Lynas flags interest in takeover or merger
It is not often that a chief executive sends out a general invitation to potential corporate raiders, but Lynas Corp’s Amanda Lacaze has done just that through the Australian media. “Lynas open to offers after debt deal puts it house in order”, was the headline in The Australian newspaper on Tuesday. The paper quoted Lacaze saying a takeover offer could be attractive for Lynas. She also allowed for a merger (of the two options, probably more likely – if still a remote possibility at this stage).
Lacaze, though, did add an important qualification: “There is no one to my knowledge right now lining up with a big cheque to buy us,” she told the newspaper. “That might be a bit seductive but there isn’t anyone with their pen poised now.” Of course not; every other possible partner has enough challenges of its own without taking on those still facing Lynas
And the debt restructure headline is probably a little on the gracious side. When you consider that Japan Australia Rare Earths (JARE) has agreed to 2016 repayments of $2 million – as opposed to the original schedule for $205 million at the maturity date of June 30, 2016. That steps up to $20 million in in 2017, with the remainder of the loan due by the new maturity date of June 30, 2018. The group making up the Mt Kellett bondholder group is also being very accommodating. (The full detail of the restructure was posted earlier in the InvestorIntel news feed.)
The important point with the restructure is that repayment has been pushed out another two years. It is clear that Lacaze has begun to turn Lynas around, reducing debt and – interestingly – finding markets outside China for both its lanthanium and cerium as well as the neodymium-praseodymium product. This will be important if the Chinese economy and the yuan value unwinds. On top of that Lynas has cut its operational costs substantially. The unfolding currency crisis in Asia may also be of benefit, with Lacaze making the point that the Malaysian ringgit has lost 24% of its value against the greenback since this time last year; the Australian dollar has lost 22%. And Lynas makes most of its sales in U.S. dollars while its costs at the Mt Weld mine and at its Malaysian processing operation are in the Australian and Malaysian currencies. Still, things will need to continue to improve by 2018 when that debt is due.
The restructure helped Lynas gain some traction, its stock up 11.43% yesterday after the announcement. As of today’s price of A$0.04, the company is worth A$136 million (about US$100 million). That is not much in corporate terms, but who with an interest in rare earths at the moment has that to invest?
But you can see the attraction for Lynas, especially if any future partner was (a) mainly a potential producer of heavy rare earths and (b) doing their downstream processing in Australia, Japan or other low-risk jurisdiction. That would make the merged vehicle more diverse and lessen its overall political risk. The problem with this scenario is that any company that has based its future on HREE income is not likely to feel its pulses quicken with the excitement of having large tonnage of cerium to move.
However, the comments made shows that Amanda Lacaze is thinking ahead and prepared to look at a wide range of options to keep Lynas on the path to recovery. She still has a massive task ahead as the commodities cycle goes through some very rough patches.
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