Latest IPO is forgotten gem

Most people would struggle to find Burundi on the map. Land-locked, it's bordered by Rwanda to the north, Democratic Republic of Congo to the west and Tanzania to the east. It's one of the world's poorest countries, but there are riches here, and one company listing in London next week thinks it's hit the jackpot.

Rainbow Rare Earths is sitting on one of the world's richest rare earth deposits, and it could be supplying material for magnets used in electric vehicle motors within nine months. A 10-year deal with Germany's ThyssenKrupp gives security over sales of 5,000 tonnes of concentrate a year.

Its Gakara deposit boasts in-situ grades of 47-67% total rare earth oxide (TREO) compared with a more typical 3% elsewhere. Even to the untrained geologist, that sounds huge, so I asked owner Adonis Pouroulis how come he got there first?

The story goes back to the colonial days when Burundi was run by the Belgians. They discovered Gakara in around 1936 and mined it for 30 years until the late-70s. Concentrates were sent back to Europe, and all the records still exist.

There have been numerous coups since and a bloody 12-year ethnic-based civil war. In that time, the mine fell back into state hands and lay forgotten. It remained under the radar even during the rare earth boom in 2010-12.

Pouroulis, who founded Petra Diamonds and Chariot Oil & Gas, heard of Gakara from a geologist friend, which is when the serial Africa mining investor's Pella Resources Group got involved. Ahead of the float, it and Pouroulis own 70% of Rainbow. Post-IPO it will be 29%.

Rainbow is sitting one of the world's richest rare earth deposits, and it could be supplying materials within nine months

"When we saw the grades, we just didn't believe them," he told me.

An application for a mining licence was granted in 2011. Now, the resource is put at 20-80,000 tonnes of TREO material, but management is optimistic.

"The more we look the more we find," says chief executive Martin Eales. "There should be a mine life of decades."

Crucially, most of the hard work was done by the Belgians, and this is a "simple" open cast mine, so capital expenditure - mining equipment and building roads - is low at $2.3 million (£1.8 million). "We can't go far wrong" says Eales.

Rainbow has already raised the $8 million it was after via an oversubscribed placing at 10p with investors, among them some blue-chip institutions we're told.

Chinese monopoly

Of course, there's a lot to consider here.

China has a near-monopoly on rare earth elements and, when it temporarily turned off the export tap in 2011, prices spiked. They subsequently collapsed when supply picked up again, but have been ticking up over the past few months amid talk that China will clamp down on illegal mining. It may also limit rare earth output to less than 140,000 tonnes by 2020. It might not, so prices may not bounce back, either.

Electric vehicle manufacturers are also developing technology which does not use rare earth minerals. Tesla doesn't use them in its battery motors, and Honda has come up with a hybrid battery that can do without too.

Rainbow begins trading on Monday. They could do well initially if keenly priced. We'll see. One to watch.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.