables 109 178
Deposits paid 5 5
Sundry debtors 3 3
Total trade and other receivables 401 441
VAT recoverable relates to the input VAT recoverable in Burundi (US$194k, 2021: US$189k) and South Africa (US$20k, 2021: US$Nil). During the year
ended 30 June 2021 a tax audit was undertaken in Burundi over the local operating subsidiary, Rainbow Mining Burundi SM (RMB), covering the period
from 2017 to 2019. The audit concluded that reverse VAT totalling US$181k had not been correctly accounted for on several invoices received for
services supplied to RMB from international suppliers. The reverse VAT is recoverable under Burundi legislation and, accordingly, both the asset and
liability are recognised at 30 June 2022.
The US$109k (2021: US$178k) in respect of royalty receivables arises due to a gross overpayment of US$306k for royalties up to 30 June 2020,
which were paid based on the total basket price of exports, rather than on the discounted price received from the Company’s customer
ThyssenKrupp. In July 2020 the Government of Burundi accepted the recommendations of a report published in July 2019 by SRK, commissioned
by the World Bank on behalf of the government, which accepted that the discounted price received by Rainbow was reasonable. Subsequent royalties
have been paid on the basis of the discounted price. Despite the Government of Burundi agreeing to repay the difference in September 2020 no
repayment has been received to date. The Directors have impaired the royalty receivable based on an assessment of the likelihood that the
overpayment will be recovered, considering a range of possible outcomes including recovery against future royalty liabilities, and no recovery.
The impairment of US$69k is recognised in administrative expenses, in the current year (2021: US$128k).
Expected credit losses were assessed at 30 June 2022 considering various potential scenarios, information regarding the counterparty credit risk,
the historical payment profiles, and forward-looking factors. No expected credit loss provision was considered necessary in the year (2021: US$Nil).
16. CASH AND CASH EQUIVALENTS
30 June 2022 30 June 2021
US$’000 US$’000
Cash at bank and in hand 4,134 573
Total cash at bank and in hand 4,134 573
No cash amounts were restricted at 30 June 2022 (30 June 2021: nil).
17. TRADE AND OTHER PAYABLES
30 June 2022 30 June 2021
US$’000 US$’000
Trade payables 174 71
Accrued expenses 255 233
Taxes and social security 360 363
Burundi land taxes payable 60 60
Amounts due to staff and management - 32
Other payables - 250
Provision for employment disputes 60 -
Total trade and other payables 909 1,009
Tax and social security payables include US$329k for taxes provided as a result of a tax audit undertaken in Burundi over the local operating subsidiary,
Rainbow Mining Burundi SM (RMB), covering the period from 2017 to 2019. Reverse VAT totalling US$152k and withholding tax totalling US$75k had not
been correctly accounted for on a number of invoices received for services supplied to RMB from international suppliers. A further US$10k of payroll
taxes were found not to have been paid on salaries for casual staff. Penalties totalling US$92k on the unpaid taxes have also been provided for in
accordance with Burundi legislation. An internal review was carried out for the period following the tax audit and a further US$24k of taxes and
penalties provided for 2020 and 2021.
The Directors consider that the carrying value of trade and other payables approximate to their fair value.
58
Rainbow Rare Earths Limited Annual Report & Accounts 2022
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
18. BORROWINGS
30 June 2022 30 June 2021
US$’000 US$’000
FinBank Loan 557 579
Pipestone Loan - 1,008
Warrant liability 196 306
Total borrowings 753 1,893
Borrowings fall due:
Due within one year 235 1,231
Due between 2 to 5 years 518 662
Total 753 1,893
The following table analyses the movement in borrowings:
30 June 2022 30 June 2021
US$’000 US$’000 US$’000 US$’000
Borrowings brought forward 1,893 1,680
Cash flows from borrowings
Drawdown of borrowings - 275
Repayment of borrowings (834) (438)
Interest paid (138) (104)
(972) (267)
Non-cash movement in borrowings
Interest charge on borrowings 138 244
Settlement of borrowings in shares (175) -
Valuation of warrant liability (109) 256
Extinguishment of Pipestone bridge loan - (925)
Drawn down of renewed Pipestone bridge loan - 925
Other (22) (20)
(168) 480
Borrowings carried forward 753 1,893
FinBank Loan
The FinBank loan facility in Burundi is expressed in BIF and carries an interest rate of 15%. Interest has been paid throughout the period. Capital
repayments have been suspended since April 2021 as a result of the export ban imposed in Burundi on the Group’s rare earth concentrate from
trial mining and processing activities. This is not a substantial modification of the loan.
