A mining company offering near-term production, low capital expenditure requirements and a fully permitted project is set to join the UK stock market on or around 27 January.

Rainbow Rare Earths is backed by investor and developer Pella Resources, best known for helping to build Petra Diamonds (PDL) from a small exploration business to become a FTSE 250 multi-project, £840m market cap miner.

We think Rainbow looks very appealing with a straightforward investment proposition. It hopes to pay dividends in the future.

Rare earths focus

Rainbow is restarting the Gakara rare earths mine in Burundi that previously operated between 1948 and 1978. It will use excavators to remove the top layer of earth and then manually mine the veins.

The miner will produce a concentrate and sell it to German conglomerate Thyssenkrupp under a 10-year offtake deal. Rainbow’s production will be sold at market price for a basket of rare earth elements minus a discount for it being in concentrate form.

‘Our average (in-situ) grade is 57% versus 3% average for rare earth projects around the world,’ says chairman Adonis Pouroulis.

Trial mining should begin by April, producing around 3,900 tonnes of concentrate over a two-year period. Its first concentrate will be available for sale after approximately nine months of trial mining.

The equipment will be designed to produce 5,000 tonnes per year of concentrate so there will be no future capital requirements under the current mine plan. The company is confident it will seamlessly move into commercial production once the trial mining period ends.

Growing demand

Demand is growing for rare earth elements which are used in applications including electric vehicles, smartphones and wind turbines.

China has a near-monopoly over the supply of rare earth elements. Many non-Chinese end users are eager to mitigate supply risks by actively supporting the development of non-Chinese sources of supply, claims Rainbow.

The company hopes to raise $7m to help fund capital expenditure ($2.3m), working capital ($2m), repay borrowings worth $2m and the rest to cover the costs of joining the stock market.

The business is expected to be valued at between $17m and $22m when it floats on London’s Main Market.

Pouroulis is also chairman of Petra Diamonds and he founded Pella Resources. The latter business helped to finance successful chrome miner Tharisa (THS) and Chariot Oil & Gas (CHAR:AIM). Pouroulis says other companies from the Pella portfolio may soon float on the UK stock market.

Looks very interesting and Pouroulis’ involvement adds credibility to the story. Get ready to buy as soon as it floats on the market. (DC)

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