TIDMRBW
RNS Number : 2071P
Rainbow Rare Earths Limited
09 October 2019
FOR IMMEDIATE RELEASE
9 October 2019
Rainbow Rare Earths Ltd ('Rainbow' or 'the Company') (LSE:
RBW)
Audited results for the year ended 30 June 2019
Rainbow Rare Earths Ltd, the Rare Earth Element ('REE') mining
company, is pleased to announce its audited results for the 12
months ended 30 June 2019.
Chief Executive George Bennett stated: "The results for the 12
months to 30 June 2019 reflected a tough year for Rainbow. However,
while production was challenging, it would be more correct to
characterise our operating methods in the year as trial mining. We
have been able to learn a lot about our project in the year, and
are now adapting the way we operate, and while we will continue the
trial mining at Gakara, we are moving to a more mechanised,
efficient operation. This experience gained in this trial mining
phase will enhance our understanding of this orebody whilst we
prove that we can develop the project as a low-cost mine, while at
the same time focussing our efforts on developing our understanding
of the orebody. We have already embarked on a programme of test
work and further exploration whose aim is to define a JORC Resource
sufficient to support an initial ten-year life of mine, with a
first stage target production of 10,000 tonnes of concentrate a
year grading at +/- 54-56% TREO."
2018-19 HIGHLIGHTS
-- First full year of production - 850 tonnes of concentrate
sold at average grade of 57% Total Rare Earth Oxides ('TREO'), an
increase on 475 tonnes in previous year
-- Adjusted EBITDA loss in the period of US$3.4 million (2018:
US$2.0 million) with operating problems encountered during rainy
season in particular
-- Net loss for the year of US$12.3 million (2018: US$2.6 million) includes:
o Impairment of US$3.9 million in respect of initial pits at
Gasagwe and Murambi, and the plant at Kabezi
o Depreciation of US$2.6 million
o US$2.5 million cost of the Lind Convertible which was settled
in June and July 2019
-- Production challenges underlined need to undertake additional
exploration to define the ore body, and to move to more mechanised
mining
-- George Bennett appointed CEO in August 2019 to spearhead this new strategy
The financial information in this release does not constitute
the Financial Statements. The Group's Annual Report which includes
the audit report and audited Financial Statements for the year
ended 30 June 2019, will be available during October on the
Company's website at www.rainbowrareearths.com. The auditor's
report for the year ended 30 June 2019 was unqualified but included
a paragraph highlighting the existence of a material uncertainty
over going concern.
**S**
For further information, please contact:
Rainbow Rare Earths Ltd George Bennett Tel: +27 82 652 8526
Jim Wynn Tel: +44 (0) 20 3910
4551
Turner Pope Investments James Pope Tel: +44 (0) 20 3657
0050
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St Brides Partners Ltd Priit Piip Tel: +44 (0) 20 7236
1177
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Notes to Editors:
Rainbow's focus is the Gakara Project in Burundi, one of the
highest-grade (47%-67% Total Rare Earth Oxide) rare earths projects
globally and the only African producer.
The Company began production of rare earth concentrates in Q4
2017 and has a ten-year distribution and offtake agreement with
multinational thyssenkrupp Materials Trading secured for the sale
of at least 5,000tpa of concentrate produced.
The Gakara basket is weighted heavily towards the magnet rare
earths, including neodymium and praseodymium, which are driving
demand and account for 70% of annual global REE sales due to their
use in vital components in motors, generators, wind turbines, and
electric vehicles.
CHAIRMAN'S STATEMENT
The year to 30 June 2019 presented many challenges, particularly
at the operating level, but also clearly underlined that Gakara has
the potential to be a world-class mine, delivering rare earths into
a market that is on the cusp of undergoing potentially explosive
growth, driven by green technologies and electric vehicles.
Gakara is a unique asset. Its veins reach grades far in excess
of any other rare earth deposits anywhere in the world, and the
mineralisation is in the form of seams of almost pure
bastnaesite/monazite.
We have discovered these veins outcropping at surface over
almost all of the 39km2 mining permit, which tells us that the
deposit contains a potentially vast quantity of high-grade ore. But
more recent testing suggests that mineralisation exists across the
deposit in lower grades too. This presents us with the possibility
that we are looking at an even larger deposit than we had
originally thought, and one which may be amenable to bulk
mining.
The key to unlocking the value of this deposit will be in
rolling out a programme of further exploration, with the objective
of allowing us to model the resource in more detail. Not only will
this show the full extent of the deposit, but it will allow us to
develop a mining and processing plan which will allow us to realise
the maximum value from it.
We have had some success in extracting targeted high-grade veins
at our first two sites; however, we have learnt that we need to
choose the right equipment and mining method to operate efficiently
and effectively.
Nevertheless, we have successfully demonstrated that not only is
there a strong demand for our concentrate, but that we can
successfully export our product. We believe we are the only
exporter of rare earth concentrate by sea in the world.
In August 2019, Martin Eales stepped down as Chief Executive.
Martin's leadership was invaluable as we transformed Rainbow from
an early stage exploration project, through its IPO in January
2017, and into its current form. We are grateful for Martin's input
and guidance over the Company's formative years.
At the same time, I was pleased to announce the appointment of
George Bennett to the Board of Rainbow as Chief Executive Officer.
Not only does George share the ambition of myself and my fellow
Board members regarding the future of Rainbow, but he brings with
him considerable experience in the natural resources sector, and,
crucially, a track record of delivering shareholder value.
In the short time since his appointment, he has initiated a
number of changes in strategy which we believe will pave the way
for the Company to become the second largest rare earth mine
outside China. Much work remains to be done, but George's vision,
energy, and determination, together with that of the management
team and the Board, give me every confidence that we are firmly on
the right track.
The rare earth market has received a considerable amount of
attention during 2019, with trade tensions between the US and China
leading to speculation about the security of supply of REs, many of
which are critical not only to vital sectors such as technology,
electric vehicles, and turbines, but also are used in military and
scientific applications. China accounts for 90% of world production
of REs, and such concerns underline the importance of a significant
non-Chinese source such as Gakara.
However, we believe the wider fundamentals to be even more
important. REs such as Neodymium and Praseodymium are used in
high-growth industries, and as a result, demand is expected to
increase dramatically in the coming years. Yet at the same time,
very few new sources are likely to come online, which will create a
supply shortfall which is likely to push prices up significantly
from current levels.
Although 2019 was undoubtedly a challenging year for Rainbow and
its shareholders, the Company is now embarking on a new, much more
ambitious direction under new leadership, and will be perfectly
placed to benefit from the increased demand for REs in the coming
years.
Finally, I would like to thank the many people who have given
their support to Rainbow during the year: my fellow Board members
for their advice and counsel; the staff and management of the
Company, particularly those in Burundi who have shown determination
and resilience in challenging conditions; our wider stakeholders
including the communities in which we operate, our suppliers, local
officials and members of the Burundian ministries of mines and
finance, who have been incredibly supportive.
Adonis Pouroulis
Chairman
CHIEF EXECUTIVE OFFICER'S REVIEW
Before I took on the role as Chief Executive Officer in August
2019, I took the opportunity to visit Burundi to see for myself the
Gakara mine. This visit confirmed my initial impressions of the
project: that the deposit has the potential to be a genuinely
world-class rare earth deposit; but that the mining and processing
of the orebody, up until that point, had not employed a
conventional approach for a new mining project.
The mining permit extends over 39km2, and to date well over
1,000 rare earth occurrences at surface have been identified, from
all over the licence area. There are over 30 RE targets, many of
which were mined by the Belgians 40-60 years ago. In mineralogical
terms, these occurrences are strikingly homogeneous, which tells us
they are part of the same mineralisation. In fact, we now believe
that the permit area is not only pervaded with high grade veins of
varying thickness, but that mineralisation also exists in between
the veins, which suggests that the area contains a very much larger
deposit of rare earths that needs to be confirmed by our revised
exploration strategy.
Of course, the precise scale and nature of the orebody can only
be determined with confidence through exploration work, which is
the foundation for any mining project. A modest drilling programme
was completed in 2018, which was mainly focussed on the Kiyenzi
deposit. Only a relatively small number of drill cores were
selected for analysis, and the cores chosen were those showing
areas of visible mineralisation. As a first step, we are now
sending all drill cores for analysis, which should quickly give us
a much better understanding of the deposit at Kiyenzi in
particular. The initial two diamond drill cores, fully analysed
from Kiyenzi, appear to confirm our belief that mineralisation
exists between the high-grade veins.
In addition, we are developing a programme of exploration work
designed to confirm, as a first step, a deposit sufficient to
support a 10-year mine life, with concentrate production targeted
at 10,000 tonnes per annum. These levels are more ambitious than
previous targets, but we believe they are achievable as a result of
a change in the approach to defining the resource within our mining
permit and a change in the mining method.
Until September 2019, mining focused exclusively on high-grade
veins, which were extracted by hand, with all other materials
considered waste. Once we have defined a larger orebody to JORC
standards, we will develop a mine plan that will extract ore in
bulk, by mechanical means. This will allow us to extract a far
greater quantity of material at a much quicker rate, and will mean
a far larger tonnage of RoM material but with a lower overall grade
of mineralisation.
The mining of lower grade material will, we believe, be most
efficiently handled by introducing a simple pre-concentration step
possibly involving a scrubber, DMS and spirals, to be confirmed by
the ongoing test work. This is likely to be most economical and
practical if undertaken nearer the mechanical mining activity.
I am fully aware that investor confidence in the project can
only be won through hard work, and hard evidence. I intend to
deliver such information to the market as and when it becomes
available to us.
In parallel with this exploration and test work programme, we
are investing in new mining fleet, which will deliver significant
cost savings compared with the rented fleet currently in use, and
which will be far better suited to the terrain (particularly in wet
conditions). We will continue to mine at the Murambi pit only,
which we believe will provide sufficient ore for at least a year,
but in a more efficient way than before - the ore extraction will
be mechanised, and we will therefore be able to operate with a
reduced workforce, delivering further cost savings, while still
maintaining our social licence within Burundi. The objective of
operations is to reach breakeven profitability at the mine site
level by January 2020, which will allow us to deploy our cash
resources to develop the resource into a much larger proven target
with the ultimate aim of achieving 10,000 tonnes per annum of
concentrate.
A more realistic assessment of production over the coming 12
months, combined with the additional focus on expanded exploration,
and a metallurgical and mineralogical test work programme as the
first phase in developing a much larger project in terms of
production and Life of Mine ('LoM'), will mean that further funding
will be required over the next 12 months. However, we are also
determined to ensure that additional financing is structured in
such a way as to minimise dilution, and phased such that it follows
on the back of successful progress we have made towards our
objectives, which we believe will underline the huge value in our
project and thus improve our valuation.
The Company announced an initial JORC Resource in December 2018,
but on a limited scope. We are now testing all the samples
collected during the 2018 drilling programme (rather than those
that only showed visible mineralisation), and are planning to
undertake further drilling in key areas. As a result, I am
confident we can deliver a JORC resource in early 2020, supporting
our target production levels, and I am equally confident that a
bulk mining approach will be far more efficient and scalable than
we have seen to date.
But I am also encouraged by the mineralogy of the ore at Gakara.
The Kabezi process plant is small in scale and simple in scope - it
includes crushing and gravity separation only - and yet the trial
mining to date has been able to consistently produce a concentrate
of 54-58% TREO, from even lower-grade material we have tested to
support my initial impressions of the project. This underlines how
simple the mineralogy and metallurgy of the ore is, and is a major
differentiating factor compared with other RE projects, many of
which include large and complex beneficiation steps and yet still
cannot reach concentrate grades close to those of Gakara.
It should also be mentioned that the levels of Uranium and
Thorium in the deposit are negligible which demonstrates how benign
our ore is and how environmental impact of mining and processing is
very low for a RE project, which is hugely advantageous. In most RE
deposits around the world Uranium and Thorium are key elements that
require extra steps in the process flow sheet for extraction and
add huge opex and capex costs to any project. Rainbow has exported
concentrate to China, which has very strict limits of radioactivity
- imposing limits of less than 0.2uSv/hr (roughly equivalent to
background radiation in a granitic area) - without any problems to
date.
I mentioned that our target is to define a JORC-compliant
Resource sufficient to support the production of 10,000 tonnes of
concentrate over a 10-year mine life - which is more than double
our previous target. However, this represents just the first stage
for the Gakara project and is likely to be based on just one or two
individual deposits. Around 30 potential targets have been
identified for further exploration many of which were mined by the
Belgians, and once we have achieved the first stage, we will
undoubtedly continue to drill further areas to grow the project
even further. I would point out that over the last 30 years, the
vast majority of large-scale modern mines built in Africa, have
been developed from the initial colonial mines rediscovered by
their respective mining companies.