Under the terms of this loan, FinBank has security over the fixed and floating assets of Rainbow Mining Burundi SM (“RMB”, the local operating
company in Burundi which owns the Gakara project and mining permit), the shares of RMB, and the cash held in RMB’s FinBank bank accounts.
Interest on the loan amounted to US$98k (2021: US$98k).
Pipestone Bridge Loan
On 21st February 2020 Pipestone Capital Inc, provided a US$1 million unsecured bridging loan to the Company. The loan did not bear interest, with the
finance cost provided by the issue of 2 million warrants. Further detail on the warrants is provided in note 22. In June 2020 the original Pipestone loan
was re-financed, with US$75k repaid via the issue of 1,993,779 shares. The remaining US$925k was extinguished and replaced with a new, interest
free, unsecured bridging loan of US$925k pending a larger capital raise. The loan was further refinanced following an equity raise in November 2020.
The Company had no headroom under the prospectus directive regulations to issue shares at the price of the November 2020 equity raise to repay
the loan and had insufficient funds to allow for repayment in cash. As a result, the US$925k interest-free liability was extinguished and replaced with
a new unsecured bridge loan from 1 December 2020 which bears interest at a rate of 15% per annum. In December 2021 this loan was repaid with
cash (US$886k) and the issue of 875,389 shares (US$175k).
59
Rainbow Rare Earths Limited Annual Report & Accounts 2022
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
19. LEASES
30 June 2022 30 June 2021
US$’000 US$’000
Lease liabilities fall due:
Due within one year 32 14
Due between 2 to 5 years 35 37
After 5 years 46 32
Total 113 83
The following table analyses the movement in lease liabilities:
30 June 2022 30 June 2021
US$’000 US$’000 US$’000 US$’000
Lease liabilities brought forward 83 128
Cash flows from leases
Payment of lease liabilities (23) (39)
Interest paid (13) (17)
(36) (56)
Non-cash movement in leases
Recognition of lease liabilities 110 27
Interest charge on leases 13 17
Revaluation on termination (57)
Change in lease term - (33)
66 11
Lease liabilities carried forward 113 83
Right of use assets
Land and buildings
US$’000
Balance as at 1 July 2020 104
Right of use asset recognised in the year 27
Amendment to expected life (33)
Depreciation in year (28)
Balance as at 30 June 2021 70
Right of use asset recognised in the year 110
Amendment to expected life (48)
Depreciation in year (24)
Balance as at 30 June 2022 108
At 1 July 2020 two leasehold properties were recognised as right of use assets in Burundi in accordance with IFRS 16. During the year ended
30 June 2021 a further property lease was recognised in Burundi and notice was served on one property. During the year ended 30 June 2022
a new office lease was entered into in South Africa and the leases for the two properties initially recognised at 1 July 2020 were formally terminated.
The two remaining leasehold properties are subject to annual agreements, with right of use assets and lease liabilities calculated by reference
to the Group’s anticipated long-term intentions to renew the lease agreements.
There are no other lease commitments with the short term lease of a bulldozer terminated in the year ended 30 June 2021 after total payments
of US$107k in the year ended 30 June 2021.
60
Rainbow Rare Earths Limited Annual Report & Accounts 2022
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
20. PROVISIONS
Rehabilitation provision
US$’000
At 1 July 2020 100
Discount (39)
At 30 June 2021 61
Discount -
At 30 June 2022 61
The rehabilitation provision relates to the anticipated cost of restoring the operating sites at the Gakara project in Burundi, discounted to reflect
management’s best estimates of the timing of future estimated cashflows.
No provision is deemed necessary for the Group’s Phalaborwa project as on-site activities have not yet commenced and historical environmental
liabilities associated with the site remain with the previous owners.
