2nd Jul 2024 09:56
(Alliance News) - A deal by Ecora Resources PLC to buy a gross revenue royalty at Rainbow Rare Earths Ltd's Phalaborwa asset has a lot to like for both parties, German bank Berenberg said.
Ecora will acquire a 0.85% gross revenue royalty on future rare earths production from the Phalaborwa asset in South Africa, paying USD8.5 million for the privilege.
In addition, Rainbow will issue 10.4 million new shares to Ecora at a price of 11.37 pence each to raise USD1.5 million.
"The royalty financing and share subscription agreements therefore provide Rainbow with a total of USD10 million, being substantial funding on terms that are considerably less dilutionary than conventional equity funding," the rare earths project developer added.
Mining royalty and streaming firm Ecora said the deal is its first rare earth exposure and is in line with its aim to diversify and grow its portfolio "of future facing commodity royalties".
Berenberg said the "rare earths deal adds value" for Ecora.
"Further, should commercial production at Phalaborwa not occur before 1 October 2027, the royalty rate increases to 0.95%; if commercial production is not reached by 1 July 2028, the royalty rate steps up to 1.1%. Dealing in the new shares is expected on or around 5 July, while the royalty payment is contingent on customary South African exchange control authorisation, expected within six to eight weeks of application submission, and execution and delivery of certain security documents to Ecora," Berenberg analysts explained.
"Ecora has a number of highly attractive royalties set to come online over the next five years, both growing revenue and transitioning the portfolio away from steelmaking commodities (iron ore and coal) and towards future-facing commodities (eg copper, nickel, cobalt, uranium). Adding rare earths to the stable is, in our view, a sensible play, offering attractive diversification and entry into a market at cyclically low prices."
For Rainbow, the USD10 million funding package leaves it on track to continue progressing Phalaborwa.
"Proceeds from the transaction will be used to complete the ongoing Phalaborwa definitive feasibility study, scheduled for H1 of CY 2025, and cover all other financing requirements up to June 2025, at which time Rainbow expects to make a final investment decision on the project, paving the way for first production in H1 of CY 2027. Dealing in the new shares is expected on or around 5 July, while receipt of the royalty payment is contingent on customary South African exchange control authorisation, expected within six to eight weeks of application submission, and execution and delivery of certain security documents to Ecora," Berenberg added.
"In our view, this is a material de-risking step for Phalaborwa’s development, firstly from a funding and dilution perspective, and secondly from the vote of confidence in Phalaborwa having passed Ecora’s technical, environmental and legal due diligence. We expect a steady run of near-term catalysts to drive the shares higher."
By Eric Cunha, Alliance News news editor
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Related Shares:
Ecora Res.Rainbow Rare Earths