In the past, we have also mentioned our interest in developing a
down-stream separation/beneficiation capability, which would enable
us to process our concentrate into a mixed rare earth carbonate or
oxide, or possibly down to individual RE oxides. This would allow
us to capture significantly more of the value of our concentrate,
and remains firmly in our plans. However, the first step is
defining a source of feedstock for such a plant - and our plans in
this area will emerge once we have a better understanding of the
orebody.
A lot of hard work has gone into developing the Gakara project
to date. The deposit is truly unique in its scale and nature, and
it was perhaps inevitable that some of the early decisions needed
to be revisited. It was clear that before any detailed production
plan could be formulated, a far better understanding of the ore
body was necessary, and that subsequent mining and processing
methods were likely to be much more efficient if mechanised and
with larger quantities of ore.
That the Gakara deposit had enormous potential was never in
doubt. But I would not have taken on the role as Chief Executive,
nor would I have invested personally in the project, had I not
believed that the Company could be grown significantly in scale,
and would thus be transformed into a RE mine that could compete on
the world stage, and be hugely profitable in the process.
I look forward to updating you all on our progress in the months
to come.
George Bennett
Chief Executive Officer
OPERATIONS REVIEW
Production overview
Year to 30 June 2019 Year to 30 June 2018
Concentrate sold (tonnes) 850 475
Concentrate exported (tonnes) 750 575
Grade TREO per tonne concentrate 57% 58%
US$/tonne US$/tonne
Gross sales price - pre-TK deduction(1) 1,949 2,263
TK transportation and marketing deductions(1) 137 175
Net sales price(1, 3) 1,812 2,088
Other sales costs - transportation and royalty(1) 316 381
Production cost(2) 4,067 2,430
LTIFR 0.40 0.00
Notes
1. Gross and net sales prices, TK transport and marketing costs,
and Other sales costs are shown per tonne of concentrate sold
2. Production costs are shown per tonne of concentrate exported
3. Revenue reported in the Financial Statements represents the
Net sales price of the tonnes sold in the period
Mining operations in the year
Mining operations began well in July-September 2018 as
production focused on the Gasagwe pit. In dry conditions, waste
stripping made good progress and a number of additional veins were
exposed, which more than offset variability in thickness and
direction of the main vein.
The advent of the rainy season in October 2018 brought
challenges as the fleet of haul trucks, all rented locally, proved
unable to operate in wet conditions. As a result, waste removal
fell and therefore ore exposure also slowed.
In December, production began in earnest at a second site,
Murambi. However, the construction of the haul road to the waste
dump was slowed, and most of the waste removed had to be placed as
road surfacing, where appropriate, or side cast in order to expose
the maximum vein material in the short term.
The lack of ore supply to the plant put pressure on the
Company's cash position, and underlined the need to review
operating procedures in order to become profitable.
Plant processing
Following the completion of construction at the end of 2017-18,
the plant underwent performance tests in August 2018, which were
successfully passed. During the year, the plant performed in line
with expectations, however production of concentrate was impacted
by the shortage of run of mine ore from the pits.
Final concentrate sales in the year amounted to 850 tonnes
averaging a grade of 57% TREO, which represented a disappointing
total compared with expectations.
Rare earths prices
The price that Rainbow receives for its concentrate is a
function of the basket price of the underlying individual rare
earth oxides contained in its concentrate, as well as of the
overall grade of material sold (expressed as a % of TREO), less a
discount to take into account the fact that the concentrate
consists of mixed and unseparated oxides.
During the year to 30 June 2019, 850 tonnes of concentrate were
sold, at an average grade of 57% TREO. This resulted in a gross
average realised sales price of US$1,949 per tonne (net realised
sales price US$1,812 per tonne, after accounting for TK deductions
for marketing fees of 3.5% and handling costs).
The prime reason for this fall in prices was a drop in
underlying rare earth oxide prices, on which Rainbow's final sales
price is based. During the 12 months to 30 June 2019, Rainbow's
basket price fell from US$12.78/kg to US$11.92/kg, and the average
price in the year was US$11.45/kg, 18% lower than the average for
the prior year (US$13.93/kg)
Safety and Health
The Company takes its health and safety extremely seriously, and
was proud of having achieved a total of over 1.6 million hours
without an LTI. Unfortunately, in February 2019, this record was
broken when two employees suffered minor injuries following a
lightning strike near a rain shelter where mine workers were taking
shelter during a storm. The Lost Time Injury Frequency Ratio
('LTIFR') for the year was therefore 0.40 (2018: 0.00).
FINANCIAL REVIEW
Profit and loss
With the construction of the Kabezi plant having been completed
in the prior year, exports of concentrate commencing in December
2017 and production subsequently building, the Company determined
commercial production to have been reached with effect from 1 July
2018 under its accounting policies. As a result, all revenues and
production costs in the year have been recorded through the income
statement - whereas in the prior year, production costs relating to
the mining, processing, and sales of concentrate were capitalised
as mine development costs, net of a US$1.0 million adjustment to
eliminate the margin on test revenues from the sale of 475 tonnes
of concentrate that represented the contribution to the development
costs prior to commencement of commercial levels of production.
Revenues in the period were US$1.5 million, representing 850
tonnes of concentrate exported and sold at an average net realised
price of US$1,812 per tonne. In the prior year, 450 tonnes were
sold at a net price of US$2,088 per tonne.
Royalty and transport costs of US$0.3 million include the 4%
government royalty on exports, as well as the cost of trucking
concentrate from the plant to the port of Mombasa for export.
Production costs of US$3.1 million including US$0.6 million of
plant costs, US$1.4 million of mining costs, and US$1.1 million of
local support costs.
The stockpile movement of US$0.2 million reflects the movement
in the value of ore and concentrate stockpiles, which are valued at
the lower of cost and net realisable value. The disappointing
levels of production in the second half of the year meant that the
cost per tonne attributed to this material was higher than its net
realisable value, resulting in a write-down of the value of the
inventory by US$0.2 million.
Administration expenses of US$1.4 million include corporate and
head office costs, and were lower than the prior year figure of
US$2.0 million as a result of cost reduction measures as well as
the fact that the prior year included a staff bonus of US$0.4
million.
Adjusted EBITDA for the year, reflecting the above items, was a
loss of US$3.4 million, an increase compared to the prior year's
figure of US$2.0 million.
Share-based payments totalled less than US$0.1 million in the
year (2018: US$0.7m), and included a credit of US$0.1 million in
respect of share options which lapsed on the basis of non-market
performance conditions not having been met. There were no new
employee share options awarded in the year.
Depreciation was charged for the first time in the year, as a
result of commercial production having been judged to have been
reached as at July 2018.
Following a revision to the way in which the Company plans to
mine and process material, as explained in the CEO Statement,
management reviewed the carrying value of its property, plant and
equipment, and concluded that the capitalised costs in respect of
the existing plant at Kabezi, and the mine sites of Gasagwe and
Murambi should be fully written down, on the basis that the future
profitability and cash generation of these activities could not be
asserted with confidence. As a result, an impairment of US$3.9
million was reflected in the income statement during the period.
The carrying value of the remaining assets (US$6.4 million) relate
to the wider project, and include exploration and mine development
costs that are expected to support economic value in the future, as
the operation is grown into a much larger, bulk-mining
operation.
Finance income of US$0.4 million (2018: US$0.3 million) included
foreign exchange gains on movements chiefly between the Burundian
Franc ('BIF') and US dollars, the reporting currency of the
Group.
Finance costs of US$2.6 million (2018: US$0.1 million) included
US$2.5 million in respect of a convertible loan note with Lind
Partners, granted in January 2019 and converted in June 2019 (see
note 6 for further details), and interest on the Company's
overdraft in Burundi, as well as bank charges.
Tax charges included withholding tax and corporation tax in
Burundi.
Balance sheet
The Company's Non-current assets of US$6.4 million (2018:
US$11.2 million) related to the capitalised brownfield exploration
and mine development costs of the Gakara Project in Burundi. In
addition to the impairment of US$3.9 million referred to earlier,
the reduction in value reflected the net impact of capex of US$1.6
million less depreciation of US$2.6 million.
At 30 June 2019, inventory of US$0.1 million (2018:US$0.3
million) largely related to the value of the 51 tonnes of
concentrate bagged but not exported at year end.
The Company had borrowings of US$1.6 million (2018: US$0.8
million), largely consisting of a US$0.7 million convertible loan
from Pella Ventures Limited, and a US$0.8 million (2018: US$0.8
million) bank overdraft facility with Finbank in Burundi.
Trade and other payables amounted to US$2.1 million (2018:
US$1.4 million), with the increase the result of increased
operating activities as well as cashflow constraints meaning many
supplier balances were stretched over the year end and settled in
July and August 2019.
Cashflow
Net cash in the 12 months to 30 June 2019 decreased by US$0.2
million (2018: decrease of US$2.9 million).
Cash outflows included operating expenses and net movements in
receivables and payables (net cash used in operating activities)
totalling US$2.1 million (2018:US$1.8 million), and US$1.6 million
on brownfield exploration and mining capex (2018: US$5.2
million).
Cash inflows of US$3.5 million reflected the Company's financing
activities during the year (2018: US$4.2 million), as discussed
below.
Financing
In order to fund ongoing working capital and capex requirements,
the Company raised a net US$3.5 million in financing during the
year, the main elements of which were as follows:
-- US$1.9 million (net of transaction costs) was raised as a
result of a placing of approximately 13 million shares at a price
of 12 pence per share in August 2018.
-- In January, the Company entered into a financing facility
with Lind Partners. This included a convertible loan of US$0.75
million, as well as an equity facility, of which three tranches of
US$100k each were drawn during the year. Proceeds from the
convertible amounted to US$750k, with gross proceeds from the three
equity tranches amounting to US$0.3m, which, after deduction of
fees in connection with these transactions, resulted in net cash
received of US$0.9 million.
-- In May 2019, the Company entered into a convertible loan with
Pella Ventures Ltd, whose beneficiary is A Pouroulis, for US$0.7
million. This amount was intended to provide bridge financing ahead
of a larger equity placing which was concluded in July 2019. This
amount is included under Proceeds of New Borrowings in the
year.
On 2 July 2019, the Company completed an equity placing that
raised net proceeds of US$4.2 million with new and existing
shareholders. In addition, shares were allotted to satisfy the
convertible loan with Lind Partners, which is now fully settled. A
total of 163,975,884 shares were allotted in total under this
transaction, of which 121,207,778 were for cash, 4,859,603 to
settle outstanding remuneration, and 37,908,503 in settlement of
the Lind Convertible, the Pella convertible, and other
liabilities.
