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MIDAS SHARING TIPS: Rare metals for your headphones? Try the rainbow

MIDAS SHARING TIPS: Rare metals for your headphones? If you want success for your investment portfolio, try Rainbow Rare Earths

In 1992, Deng Xiaoping, a veteran of the Chinese Communist Party, declared: “The Middle East has its oil. China has rare earths. At the time, few people cared. Today, many do, including governments and businesses around the world.

Rare earth metals can be found in products as diverse as headphones to air conditioning units and they are increasingly in demand as the world tries to get cleaner and greener.

China accounts for over 75% of global rare earth production and 95% of refining and processing. So it’s no surprise that the West wants to reduce its dependence on China, but alternative producers and processors are scarce.

Power Play: Rainbow Rare Earths is a major producer of neodymium, used in millions of headphones

Rainbow Rare Earths is an exception to the rule. The company is shaping up to be one of the largest producers outside of China of two key rare earth metals, praseodymium and neodymium.

These form the basis of a compound called NdPr oxide, which has tripled in price in less than two years, from $ 40,000 per tonne to $ 115,000 (£ 86,000) per tonne. Some forecasters suggest the push will continue as rare earth metals are essential components of wind turbines and electric cars.

Rainbow has two rare earth projects, one in Burundi and the other in South Africa. Today, the mine in Burundi is in hibernation, while the site in South Africa is in development. Despite this, Rainbow’s stock price has risen over 30% to 13p in the past year and analysts believe the stock is expected to triple in the next two years.

Investor enthusiasm is focused on the South African Phalaborwa project, right next to the Kruger National Park. Home to a phosphate mine for decades, the site spawned two piles of gypsum tailings, each measuring over 1,000 feet long and 200 feet high. They contain traces of praseodymium and neodymium, as well as other valuable rare earth elements. Normally, these elements are extracted from the ore. In Phalaborwa’s case, they will be mined from the gypsum stacks, a process that will cost much less than conventional mining and, most importantly, will not provide clumps of unprocessed metals that will have to be separated in China.

The costs will be relatively modest as there will be no need for expensive underground drilling and the project is not subject to South African mining regulations as it is considered a chemical processing operation rather than a mine.

There are also ecological benefits, as Rainbow will clean the gypsum as part of the rare earth mining process, creating a material that could easily be sold to construction companies.

The site is expected to be operational by 2024 and annual revenues of up to $ 250 million are expected, with underlying profits of at least $ 100 million per year.

Even as Phalaborwa moves towards production, the Burundi project is likely to resume operations.

Historically, the Burundian government has been entitled to 10 percent of local mining projects, but is keen to secure more favorable terms and therefore halted all mining operations during the summer of this year. A compromise is expected next year, with politicians likely to demand somewhere closer to 15 percent of Burundi’s mine.

Even at this level, the site has a lot of potential as it is rich in praseodymium and neodymium and around 450 tonnes of ore are already waiting to be processed on site, an operation which alone will generate around $ 1.5 million in cash.

African mining projects have a checkered track record in the stock market.

However, Rainbow is headed by George Bennett, an investment banker turned mining expert with nearly 20 years of successful project history under his belt and an experienced team behind him.

Midas Verdict: A mining company that is making no money, struggling with political problems, and likely not making significant profits for several years, may seem like a reckless investment. But Rainbow Rare Earths is in the right place at the right time. Demand for rare earths increases, Rainbow can help reduce the world’s dependence on China, and Bennett knows his game. At 13p, stocks are worth a boot.

Negotiated on: Main market Teleprinter: RBW Contact: or 00 27 82 652 8526

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