21. SHARE CAPITAL
30 June 2022 30 June 2021
US$’000 US$’000
Share Capital 41,442 32,465
Issued Share Capital 41,442 32,465
The table below shows a reconciliation of share capital movements:
Number of shares US$’000
At 30 June 2020 421,981,551 28,132
November 2020 - Share placing – Cash receipts net of costs 42,700,000 3,338
December 2020 - Exercise of share options (cash receipts) 3,000,000 215
January 2021 - Exercise of share options (cash receipts) 4,000,000 290
February 2021 - Exercise of share options (cash receipts) 2,700,000 200
April 2021 - Exercise of share options (cash receipts) 800,000 58
Costs associated with exercise of share options - (18)
June 2021 - Phalaborwa consideration shares 1,229,883 250
At 30 June 2021 476,411,434 32,465
July 2021 - Exercise of share options (cash receipts) 2,500,000 182
October 2021 - Share placing – Cash receipts net of costs 32,900,000 6,557
November 2021 - Share placing – Cash receipts net of costs 10,000,000 1,982
December 2021 – Pipestone Loan repayment shares 875,389 175
April 2022 - Exercise of share options (cash receipts) 1,718,987 116
Costs associated with exercise of share options and loan settlement - (35)
Total 524,405,810 41,442
On 27 November 2020 the Company issued 42.7 million new ordinary shares at a price of 6 pence per share, raising gross cash proceeds
of US$3.4 million (before costs of $85k).
Between December 2020 and April 2021 Australian Special Opportunity Fund, LP exercised options over 10.5 million shares at an exercise
price of 5.28p per share, raising gross cash proceeds of US$763k (before costs of US$18k).
On 25 June 2021 1,229,882 shares were issued to Bosveld Phosphates (Pty) Limited to settle US$250,000 consideration due under
the Phalaborwa co-development agreement originally announced on 3 November 2020.
On 13 July 2021 Australian Special Opportunity Fund, LP exercised options over 2.5 million shares at an exercise price of 5.28p per share,
raising gross cash proceeds of US$182k.
On 13 October 2021 the Company issued 32.9 million shares at a price of 15 pence per share, raising gross cash proceeds of US$6.8 million
(before costs of $221k).
On 15 November 2021 the Company issued a further 10.0 million shares at a price of 15 pence per share, raising gross cash proceeds
of US$2.0 million (before costs of $18k).
On 25 April 2022 Australian Special Opportunity Fund, LP exercised options over 1,718,987 million shares at an exercise price of 5.28p per share,
raising gross cash proceeds of US$116k.
61
Rainbow Rare Earths Limited Annual Report & Accounts 2022
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
22. SHARE OPTIONS AND WARRANTS
The total share-based payment charge for the year was US$287k, US$144k relating to the initial tranche of options issued under the Long Term
Incentive Plan and US$143k relating to 3.8 million options issued under the existing share option plan as set out in more detail below (2021: US$510k).
Employee share options
At 30 June 2022, the following employee share options were exercisable and outstanding:
30 June 2022 30 June 2021
Average Average
weighted weighted
exercise exercise
Number price (pence) Number price (pence)
Share option plan
Outstanding as at 1 July 7,991,400 12.19 5,491,400 12.28
Granted in the year 3,800,000 16.03 2,500,000 12.00
Lapsed in the year - - -
Outstanding as at 30 June 11,791,400 13.43 7,991,400 12.19
Exercisable as at 30 June 8,491,400 12.53 7,991,400 12.19
Long Term Incentive Plan
Outstanding as at 1 July 3,708,000 - - -
Granted in the year - - 3,708,000 -
Outstanding as at 30 June 3,708,000 - 3,708,000 -
Exercisable as at 30 June 1,236,001 - - -
No employee share options were exercised or lapsed in the year. The options outstanding at 30 June 2022 across both the share option plan
and long-term incentive plan had a weighted average remaining contractual life of 6.7 years (2021: 7.8 years).
During the year 3.8 million options were issued as follows:
• 500,000 being issued to a non-executive director (PDMR) on 6 July 2021. The options have an exercise price of 18 pence per share and vest
immediately on issue with a term of 10 years.