Taxation
The corporation tax rate in Burundi is 30%, however no taxable
profits were earned during the period. Nevertheless, the Company
paid a total of US$131k in withholding tax, corporation tax (based
on a minimum 1.5% of revenue in Burundi), and other taxes, in
Burundi.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2019
Year ended Year ended
30 June 30 June
Notes 2019 2018
US$'000 US$'000
Revenue 2,3 1,541 992
Production and sales costs (prior to commercial production) - (992)
Royalty and transport costs (269) -
Production costs 2,3 (3,057) -
Stockpile movement 12 (153) -
Administration expenses (1,433) (2,044)
------------------------------------------------------------------------------- ------- ------------ ------------
Adjusted EBITDA[1] (3,371) (2,044)
------------------------------------------------------------------------------- ------- ------------ ------------
Share-based payments 20 (62) (709)
Depreciation 4, 11 (2,570) -
Impairment of fixed assets 3, 11 (3,854) -
Total operating expense (11,398) (2,753)
Loss from operating activities 4 (9,857) (2,753)
------------ ------------
Finance income 5 355 317
Finance costs 5 (2,644) (79)
Loss before tax (12,146) (2,515)
------------ ------------
Income tax expense 9 (131) (96)
Total loss after tax and comprehensive expense for the year (12,277) (2,611)
============ ============
Total loss after tax and comprehensive expense for the year is attributable
to:
Non-controlling interest 22 (785) (45)
Owners of parent (11,492) (2,566)
------------ ------------
(12,277) (2,611)
============ ============
The results of each year are derived from continuing operations
Loss per share (cents)
Basic 10 (5.93) (1.55)
Diluted 10 (5.93) (1.55)
[1] Adjusted EBITDA represents earnings before finance items,
depreciation, amortisation, taxation, share-based payments and
impairments.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2019
Year ended Year ended
Notes 30 June 30 June
2019 2018
US$'000 US$'000
Non-current assets
Property, plant, and equipment 11 6,408 11,249
Total non-current assets 6,408 11,249
------------ -----------------
Current assets
Inventory 12 98 280
Prepayments 13 389 209
Trade and other receivables 14 116 461
Cash and cash equivalents 15 119 354
------------ -----------------
Total current assets 722 1,304
------------ -----------------
Total assets 7,130 12,553
------------ -----------------
Current liabilities
Borrowings 16 (1,562) (760)
Trade and other payables 17 (2,097) (1,355)
------------ -----------------
Total current liabilities (3,659) (2,115)
Non-current liabilities
Provisions 18 (100) (60)
------------ -----------------
Total non-current liabilities (100) (60)
Total liabilities (3,759) (2,175)
------------ -----------------
NET ASSETS 3,371 10,378
=================
Equity
Share capital 19 20,056 16,722
Shares to be issued 6 1,375 -
Share-based payment reserve 21 1,764 1,203
Other reserves 21 40 40
Retained loss (19,040) (7,548)
------------ --------------
Equity attributable to the parent 4,195 10,417
Non-controlling interest 22 (824) (39)
TOTAL EQUITY 3,371 10,378
============ ==============
These financial statements were approved and authorised for
issue by the Board of Directors on 8 October 2019 and signed on its
behalf by:
George Bennett
Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2019
Note Share Shares Share- Other Accum- Attribut- Non-controll-ing Total
capital to be based reserves ulated able interest
issued Payments losses to the
parent
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 1
July 2017 13,186 - 494 40 (4,982) 8,738 6 8,744
---------- --------- ---------- ---------- ---------- ----------- ------------------ ----------
Total
comprehensive
expense
Loss and total
comprehensive
loss for year - - - - (2,566) (2,566) (45) (2,611)
Transactions
with owners
Issue of shares
during the
year 19 3,770 - - - - 3,770 - 3,770
Share placing
transaction
costs 19 (234) - - - - (234) - (234)
Fair value of
employee share
options in
year 20 - - 709 - - 709 - 709
Balance at 30
June 2018 16,722 - 1,203 40 (7,548) 10,417 (39) 10,378
---------- --------- ---------- ---------- ---------- ----------- ------------------ ----------
Total
comprehensive
expense
Loss and total
comprehensive
loss for year - - - - (11,492) (11,492) (785) (12,277)
Transactions
with owners
Issue of shares
during the
year 19 2,350 - - - - 2,350 - 2,350
Share placing
transaction
costs 19 (215) - - - - (215) - (215)
Shares issued
to settle
convertibles 6 1,199 - - - - 1,199 - 1,199
Shares to be
issued to
settle
convertibles 6 - 1,375 - - - 1,375 - 1,375
Share options
issued as cost
of convertible 6 - - 499 - - 499 - 499
Fair value of
employee share
options in
year 20 - - 62 - - 62 - 62
Balance at 30
June 2019 20,056 1,375 1,764 40 (19,040) 4,195 (824) 3,371
---------- --------- ---------- ---------- ---------- ----------- ------------------ ----------
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 30 June 2019
Notes For year ended For year ended
30 June 30 June
2019 2018
US$'000 US$'000
Cash flow from operating activities
Loss after tax for the year (12,277) (2,611)
Adjustments for:
Depreciation 2,570 -
Impairment of property, plant and equipment 3, 11 3,854 -
Share-based payment charge 20 62 709
Finance income 5 (355) (317)
Finance costs 5 2,644 79
Tax expense 9 131 96
Provisions 18 40 60
Operating loss before working capital changes (3,331) (2,044)
Net decrease/(increase) in inventory 12 182 (280)
Net decrease/(increase) in other receivables 13, 14 165 (648)
Net increase in trade and other payables 17 679 938
---------------- ----------------
Cash used by operations (2,305) (2,034)
Realised foreign exchange gains 352 294
Finance income 5 1 3
Finance costs 5 (22) (19)
Taxes paid 9 (131) (81)
---------------- ----------------
Net cash used in operating activities (2,105) (1,837)
---------------- ----------------
Cash flow from investing activities
Purchase of property, plant & equipment 11 (1,583) (5,231)
----------------
Net cash used in investing activities (1,583) (5,231)
---------------- ----------------
Cash flow from financing activities
Proceeds of new borrowings 16 798 740
Interest charge on borrowings 16 (139) (52)
Payment of finance lease liabilities 23 (18) (19)
Proceeds of Lind convertible 6 750 -
Cost of issuing Lind convertible 6 (75) -
Proceeds from the issuance of ordinary shares 19 2,350 3,770
Transaction costs of issuing new equity 19 (215) (234)
----------------
Net cash generated by financing activities 3,451 4,205
---------------- ----------------
Net decrease in cash and cash equivalents (237) (2,863)
---------------- ----------------
Cash & cash equivalents at the beginning of the year 354 3,198
Foreign exchange gains on cash and cash equivalents 2 19
----------------
Cash & cash equivalents at the end of the year 119 354
================ ================
NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION
Reporting entity
Rainbow Rare Earths Limited ('the Company' or 'Rainbow') is a
company domiciled in Guernsey and incorporated on 5 August 2011,
with company registration number 53831, and is a company limited by
shares. The Company's registered office is Trafalgar Court, Admiral
Park, St Peter Port, Guernsey. The consolidated financial
statements of the Company for the years ended 30 June 2019 and 30
June 2018 comprise the Company and its subsidiaries together
referred to as the 'Group'.
2. ACCOUNTING POLICIES
Basis of preparation
The Financial Statements of the Company and its subsidiaries
('the Group') are prepared in accordance with International
Financial Reporting Standards ('IFRS') (IFRS and IFRIC
Interpretations) issued by the International Accounting Standards
Board ('IASB'), as adopted by the European Union.
Going Concern
As at 7 October 2019, the last practicable date before the
publication of these accounts, the Company had total cash of US$0.4
million.
A balance of US$1.4 million in respect of subscriptions
receivable from shares allotted in July 2019 remained outstanding,
however the Board have a high degree of confidence that these funds
will be forthcoming during the month of October.
As part of the review of operations undertaken in August and
September 2019, management considered that the mining approach
adopted until September 2019 at Gakara could no longer be expected
with confidence to become profitable, and that while the deposit
had considerable potential, a robust mine plan first required more
extensive exploration work, aimed at understanding and defining a
large, potentially lower-grade orebody, and test work aimed at
determining the optimal processing methodology.
Nevertheless, the Company also considered that by reducing
operating costs and driving operating efficiencies, production
levels could be expected to reach break-even levels within Burundi
by January 2020, thus mitigating future operating losses, while
retaining the asset and the permit in good order, and protecting
Rainbow's social licence in country.
A revised cashflow forecast was prepared based on this approach,
covering the period of at least 12 months from the date of
publication of these accounts, which included two elements:
operating cashflows from the reduced-scale production at Gakara;
and an investment plan including the purchase of new mining
equipment as well as an exploration and test work programme.
The operating cashflow forecast assumes mining would continue at
the Murambi pit alone, and that the overall cost base would be
reduced considerably by cutting the workforce, by replacing
expensive rented equipment with purchased vehicles, and by
disciplined cost management in all areas. A revised breakeven
target of 110 tonnes of concentrate per month versus the previous
target of 300 tonnes was considered achievable with this tighter,
more efficient operating approach.
In terms of the investment programme, management earmarked
US$0.6m for mine fleet purchases, and an estimated total of US$1.0
million on drilling, sampling and metallurgical/mineralogical test
work, with the objective of defining a resource and processing
methodology capable of sustaining a 10 year life of mine producing
10,000 tonne of concentrate per month.
The cashflows thus described indicated that a funding
requirement of approximately US$1.6 million would be required over
and above the receipt of US$1.4 million detailed above. Management
are confident that this money can be raised from new investors,
based on indications of interest from credible potential investors
received to date. Management are eager to defer any equity
investment until funds would be needed, in order to allow the share
price to improve, thus reducing dilution of existing
shareholders.
In addition, management are confident that the US$0.8 million
overdraft facility with Finbank will remain in place, based on
continued discussions with the Finbank management, who are keen to
transform the facility into a term loan once a revised production
plan has been established, based on the new mining methodology and
a robust JORC resource.
Management acknowledge that the cashflow forecast contains
several assumptions and uncertainties, and that if worse outcomes
were to arise in respect of these assumptions, the funding
shortfall might be greater and therefore more expensive, more
dilutive, or more difficult to obtain. These include the
following:
- Production assumptions reflect management's best estimates,
but are not based on JORC-compliant resources or reserves, as a
result, actual production may be lower than forecast
- The forecast assumes operating efficiencies as a result of
purchasing new mining vehicles (in place of older rented models
less suited to the terrain) and through other improvement
initiatives. Should these improvements prove less successful,
production may not reach forecast levels
- RE prices are assumed to be at levels close to prevailing
levels in September 2019 - however a fall in RE prices would result
in operating losses which would increase the funding shortfall
If operating cashflows were lower than anticipated, the Company
would consider suspending mining operations in order to stem cash
outflows, as well as deferring its investment programme.
In considering the appropriateness of the Going Concern basis,
management have considered a worst-case scenario to be one that
involved the cessation of production activity from January 2020,
and a suspension of the investment and exploration programme
pending securing of sufficient funds. The funding shortfall in
order to continue in operation under such a negative scenario, is
estimated to be US$0.8 million.
The Board is confident that this funding would be secured, based
on its history of successful fundraising, as well as indications of
interest received to date from credible third-party investors.
However, it also acknowledges that this funding has not, at the
present time, been secured with 100% certainty, which has been a
deliberate decision in order to avoid unnecessary dilution at the
current share price, which the Board believes will rise in the
coming months. Accordingly, the Board accepts that the need for
additional funding represents a material uncertainty which casts
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.
Standards in issue but not effective
The standards which were issued and effective for periods
starting on or after 1 July 2018 have been adopted in the year and
have not had a material impact to the Group financial statements.
The Group has elected not to early adopt the following revised and
amended standards.
Standard Description Effective date
IFRS 16 Leases 1 January 2019
----------------------------------------- --------------------------------
IFRS 17 Insurance contracts 1 January 2021
----------------------------------------- --------------------------------
IFRIC 23 Uncertainty over Income 1 January 2019
tax treatments
----------------------------------------- --------------------------------
Amendment to IFRS 9 Prepayment Features 1 January 2019
with Negative
Compensation
----------------------------------------- --------------------------------
Annual Improvements to 2015-2017 Cycle 1 January 2019
IFRSs
----------------------------------------- --------------------------------
Conceptual Framework Amendments to 1 January 2020
References to the
Conceptual Framework in
IFRS Standards
----------------------------------------- --------------------------------
Amendments to IFRS 3 Business Combinations 1 January 2020
----------------------------------------- --------------------------------
Amendments to IAS 1 and Definition of material 1 January 2020
IAS 8
----------------------------------------- --------------------------------
The Company has reviewed and considered these new standards and
interpretations and none of these are expected to have a material
effect on the reported results or financial position of the Company
except for the following:
IFRS 9 Financial instruments
The complete standard was issued in July 2014 including the
requirements previously issued and additional amendments. The new
standard replaces IAS 39 and includes a new expected loss
impairment model, changes to the classification and measurement
requirements of financial assets as well as to hedge accounting.
The new standard became effective for financial years beginning on
or after 1 January 2018.
The impacts of adopting IFRS 9, applied using the modified
retrospective approach, on the Group results have been as
follows:
Impairment: The standard introduces an 'expected credit loss'
model for the assessment of impairment of financial assets held at
amortised cost. The impact of this transition difference is not
considered material to the Group following application of the
expected credit loss model noting the absence of significant
financial assets.
Classification and measurement: The measurement and accounting
treatment of the Group's financial assets is materially unchanged
on application of the new standard.
IFRS 16 Leases
The future adoption of 'IFRS 16: Leases' from 1 January 2019,
provides for a new model of lessee accounting in which all leases,
other than short-term and small-ticket-item leases, will be
accounted for by the recognition on the balance sheet of a
right-to-use asset and an associated lease liability, with the
subsequent amortisation of the right-to-use asset over the lease
term. However, as the Company currently has no material leases
other than short-term, the expected impact of the adoption of IFRS
16 is immaterial.
Basis of consolidation
Where the Company has control over an investee, it is classified
as a subsidiary. The Company controls an investee if all three of
the following elements are present: power over the investee,
exposure to variable returns from the investee, and the ability of
the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate
that there may be a change in any of these elements of control.
