30 October 2023

Rainbow Rare Earths Limited

("Rainbow" or "the Company")

LSE: RBW

Preliminary Results for the Year ended 30 June 2023

Rainbow Rare Earths is pleased to announce its preliminary results for the year ended 30 June 2023 ("FY 2023" or the "Year").  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 2023, will be available on the Company's website at www.rainbowrareearths.com.

Highlights

·    Demand for the rare earth elements ("REEs") used in permanent magnets is forecast to rise significantly to meet global decarbonisation targets due to their essential use in electric vehicles ("EVs") and wind turbines.

·    Rapid progress has been made towards Rainbow's aim to be a forerunner in the establishment of an independent and ethical supply chain of REEs.

·    Rainbow has the opportunity to be a multi-asset rare earth developer with two opportunities targeting secondary sources of rare earths: the Phalaborwa phosphogypsum project in South Africa and, post Year-end via the Memorandum of Understanding signed with the Mosaic Company ("Mosaic"), the earlier stage Uberaba phosphogypsum project in Brazil.

·    Both Phalaborwa and Uberaba host all four of the critical magnet rare earths, being neodymium and praseodymium ("NdPr") and the heavies Dysprosium ("Dy") and Terbium ("Tb"), which is where the most severe supply shortages are forecast.

·    The Preliminary Economic Assessment ("PEA") published in October 2022 highlighted Phalaborwa as one of the lowest cost rare earth projects in development today, allowing for strong cash generation in all foreseeable REE pricing scenarios.

·    Phalaborwa's proposed processing flow sheet to recover REEs was confirmed via the delivery of mixed rare earth sulphate in September 2023 from the front-end pilot plant in Johannesburg, South Africa; the back-end pilot plant in Lakeland, USA has completed commissioning and is expected to deliver separated rare earth oxides during the current quarter.

·    Rainbow continued to cement its position within an independent and ethical supply chain via offtake agreements in principle with UK-based Less Common Metals for future rare earth oxide production, and with NEXUS in South Africa for its gypsum by-product.

·    Phalaborwa project is founded on principles of circularity via the extraction of value from 'waste' products; planned sale of gypsum by-product will allow for complete environmental rehabilitation of site.

·    Phalaborwa ownership increased from 70% to 85% with an option to acquire the remaining 15%.

·    Rainbow has been working with carbon and climate change advisors to further understand Phalaborwa's potential environmental impacts and will provide its first annual disclosure in line with the recommendations of the Task Force on Climate-related Financial Disclosures in its 2023 Annual Report.

·    Following the change in focus of Rainbow's business the Directors decided against investing significant amounts in Burundi to develop a formal mineral resource resulting in an impairment review for the Gakara cash generating unit, which has been written down to a net asset value of nil.

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Market Abuse Regulation (EU) No 596/2014 ("MAR") which has been incorporated into UK law by the European Union (Withdrawal) Act 2018 until the release of this announcement.

For further information, please contact:

Notes to Editors:

Rainbow Rare Earths aims to be a forerunner in the establishment of an independent and ethical supply chain of the rare earth elements that are driving the green energy transition. It is doing this successfully via the identification and development of secondary rare earth deposits that can be brought into production quicker and at a lower cost than traditional hard rock mining projects, with a focus on the permanent magnet rare earth elements neodymium and praseodymium, dysprosium and terbium.

The Company is focused on the development of the Phalaborwa Rare Earths Project in South Africa and the earlier stage Uberaba Project in Brazil. Both projects entail the recovery of rare earths from phosphogypsum stacks that occur as the by-product of phosphoric acid production, with the original source rock for both deposits being a hardrock carbonatite. Rainbow intends to use a proprietary separation technique developed by and in conjunction with its partner K-Technologies, Inc., which simplifies the process of producing separated rare earth oxides (versus traditional solvent extraction), leading to cost and environmental benefits.

The Phalaborwa Preliminary Economic Assessment has confirmed strong base line economics for the project, which has a base case NPV₁₀ of US$627 million^[1], an average EBITDA operating margin of 75% and a payback period of less than two years. Pilot plant operations commenced in 2023, with the project expected to reach commercial production in 2026, just five years after work began on the project by Rainbow.

