A market of more than 100 million inhabitants, where only one-third of those over 25 have a bank or mobile finance account (compared to an average ... of 58.5% in sub-Saharan Africa and 79.5% in neighbouring Kenya). An economy where one public institution, Commercial Bank of Ethiopia (CBE), alone manages 55% of outstanding credit. A banking industry so inefficient that its costs absorb 56% of its revenues, but where the return on assets is four times higher than that of Moroccan banks…
A new African project could be agreed within the next six to 12 months, Eales says, declining to name the countries being considered.
As argued in The Africa Report in July, access to rare earths is a key part of the US-China trade war. Demand for rare earths is increasing as they are needed for use in electric vehicles, mobile phones and wind turbines. China, which substantially controls the world market, has sought to impose control over supply by concentrating the country’s mines in the hands of state-controlled companies.
The risk that China will restrict supply to the US as a retaliatory measure for tariffs opens opportunities in African countries that are able to provide supply. An escalation of the trade war, Eales says, “would leave us in a good position”. The company, which trades on the London Stock Exchange, may come back to the market to seek further financing, for example for processing, he explains. Expansion outside Burundi would also need new financing, he adds.
Rainbow endured a “difficult” first half due to its reliance on locally rented equipment, Eales says. The company raised £4m ($4.9m) in a placing in London in July and is now spending the money on new equipment, which will save rental costs and improve efficiency, he says. Earles expects that the company will become profitable by early in 2020.
Modest funding needs
Gakara, originally discovered by a Belgian company in the 1930s, is Africa’s only working rare earths mine. Rainbow has found its small size as a company, together with the high-grade earths available, to be an advantage in financing operations there. Larger-scale deposits, for example in Tanzania, Malawi and Angola, would need hundreds of millions of pounds to be exploited, Eales says.
The Gakara mine is 20km south of Burundi’s capital Bujumbura. Eales describes the mine as being more like an open quarry, meaning the equipment needed is basic gear like excavators and haulage trucks.
- He expects that the new equipment will make it possible to bring two additional pits online by the end of the year.
- Rainbow, which has an off-take and distribution agreement with German industrial engineer Thyssenkrupp, is still evaluating the full extent of the deposit.
Investors in Rainbow run a range of risks above those faced by small miners in developing countries.
- Fuel requirements will increase as a result of the new equipment.
- The prospectus for the July fundraising describes fuel supply in Burundi as uncertain, meaning that fuel imports from Uganda may be needed.
Burundi has a 10% stake in the Gakara project, and Eales describes relations with the government as “relatively positive. They want to develop a mining industry.”
- Yet the country lacks the infrastructure and experience to support mining operations, the prospectus says.
- There is a lack of trained and experienced staff, which extends to government departments.
One risk factor that is under Rainbow’s control is protecting itself against the loss of key employees. Such a specialised operation is dependent on the knowledge and contacts of a small number of people.
- But the company, the prospectus notes, has no key-man insurance policy in place.
- Loss of any senior management member, the prospectus says, would have a disproportionate effect on the company.
The bottom line: Rainbow is well placed to benefit from rare earths demand – but future investors will need to see signs of succession planning.
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