Rainbow Rare Earths (RBW:AIM) 14.26p

Gain to date: 76%

We said to buy Rainbow Rare Earths (RBW:AIM) at 8.1p in anticipation of good news – principally that a pilot plant would demonstrate it could produce rare earths to the required specifications for sale.

Achieving that milestone would help remove one of the uncertainties around the commercial viability of the Phalaborwa project in South Africa.

WHAT HAS HAPPENED SINCE WE SAID TO BUY?

Multiple events have fueled share price momentum, putting us 76% ahead in less than two months.

The miner said on 6 June that the first high-value mixed rare earth sulphate would be produced in the third quarter. The back end of the pilot plant should be ready to start operations during Q3 and will produce separated magnet rare earth oxides.

On 28 June, Rainbow Rare Earths struck a deal to secure full ownership of Phalaborwa, 85% now and the rest via a call option exercisable between 31 October 2023 and 31 December 2025.

Canaccord Genuity initiated coverage on the stock on 7 July with a ‘speculative buy’ rating and a 25p share price target arguing the miner has the potential to be a higher-margin producer as Phalaborwa’s material only requires concentration and separation to produce separated rare earth oxides.

On 17 July, Rainbow Rare Earth announced a memorandum of understanding with $12 billion phosphate and potash group Mosaic (MOS:NYSE) to jointly develop a process flowsheet and conduct a preliminary economic assessment on a phosphogypsum stack owned by Mosaic in the Uberaba area of Brazil. This news took Rainbow Rare Earth’s share price to a 13-month high.

‘The Uberaba stack was sourced from a hard rock carbonatite similar to the original source for Rainbow’s Phalaborwa project,’ says Berenberg. ‘Importantly, the process to create phosphoric acid at Uberaba has, like Phalaborwa, already chemically “cracked” the material, which simplifies the rare earths flowsheet and results in lower costs.’

WHAT SHOULD INVESTORS DO NOW?

While this remains a high-risk investment, it is worth sticking with the shares given the latest news flow and forthcoming updates on the pilot plant.

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