• 800,000 being issued to key personnel (not PDMR’s) on 6 July 2021. The options have an exercise price of 18 pence per share and vest in three
tranches after 12 month, 24 months and 36 months, with a term of 10 years, subject to the personnel remaining employees of the group.
• 2,500,000 issued under the existing Share Option Plan: CEO: 1,600,000 options and CFO: 900,000 options (both PDMR’s). The options have an
exercise price of 15 pence per share and vest in three tranches after 12 month, 24 months and 36 months, with a term of 10 years, subject to the
personnel remaining employees of the group.
The options have been valued using a Black-Scholes model using the inputs as detailed below:
Options granted Options granted
6 July 2021 6 July 2021 Options granted
to PDMR to non PDMR 2 February 2022
Share price (GBP pence) 14.75 14.75 16.63
Exercise price (GBP pence) 18.00 18.00 15.00
Expected volatility 106.61% 106.61% 78.64%
Risk free rate 0.14% 0.14% 1.08%
Rate of Exchange 1.38 1.38 1.36
Time to exercise (years) 3.00 5.00 5.00
Expected volatility was determined by reference to the annual volatility of the Company’s closing mid-market share price on the London Stock Exchange.
Lind share options
In January 2019, 16,718,987 share options were issued to Lind Partners with an exercise price of 5.28 pence. These were exercisable immediately from
the date of award for a period of 48 months. The Fair Value of these share options was estimated using a Black Scholes model to be US$0.5 million. This
cost was included under Finance Costs as part of the cost of the Lind Facility, a funding arrangement entered into by the Company in January 2019.
During the 2021 financial year 10,500,000 options originally issued to Lind Partners in January 2019 with an exercise price of 5.28 pence per share
were exercised for gross proceeds of US$763k. During the year ended 30 June 2022 a further 4,218,987 options were exercised for gross proceeds
of US$298k. At 30 June 2022 a further 2 million options with an exercise price of 5.28 pence per share are outstanding which can be exercised until
24 January 2023.
62
Rainbow Rare Earths Limited Annual Report & Accounts 2022
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
22. SHARE OPTIONS AND WARRANTS CONTINUED
Warrants
Number Exercise price
Outstanding and exercisable at 1 July 2020 2,427,924 £0.067
1
Expired during the year (427,924) US$0.21
Outstanding and exercisable at 30 June 2021 and 2022 2,000,000 £0.0455
1. Weighted average exercise price calculated for US$ based warrants on US$:GBP exchange rate ruling on 30 June 2020.
During the year ended 30 June 2021, 427,924 warrants with an exercise price of US$0.21 per share originally issued to Chrystal Capital Partners LLP
on 9 November 2015 expired.
On 21 February 2020, 2,000,000 warrants were issued to Pipestone Capital Inc, in which George Bennett, the Company’s CEO, has a beneficial
interest. The warrants were issued in lieu of interest on a US$1 million bridging loan provided to the Company as set out in note 18. The warrants have
a contractual life of 4 years at an exercise price of 4.55 pence per warrant. The Pipestone warrants are recognised as a financial liability at fair value
through profit and loss with changes in value included under Finance Costs as part of the cost of the Pipestone Loan Facility as set out in note 7.
As noted above, the Pipestone warrants are classified as a financial liability and are revalued at each period end using a Black-Scholes model.
The inputs into the model were:
At 30 June At 30 June
2022 2021
Share price (GBP pence) 12.38 14.50
Exercise price (GBP pence) 4.55 4.55
Expected volatility 52.07% 106.71%
Risk free rate 1.87% 0.18%
Rate of exchange 1.22 1.38
Time to exercise (years) 1.50 1.67
Expected volatility was determined by reference to the annual volatility of the Company’s closing mid-market share price on the London Stock Exchange.
The expected life used in the model has been on management’s best estimate for the effects of exercise restrictions and behaviour.
23. RESERVES
Reserve Purpose
Share capital Value of shares issued less costs of issuance
Share-based payment reserve Fair value of share options issued
Other reserves Fair value adjustments for interest free loans
Accumulated losses Cumulative net losses recognised in the statement of comprehensive income
Non-controlling interest Amounts attributable to the 10% interest the State of Burundi has in Rainbow Mining Burundi SM
and 3% interest Gilbert Midende has in Rainbow Burundi SPRL at 30 June 2022. Refer to note 24
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.