For more information, visit www.rainbowrareearths.com

Chairman's Statement

Dear Shareholder,

The world is currently in the midst of a new industrial revolution - the transition to a sustainable green energy system. This shift is set to drive a huge increase in the requirements for the minerals needed to power clean energy technologies. Of these minerals, REEs are recognised as amongst those with the highest risk for supply shortages, as well as displaying considerable supply chain vulnerability due to China's dominant position in the market.

REEs are essential components of permanent magnets, which are found in a plethora of high tech products, including smartphones, camera lenses, plasma screens, hard drives and even artificial joints. However, it is their use in electric vehicles ("EVs") and wind turbines that is driving major future market growth, with Argus Media Ltd estimating that supply of the magnet rare earths, NdPr, Dy and Tb, will need to grow by ca. 8% per annum by 2032 in order to match demand.

Rainbow's aim is to be a forerunner in the establishment of an independent, sustainable and ethical supply chain of REEs and I am delighted to note that we made excellent progress towards this aim in the Year via the advancement of the Phalaborwa project in South Africa and, post Year end, via the MOU entered into with Mosaic to jointly develop the Uberaba project in Brazil.

Both projects target secondary sources of rare earths, being phosphogypsum stacks that are the residue of phosphoric acid production. These stacks sit at surface, thereby eliminating the traditional geological risk and cost of mining, and are therefore expected to have a significantly lower capital intensity and operating expenditure ("opex") than traditional rare earth mining projects. Furthermore they can be considered "near-term" production opportunities - for example, the Phalaborwa project is expected to commence operations in 2026, which is just five years after Rainbow secured the project.

The outstanding economics of the Phalaborwa project were confirmed via the publication of its Preliminary Economic Assessment ("PEA") in October last year, which noted a base case NPV₁₀ of US$627 million, an average EBITDA operating margin of 75% and a payback period of less than two years. This very high margin sets Phalaborwa apart from other development projects in our space as it can withstand significant pricing volatility.

Post Year-end, the Phalaborwa project recorded a major milestone with the recovery of the first mixed rare earth sulphate from the front-end pilot plant in Johannesburg. This material is considered to be a commercially saleable product that could be a standalone revenue stream for the project, with an estimated sales value of ca. 60% of the global price for separated rare earth oxides. The mixed rare earth sulphate will be used as the feed stock to produce separated rare earth oxides at the back end pilot plant at K-Tech's facility in Florida.

Responsible supply

Rainbow's business model is driven by the shift to cleaner energy, in that we will produce the materials required to make permanent magnets needed for EVs and wind turbines - with this comes a responsibility to operate in a sustainable manner. We have the opportunity at Phalaborwa to clean up legacy environmental issues on site, the main one being acid water which has accumulated over the unlined gypsum stacks. The acid water will be neutralised and used as process water, with the remnant gypsum then deposited on new lined stacks according to International Finance Corporation ("IFC") / Equator Principles. This gypsum is intended to be further on-sold as a clean and benign feed for the cement and other industries, leaving the site rehabilitated to its original state over time.

Phalaborwa's potential to be a near-term source of ethical magnet rare earth supply was recognised by Less Common Metals Ltd ("LCM"), with whom we have entered into a strategic supply agreement for Phalaborwa production. LCM is currently the only rare earth metal and alloy manufacturing facility in the UK and one of the only facilities in the EU. Its location is of strategic importance to Rainbow as the Group's aim is to play an important part in the establishment of a Western supply chain for critical REEs outside of Chinese control.

Portfolio development

Post Year-end, the agreement with Mosaic represents a major opportunity for Rainbow to replicate Phalaborwa at a potentially larger scale. The Uberaba phosphogypsum material is similar to Rainbow's Phalaborwa project in South Africa in that the original feedstock was based on a hardrock carbonatite phosphate deposit. Initial assay analysis from samples have indicated an average grade of 0.58% total rare earth oxides ("TREO"), which is more than 30% higher than the 0.44% TREO for Phalaborwa, and confirmed that the Uberaba basket contains all four of the most economically important rare earths, NdPr at ca. 25% of the basket and includes the two "heavy" permanent magnet rare earths, Dy and Tb.