The consolidated financial statements present the results of the
Company and its subsidiaries as if they formed a single entity.
Intercompany transactions and balances between Group companies are
therefore eliminated in full.
The results of undertakings acquired or disposed of are
consolidated from or to the date when control passes to or from the
Group. The results of subsidiaries acquired or disposed of during
the year are included in the Consolidated Statement of
Comprehensive Income from the date that control commences until the
date that control ceases.
Where necessary, adjustments are made to the results of
subsidiaries to bring the accounting policies they use into line
with those used by the Group.
Non-controlling interests in the net assets of consolidated
subsidiaries are identified separately from the Group's equity.
Non-controlling interests consist of the non-controlling
shareholder's share of changes in equity. The non-controlling
interests' share of losses, where applicable, are attributed to the
non-controlling interests irrespective of whether the
non-controlling shareholders have a binding obligation and are able
to make an additional investment to cover the losses. On
acquisition of a non-controlling interest the relevant
non-controlling interest share of equity is extinguished and the
difference between the fair value of consideration paid and the
relevant carrying value of the non-controlling interest is recorded
in retained earnings.
Foreign currency
The consolidated financial statements are presented in US
dollars, which is also the functional currency of the company and
its subsidiaries (with the exception of Rainbow Rare Earths UK
Limited, whose functional currency is GBP). The Group's strategy is
focused on developing a rare earth project in the Republic of
Burundi which will generate revenues in United States Dollars and
is funded by shareholder equity and other financial liabilities
which are principally denominated in United States Dollars.
Transactions in foreign currencies are translated to the
functional currency of the Group entity at the rates of exchange
prevailing on the dates of the transactions. At each reporting
date, monetary assets and liabilities that are denominated in
foreign currencies are retranslated to the functional currency at
the rates prevailing on the reporting date. Exchange differences on
all transactions are recognised in the consolidated statement of
comprehensive income in the year in which they arise.
Revenue recognition
IFRS 15 established a comprehensive framework for determining
whether, how much and when revenue is recognised. It replaced
existing revenue recognition guidance, including IAS 18 Revenue.
IFRS 15 is effective for annual periods beginning on or after 1
January 2018, with early adoption permitted. The Company early
adopted the standard in FY 2018.
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, TK, which commenced in January 2018,
and under which all production up to 10,000 tonnes per annum will
be sold. Under the terms of the contract, the Company's performance
obligation is considered to be the delivery of concentrate meeting
agreed criteria.
The performance obligation is satisfied and associated revenue
from customers is recorded when the title for a shipment is
transferred to TK, normally at a port in East Africa. On transfer
of title, control is considered to have passed to the customer with
the Company having right to payment, but no ongoing physical
possession or involvement with the concentrate, legal title and
insurance risk having transferred.
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, and the
shipping and fees deducted from net proceeds by TK. 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 appraisal 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.
Pre-licence/project costs are written off immediately. Other
costs are also written off unless the Board has determined that the
project is commercially viable and technically feasible for
extraction, or the determination process has not been completed.
Accumulated cost in relation to an abandoned area are written off
in full to the statement of comprehensive income in the year in
which the decision to abandon the area is made.
Exploration and evaluation assets associated with an
identifiable project area are transferred from intangible fixed
assets to tangible fixed assets as 'mine development costs' when
the commercial viability and technical feasibility of extracting
the deposit has been established. This includes consideration of a
variety of factors such as whether the 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 mine development
costs, brownfield exploration activity within the mining permit
area, plant and machinery, 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. Costs associated with
bringing the mine into commercial production, including costs such
as mining, processing and selling costs for concentrate produced
during this period, are capitalised to mine development costs. An
adjustment is recorded to cost of sales to eliminate margin
generate on revenue during this period with a corresponding
reduction in capitalised mine development costs.
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 over the shorter of
the estimated useful life of the asset using the straight-line
method, or the life of mine using the unit of production method and
life of mine tonnes. Residual values and useful lives are reviewed
on an annual basis and changes are accounted for over the remaining
lives.
The applicable depreciation rates are as follows:
Description Useful life
Mine development and restoration costs Infrastructure depreciated on a life of
mine unit of production basis. Mining
costs depreciated
on a unit of production based on the
tonnes mined and estimates of tonnes
contained in a specific
mining area.
------------------------------------------------------------
Plant and machinery Life of mine unit of production basis
------------------------------------------------------------
Vehicles 5 years
------------------------------------------------------------
Computer equipment 3 years
------------------------------------------------------------
Office furniture and fittings 7 years
------------------------------------------------------------
Deferred stripping costs
Stripping costs incurred during the development phase of the
mine as part of initial removal of overburden are capitalised as
mine development costs within property, plant and equipment and
depreciated on a units of production basis.
Stripping costs incurred during the production stage of the mine
are included within the cost of inventory produced (ie the ROM
stockpile) however may be accounted for as a non-current deferred
stripping asset, depending on the expectation of when the benefit
of the stripping activity is realised through the processing of
ore.
To the extent that the bene t from the stripping activity is
realised in the form of inventory produced in the current period,
the directly attributable costs of that mining activity is treated
as part of the ore stockpile inventory.
To the extent that the bene t from the stripping activity is the
improved access to ore that will be mined in future periods and the
cost is material, the directly attributable costs are treated as a
non-current 'stripping activity asset' and depreciated over the
relevant section of the ore body.
Impairment of exploration and evaluation assets
Exploration and evaluation assets are reviewed regularly for
indicators of impairment following the guidance in IFRS 6
'Exploration for and Evaluation of Mineral Resources' and tested
for impairment where such indicators exist. In addition, these
assets are tested for impairment prior to transfers to mine
development costs.
In accordance with IFRS 6 the Group considers the following
facts and circumstances in their assessment of whether the Group's
exploration and evaluation assets may be impaired:
-- whether the period for which the Group has the right to
explore in a specific area has expired during the period or will
expire in the near future, and is not expected to be renewed;
-- whether substantive expenditure on further exploration for
and evaluation of mineral resources in a specific area is neither
budgeted nor planned;
-- whether exploration for and evaluation of reserves in a
specific area have not led to the discovery of commercially viable
quantities of mineable material and the Group has decided to
discontinue such activities in the specific area; and
-- whether sufficient data exists to indicate that although a
development in a specific area is likely to proceed, the carrying
amount of the exploration and evaluation assets is unlikely to be
recovered in full from successful development or by sale.
If any such facts or circumstances are noted, the Group, as a
next step, perform an impairment test in accordance with the
provisions of IAS 36. In such circumstances the aggregate carrying
value of the exploration and evaluation asset is compared against
the expected recoverable amount of the cash generating unit. The
recoverable amount is the higher of value in use and the fair value
less costs to sell.
Any impairment arising is recognised in the income statement for
the year.
Impairment of property, plant and equipment
A review is carried out at each balance sheet date to determine
whether there is any indication that tangible fixed assets should
be impaired. Assets are assessed for indicators of impairment (and
subsequently tested for impairment if an indicator exists) at the
level of a Cash Generating Unit ('CGU'). A CGU is the smallest
group of assets that generates cash inflows from continuing use. If
an indication of impairment exists, the recoverable amount of the
asset or CGU is determined. The recoverable amount is the higher of
value in use and the fair value less cost to sell. In assessing the
value in use the expected future cash flows from the assets are
determined based on estimates of the life of mine production plans
together with estimates of future rare earth prices, capital
expenditure necessary to extract the deposit included in the life
of mine plan, cash costs and applying a discount rate to the
anticipated risk adjusted future cash flows.
An impairment is recognised immediately as an expense to the
extent that the carrying amount exceeds the assets' recoverable
amount. Where there is a reversal of the conditions leading to an
impairment, the impairment is reversed through the income
statement.
Leases
Where assets are financed by leasing agreements that give rights
approximating to ownership (finance leases), the assets are treated
as if they had been purchased outright. The amount capitalised is
the present value of the minimum lease payments payable over the
term of the lease. The corresponding leasing commitments are shown
as amounts payable to the lessor. Depreciation on the relevant
assets is charged to profit or loss over the shorter of estimated
useful economic life and the term of the lease.
Lease payments are analysed between capital and interest
components so that the interest element of the payment is charged
to profit or loss over the term of the lease and is calculated so
that it represents a constant proportion of the balance of capital
repayments outstanding. The capital part reduces the amounts
payable to the lessor.
All other leases are treated as operating leases. Their annual
rentals are charged to profit or loss on a straight-line basis over
the term of the lease.
Environmental rehabilitation costs
An obligation to incur restoration, rehabilitation and
environmental costs arises when environmental disturbance is caused
by the development or ongoing production of a mining property. Such
costs arising from the decommissioning of plant and other site
preparation work, discounted to their net present values, are
provided for in full as soon as the obligation to incur such costs
arises and can be quantified. On recognition of a full provision,
an addition is made to property, plant and equipment of the same
amount; this addition is then charged against profits on a unit of
production basis over the life of the mine. Closure provisions are
updated annually for changes in cost estimates as well as for
changes to life of mine, with the resulting adjustments made to
both the provision balance and the net book value of the associated
non-current asset.
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 whose value in use and re-sale value is uncertain.
Taxation
Current tax is based on the estimated taxable profit for the
period. Taxable profit differs from net profit as reported in the
income statement because it excludes items of income or expense
that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the corresponding tax bases
used in the computation of taxable profit. It is accounted for
using the balance sheet liability method. Deferred tax liabilities
are recognised for all taxable temporary differences and deferred
tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible
temporary differences can be utilised. The carrying amount of
deferred tax assets is reviewed at each reporting date and reduced
to the extent that it is no longer probable that sufficient taxable
profits will be available to allow all or part of the asset to be
recovered.
Convertible loan notes
Upon issue of a new convertible loan, where the convertible
option involves the receipt of a fixed amount of proceeds for a
fixed number of shares to be issued on any conversion, the net
proceeds received from the issue of convertible loan notes are
split between a liability element and an equity component at the
date of issue. The fair value of the liability component is
estimated by discounting the contractual future cash flows at the
prevailing market interest rate for similar non-convertible debt.
The difference between the proceeds of issue of the convertible
loan notes and the fair value assigned to the liability component,
representing the embedded option to convert the liability into
equity of the Group, is included in equity and is not
re-measured.
Subsequent to the initial recognition the liability component is
measured at amortised cost using the effective interest method.
On conversion, the liability is reclassified to equity and no
gain or loss is recognised in the profit or loss. The finance costs
recognised in respect of the convertible borrowings includes the
accretion of the liability.
When the terms of a new convertible loan arrangement are such
that the option will not be settled by the Company in exchange for
a fixed number of its own equity instruments for a fixed amount of
cash, the convertible loan (the host contract) is either accounted
for as a hybrid financial instrument and the option to convert is
an embedded derivative or the whole instrument is designated at
fair value through profit and loss.
Where the instrument is bifurcated, the embedded derivative,
where material, is separated from the host contract as its risks
and characteristics are not closely related to those of the host
contract. At each reporting date, the embedded derivative is
measured at fair value with changes in fair value recognised in the
income statement as they arise. The host contract carrying value on
initial recognition is based on the net proceeds of issuance of the
convertible loan reduced by the fair value of the embedded
derivative and is subsequently carried at each reporting date at
amortised cost. The embedded derivative and host contract are
presented under separate headings in the statement of financial
position. Where the instrument as a whole is designated at fair
value the instrument is measured at fair value subsequent to
initial recognition and changes in fair value recorded in finance
costs.
Prior to conversion the embedded derivative or fair value
through profit and loss instrument is revalued at fair value. Upon
conversion of the loan, the liability, including the derivative
liability where applicable, is derecognised in the statement of
financial position. At the same time, an amount equal to the
redemption value is recognised within equity. Any resulting
difference is recognised in retained earnings.
In respect of transaction costs, where transaction costs arise
in respect of instruments recorded at fair value through profit and
loss they are expensed as incurred. Where costs relate to an
instrument containing a host liability and derivative the portion
attributable to the host is treated as a deduction against the
liability and amortised over the term whilst the portion related to
the derivative is expensed immediately.
Equity facilities
Where the Company enters into equity drawdown facilities,
whereby funds are drawn down initially and settled in shares at a
later date, those shares are recorded initially as issued at fair
value based on management's best estimation, with a subsequent
revaluation recorded based on the final value of the instrument at
the date the shares are issued or allocated. Where the value of the
shares is fixed but the amount is determined later, the fair value
of the shares to be issued is deemed to be the value of the amount
drawn down, less any transaction and listing costs.