63
Rainbow Rare Earths Limited Annual Report & Accounts 2022
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
24. 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 Rainbow
Burundi SPRL Mining Total
Country Burundi Burundi SM Group
US$’000 US$’000 US$’000
Effective non-controlling interest 3% 10% 13%
Interest of non-controlling interest
As at 1 July 2020 7 877 884
Minority share of loss for year - 52 52
At 30 June 2021 7 929 936
Minority share of loss for year 1 104 105
At 30 June 2022 8 1,033 1,041
Assets at year-end:
30 June 2021 1 10,019 10,020
30 June 2022 1 9,603 9,604
Liabilities at year-end:
30 June 2021 295 19,298 19,593
30 June 2022 295 19,936 20,231
Loss for the year to:
30 June 2021 - (524) (542)
30 June 2022 - (1,055) (1,055)
No dividends have been paid to minority interests in the year (2021: nil).
25. CAPITAL COMMITMENTS
There were no capital commitments on 30 June 2022 (2021: nil). Under the terms of the Gakara Mining Convention there are no minimum expenditure
commitments in respect of exploration and evaluation activities.
64
Rainbow Rare Earths Limited Annual Report & Accounts 2022
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
26. RELATED PARTY TRANSACTIONS
Year to 30 June 2022 Year to 30 June 2021
Balance as at Balance as at
Charged in year Settled in year 30 June 2022 Charged in year Settled in year 30 June 2021
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Gilbert Midende
1
50 (50) - 35 (35) -
Benzu Minerals (Proprietary) Limited
2
48 (48) - 23 (23) -
Pipestone Capital Inc
3
52 (1,061) - 237 (153) 1,009
Alexander Lowrie
4
- - - 26 (26) -
Atul Bali
4
- - - 25 (25) -
Robert Sinclair
4
- - - 26 (26) -
Shawn McCormick
4
- - - 25 (25) -
MPD Consulting Limited
5
13 (13) - 25 (25) -
Total 163 (1,172) - 422 (338) 1,009
1. Gilbert Midende formally retired as Director General of Rainbow Mining Burundi SM in May 2021. In the year ended 30 June 2021, in addition to salary, Gilbert Midende was paid US$35k in respect of property leases in Burundi.
In the year ended 30 June 2022 Gilbert Midende received a retirement settlement of US$50k.
2. Benzu Minerals (Proprietary) Limited is connected to Cesare Morelli who is engaged as a geologist. In addition to the amounts disclosed, which relate to costs associated with the drilling programme at Phalaborwa, salary was paid
to Cesare Morelli via Benzu Minerals (Proprietary) Limited and is included in remuneration disclosures in note 9.
3. Pipestone Capital Inc, in which George Bennett, the Company’s CEO, has a beneficial interest, provided a bridging loan to the Group which totalled US$925k at 1 July 2020 on which Interest totalling US$52k accrued during the year
ended 30 June 2022 (2021: US$84k). The loan was fully settled via a mixture of cash and shares in December 2021 as set out in note 18. In addition, Pipestone Capital Inc provided US$150k of the bridge loan received in October 2020,
which was repaid in full, including US$3k interest, in December 2020.
4. Alexander Lowrie, Atul Bali, Robert Sinclair and Shawn McCormick, all Non-Executive Directors of the Company, provided an aggregate of US$100k of the bridge loan received in October 2020, which was repaid in full,
including US$2k aggregate interest, in December 2020.
5. MPD Consulting Limited (connected with Peter Gardner, CFO) provided US$25k of the bridge loan received in October 2020, which was repaid in full, including interest, in December 2020. MPD Consulting Limited charged
the company US$13k for providing UK office services to the CFO in the year ended 30 June 2022, which was settled in full.