Further to the acquisition of the Phalaborwa project in December 2020 and the subsequent development of processing technology to recover REEs from phosphogypsum as a by-product of phosphoric acid production, the Directors have re-focused the business on secondary sources of REEs where they consider higher returns are available. As such, the Directors no longer intend to invest significant capital at the Gakara asset in Burundi to convert the existing resource target to a reserve status. This resulted in an impairment review being carried out for the Gakara assets in the year ended 30 June 2023 and led to the net assets being written down to nil as at 30 June 2023.

Corporate development

Rainbow's successful development in FY 2023 was rewarded by continued strong backing for the Company in the market, with a placing to raise US$9.5 million in May 2023 achieved at a premium of 30% to the share price, and a placing post Year-end in September 2023 to raise US$5.4 million achieved at a minor discount of 3% to the share price.

Both fundraisings included cornerstone participation by TechMet Limited ("TechMet"), a private investment company developing world class projects across the critical metals for the global energy transition, and which counts the US International Development Finance Corporation ("DFC") as a major backer.

Pursuant to the nomination right held by TechMet, Darryll Castle (currently Director of Operations for TechMet) joined the Rainbow Board in June 2023. Through his extensive career Darryll has served as an executive director of a number of mining and production companies and has first-hand operations and projects experience globally. We welcome Darryll to the Board.

Responsible production is a core component of our business model and Rainbow has made good progress this year with setting up the structural aspects that will ensure ESG is integrated into our operations. Post Year-end, the Board approved a new Sustainability Policy for the Group and we have committed to a number of United Nations Sustainable Development Goals ("SDGs"), which will provide a focal point for our sustainability strategy and plans.

We have been working with carbon and climate change advisors to further understand Phalaborwa's potential environmental impacts and have provided our first annual disclosure in line with the recommendations of the Task Force on Climate-related Financial Disclosures ("TCFD").

Poised for success

I believe Rainbow offers a compelling investment opportunity in our space. Further to the MOU with Mosaic in Brazil, Rainbow has become one of the only rare earth development companies in the world with multiple near-term production opportunities, as well as occupying a unique position in the pipeline given our ability to utilise innovative and proprietary technology to take the processing of our material all the way through to separated rare earth oxides.

This is an exciting time for the Group and I look forward to the imminent production of separated rare earth oxides in Q4 calendar year ("CY") 2023, bearing in mind Rainbow will be one of the first companies to do this on US soil, which further validates our vision to be an integral part of an independent and Western supply chain of rare earths.

I would like to thank the host countries in which we operate and all our staff who have worked so diligently in laying the platform for delivering one of the most exciting rare earth stories in the world.

Adonis Pouroulis

Non-Executive Chairman

Q&A with the CEO

What do you consider to be the key achievements of FY 2023?

FY 2023 has been a period of further rapid development for Rainbow and the progression of our aim to be a forerunner in the establishment of an independent and ethical supply chain of the rare earth elements driving the green energy transition.

The publication of the Phalaborwa PEA in October last year demonstrated that this was one of the lowest cost rare earth projects in development today and, not only that, it could be brought into production at much quicker pace than traditional projects, as it involves the processing of gypsum stacks already sitting at surface, thereby eliminating the cost and risk of mining.

Phalaborwa will use a unique processing flowsheet that was developed by and in conjunction with our partner K-Tech and which incorporates continuous ion exchange ("CIX") and continuous ion chromatography ("CIC"). While this technology was proven at lab-scale, we wanted to demonstrate that it is commercially viable and this was achieved both during the Year and post Year-end via the successful operation of our pilot plant and the production of the mixed rare earth sulphate.

This validates Rainbow's business model and has allowed us to target other phosphogypsum resources globally. Post Year-end, we signed an MOU with Mosaic in Brazil with regards to the Uberaba phosphogypsum stack, which is expected to have comparable characteristics to Phalaborwa due to the similarities of the host rock. This deal has opened up the future for Rainbow to become a multi-asset producer of rare earth elements from secondary sources.

Post Year-end, we also entered into a strategic supply agreement with LCM, the UK-based world leader in the manufacture and supply of complex alloy systems and metals. Securing a buyer of our separated rare earth oxides that shares our values and aspirations was of strategic importance to Rainbow, especially as the vast majority of rare earth processing and manufacturing companies are based in China.