Financial instruments
Financial assets and financial liabilities are recognised on the
statement of financial position when the Group becomes a party to
the
contractual provisions of the instrument.
- Financial assets
Cash and cash equivalents comprise cash held by the Group and
short-term bank deposits with a maturity of three months or
less.
Trade and other receivables are measured at initial recognition
at fair value and are subsequently measured at amortised cost
using the effective interest method. A provision is established
when there is objective evidence that the Group will not be
able
to collect all amounts due.
The Group assesses on a forward-looking basis the expected
credit losses, 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
- Financial liabilities
Loans, borrowings and trade and other payables are initially
measured at fair value and are subsequently measured at amortised
cost using the effective interest rate method. They are classified
as current liabilities unless the company has an unconditional
right to defer settlement of the liability for at least 12 months
after the statements of financial position date.
Convertible loan notes are recorded in line with the policy
above.
Equity instruments issued to a creditor to extinguish all or
part of a financial liability are initially recognised at their
fair value. If their fair value cannot be determined, the equity
instruments are measured to reflect the fair value of the financial
liability extinguished. The difference between the carrying amount
of the financial liability extinguished and the consideration paid
is recognised in profit or loss.
Share capital
Ordinary shares are classified as equity and are recorded at the
proceeds received, net of any direct issue costs.
The nature of the Company's reserves is set out in note 21.
Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision maker has been identified as the Chief
Executive Officer. It is considered that there is only one segment
of the Group being its rare earths project. All revenues from the
project are generated in Burundi and sales are exclusively made to
a single customer, thyssenkrupp Materials Trading GmbH, with whom
the Company has a 10-year offtake agreement signed in 2014.
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, taking into account market based vesting conditions.
The fair values of share options are measured using the Black
Scholes model. The expected life used in the models is adjusted,
based on management's best estimate of the effects of
non-transferability, exercise restrictions and behavioural
considerations.
The cost of equity-settled transactions is recognised, together
with a corresponding increase in equity, over the period in which
the performance and/or service conditions are fulfilled, ending on
the date on which the relevant employees (or other beneficiaries)
become fully entitled to the award ('the vesting date').
The cumulative expense recognised for equity-settled
transactions at each reporting date until the vesting date reflects
the extent to which the vesting period has expired and the
Company's best estimate of the number of equity instruments that
will ultimately vest.
The income statement charge or credit for a period represents
the movement in cumulative expense recognised as at the beginning
and end of that period.
No expense is recognised for awards that do not ultimately vest,
except for awards where vesting is conditional upon a market
condition, which are treated as vesting irrespective of whether the
market condition is satisfied, provided that all other performance
and/or service conditions are satisfied.
Warrants
Warrants issued are recognised at fair value at the date of
grant. The charge is expensed on a straight-line basis over the
vesting period. The fair value is measured using the Black-Scholes
model. Where warrants are considered to represent a transaction
cost attributable to a debt issue, the fair value is recorded in
the warrant reserve and deducted from the debt liability and
subsequently amortised through the effective interest rate.
3. ACCOUNTING JUDGMENTS AND ESTIMATIONS
The preparation of financial statements in conformity with IFRS
requires management to make judgments, estimates and assumptions
that affect the application of policies and reported amounts of
assets and liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the
judgments about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ
from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
both current and future periods. Key sources of estimation
uncertainty and judgment are:
Impairment to the carrying value of plant, property and
equipment (note 11)
The Group assessed at 30 June 2019 whether an indication existed
that suggests the Company's fixed assets may need to be impaired.
In accordance with accounting policies, should such an indication
exist, then the Company would estimate the recoverable amount of
the asset or, where applicable, the cash generating unit to which
it belongs. The recoverable amount is assessed by reference to the
higher of 'value in use' (being the net present value of expected
future cash flows of the relevant cash generating unit) and 'fair
value less cost to sell'.
At 30 June 2019, the carrying value of the Company's fixed
assets in respect of the Gakara project was US$11.2 million.
The review of production strategy after year end indicated that
the previous method of focussing on high-grade veins was unlikely
to be profitable in the foreseeable future, and that although
mining was to continue in the near term, this was primarily to
reduce operating losses to a minimal level in order to conserve
cash, while the Company proceeded with exploration and other test
work in order to define a larger, lower-grade resource and bulk
mining operation.
Management thus considered this change in outlook to be an
indicator of potential impairment in respect of the carrying values
of the processing plant at Kabezi, and the Gasagwe and Murambi
pits, whose profitability was predicated on mining and processing
high grade ores. As the future profitability of high-grade ore
mining and processing could not be determined with reasonable
confidence, management judged that the carrying value of these
assets should be fully written down, and a charge of US$3.9 million
was recorded in the accounts at 30 June 2019.
Management considered whether impairment was required in respect
of the remaining assets associated with the Gakara licence,
primarily related to equipment and historic costs associated with
the exploration of the wider licence area. Shortly after the year
end, the Company concluded a placing at a share price of 3 pence
per share, at which level the Company had a market capitalisation
in excess of US$13 million, and on this basis, together with
consideration of the plans for the revised development strategy
management concluded that no further impairment of the remaining
assets at the Gakara level was required.
Commercial production
During the year, the Board reviewed the operation of the Gakara
mine and determined that commercial production had been reached at
the project with effect from 1 July 2018.
In reaching this conclusion, management considered factors
including the completion of construction and commissioning of the
treatment plant (as well as the passing of performance tests in
August 2018), the rate of ore extraction from the Gasagwe pit in
the month (which was in line with targets at that time), and the
fact that a number of export and sales cycles had been successfully
completed.
As a result, all production and sales costs with effect from the
start of the period were expensed as incurred, and all revenues
reported through the income statement in accordance with Group
policies.
In addition, in December 2018, the Company received its
environmental conformity certificate in respect of the Murambi pit,
and ore extraction began from January 2019. Prior to this, work was
restricted to site preparation activities such as constructing
roads, pre-stripping waste and collecting samples. The costs
associated with this work were capitalised prior to January
2019.
Share-based payments (note 20)
Share-based payments relate primarily to share options issued by
the Company, in relation to employee share benefit schemes. The
fair value of such options is calculated using a Black-Scholes
model whose input assumptions are derived from market and other
internal estimates. The key estimates include volatility rates and
the expected life of the options, together with the likelihood of
non-market performance conditions being achieved.
During the year, the Company granted 16,718,987 share options
with an exercise price of 5.28 pence to an affiliate of Lind
Partners, as part of the Lind Facility financing. The share price
at the time of grant was 3.28 pence, and using a Black-Scholes
model, these share options were deemed to have a fair value of
US$499k - however this amount was included as a cost of the Lind
Convertible, and not as a share-based payment.
Decommissioning, site rehabilitation and environmental costs
(note 18)
The Group's mining and exploration activities are subject to
various laws and regulations governing the protection of the
environment. The Group recognises management's best estimate of the
rehabilitation costs in the period in which they are incurred.
Actual costs incurred in future periods could differ materially
from the estimates. Additionally, future changes to environmental
laws and regulations, life of mine estimates and discount rates
could affect the carrying amount of this provision. The Board
assessed the extent of rehabilitation and decommissioning required
as at 30 June 2019 and concluded that a provision of US$100k should
be recognised in respect of future rehabilitation obligations at
the Kabezi plant site, and the Gasagwe and Murambi mining
areas.
Royalty receivables
Refer to note 13 for judgments in respect of royalty
prepayments.
Lind Facility (note 6)
Refer to note 6 for judgments and estimates in respect of the
Lind Facility.
Pella convertible
Refer to note 16 for judgments in respect of the Pella
convertible loan.
Going concern (note 2)
Refer to note 2 for judgments in respect of the going concern
basis of preparation.
4. LOSS FROM OPERATING ACTIVITIES
Operating loss includes:
Year Ended Year Ended
30 June 2019 30 June 2018
US$'000 US$'000
Share-based payment (62) (709)
Audit of the Group and Company financial statements (101) (89)
Non-audit service fees (2) (2)
Depreciation (2,570) -
Impairment (3,854) -
The non-audit services provided by the Company's auditors BDO
LLP during the year related to a review of the unaudited interim
results for the six months to 31 December 2018.
5. FINANCE INCOME AND COSTS
FINANCE INCOME
Year Ended Year Ended
30 June 2019 30 June 2018
US$'000 US$'000
Interest received 1 3
Foreign exchange gains 354 314
355 317
--------------- ---------------
Foreign exchange gains in the current and prior periods mainly
relate to gains on settlement of liabilities in Burundi denominated
in Burundian Francs ('BIF').
FINANCE COSTS
Year Ended Year Ended
30 June 2019 30 June 2018
US$'000 US$'000
Charges related to the Lind Facility 2,473 -
Interest on Pella Convertible loan 4 -
Interest on bank borrowing 139 52
Bank charges 23 19
Interest on finance lease 5 8
2,644 79
--------------- ---------------
The charges associated with the Lind Facility are set out in
Note 6 below.
The interest on the Pella Convertible loan is discussed in Note
16.
The interest charge on bank borrowing during the year related
primarily to the BIF denominated overdraft with Finbank which
carries an interest rate of 14%.
6. LIND FACILITY
The Lind Facility represents a finance arrangement entered into
by the Company in January 2019 with The Australian Special
Opportunity Fund, LP, an entity managed by The Lind Partners LLC
('Lind').
The facility consisted of three elements: an unsecured
convertible security amount of US$750k (the 'Lind Convertible'); a
24-month equity drawdown facility of up to US$7.0 million; and
share options.
On signing of the facility, the Company received net proceeds of
US$775k - of which US$750k was in respect of the Lind Convertible,
US$100k was the first drawdown under the equity drawdown facility,
and US$75k was withheld as a commitment fee.
Upon the first advancement of funding, the Company issued
7,500,000 shares as collateral to Lind, to be used at Lind's
discretion to satisfy future share allotments.
The Lind Convertible amount of US$750k had a two-year term and
carried no coupon. It was convertible into Ordinary Shares of the
Company by reference to face value of US$900k after a minimum of
four months from the date of the agreement (25 January 2019). The
conversion price was determined to be the lower of 5.28p (being
130% of the 20-day VWAP prior to the date of the agreement), or a
10% discount to the average of the five consecutive daily VWAPs
chosen by Lind during the 20 trading days prior to conversion. The
Lind Convertible was initially recorded at the proceeds received,
net of transaction costs, and subsequently designated as a
liability at fair value through profit and loss held at fair value
until settled in equity or the number of shares to be issued was
set as a fixed amount.
Lind exercised their right to convert the Lind Convertible into
Ordinary Shares in two tranches on 3 and 4 June 2019. The first (3
June 2019) was for 19,047,619 shares at 7.6 pence, equating to
GBP1,448k (US$1,838k); the second (4 June 2019) was for 14,742,632
shares at 5.75 pence, equating to GBP858k (US$1,077k). The total
value of the convertible was thus US$2,915k, based on the fair
value of 33,790,251 shares at the date of conversion.
On 30 June 2019, 8,446,360 Ordinary Shares were issued in
satisfaction of this exercise, together with the 7,500,000 shares
issued as collateral in January 2019, while 17,843,891 Ordinary
Shares were allotted on 22 July 2019 following the publication of a
Prospectus and the obtaining of the necessary shareholder and
regulatory approvals.
In addition to the Lind Convertible, the agreement with Lind
also included a 24-month equity drawdown facility. Under the terms
of this agreement, Lind agreed to advance monthly amounts of
between US$100k and US$300k in return for the allotment of shares
in the Company, whose price was based on 90% of the average of five
consecutive daily VWAPs chosen by Lind during the 20 trading days
prior to the issue of the shares. On initial recognition, the
Company recorded shares to be issued and a receivable at fair value
which was subsequently revalued based on the fair value of the
instrument until such time as the shares were issued or
allocated.
The initial drawdown of US$100k on 28 January 2019 was satisfied
by the allotment of 3,425,728, with two further drawdowns of
US$100k each in March and May 2019 for 5,132,067 and 3,927,500
shares respectively.
As part of the overall agreement with Lind, the Company also
issued 16,718,987 share options at an exercise price of 5.28p,
being 130% of the 20-day VWAP prior to date of the agreement. The
options, which remain in place at the date of this report, have a
term of 48 months. These options were valued using a Black-Scholes
model at US$499k and were treated as a transaction cost of the Lind
instrument.