27. INVESTMENT IN SUBSIDIARIES
The shareholdings in the Group’s subsidiaries for each year are set out below:
% Share Capital Held
Name of Company Principal Activity Country of Incorporation 2022 2021
Rainbow International Resources Ltd Rare earth exploration British Virgin Islands 100% 100%
Rainbow Rare Earths UK Ltd Service Company United Kingdom - 100%
Rainbow Burundi SPRL Rare earth exploration Republic of Burundi 97% 97%
Rainbow Mining Burundi SM Rare earth mining Republic of Burundi 90% 90%
Rainbow Rare Earths Zimbabwe (Private) Limited Rare earth exploration Zimbabwe 100% 100%
Rainbow Rare Earths (Proprietary) Limited Group support services South Africa 100% -
a. Rainbow International Resources Limited is 100% owned by Rainbow Rare Earths Limited.
b. Rainbow Rare Earths UK Ltd was deregistered on 3 February 2022.
c. Gilbert Midende holds a 3% interest in Rainbow Burundi SPRL.
d. 97% of shares in Rainbow Burundi SPRL and 90% of shares in Rainbow Mining Burundi SM are held by Rainbow International Resources Limited
e. The government of Burundi has a 10% interest in Rainbow Mining Burundi SM granted in accordance with the Mining Code of Burundi
f. Rainbow Rare Earths Zimbabwe (Private) Limited is dormant and not trading.
g. Rainbow Rare Earths (Proprietary) Ltd was established on 7 March 2022 in South Africa to provide support services for the Group. It is owned
100% by Rainbow Rare Earths Ltd.
28. CONTINGENT LIABILITIES
There were no contingent liabilities at 30 June 2022 (30 June 2021: nil).
29. POST BALANCE SHEET EVENTS
No events after the reporting date were identified that would affect the group of companies significantly or cause its financial results
to be materially misstated.
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Rainbow Rare Earths Limited Annual Report & Accounts 2022
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
30. FINANCIAL RISK MANAGEMENT
The Group’s financial liabilities at each period end consist of bank borrowings, leases, unsecured loans and trade and other payables (including
accrued expenses). The warrants issued in lieu of interest for the Pipestone Loan, as set out in note 18, are measured at fair value through profit or loss.
All other liabilities are measured at amortised cost. These are detailed in notes 17, 18 and 19.
The Group has various financial assets, being trade and other receivables and cash, which arise directly from its operations. To the extent that these
represent financial assets they are classified as assets held at amortised cost. These are detailed in notes 15 and 16.
The fair values of the Group’s cash, trade and other receivables, borrowings, unsecured loans, leases, trade and other payables and financial liabilities
at fair value through profit and loss 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 the Group’s financial assets will be impaired by the default of a third party. The Group is exposed to credit risk on its cash
and cash equivalents as set out in note 16. Credit risk is managed by ensuring that surplus funds are held in the UK with well-established financial
institutions of high-quality credit standing. At 30 June 2022, 99% of funds were held with a bank with a long-term A- credit rating (2021: 90%).
Market risk
Market risk arises from the Company’s use of interest bearing, tradable and foreign currency financial instruments. It is the risk that the fair value or
future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk), foreign exchange rates (currency risk)
or other market factors (other price 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.
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.
Foreign exchange risk is managed by matching the currency profile of cash holdings to expected future cash outflows.
Minimal cash is held in Burundian Francs. The table below shows the currency profiles of cash and cash equivalents:
30 June 2022 30 June 2021
Cash and cash equivalents US$’000 US$’000
US Dollars 1,623 353
GB Pounds 1,778 183
SA Rands 716 -
Burundi Francs 17 37
Total 4,134 573
The table below shows an analysis of the currency of the monetary liabilities in the functional currency of the Group (US dollars):
30 June 2022 30 June 2021
US$’000 US$’000
US Dollars 336 1,662
GB Pounds 187 233
Burundi Francs 1,040 681
South African Rand 189 23
Australian Dollars 22 22
Total 1,774 2,621
The largest monetary liability exposure and the least stable currency is the Burundi Franc. A 10% movement in the US$:BIF rate would have resulted
in a gain or loss of approximately US$0.1m (2021: approximately US$0.1m) in the income statement in relation to the cash and cash equivalents and
trade payables as at 30 June 2021.
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Rainbow Rare Earths Limited Annual Report & Accounts 2022
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 30 JUNE 2022
FINANCIAL STATEMENTS
30. FINANCIAL RISK MANAGEMENT CONTINUED
Interest rate risk
Interest rate risk refers to the risk that fluctuations in interest rates cause losses to the Company.