The intention is for the separated rare earth oxides produced by Phalaborwa to be manufactured by LCM into metal in order to create an alloy, which is then supplied to permanent magnet manufacturers in the EU and the USA, with the ultimate customer of the rare earth permanent magnets being clearly defined and in alignment with the positioning of both Rainbow and LCM in a Western supply chain.

And what were the key challenges?

We continued to see turbulence in the global geopolitical landscape, which had ramifications for economies worldwide, particularly with the ongoing disruption to supply chains and the rising cost of various inputs and commodities. This compounded the issue of slower global economic activity and growth that was already an issue further to the impacts of the Covid-19 pandemic.

We have found that this has played out with investors taking a "risk-off" approach, especially with regards to smaller companies in the resources sector. In spite of these external, macro-economic challenges, we continue to be greatly encouraged by the progress we have been able to make internally and fortunately we have a host of catalyst points over the next six months to two years, as we deliver on the various milestones that bring Phalaborwa closer to first production in 2026.

Another challenge relates to volatility in the pricing of rare earths experienced during the Year, albeit Rainbow is not in production as of yet. Pricing performed strongly in the year ended 30 June 2022 ("FY 2022") due to surging demand, especially following a rush to install offshore wind capacity in China to take advantage of government subsidies, combined with the continued adoption of EVs worldwide. Pricing was also positively impacted by supply disruptions due to the COVID-19 pandemic and the start of the conflict between Ukraine and Russia. However, in FY 2023 we saw a correction in pricing as China increased supply, set against a backdrop of softer economic conditions.

At the time of this Report, pricing has recovered from the lows and expectations are for further improvements into 2024.

We remain confident that the long-term outlook for rare earth demand and pricing is positive as there is a mandated shift to the electrification of our transport system, as well as the exponential roll-out of offshore wind capacity worldwide in order to meet global decarbonisation and net zero targets.

Can you give an update on the Phalaborwa project?

Work at Phalaborwa has continued apace and we are underway with all the various workstreams required for the Definitive Feasibility Study ("DFS"), which we plan to complete by the end of H2 CY 2024 subject to funding.

A major component of this was the construction, commissioning and operation of the pilot plant to prove up our proprietary separation technology, both at scale and on a continuous basis, as well as to produce sufficient quantities of separated permanent magnet rare earth oxides for testing and marketing purposes.

During the Year, the decision was made to split the pilot plant, so that the front-end, which will produce a high-value mixed rare earth sulphate, would remain in South Africa close to the Phalaborwa project, while the back-end, which will produce separated rare earth oxides, would be built and run at the premises of our partner, K-Tech. This would deliver cost and time efficiencies as a result of removing the logistics involved in transporting pilot-scale equipment from the USA, where it is designed, fabricated, and tested, to South Africa, where it would have to be reassembled and commissioned, as well as ensuring that key K-Tech personnel would be available on site to oversee and optimise the process in real-time.

Post Year-end, we achieved a major milestone with the production of the first mixed rare earth sulphate from Phalaborwa phosphogypsum material at the pilot plant front-end pilot plant in Johannesburg. This was a significant de-risking event for the project and the Group, as it confirms Phalaborwa as a rare earth producer and can provide a standalone revenue stream for the project.

This material will be used as feed for the back-end pilot plant and will be processed further to produce separated rare earth oxides in Q4 CY 2023.

How does the Phalaborwa project compare to other rare earth development projects globally?

Phalaborwa is a unique project with exceptional economics, as demonstrated by the PEA. One of the main aspects that attracted me to the project was its comparatively low cost base, which provides resilience against pricing volatility:

·    firstly, as this is not a traditional mining project there are no costs associated with drilling, blasting, crushing, milling and flotation to produce a mixed rare earth concentrate;

·    secondly, the phosphogypsum material has already been chemically "cracked" because it is the by-product of phosphoric acid production, meaning it has already been subjected to heat and sulphuric acid - the cracked material allows for a simpler hydrometallurgical process to produce separated and purified rare earth oxides; and

·    thirdly, the CIX / CIC separation technology developed by K-Tech replaces traditional solvent extraction ("SX") technology, which uses toxic and flammable solvents and diluents and requires many different stages, thereby delivering a process that is safer and more environmentally responsible, as well as reduced capital and operating costs due to a simplified flowsheet.

