RBW Rainbow Rare Earths Limited

16 December 2024

Rainbow Rare Earths Limited

("Rainbow" or "the Company")

LSE: RBW

Interim Economic Study confirms Phalaborwa as one of the highest margin rare earth projects in development today

·    Post tax NPV₁₀ of US$611 million, vs comparable NPV₁₀ of US$627 million in the Preliminary Economic Assessment ("PEA") published in October 2022.

·    Project economics remain robust despite two years of inflation totalling ca. 12% since publication of the PEA and modifications to the flowsheet.

·    Project remains resilient to the rare earth element ("REE") price cycle, with average production cost of US$40.83/kg magnet rare earth oxides ("REO"), versus US$33.86/kg magnet REO in the PEA primarily reflecting inflationary impacts. This equates to an operating cost of US$12.91/kg total separated REO ("TREO") including non-magnet REE for which revenue is currently excluded from the economic assessment.

·    The low operating cost establishes Phalaborwa as the highest margin REE project in development today outside of China, using data compiled by industry consultants Argus Limited ("Argus").

·    Updated up-front capital cost of US$326.1 million is lower than the PEA capex of US$295.5 million, adjusted for inflation.

·    The Interim Economic Study represents a much higher level of confidence in both the processing flowsheet prior to separation and capital and operating cost estimates than the PEA.

·    Further opportunities for operating and capital cost optimisation will be explored in H1 2025 alongside separation test work.

·    Additional revenue streams from the sale of other, non-magnet, REE and final gypsum residue are expected to further enhance economics, but are not included in the current study.

NEWS RELEASE

Rainbow announces the key outcomes of an updated economic analysis (the "Interim Study") carried out in H2 2024. The aim of the Interim Study was to update the economics of the project further to changes to the primary flowsheet to recover REE from the phosphogypsum stacks at Phalaborwa, as well as updating to current market pricing for all key areas of capital and operating costs.

The Interim Study, carried out in conjunction with independent consultants METC Engineering in South Africa, is at a much higher level of confidence than the original PEA. The large-scale pilot test work conducted on the primary flowsheet has demonstrated robust recovery of REE from the Phalaborwa phosphogypsum to deliver a high-grade intermediate product. The improved definition of the primary flowsheet has allowed the Interim Study economics to be prepared to a much higher level of economic accuracy than the PEA, with updated market prices from multiple suppliers used for the majority of the finalised major mechanical equipment, key reagents and other supplies.

In addition to confirming the robust economics of Phalaborwa, the Interim Study has highlighted a number of areas for further operating and capital cost optimisation, which will be done in parallel with the ongoing rare earth separation test work.

George Bennett, CEO of Rainbow, commented: "The findings of the Interim Study confirm the exceptional economics of Phalaborwa first published in the PEA, after two years of significant inflationary pressure. The capital and operating cost estimates, now at a much higher level of economic confidence than at the PEA stage, confirm that Phalaborwa remains the highest margin rare earth project in development today outside of China. This is testament to the incredible contribution of the technical team at Rainbow over the past two years.

This update reaffirms that Phalaborwa is extremely well positioned to contribute to the establishment of an independent and resilient supply chain for the REE critical to decarbonisation, defence and emerging technologies.

Going into the New Year, we now look forward to focusing on opportunities to drive further optimisation of our capital and operating costs, and to completing the separation test work."

Investor Meet Company Presentation - Tuesday 21 January 2025

Rainbow CEO, George Bennett, and Technical Director, Dave Dodd, will provide a live presentation via Investor Meet Company on Tuesday 21 January at 10:00 BST.

The presentation is open to all existing and potential shareholders. Questions can be submitted pre-event via your Investor Meet Company dashboard up until 20 January 2025, 09:00 BST, or at any time during the live presentation.

Investors can sign up to Investor Meet Company for free and add to meet RAINBOW RARE EARTHS LIMITED via: https://www.investormeetcompany.com/rainbow-rare-earths-limited/register-investor

Investors who already follow RAINBOW RARE EARTHS LIMITED on the Investor Meet Company platform will automatically be invited.

Interim Study findings

The Interim Study is based on a project life of 16 years (two years longer than that envisaged in the PEA due to the 15% increase in Resource tonnages announced in September 2024), processing an average of 2.2 Mt of phosphogypsum per annum. The overall recovery rate of magnet REE remains the same as that of the PEA at 65% based on the pilot campaign undertaken in 2023 to 2024, with ca. 1,900 t magnet REO production annually.

When calculated on the same basis as the PEA, this operation delivers a post-tax NPV₁₀ of US$611 million, in line with the comparable PEA NPV₁₀ of US$627 million.

The Interim Study operating cost is ca. US$40.83/kg magnet REO (including the Ecora royalty), versus US$33.86/kg separated magnet REO in the PEA, primarily reflecting cost inflation of ca. 12%. This equates to an operating cost of US$12.91/kg TREO including non-magnet REE for which revenue is currently excluded from the economic assessment.

The operating cost has been impacted by ca. 34% inflation for the cost of power in South Africa, with opportunities to reduce overall power requirements being a key focus for future optimisation work. This also adds further impetus to Rainbow's drive to establish a lower cost, low-carbon energy source for the project, given that South Africa's state power remains primarily coal-based, and the Company continues to assess renewable energy power options, with the aim that this could provide the bulk of the project's power requirements.

