Rainbow Rare Earths (LSE:RBW) was a penny stock trading for just 9p back in April. Fast forward to now, the mining share is at 17p and has a £116m market cap. Over five years, it’s up nearly 200%!
However, rare earth mining stocks are currently booming due to China tightening export controls, which has led to a global shortage. So, could Rainbow Rare Earth explode even higher over the next few years? Let’s dig in a little deeper.
A rainbow in South Africa and Brazil
The company is focused on rare earth elements (REEs) that are needed for the green energy transition. Unlike traditional miners though, it’s aiming to get them from industrial waste rather than raw ore.
Its flagship Phalaborwa project in South Africa intends to extract REEs from phosphogypsum, a by-product of fertiliser production. It says this project has a base case net present value of $611m.
And due to the much lower operating cost than traditional mining, Phalaborwa could be one of the most profitable rare earth projects in development today outside of China. It has strong financial backing from the United States International Development Finance Corporation.
Meanwhile, Rainbow says its Uberaba project in Brazil “represents an exciting opportunity to replicate Phalaborwa at a potentially larger size”. It’s working with partner The Mosaic Company to rapidly complete an assessment of this phosphogypsum project, though its seems some way away at this stage.
Bullish trend
As mentioned, rare earth stocks are hot right now. Rainbow’s UK peer Pensana has seen it share price shoot up 318% year to date!
Rare earths have special magnetic properties, making them vital components in electric vehicles, defence equipment and across the semiconductor industry. China has a near-monopoly on them and has been using them as bargaining chips in the trade negotiations with the US.
Needless to say, the West is really prioritising rare earths right now, especially since President Trump came to power. So there’s a big potential commercial opportunity on the horizon for Rainbow.
There have been four big booms. You had the gold boom in the 19th century, the oil boom in the 20th century, in the early 21st century you had the tech boom — and now you’ve got the rare earths boom.
Tony Sage, CEO of Critical Metals, speaking to CNBC.
No sales
As exciting as this all sounds, the firm isn’t yet generating any revenue, let alone profits. So this is most definitely a speculative small-cap, and there’s likely to be dilution with new share sales along the way.
Last month, Rainbow said that Phalaborwa’s definitive feasibility study is expected to be finalised in 2026, with construction expected to start in 2027. After that, it could expand globally, with strategic partnerships in Saudi Arabia, Morocco and Canada being evaluated.
Chasing rainbows?
Personally, this share is too speculative for me. I remember the 2020-22 boom in lithium stocks, then the painful bust afterwards. Lithium shares still haven’t recovered from their peak, and I fear we might see something similar with rare earths.
Investors still considering Rainbow stock should assess the risks as well as the rewards. It could mint a fortune, or crash and burn.