The project also has exceptional sustainability-related opportunities as it is founded on the principles of circularity. We will be taking a waste product (the existing phosphogypsum stacks), cleaning it and extracting value from it - both via the recovery of the REEs and then via the sale of the benign gypsum that is produced as the by-product of the process. Our operations will see the clean-up of the legacy environmental issues, namely the acid water on site, and will fully deplete the gypsum stacks over time, thereby allowing for a full-circle environmental rehabilitation of the site.

Finally, a key benefit of targeting a secondary source of rare earths in this manner is that the project can be brought into production in a much quicker manner than traditional mining projects. In fact, we are targeting for the project to begin production just five years after we commenced work on site.

What are the key risks to its development?

As the process developed with and by K-Tech is a novel process, albeit using existing technologies and equipment, investors undoubtedly saw technology risk as a key hurdle to investment. This was why the successful production of a mixed rare earth sulphate from the front-end pilot plant in August 2023 was an important milestone; however, we expect to see the benefit of a "de-risked" investment case once the backend pilot plant produces the separated rare earth oxides - expected in Q4 2023.

Management has always had a high level of confidence in the technology. For us, it is more about timing of the project development and what could impact that. Permitting in South Africa is a factor, which is why we are running the various workstreams required already, alongside or incorporated with the DFS requirements. The fact that the project will be cleaning up the legacy issue of acid water on site I think incentivises the permitting process to stay on track as it is to the benefit of the local environment and communities.

In terms of financing, we believe that Phalaborwa will continue to be of interest to strategic investors, especially since it will produce all four of the critical rare earths for permanent magnets, including the heavies Dy and Tb, which are of even scarcer supply. In fact, McKinsey released a report in 2023 noting that of all the critical minerals it surveyed, Dy could see the most severe imbalances of supply with potential "shortages of up to 70% of demand". These heavy rare earths are essential to produce the kind of high-performance permanent magnets needed for EVs and wind turbines.

Our job is to ensure that Phalaborwa maintains its position in an independent and responsible supply chain. This will open the door to investment from the various US initiatives that have been set up to fund US interests in the green transition. We have already seen this via the involvement of TechMet, which has a 12% stake in Rainbow, and, indirectly, their major shareholder the DFC.

What are the priorities for FY 2024?

The production of the separated rare earth oxides in the back-end pilot plant will be the most important milestone in the project to date and it is even more exciting and symbolic that they will be produced in the US. This favourable position has led us to consider permanently basing our oxide separation process in the US and we will continue to evaluate this.

We will maintain the pace of the project development to date with the continued progress with the environmental and social impact assessment ("ESIA") and publication of the DFS by the end of FY 2024 and that will set the scene to commence project finance and on to construction.

We will look to gain a better understanding of the mineralogy of the Uberaba stack, which will inform the future work programme around resource delineation and development of a flowsheet adapted to the Uberaba material.

We will continue to work with OCP and UM6P to evaluate the optimal technique for the extraction of REEs from sedimentary-sourced phosphogypsum. While this is a longer-term project, it represents an exciting opportunity for Rainbow due to the scale of the opportunity if test work can achieve favourable results, as it will unlock the enormous potential of rare earths contained in sedimentary-sourced phosphogypsum material.

Finally we will also be continuing to develop our sustainability approach and practices within the Group, bearing in mind these are an essential part of our future success, and are conducting a life cycle assessment ("LCA") at Phalaborwa to understand the environmental impacts associated with the lifecycle of rare earths production.

It's an exciting period ahead. I would like to thank the Rainbow team, as well as our various partners and contractors, for working tirelessly to deliver the results we have to date.