The variable number of shares that could be issued under the
Lind Convertible was fixed at the date of conversion (in two
tranches - 3 June and 4 June 2019). Management concluded that the
number of shares that could be issued from the date of the
conversion notices was fixed given the terms of the agreement
whereby clauses that could give rise to any further variability
being non-substantive. Accordingly, the value of the convertible
was fixed at that date and the increase in fair value of the
instrument compared with the initial proceeds was recorded as a
finance cost in the income statement as follows:
Finance cost
US$'000
Fair value movement on the facility(1) 1,899
Recognition of cancellation fee(2) 75
Share options awarded(3) 499
--------------
Total cost of the convertible 2,473
--------------
1. The fair value movement includes the change in the fair value
of the convertible loan notes between initial recognition at the
US$750k proceeds received and the fair value of the loan note at
the date Lind issued conversion notices and fixed the number of
shares to be issued, together with cash based transaction costs
expensed. Lind opted to use the 7,500,000 collateral shares in
part-settlement of the convertible on 3 June 2019. At the time
these shares were allotted to Lind, their value was US$383k (based
on a share price of 3.9 pence at 28 January 2019). The value of
these shares at the time of their use in part-settlement of the
convertible was US$724k (based on a share price of 7.60 pence on 3
June 2019). The increase in value of US$341k effectively
represented a credit reducing the overall cost of the convertible
which is included in the fair value movement of the loan.
2. Drawdowns under the facility were suspended in March 2019.
Under the terms of the agreement, the facility may be cancelled
without cost after six drawdowns have been made, or at any time
prior to that for a cancellation fee of US$75k. The US$75k fee is
the expected cost of the equity draw down facility and is the
maximum cost to be incurred with regard to cancellation
3. The Fair Value of share options granted to Lind Partners as
part of the facility agreement which were considered to represent a
transaction cost of the facility and therefore expensed.
The Lind Convertible was settled as follows:
Shares Valuation
US$'000
Value at conversion 33,790,251 2,915
Collateral shares taken on 3 June 2019 (7,500,000) (724)
New shares allotted 30 June 2019 (8,446,360) (816)
------------- -----------
Balance at 30 June 2019 17,843,891 1,375
------------- -----------
The balance of US$1,375k was recorded on the Balance Sheet at
Shares to be Issued at year end. These shares were allotted on 22
July 2019 following the publication of a Prospectus and the
obtaining of the necessary shareholder and regulatory
approvals.
7. REMUNERATION OF KEY MANAGEMENT PERSONNEL
Key management personnel are defined as being Executive and
Non-executive Directors and Persons Discharging Managerial
Responsibility ('PDMRs'), who are in effect the members of the
Executive Committee.
Their remuneration for the 12 months ended 30 June 2018 and 30
June 2019 is summarised as follows:
Year Ended Year Ended
30 June 2019 30 June 2018
US$'000 US$'000
Wages and salaries 1,192 1,119
Benefits 54 44
Share- based payments 192 689
-------------- --------------
Total remuneration of key management personnel 1,438 1,852
-------------- --------------
Benefits paid to employees include healthcare and pension
contributions.
Share-based payments shown above exclude the credit of US$130k
in respect of options lapsed in the year due to non-market
performance conditions not having been met.
8. TOTAL EMPLOYEE REMUNERATION (INCLUDING KEY MANAGEMENT PERSONNEL)
Year Ended Year Ended
30 June 2019 30 June 2018
US$'000 US$'000
Wages and salaries 2,433 1,917
Benefits 140 81
Share-based payments 192 709
--------------- ---------------
Total employee remuneration 2,765 2,707
--------------- ---------------
Share-based payments shown above exclude the credit of US$130k
in respect of options which lapsed in the year due to non-market
performance conditions not having been met
The average number of employees during the period were made up
as follows
Directors 6 6
Management and administration 10 7
Mining, processing and exploration staff 190 211
----- -----
206 224
----- -----
9. INCOME TAX EXPENSE
Year Ended Year Ended
30 June 2019 30 June 2018
US$'000 US$'000
Withholding tax 58 93
Current tax expense 23 3
Land tax 20 -
Mining convention community tax 30 -
Total tax expense for the year 131 96
--------------- ---------------
The cost of withholding tax on inbound goods and services in
Burundi was US$58k.
US$23k was the cost of corporation tax charge in Burundi, which
for accounting periods where no tax profits are reported (such as
in the year to 30 June 2019), is based on 1.5% of revenues.
Land tax of US$20k (taxe superficiaire) relates to the tax
payable on the holding of the mining permit. US$30k community
payments relate to the Company's obligations under its mining
convention to pay US$15k per annum to each of the communities in
which it operates, Kabezi and Mutambu.
The difference between the total tax expense shown above and the
amount calculated by applying the standard rate of corporation tax
to the loss before tax is as follows:
Year Ended Year Ended
30 June 2019 30 June 2018
US$'000 US$'000
Loss for the year before tax (12,146) (2,515)
Income tax using the Guernsey rate of 0%: - -
Effects of:
Differences in tax rates (2,328) (292)
Disallowed expenses (impairment) 1,156 -
Tax losses carried forwards 1,172 292
- -
--------------- ---------------
Rainbow Rare Earths Limited and Rainbow International Resources
Limited are subject to 0% income tax in Guernsey and the British
Virgin Islands respectively. Rainbow Rare Earths UK Limited, which
was established on 1 April 2017, is subject to an income tax rate
in United Kingdom of 19%. In Burundi, Rainbow Burundi SPRL and
Rainbow Mining Burundi SM are subject to corporation tax at
30%.
No deferred tax asset has been recognised in respect of the tax
losses carried forward as the recoverability of this benefit is
dependent on the future profitability of the 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 in Rainbow Rare Earths UK Limited
are US$12k (30 June 2018: US$2k), Rainbow Burundi SPRL US$104k (30
June 2018: US$104k), and in respect of Rainbow Mining Burundi SM
they are US$1,348k (30 June 2018: US$186k).
10. LOSS PER SHARE
The earnings per share calculations for 30 June 2019 reflect the
changes to the number of ordinary shares during the period.
At the start of the year, 174,760,472 shares were in issue.
During the year, a total of 41,578,528 new shares were allotted
(see note 19 Share Capital) and on 30 June 2019, 216,339,000 shares
were in issue. In addition, a further 17,843,891 shares were to be
issued at year end, in relation to the Lind Convertible (see note
6). The weighted average of shares in issue in the year was
193,843,716.
Earnings per share have been calculated using the weighted
average of ordinary shares. The Company was loss making for all
periods presented, therefore the dilutive effect of share options
has not been taken account of in the calculation of diluted
earnings per share, since this would decrease the loss per share
for each of the period reported.
Weighted number of ordinary shares
At 30 June 2018 165,258,477
------------------ ------------------------------------
At 30 June 2019 193,843,716
------------------ ------------------------------------
Basic Diluted
2019 2018 2019 2018
Loss for the year (US$'000) attributable to
ordinary equity (11,492) (2,566) (11,492) (2,566)
Weighted average number of ordinary shares in
issue during the year 193,843,716 165,258,477 193,843,716 165,258,477
Loss per share (cents) (5.93) (1.55) (5.93) (1.55)
------------- ------------- ------------- -------------
11. PROPERTY, PLANT AND EQUIPMENT
US$'000 Mine Plant & Vehicles Office Mine restoration Total
development machinery equipment
costs
Cost
At 1 July 2018 7,791 2,665 709 24 60 11,249
Additions 1,526 - - 17 40 1,583
Impairment (1,529) (2,235) - - (90) (3,854)
------------------ ----------------- ----------------- ---------- ----------------- ------------------ ---------
At 30 June 2019 7,788 430 709 41 10 8,978
------------------ ----------------- ----------------- ---------- ----------------- ------------------ ---------
Depreciation
At 1 July 2018 - - - - - -
Charge for year 1,981 430 142 7 10 2,570
At 30 June 2019 1,981 430 142 7 10 2,570
------------------ ----------------- ----------------- ---------- ----------------- ------------------ ---------
Net Book Value at
30 June 2019 5,807 - 567 34 - 6,408
------------------ ----------------- ----------------- ---------- ----------------- ------------------ ---------
Net Book Value at
30 June 2018 7,791 2,665 709 24 60 11,249
------------------ ----------------- ----------------- ---------- ----------------- ------------------ ---------
The majority of the construction work at Kabezi and Mutambu was
completed in the prior year, and therefore additions to fixed
assets were lower in 2019. Included in the US$1.6 million of
additions are US$0.5 million in respect of pre-stripping and site
preparation work at the Murambi pit, which came into production at
the end of December 2018.
Commercial production at the Gakara project was deemed to have
been reached on 1 July 2018 (see note 3 Accounting Judgements and
Estimates). Accordingly, eligible production costs prior to this
were capitalised, and net revenues treated as a deduction to
property, plant and equipment. The net impact of these in the prior
year was an addition of US$279k to mine development costs.
At 30 June 2019, impairments totalling US$3.9 million were taken
against the plant at Kabezi, and against the Murambi and Gasagwe
mine sites (see Note 3 for details).
From July 2018, production costs and revenues have been recorded
through the income statement, and depreciation has been charged in
accordance with the Company's accounting policies. For the same
reasons, no depreciation charge was applied during the prior
year.
US$'000 Mine Plant & Vehicles Office equipment Mine restoration Total
development machinery
costs
Cost
At 1 July 2017 4,603 1,016 169 3 - 5,791
Additions 2,909 1,649 540 21 60 5,179
Production costs
prior to
commercial
production 279 - - - - 279
At 30 June 2018 7,791 2,665 709 24 60 11,249
------------------ ----------------- ----------------- ---------- ------------------ ------------------ --------
Depreciation
At 1 July 2017 - - - - - -
Charge for year - - - - - -
At 30 June 2018 - - - - - -
------------------ ----------------- ----------------- ---------- ------------------ ------------------ --------
Net Book Value at
30 June 2018 7,791 2,665 709 24 60 11,249
------------------ ----------------- ----------------- ---------- ------------------ ------------------ --------
Net Book Value at
30 June 2017 4,603 1,016 169 3 - 5,791
------------------ ----------------- ----------------- ---------- ------------------ ------------------ --------
12. INVENTORY
Year Ended Year Ended
30 June 2019 30 June 2018
US$'000 US$'000
WIP 95 71
Finished goods - 177
Consumables 3 32
--------------- ---------------
Total inventory 98 280
--------------- ---------------
WIP (Work in Progress) represents 51 tonnes of ore undergoing
treatment at the Kabezi processing plant, valued at net realisable
value which was the lower than the cost of production. The decrease
in value of Finished Goods and WIP of US$153k is shown in the
income statement as an operating expense under Stockpile
Movement.
Consumables mainly relates to fuel stocks at 30 June 2019.
13. PREPAYMENTS
Year Ended Year Ended
30 June 2019 30 June 2018
US$'000 US$'000
Current prepayments 389 209
--------------- ---------------
Total prepayments 389 209
--------------- ---------------
Current prepayments relate to prepaid operating expenses and
include US$265k in respect of government royalty payments of 4%
which have been paid based on the total basket price of exports,
rather than on the discounted price received from the Company's
customer TK. These amounts have been recorded as prepayments on the
basis that Rainbow believes that they will be offset against future
royalty payments, in particular in view of the recommendations of a
report published in July 2019 by SRK, commissioned by the World
Bank at the request of Rainbow and the government, into the
reasonableness of the discount received by Rainbow.
Prepayments also include US$63k in respect of costs in relation
to the equity placing which took place in July 2019, after the year
end.
14. TRADE AND OTHER RECEIVABLES
Year Ended Year Ended
30 June 2019 30 June 2018
US$'000 US$'000
VAT recoverable 99 85
Sales proceeds receivable 17 376
--------------- ---------------
Total trade and other receivables 116 461
--------------- ---------------
VAT recoverable relates to the input VAT recoverable in Burundi,
since the VAT registration of the Group's Burundian subsidiary in
the previous year.
Sales proceeds receivable represent the cash due from the sale
of concentrate which took place prior to 30 June 2019, but for
which cash was not received until after year end.
15. CASH AND CASH EQUIVALENTS
Year Ended Year Ended
30 June 2019 30 June 2018
US$'000 US$'000
Cash at bank and in hand 119 354
--------------- ---------------
Total cash at bank and in hand 119 354
--------------- ---------------
No cash amounts were restricted at 30 June 2019 (30 June 2018:
nil).
16. BORROWINGS
Year Ended Year Ended
30 June 2019 30 June 2018
US$'000 US$'000
Bank borrowings (Finbank overdraft) 836 738
Pella Convertible 704 -
Other borrowings 22 22
--------------- ---------------
Total borrowings 1,562 760
--------------- ---------------
All borrowings are deemed to be current.