Phalaborwa's operating cost is considerably lower than traditional rare earth projects as the phosphogypsum material is already sitting at surface in a chemically cracked form, which eliminates the cost and risk of mining, hauling, crushing, grinding, flotation, and cracking. This favourable profile positions Phalaborwa as the highest margin rare earth project in development today outside of China, using data compiled by industry consultants Argus.

The updated US$326.1 million capital cost, versus US$295.5 million in the PEA, is lower than the impact of ca 12% inflation since the PEA was published. Rainbow will use the additional time afforded by the ongoing separation test work to evaluate opportunities to further optimise this capital cost, particularly around improvements to gypsum residue stacking and process plant layout.

Resilience to rare earth price cycle

Due to its low operating cost profile, Phalaborwa is notably resilient to the rare earth price cycle, which can be volatile. The chart below shows the project's robust EBITDA operating margins in various pricing scenarios, with the project still producing ca. US$63 million steady state EBITDA per annum at the lowest basket price shown (based on separated oxide prices of US$60/kg Nd/Pr, US$250/kg Dy and US$800/kg Tb). The basket price used in the 2022 PEA, based on spot prices at that time, for which the comparable economics are presented is US$136.20/kg magnet REO produced based on the updated resource (US$110/kg Nd, US$112.50/kg Pr, US$340/kg Dy and US$1,875/kg Tb) which would deliver ca. US$181 million steady state EBITDA per annum.

Notwithstanding recent price weakness, industry commentators agree that the longer-term outlook for REE pricing is supportive given the unstoppable global megatrends of the green energy transition and decarbonisation, as well as new exciting markets such as robotics and advanced air mobility which are primed for exponential growth.

Furthermore, the fraught nature of the geopolitical landscape has led to the drive from Western and aligned governments to reduce supply chain vulnerability through diversified sources of supply that are traceable and meet high ESG standards. Government investment allows for increased certainty for project development despite the current pricing environment and Rainbow's Phalaborwa project has been chosen by the U.S. Government as an important contributor to REE supply chain independence, with the U.S. International Development Finance Corporation's proposed investment of US$50 million for Phalaborwa, via TechMet, as announced at the U.N.'s Climate Change Conference, COP28.

Interim Study parameters

As previously announced, the primary flowsheet developed by Rainbow has been subjected to large scale pilot test work in Johannesburg during 2023 and 2024, demonstrating robust recovery of REE from Phalaborwa phosphogypsum to a high-grade mixed REE intermediate product.

The Interim Study therefore presents a much higher level of confidence in the processing flowsheet prior to separation. It has been prepared to a higher level of economic accuracy, compared to the PEA, and includes updated economics based on:

·    Current market prices received from multiple vendors for all major finalised mechanical equipment and associated platework.

·    Current market prices received for all key reagents and supplies, with consumption requirements confirmed for the primary flowsheet by the pilot plant test work.

·    Detailed reclamation costs following successful piloting of the proposed hydraulic reclamation system.

·    Geotechnical and hydrology tests completed across the whole project.

·    Materials of construction studies completed for the process plant, allowing suitable grade materials to be selected and priced.

The Interim Study includes separation economics based on the original high level PEA assumptions adjusted for estimated 12% global inflation. Separation testwork has commenced at Rainbow's dedicated in-house laboratory facilities in Johannesburg, South Africa to finalise the flowsheet and economics, with the team currently working on the removal of impurities from the REE intermediate product via ion exchange to deliver a high purity mixed REE feed for separation. The continuous ion exchange / continuous ion chromatography separation process is expected to deliver a +99% purity Nd/Pr oxide ahead of separated Dy and Tb oxides. Nd, Pr, Dy and Tb are also known as the 'magnet REE' given their use in high-performance permanent magnets used in electric vehicles, wind turbines and other advanced technologies.

The team will also evaluate the economics for separation of the SEG group (samarium, europium and gadolinium), lanthanum ("La") and cerium ("Ce"). The potential revenue from these non-magnet REE is not included in the headline economics set out in the Interim Study.  Rainbow also expects to generate revenue from the sale of processed phosphogypsum, which has also been excluded from the Interim Study to ensure comparability with the 2022 PEA. Rainbow will provide updates as the separation work progresses in 2025.

Market Abuse Regulation Disclosure

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018, as amended ("MAR"), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.

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Notes to Editors:

About Rainbow:

Rainbow Rare Earths aims to be a forerunner in the establishment of an independent and ethical supply chain of the rare earth elements that are driving the green energy transition. It is doing this successfully via pioneering the first commercial recovery of rare earth elements from phosphogypsum that occurs as the by-product of phosphoric acid production.  These projects eliminate the cost and risk of mining, meaning that they can be brought into production quicker and at a lower cost than traditional hard rock mining projects.

The Company is focused on the development of the Phalaborwa Project in South Africa and the earlier stage Uberaba Project in Brazil. Rainbow's process will deliver separated rare earth oxides through a single hydrometallurgical plant on site, with a focus on the recovery of neodymium, praseodymium, dysprosium and terbium. These are critical components of the high-performance permanent magnets used in electric vehicles, wind turbines, defence and exciting new markets such as robotics and advanced air mobility.

The Phalaborwa updated interim economic study released in December 2024 has confirmed strong base line economics for the project, which has a base case NPV₁₀ of US$611 million. Given Phalaborwa is a chemical processing operation, with its resource sitting at surface in a chemically cracked form, it has a much lower operating cost than traditional rare earth mining projects, and it is therefore estimated to be the highest margin rare earth project in development today outside of China.

More information is available at www.rainbowrareearths.com