George Bennett

Chief Executive Officer

Financial Review

Rainbow's strategic focus is to identify and develop secondary rare earth deposits that can be brought into production quicker and at a lower cost than traditional hard rock mining projects. As a developer, Rainbow capitalises the costs of exploration and evaluation for each identifiable project once the legal right to the project has been secured. During the Year, as a result of the successful PEA released for Phalaborwa and the growing pipeline of growth opportunities from the associated processing technology, the Directors decided against investing significant amounts in Burundi to develop a formal mineral resource. As a result an impairment review was carried out on the Gakara cash generating unit, which has been written down to a net asset value of nil. As a result, the Financial Statements now reflect the updated business strategy, with the exploration and evaluation assets on the balance sheet relating solely to Phalaborwa and the income statement dominated by the impairment charge against Gakara.

Profit and Loss

The loss for the Year reflects the impairment of the Gakara cash generating unit and the ongoing administrative costs for the Group.

As noted above, due to the change in strategy an impairment review was carried out for the Gakara cash generating unit during the Year, which comprised both intangible and tangible fixed assets together with cash, mineral concentrate, royalty receivables and consumables held in stock. The liabilities associated with the Gakara project include a loan, decommissioning, site rehabilitation and environmental costs, tax liabilities and trade payables. Based on the assessment of both the legal and political position in Burundi, the Directors were unable to foresee a date when the operations at the project would be able to restart and accordingly have written the net assets of the Gakara cash generating unit to nil, with an impairment charge of US$9.6 million recognised.

Within administration expenses, the costs associated with maintaining the Gakara project on care and maintenance totalled US$0.9 million (FY 2022: US$1.3 million) including US$0.3 million of non-cash depreciation associated with the tangible fixed assets prior to the impairment (FY 2022: U$0.4 million). The Group continues to focus on minimising costs associated with the asset.

The Group's other corporate costs totalled US$2.6 million (FY 2022: US$2.3 million). This increase was driven primarily by an increase in business development costs as the Group started to develop its pipeline of growth opportunities including both Uberaba and OCP.

Net finance income of US$0.2 million (FY 2022: costs of US$0.3 million) represents foreign exchange differences, primarily relating to movements between the Burundian Franc ("BIF") and US dollars, the functional currency of the Group. Finance costs also include US$0.1 million (FY 2022: US$0.1 million) associated with the FinBank loan in Burundi.

Balance Sheet

As set out above, the Gakara impairment has had a significant impact on the Group balance sheet, with US$9.8 million of non-current assets at 30 June 2022 relating to Gakara (US$8.6 million of exploration and evaluation costs and tangible fixed assets with a net book value of US$1.0 million) being written down to nil. The Gakara cash generating unit now includes US$0.7 million of mineral concentrate inventory, carried at cost, which is offset by the FinBank loan (US$0.4 million) and other net liabilities of US$0.3 million dominated by tax and government liabilities in Burundi which have not been settled whilst the suspension of activities persists.

A total of US$2.9 million of exploration and evaluation assets were capitalised in the Year relating to Phalaborwa, leaving a closing capitalised cost of US$4.8 million. Expenditure accelerated following completion of the PEA in October 2022 as pilot test work commenced alongside other activities to develop a DFS. At the balance sheet date, the Group has no tangible fixed assets and no obligations for environmental closure at the Phalaborwa site.

At 30 June 2023, the Group held US$8.1 million of cash and cash equivalents which is predominantly held with Barclays Bank in London, having raised US$9.5 million in May 2023 at a price of 10.377 pence per share.

Going Concern

In July 2023, US$5 million was paid to Barak Fund SPC Limited on behalf of Bosveld Phosphates (Pty) Limited to secure a path to 100% ownership of Phalaborwa. As a result of the payment, the Group secured an immediate 85% interest in Phalaborwa and was granted an option to acquire the remaining 15% via the issue of US$7 million in shares. In September 2023, the Company replenished the funds spent on the Phalaborwa acquisition, raising US$5.5 million at a price of 15 pence per share, of which US$0.7 million is subject to shareholder approval at the forthcoming AGM.

Based on a review of cash flow forecasts for the period to 31 December 2024, at least US$3.4 million of additional funding will need to be raised before 31 December 2024, the timing of which is dependent primarily on the speed at which the Phalaborwa DFS is completed, which is within management's control. Whilst this funding requirement does represent a material uncertainty which may cast significant doubt on the ability of the Company to continue as a going concern, the Board is confident that this funding will be secured based on its history of successful fundraising.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 June 2023

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2023