The following table analyses the movement in borrowings during
the year:
US$'000
---------
Borrowings as at 1 July 2018 760
---------
Pella Convertible - cash 700
Finbank overdraft 98
---------
Cash flows from borrowings 798
Non-cash interest on Pella Convertible 4
---------
Non-cash movement 4
Borrowings as at 30 June 2019 1,562
---------
In addition to the movements above, interest of US$139k in
respect of the Finbank overdraft was settled in cash in the
year.
Finbank Overdraft
The Bank borrowings relate to an overdraft facility with Finbank
in Burundi. It is expressed in BIF and carries an interest rate of
14%. As the facility was initially agreed in October 2017, on a
six-month term rolling thereafter, it has been classified as a
short-term liability. The balance at 30 June 2019 was 1.9 billion
BIF (US$0.8 million).
The overdraft facility was originally agreed as a short-term
source of working capital, however has remained in place for longer
than originally intended. This arrangement has been through a
series of extensions agreed with Finbank. In August 2019, the
facility term was reduced to 1.5 billion BIF (US$0.6 million) - a
reduction settled in cash. Discussions are ongoing with Finbank
with regard to the further reduction of the facility by
transforming a portion of the balance (expected to be 1.0 billion
BIF, or US$0.4 million) into a term loan repayable over 2-3 years,
while the balance of 0.5 billion BIF (US$0.2 million) remains as an
overdraft.
Under the terms of this facility, Finbank has security over the
fixed and floating assets of Rainbow Mining Burundi SA ('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 this account amounted to US$139k
during 2019, which was settled in cash.
Pella Convertible
The Pella Convertible loan represented an unsecured bridge
funding facility of US$0.7 million announced in May 2019, between
the Company and Pella Ventures Limited (an entity in which Adonis
Pouroulis, Rainbow's chairman and largest shareholder, has a
beneficial interest).
Pella Ventures Limited advanced US$0.7 million to the Company in
June for a period of up to 12 months at an interest rate of 15% per
annum from drawdown. The terms of the loan agreement dated 7 May
2019 provided that the principal amount of US$700k and the
outstanding interest (US$4k) would convert into new Ordinary Shares
on the same terms as apply to the next equity fundraising
undertaken by the Company. The loan was initially recorded at the
proceeds received, net of costs. Subsequently, the host liability
has been recorded at amortised cost with the derivative associated
with the variable number of shares that would be issued on
conversion as a derivative. However, the fair value of the
derivative was insignificant at 30 June 2019 given the terms of the
instrument and proximity to year end.
Following the completion of that placing in July 2019, the Pella
Ventures Convertible converted into 18,636,040 new Ordinary
Shares.
17. TRADE AND OTHER PAYABLES
Year Ended Year Ended
30 June 2019 30 June 2018
US$'000 US$'000
Trade payables 1,074 535
Accrued expenses 358 355
Payroll and withholding taxes 82 31
Amounts due to staff and management 517 368
Pension contributions 3 3
Other payables 63 63
--------------- ---------------
Total trade and other payables 2,097 1,355
--------------- ---------------
Trade payables and accrued expenses relate to the ongoing
operating costs of the mine. These included US$0.4 million in
respect of the rental of mining equipment, US$0.4 million for
technical and professional mining consulting, and US$0.3 million
consumables, equipment, and other running costs.
Amounts due to staff and management include a group bonus
accrual of US$0.4 million in addition to deferred director's fees
and senior management salaries, which was settled after the year
end.
The average terms for trade and other payables are 30 days.
The Directors consider that the carrying value of trade and
other payables approximate to their fair value.
18. PROVISIONS
Year Ended Year Ended
30 June 2019 30 June 2018
US$'000 US$'000
Rehabilitation provision 100 60
-------------- --------------
Total provisions 100 60
-------------- --------------
Rehabilitation provisions relate to the anticipated cost of
restoring the operating sites at Kabezi, Gasagwe and Murambi.
19. SHARE CAPITAL
Year Ended Year Ended
30 June 2019 30 June 2018
US$'000 US$'000
Share Capital 20,056 16,722
-------------- --------------
Issued Share Capital (nil par value) 20,056 16,722
-------------- --------------
The table below shows a reconciliation of share capital movement
in the year:
Number of shares US$'000
------------------ ----------
At 1 July 2018 174,760,472 16,722
------------------ ----------
Aug 2018 - share placing 13,146,873 1,875
Jan 2019 - collateral shares issued to Lind (see note 6) 7,500,000 384
Mar 2019 - Lind drawdown tranche 1 (see note 6) 3,425,728 88
Apr 2019 - Lind drawdown tranche 2 (see note 6) 5,132,067 85
May 2019 - Lind drawdown tranche 3 (see note 6) 3,927,500 86
June 2019 - conversion of Lind Convertible (see note 6) 8,446,360 816
At 30 June 2019 216,339,000 20,056
------------------ ----------
The share placing in August 2018 and the three Lind drawdowns
together represent net cash proceeds of shares issued in the period
of US$2.1 million (US$2.35 million gross less transaction costs of
US$0.21 million).
On 8 August 2018, the Company allotted 13.1 million new ordinary
shares at a price of 12 pence per share, raising gross proceeds of
approximately US$2.0 million (before costs of US$0.2 million).
These allotments included the following related parties:
No of shares US$'000
Adonis Pouroulis (Director) 2,496,917 389
Robert Sinclair (Director) 291,624 45
Atul Bali (Director) 416,667 65
Martin Eales (Director) 83,333 13
Jim Wynn (PDMR) 58,333 9
Others (not related parties) 9,799,999 1,527
Total 13,146,873 2,049
The table below shows a reconciliation of share capital movement
for the year ended 30 June 2018:
Number of shares Value (US$'000)
------------------ -----------------
At 1 July 2017 154,626,472 13,186
------------------ -----------------
December 2017 - share placing 20,000,000 3,516
April 2018 - shares issued for exercise of share options 134,000 20
------------------ -----------------
At 30 June 2018 174,760,472 16,722
------------------ -----------------
On 19 December 2017, the Company issued 20,000,000 ordinary
shares as part of an equity placing, to new and existing
shareholders (but no management or related parties). Net proceeds
for this equity raise amounted to US$3.5 million, after accounting
for US$0.2 million of transaction costs.
On 16 April 2018, 134,000 shares were allotted to satisfy the
exercise of employee share options.
20. SHARE OPTIONS AND WARRANTS
The total share-based payment charge for the year was US$62k,
representing the net of US$192k in respect of the fair value charge
for share options in issue, reduced by a credit of US$130k arising
on lapsed share options as a result of non-market performance
conditions not having been met.
Employee share options
A total of 12,058,400 employee share options had been issued at
30 June 2018.
No new employee share options were granted during the period,
however 1,083,334 share options lapsed in the year. The table below
shows the movement on share options held by PDMRs in the year:
Options Exercised/ Granted Options Exercise Date of Date from
held at 30 lapsed during the held at 30 price grant which first
June 2018 during the period June 2019 (pence) tranche
period exercisable
-------------- ------------- ------------- ------------ ------------- ------------- ------------- -------------
A Pouroulis 402,000 - - 402,000 10.00 30-Jan-17 30-Jan-17
A Pouroulis 500,000 - - 500,000 15.00 23-Aug-17 23-Aug-17
R Sinclair 350,000 - - 350,000 10.00 30-Jan-17 30-Jan-17
R Sinclair 500,000 - - 500,000 15.00 23-Aug-17 23-Aug-17
A Lowrie 500,000 - - 500,000 15.00 23-Aug-17 23-Aug-17
A Bali 500,000 - - 500,000 15.00 23-Aug-17 23-Aug-17
C Morelli 944,700 - - 944,700 10.00 30-Jan-17 30-Jan-17
G Midende 944,700 - - 944,700 10.00 30-Jan-17 30-Jan-17
M Eales 3,500,000 (583,334) - 2,916,666 10.00 30-Jan-17 30-Jan-17
S McCormick 350,000 - - 350,000 10.00 30-Jan-17 30-Jan-17
S McCormick 500,000 - - 500,000 15.00 23-Aug-17 23-Aug-17
J Wynn 1,500,000 (250,000) - 1,250,000 12.75 27-Jun-17 27-Jun-17
B Jankowitz 1,500,000 (250,000) - 1,250,000 12.75 27-Jun-17 27-Jun-17
Others 67,000 - - 67,000 10.00 30-Jan-17 30-Jan-17
12,058,400 (1,083,334) - 10,975,066
-------------- ------------- ------------- ------------ ------------- ------------- ------------- -------------
On 17 September 2018, a total of 1,083,334 share options held by
senior managers lapsed as a result of non-market performance
targets not having been met for the year ended 30 June 2018. This
resulted in a reversal of previously recognised fair value charges
of US$130k, which credited against share-based payment charges in
the income statement in the year.
All awards vest and are exercisable in three equal tranches: the
first on the date of award, and the second and third 12 and 24
months later respectively.
At 30 June 2019, the following employee share options were
exercisable and outstanding:
Number Average weighted exercise price Fair value (US$'000)
----------------------------------------- ------------- --------------------------------- ----------------------
Outstanding at 1 July 2018 12,058,400 11.72 pence 1,387
Granted during the year - - -
Exercised in the year - - -
Lapsed or expired in the year (1,083,334) 11.27 pence (130)
----------------------------------------- ------------- --------------------------------- ----------------------
Outstanding at 30 June 2019, of which: 10,975,066 11.77 pence 1,257
* Exercisable 6,910,930 11.80 pence 790
* Not exercisable 4,064,136 11.70 pence 467
----------------------------------------- ------------- --------------------------------- ----------------------
Lind Share Options
In January 2019, 16,718,987 share options were issued to Lind
Partners (see note 6) 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 has been 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.
Warrants
On 9 November 2015 Rainbow Rare Earths issued 6,293 warrants for
services with an exercise price of US$14.30 per warrant and a
contractual life of 5 years. The separable warrants were issued as
consideration for arranging a funding transaction for the Company.
Following the share sub-division, the total warrants and exercise
price have been adjusted on a pro rata basis in accordance with the
existing agreement.
At 30 June 2019, the following share warrants were
outstanding:
Number Exercise price Fair value (US$'000)
Outstanding at 1 July 2018 427,924 US$0.21 40
Movement in the year - - -
Exercisable at 30 June 2019 427,924 US$0.21 40
------------------------------ --------- ---------------- ----------------------
The Fair Value of share options and warrants awarded in the
current and prior year was estimated using a Black-Scholes model.
The inputs into the Black--Scholes were:
Lind Share E'ee Share E'ee Share Options E'ee Share Warrants
Options 25 Options 23 August 27 June 2017 Options 30
January 2019 2017 January 2017
--------------------- ------------------- ------------------- -------------------- ------------------- ----------
Share price (GBP) 0.039 0.1113 0.1275 0.1162 10.83
Exercise price
(GBP) 0.0528 0.15 0.1275 0.10 10.83
Expected volatility 90% 90% 90% 90% 50%
Risk--free rate 0.71% 0.71% 0.85% 0.79% 1.8%
Rate of Exchange 1.32 1.28 1.30273 1.23 1.32
Contractual life
(years) 4 7 7 7 5
--------------------- ------------------- ------------------- -------------------- ------------------- ----------
Expected volatility was determined by the volatility of a basket
of similar listed companies. The expected life used in the model
has been on management's best estimate for the effects of exercise
restrictions and behaviour.
21. RESERVES
Reserve Purpose
Share capital Value of shares issued less costs of issuance
---------------------------------------------------------------------------------------
Shares to be issued Shares to be allotted in respect of equity commitments
---------------------------------------------------------------------------------------
Share-based payment reserve Fair value of share options issued
---------------------------------------------------------------------------------------
Other reserves Includes fair value of warrants issued
---------------------------------------------------------------------------------------
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 2019. Refer
to note
21 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.
