Rainbow Rare Earths (LSE:RBW) - 'Undervalued?' Investment series, with George Bennett

George Bennett (0:02)

Good morning, I'm George Bennett, the CEO of Rainbow Rare Earths. I'm here to talk to you about why Rainbow is worth earning and why I believe it's undervalued. Just to give you a bit of background on myself, I spent many years as an investment banker, as a successful career there, where I was a partner in a business that we sold to HSBC in 1998 in South Africa. And then I became CEO of Shanta Gold, which is a gold exploration business in Tanzania.

I took that from a private company of 200,000 ounces, 200,000 ounces and listed that in London a year later. That's been a very successful mining company, where in a sense, it's got two operating gold mines. I then got an opportunity to start a mining engineering business that had gone into liquidation. I refinanced that and restarted that business called M&M Engineering.

I listed that business in London and built about 32 mines around the world, and did 30 odd feasibility studies in that company. Again, a lot of experience on that side of the mining world, that understanding feasibilities, understanding how to build projects, and also more importantly, how to cross projects. One of my mines I built on the offer of clients was over budget. Then I sold that to a global engineering business called McPhoster Mueller in 2014, and spent a few years with them. Now, I took over Rainbow Rare Earths in 2019, and I'm developing two projects, and we'll talk about those going forward.

SPEAKER_2 (1:28)

George, good to have you on the show because as you say, we're going to talk about why you believe your company is undervalued rare earths is a complex subject matter, and not many people understand the way that the industry works. So it would be great to have you break that down for us, and to validate your assumption on why it's undervalued. First of all, we're going to run through a presentation today, so I think we're going to have a little bit of to-ing and fro-ing on questions. So without further ado, I'll let you crack on.

George Bennett (2:02)

Just briefly, for the audience, rare earths are very topical at the moment. The last two years, China has been putting export controls or bans on it to the West, to Japan, to America, and it's become very, very key for the Western world to develop an independent supply chain of rare earth supply outside of China. The reason B for this is even though the rare earth market is relatively small in terms of commodities, we're talking tens of billions of dollars of value, maybe 100 or 200 million dollars, billion dollars of value maximum in terms of the total size of the market, it actually impacts $6.3 trillion of industry.

So that's the impact of rare earths because without rare earths, $6.3 trillion of industry is impacted and doesn't operate. Now, to give you a separate example, fiber optic cable which is vital for communications in the world today, all fiber optic cable has a rare earth called erbium in it. Most people don't even know about that. Then we talk about consumer electronics, cell phones, EVs, wind turbines, plug-in hybrids, your internal combustion engine vehicle, robotics, drones, and so forth. So it spans, and this is a Reuters report recently, $8.3 trillion of oil industry. So we understand it's very, very critical, and the West needs to not rely on China, which control most of the rare earth production in the world, and 95% of the downstream processing. So we are part of that. Western supply chain is currently being built out.

As I said, we are a unique opportunity in the rare earth space because we are pioneering it and have pioneered the recovery of the rare earths from phosphoric gypsum waste residue rather than hard rock mining or what they call iron and clay projects. Now, the beauty about this is that our resource sits above the ground, and this resource was created through phosphoric hard rock mining. Now, in your phosphate rock, you've got rare earth elements but very, very mine and it was very, very low grade. So you could never mine a phosphate hard rock for the rare earths economically. But that phosphate rock is then slurry into a concentration process, and that phosphate slurry is then fed to a phosphoric acid plant. Now, phosphoric acid is your primary ingredient for the fertilizer business globally. So what happens is you mine phosphate rock, you slurry it, you feed it into a phosphoric acid plant, where you had two key ingredients. You had sulfuric acid and heat to create your phosphoric acid, and that produces a waste residue called phosphogypsum. Now, the rivers that were in the phosphate rock, as I said, are not high enough grade to mine economically. But through the concentration process, through flotation of the phosphate slurry, your rivers are concentrated up. Unfortunately, they don't deport into the phosphoric acid, but they deport into the waste residue that's created by this phosphoric acid bedotium process called phosphogypsum. Now, we have the rivers that sit in high grade above the ground in phosphogypsum grading at 4,400 ppm. Now, when you compare that to ionic clay projects at 6 to 10 times higher grade, and in fact, I've seen some hydro projects that are similar grade. That's before you've got all your costs associated with the mining. So we have no geological risk, we have no mining, conventional mining.