Theres never been any real question about the quality of the Gakara project in Burundi, currently being mined by Rainbow Rare Earths Ltd (LON:RBW).
The question instead, has been how to mine it.
Gakara is the highest grading rare earths project outside of China, boasting grades of between 47% and 67% total rare earths. The grade has allowed Rainbow to create a very simple operation, digging up the ore and shipping it out to customers in trucks. The theoretical margins on offer were very attractive, but although cashflow has built up nicely, last year the company struggled to make a profit.
Enter new chief executive George Bennett, a man with much experience in the world of African mining. Back in the day, he listed Shanta Gold on Aim. He then went on to create and list MDM Engineering, a company which was eventually sold to Foster Wheeler for US$120mln. So, hes a man who knows how to get things done.
Even so, when Rainbows chairman Adonis Pouroulis asked him if he was interested in a rare earths project in Burundi he was initially sceptical. But it didnt take long for him to recognise the potential.
“Basically, what weve had to date is trial mining,” he says.
“I think we can get it up to being the second biggest rare earths mine outside of China.”
In order to do that though, and to deliver the chunky margins that investors have always been lead to expect, a change in approach was necessary.
Bennett was somewhat nonplussed when he arrived at Rainbow to learn that production had started at Gakara without any established resource. Sure, a practised eye could recognise the potential, and the likelihood of a resource base that stretches out for many years. But until an actual, properly measured resource could be put into place, meaningful modelling was extremely difficult.
And there was more.
Bennett recognised that one reason why Rainbow had been failing to turn cash into profits was that the economies of scale were wrong.
“They were trying to mine this project the way the Belgians did,” he says.
“They were just mining the high grade veins. But it became clear to me that theres mineralisation between the high grades and it needs to be mined. Youve got to mine everything.”
It was another way of getting there, but the result was the same: a resource was required.
Accordingly, Bennett made the establishment of a JORC resource one of his earliest priorities when he arrived in August. That work is now well underway.
In the meantime, the pressure on margins is beginnRead More – Source