Rainbow Rare Earths (RBW) – Good Strategy, Can They Execute?

Rainbow Rare Earths (LON: RBW) shares have been volatile this past year and not improved overall. This is one of those little puzzles for rare earths are something of an investment darling at present. We all know that the renewables – and electric vehicle – revolution is upon us, rare earths are a vital part of that. There’s also the desire to source from somewhere else than China. So, a company with access to a known source of rare earths – like Rainbow – should be doing well.

As it happens Rainbow shares are around, today, where they were a year ago. There’s been some movement up and down, 50% up from current levels,30% down, that sort of thing. But no substantial rerating has occurred. This is something of a puzzle.

For Rainbow’s basic strategy seems good enough. It is well known – OK, well known in mining circles – that the wastes from phosphate mining contain both rare earths and gypsum. It’s also not that difficult to extract them. The difficulty is that there will also be thorium and possibly radium in the gypsum. That can be processed out but it’s necessary to be in a jurisdiction that is sensible about the disposal of those radioactives – South Africa is.

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So, that’s a plan, it’s known that the chemistry works. It is also true that rare earth concentrates are not worth very much, the expensive part of the process is separation into individual rare earths. That is also being addressed.

So, if Rainbow is working to a perfectly decent plan why is the Rainbow share price stuck where it was a year back? The answer being that plans are all very well, it’s also necessary to see good execution of such plans. Rainbow’s interim results are not bad, they’re fine in fact. Perfectly normal of a company at this stage of development. They’ve nailed down their share of the Phalaborwa project that contains the materials. Raised capital to continue to work on plans and activities. The prices of the target rare earths have risen over the time period.

But much of this is already in the share price at Rainbow. This is that efficient market hypothesis at work. What is already known is already in share prices – it’s new news that moves share prices. So, in the absence of new information to incorporate into the Rainbow share price, there’s little movement in that price. It’s the next piece of news, that is, the one we don’t already know, which will move Rainbow shares.

That is, the thing that is being waited upon is more evidence not about the plan, but about the execution of it. As and when that comes through then we might expect significant movement in Rainbow shares. Of course, the direction of movement will depend upon what that evidence is.