22. NON-CONTROLLING INTEREST
The non-controlling interests of the Group's partners in its
operations are presented in the table below:
Name of subsidiary Rainbow Burundi SPRL Rainbow Mining
Burundi SM
Country Burundi Burundi
US$'000 US$'000
Effective
non-controlling
interest 2018 3% 10%
As at 1 July 2017 6 (12)
Loss for year - 45
-------------------------------------- --------------------------------------
At 30 June 2018 6 33
Effective
non-controlling
interest 2019 3% 10%
As at 1 July 2018 6 33
Loss for year - 785
-------------------------------------- --------------------------------------
At 30 June 2019 6 818
-------------------------------------- --------------------------------------
Assets at year-end:
30 June 2018 1 11,657
30 June 2019 1 6,447
Liabilities at
year-end:
30 June 2018 313 11,958
30 June 2019 313 14,608
Loss for the year
to:
30 June 2018 2 450
30 June 2019 - 7,858
23. FINANCE LEASES
In June 2017, the Company agreed the terms of a finance lease
contract with G Midende (a PDMR and a related party, see note 24
below) for land situated in Kabezi at the site of the processing
plant. This agreement came into effect in July 2017 and has been
recognised as a finance lease obligation during the period as
follows:
2019 2018
Minimum Present Minimum Payments Present Value
Payments Value of of payments
payments
US$'000 US$'000 US$'000 US$'000
Within one year 18 17 18 17
After one year but not more
than five years 18 14 36 26
More than five years - - - -
----------- ----------- ------------------ ---------------
Total minimum lease payments 36 31 54 43
Less amounts representing
finance charges (5) - (11) -
----------- ----------- ------------------ ---------------
Present value of minimum
lease payments 31 31 43 43
----------- ----------- ------------------ ---------------
US$18k was paid during the year in respect of the above lease
(2018: US$19k).
24. CAPITAL COMMITMENTS
There were no capital commitments at 30 June 2019 (2018: US$0.1
million).
25. RELATED PARTY TRANSACTIONS
Year to 30 June 2019 Year to 30 June 2018
Charged in Settled in Balance at 30 Charged in Settled in Balance as at
year year June 2019 year year 30 June 2018
--------------- --------------- --------------- ---------------
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
Artemis
Trustees
Limited
(R Sinclair)
- Company
secretarial
services 32 (16) 16 31 (107) -
--------------- --------------- --------------- --------------- --------------- ---------------
Gilbert
Midende -
rental of
land for
plant site
and
accommodation 43 (25) 20 44 (44) 2
--------------- --------------- --------------- --------------- --------------- ---------------
Martin Eales - - - - (122) -
--------------- --------------- --------------- --------------- --------------- ---------------
Pella - - - (43) -
Resources
Limited (A
Pouroulis) -
office rental
--------------- --------------- --------------- --------------- --------------- ---------------
Pella Ventures
Limited (A
Pouroulis) -
convertible
loan 704 - 704 - - -
--------------- --------------- --------------- --------------- --------------- ---------------
Uvumbuzi
Resources
Limited (C
Morelli) -
exploration
services 38 (38) - 110 (117) -
--------------- --------------- --------------- --------------- --------------- ---------------
Benzu Minerals
(C Morelli) -
exploration
services 90 (55) 35 18 (18) -
--------------- --------------- --------------- --------------- --------------- ---------------
907 (134) (775) 203 (451) 2
--------------- --------------- --------------- --------------- --------------- ---------------
-- The US$0.7 million convertible loan from Pella Ventures limited is explained in note 16
-- The US$122k paid to Martin Eales during the prior year
related to the unsettled amounts in respect of his waived
entitlement to a profit-share agreement under his previous
contract
-- US$25k paid to Gilbert Midende in 2019 included US$18k in
respect of leases (see note 23) and US$7k in respect of
accommodation and associated costs
-- Remuneration with key management personnel has been disclosed in note 7.
26. INVESTMENT IN SUBSIDIARIES
The shareholdings in the Group's subsidiaries for each year are
set out below:
Name of Company Principal Activity Country of Incorporation % Share Capital Held
2019 2018
Rainbow International Resources
Ltd Rare earth exploration British Virgin Islands 100% 100%
Rainbow Rare Earths UK Ltd Service Company United Kingdom 100% 100%
Rainbow Burundi SPRL Rare earth exploration Republic of Burundi 97% 97%
Rainbow Mining Burundi SM Rare earth mining Republic of Burundi 90% 90%
a. Rainbow International Resources Limited is 100% owned by Rainbow Rare Earths Limited.
b. Rainbow Rare Earths UK Ltd is 100% owned by Rainbow Rare Earths Limited.
c. 97% of shares in Rainbow Burundi SPRL and 90% of shares in
Rainbow Mining Burundi SM are held by Rainbow International
Resources Limited.
d. The government of Burundi has a 10% interest in Rainbow
Mining Burundi SM granted in accordance with the Mining Code of
Burundi.
e. Gilbert Midende holds a 3% interest in Rainbow Burundi SPRL.
27. CONTINGENT LIABILITIES
There were no contingent liabilities at 30 June 2019 (30 June
2018: nil).
28. POST BALANCE SHEET EVENTS
On 3 July 2019, the Company concluded a placing of 163,975,884
at a price of 3 pence per share for net proceeds of US$4.2
million.
121,207,778 new shares were issued for gross funds of US$4.6
million, including 333,333 shares for US$13k to A Lowrie, a
director of the Company, as well as 26,455,026 shares for US$1.0
million to a beneficiary of G Bennett, who was appointed a director
of the Company on 27 August 2019.
4,859,603 shares were also allotted in satisfaction of US$184k
of outstanding remuneration and fees to directors and senior
management.
17,843,891 shares were issued to Lind Partners in settlement of
the final balance of the Lind Convertible (see note 6), while
18,636,040 shares were issued to Pella Ventures Ltd (a beneficiary
of A Pouroulis) in settlement of the US$0.7 million convertible
loan drawn down in June 2019.
1,428,572 shares were allotted in settlement of other
liabilities.
All shares were issued at a value of 3 pence per share.
Commission and other fees totalled US$352k, and net cash
proceeds of the raise amounted to US$4.2 million, with liabilities
and other obligations valued at US$1.6 million also settled in
shares.
Shares Cash Other Total
amounts
settled
US$'000 US$'000 US$'000
Placings for cash
George Bennett (prior to appointment
as Director) 26,455,026 1,000 - 1,000
Alex Lowrie 333,333 13 - 13
Others 94,419,419 3,569 - 3,569
------------- --------- ---------- ---------
Total raised for cash 121,207,778 4,582 - 4,582
Amounts in settlement of outstanding
remuneration and fees
Adonis Pouroulis 472,222 - 18 18
Shawn McCormick 305,555 - 12 12
Robert Sinclair 305,555 - 12 12
Atul Bali 305,555 - 12 12
Martin Eales 1,182,563 - 45 45
Jim Wynn 844,688 - 32 32
Cesare Morelli 640,315 - 24 24
Gilbert Midende 803,150 - 30 30
------------- --------- ---------- ---------
Total to settle outstanding
remuneration and fees 4,859,603 - 184 184
Amounts to settle convertible
loans and other obligations
Lind Partners(1) 17,843,891 - 674 674
Pella Ventures Ltd (A Pouroulis) 18,636,040 - 704 704
Others 1,428,572 - 54 54
------------- --------- ---------- ---------
Total to settle convertible
loans and other liabilities 37,908,503 - 1,433 1,433
Total allotment 163,975,884 4,582 1,617 6,198
------------- --------- ---------- ---------
Less: commission (78) (78)
Other transaction costs (274) (274)
Net funds 163,975,884 4,230 1,617 5,846
------------- --------- ---------- ---------
1 - 17,843,891 shares were allotted to Lind Partners as the
final settlement of the Lind Convertible. The valuation at the time
of conversion was fixed at US$1,375k and recognised as shares to be
issued, whereas the value of these shares based on a share price of
3 pence (the subscription price for the rest of this placing) was
US$674k as shown above.
29. FINANCIAL RISK MANAGEMENT
The Group's financial liabilities at each period end consist of
bank borrowings, convertibles and trade and other payables. All
liabilities are measured at amortised cost with the exception of
bifurcated derivatives on the Pella loan which are insignificant.
These are detailed in notes 16 and 17.
The Group has various financial assets, being trade and other
receivables and cash, which arise directly from its operations. All
are classified as assets held at amortised cost. These are detailed
in notes 14 and 15.
The fair values of the Group's cash, trade and other
receivables, borrowings, convertibles and trade and other payables
are considered to approximate book value.
The risks arising from the Group's financial instruments are
credit risk, liquidity risk and market risk (including interest
risk and
currency risk). The risk management policies employed by the
Group to manage these risks are discussed below:
Credit risk
Credit risk refers to the risk that 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 15, with additional risk attached to other receivables set
out in note 14. Credit risk is managed by ensuring that surplus
funds are deposited only with well-established financial
institutions of high-quality credit standing.
At 30 June 2019 the Company had no material trade receivables,
and a US$0.1 million VAT receivable in Burundi.
Market risk
Market risk arises from the Company's use of interest bearing,
tradable and foreign currency financial instruments. It is the risk
that the fair value or future cash flows of a financial instrument
will fluctuate because of changes in interest rates (interest rate
risk), foreign exchange rates (currency risk) or other market
factors (other price risk).
- Currency risk
Currency risk refers to the risk that fluctuations in foreign
currencies cause losses to the Group.
The Group is exposed to foreign exchange risk arising from
various currency exposures primarily with respect to Sterling and
the Burundian Franc. However, management monitors the exchange rate
fluctuations on a continuous basis and acts accordingly. The
financial assets and liabilities that include significant foreign
currency denominated balances are shown below.
Foreign exchange risk is managed by minimising balances held in
currencies other than US dollars, particularly Burundian Francs.
The table below shows the currency profiles of cash and cash
equivalents
Cash and cash equivalents
Year Ended Year Ended
30 June 2019 30 June 2018
US$'000 US$'000
US dollars 96 100
GB pounds 23 252
Burundi Francs - 2
-------------- --------------
119 354
-------------- --------------
The table below shows an analysis of the currency of the
monetary liabilities in the functional currency of the Group (US
dollars)
Trade payables
Year Ended Year Ended
30 June 2019 30 June 2018
US$'000 US$'000
South African Rand 102 104
GB pounds 166 113
Burundi Francs 599 321
US dollars 207 -
-------------- --------------
1,074 538
-------------- --------------
A 10% movement in the US$:BIF rate would have resulted in a gain
of approximately US$0.1m (2018: less than US$0.1m) in the income
statement in relation to the cash and cash equivalents and trade
payables as at 30 June 2019.
- Interest rate risk
Interest rate risk refers to the risk that fluctuations in
interest rates cause losses to the Company.
The Group and Company have no material exposure to interest rate
risk except on cash and cash equivalents which carry variable
interest rates. The Group has no material sensitivity to reasonable
changes in variable interest rates. The group monitors the variable
interest risk accordingly.
The Group's borrowings bear fixed rates of interest.
Liquidity risk
Liquidity risk refers to the risk that the Group has
insufficient cash resources to meet working capital requirements.
The Group manages its liquidity requirements by using both short
and long-term cash flow projections. All liabilities are deemed to
be short-term as none have repayment maturities beyond 12
months.
Ultimate responsibility for liquidity risk management rests with
the Directors, who have built an appropriate liquidity risk
management framework for the management of the Group's short,
medium and long-term funding and liquidity management requirements.
The Group closely monitors and manages its liquidity risk. For
further details on the Group's liquidity position, please refer to
the going concern paragraph in note 2 of these accounts.
Capital management
In managing the capital, the Group's primary objective is to
maintain a sufficient funding base, through debt and equity, to
enable the Group to meet its working capital and strategic
investment needs. In making decisions to adjust its capital
structure to achieve these aims the Group consider not only its
short-term position but also its long term operational and
strategic objectives.
The Group's primary capital management measure is net debt
(borrowings less cash) to total equity, measured as follows:
Net debt/(net cash) to equity 30 June 2019 30 June 2018
US$'000 US$'000
Total borrowings (note 16) 1,562 760
Less: Cash and cash equivalents (note 15) (119) (354)
Net debt 1,443 406
Total equity 3,371 10,378
Ratio 43% 4%
The increase in net debt reflects the increase in borrowings at
the year end, notably the US$0.7 million Pella Convertible, as well
as the decrease in cash arising from higher expenditure in the
year.
30. NON-CASH TRANSACTIONS
Material non-cash transactions were as follows:
Year end 30 June 2018
-- The difference between amounts shown in the cash flow
statement and finance costs and the finance income as detailed in
note 5
-- Share-based payments, which have been recognised in income statement
Year end 30 June 2019
-- The difference between amounts shown in the cash flow
statement and finance costs and the finance income as detailed in
note 5
-- Share-based payments, which have been recognised in income statement
-- Partial settlement in shares of the Lind Convertible
31. ULTIMATE CONTROLLING PARTY
The Company does not have a single controlling party.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR BIBDGLGGBGCI
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