The Group and Company have no exposure to interest rate risk except on cash and cash equivalents which carry variable interest rates.
The Group has no material sensitivity to reasonable changes in variable interest rates. The group monitors the variable interest risk accordingly.
The Group’s borrowings bear fixed rates of interest.
Liquidity risk
Liquidity risk refers to the risk that the Group has insufficient cash resources to meet working capital requirements. The Group manages its liquidity
requirements by using both short and long-term cash flow projections. The following table sets out the contractual maturities (representing
undiscounted contractual cash-flows) of financial liabilities:
As at 30 June 2022 As at 30 June 2021
Due Due in Due in Due in Due Due in Due in Due in
within 1 1 to 2 2 to 5 5 to 10 within 1 1 to 2 2 to 5 5 to 10
years years years years years years years years
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Trade and other payables 909 - - - 646 - - -
Loans and borrowings 235 469 49 - 1,304 314 79
Lease liabilities 32 34 46 - 17 12 36 39
Totall 1,176 503 95 - 1,967 326 115 39
Ultimate responsibility for liquidity risk management rests with the Directors, who have built an appropriate liquidity risk management framework
for the management of the Group’s short, medium, and long-term funding and liquidity management requirements. The Group closely monitors and
manages its liquidity risk. For further details on the Group’s liquidity position, please refer to the going concern paragraph in note 2 of these accounts.
Capital management
In managing the capital, the Group’s primary objective is to maintain a sufficient funding base, through debt and equity, to enable the Group to meet
its working capital and strategic investment needs. This includes ensuring sufficient funds are available to service the Group’s borrowings as they fall
due. No funds are held in restricted or designated accounts for future debt servicing requirements. In making decisions to adjust its capital structure
to achieve these aims the Group consider not only its short-term position but also its long term operational and strategic objectives.
The Group’s primary capital management measure is net debt (borrowings less cash) to total equity, measured as follows:
Net debt/(net cash) to equity 30 June 2022 30 June 2021
US$’000 US$’000
Total borrowings (note 18) 753 1,892
Less: Cash and cash equivalents (4,134) (573)
Net (cash) / debt (3,381) 1,319
Total equity 15,345 10,006
Ratio (22.03%) 13.18%
31. NON-CASH TRANSACTIONS
Material non-cash transactions were as follows:
Year end 30 June 2022
• Settlement of the Pipestone Loan Balance in shares as set out in note 21.
• Recognition of a right of use asset under a lease agreement as set out in note 19.
Year end 30 June 2021
• Settlement of the second tranche of consideration for the Phalaborwa earn-in agreement in shares as set out in note 21.
• Recognition of right of use assets under lease agreements as set out in note 19.
32. ULTIMATE CONTROLLING PARTY
The Company does not have a single controlling party.
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Rainbow Rare Earths Limited Annual Report & Accounts 2022
SHAREHOLDER INFORMATION
FINANCIAL STATEMENTS
Executive director
George Bennett – Chief Executive Officer
Non-executive directors
Adonis Pouroulis – Chairman
Alex Lowrie
Shawn McCormick
Atul Bali
J Peter Pham
Company Secretary
Scorpio Secretarial Services Limited
Registered office
Connaught House, St Julian’s Avenue
St Peter Port, Guernsey GY1 1GZ
Company website
www.rainbowrareearths.com
Registrars and transfer office
Computershare Investor Services PLC
PO Box 82, The Pavilions, Bridgwater Road
Bristol BS99 7NH
Bankers
Barclays Bank PLC (UK)
FinBank S.A (Burundi)
Standard Bank of South Africa Limited (South Africa)
Brokers
SP Angel
Independent Auditors
BDO LLP
Solicitors
Memery Crystal LLP (UK)
Legal Solutions Chambers (Burundi)
Malan Scholes Inc. (South Africa)
RAINBOW
RARE EARTHS
Rainbow Rare Earths Limited
Registered office
Trafalgar Court, Admiral Park, St Peter Port,
Guernsey GY1 3EL
www.rainbowrareearths.com