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Rainbow Rare Earths Limited: THE INVESTMENT CASE

New exploration at Gakara could be transformative for Rainbow Rare Earths

The first ever drilling campaign at Gakara is about to get underway
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Demand from electric vehicles could provide further support to rare earth prices

It’s already the highest grading rare earth deposit in the known world, but the work now being initiated by Rainbow Rare Earths Ltd (LON:RBW) at its Gakara project in Burundi could take the economics to a whole new level.

It will perhaps come as a surprise to investors to realise that Gakara has never been drilled, given that production started last month and early modelling indicates that margins will be exceptional.

READ: Rainbow Rare Earths up as it initiates first drilling as Gakara ramp-up continues

But actually, it’s the pure quality of Gakara that’s mitigated against detailed exploration work. With a quality asset like Gakara resource definition drilling, at least in the first instance, simply wasn’t necessary.

Now though, moving into 2018 and Rainbow has already the second and third batch of rare earth concentrate produced from the mine.

Production well underway

Indeed, according to chief executive Martin Eales, before the end of the quarter Rainbow expects to be shipping out on a weekly basis.

So, with production well and truly underway, the time has come to see what Gakara is really made of.

Drillers are will start work this month on targets provided by an airborne geophysical survey that was conducted last year.

This showed four anomalies that potentially look like carbonatite pipes, the main host rock for rare earths. Given that these are pipes not veins, it’s likely that the grades of any mineralisation would be somewhat lower than those of Gakara itself.

But the Gakara grade range of between 47% and 67% total rare earth elements is a tough act for anyone anywhere in the world to follow, and given that production is already flowing, any new feed from a pipe will likely be a significant boost to Rainbow.

But there’s more.

There’s also a fifth target, identified by a ground gravity survey earlier in 2017. And that could be really big.

READ: Rainbow Rare Earths successfully raises £2.8mln to accelerate production ramp-up at Gakara

This target is known as Kiyenzi and its shape and size stand out as being different from Gakara which, as a vein system is only highly mineralised across relatively narrow tracts of ground.

Instead Kiyenzi has extensive dimensions, estimated at 22 metres by 80 metres by 100 metres, which adds up to a whole 176,000 cubic metres or so of potentially mineralised rock.

“We think it’s a vein that’s shot up and then been blocked by something hard and then turned into a pool,” says Eales. “The geological term is a lopolith."

If that thinking is correct, it could be a game-changer for a company that already looks pretty secure in its position as a producer at the lowest point of the cost curve.

In the short-term, Rainbow is supported by a £2.8 mln fundraising that it completed in December. Much of this will be earmarked towards paying for the drilling, but it also provides a handy working capital cushion while the ramp-up continues.

On that score Eales expects Rainbow to be shipping around 400 tonnes of product per month before the end of this year, rising to 500 tonnes per month during next year.

In a rising rare earths market, that makes for an extremely attractive outlook for a company that’s unique on the main market. 

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