EDITOR: | October 28th, 2016 | 5 Comments

Lynas debt amendment to provide an estimated $70 million in interest savings

| October 28, 2016 | 5 Comments
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Lynas Corporation (ASX: LYC | OTC: LYSDY), the Australian rare earths producer, has just resumed trading this week with both a debt amendment and Q1 announcement with the highlight being the restructuring of its US$400 million debt.

Under the terms of the agreement, which is subject to approval of the company’s shareholders, Lynas would pay significantly lower interest rates to its lenders among which are the US-based hedge fund Mount Kellett Capital Management, as well as state-owned Japan Oil, Gas and Metals National Corp (JOGMEC) and Sojitz Corp and will receive additional delay in the debts’payments.

According to Lynas, the term of both loans would be extended by two years, up to 2020. The interest rate on its borrowings from the Jogmec-Sojitz venture would drop to 2.5%  from 6.0%. That means that Lynas will not be obliged to make any fixed repayments on the $203 million it still owes to Sojitz and JOGMEC until 2020. In fact, the debt amendment to these two debt facilities will result in a reported total interest savings of approximately $70 million.

According to analysts, the Japanese government via JOGMET decided to make concessions to Lynas, due to its concerns that the financial weight from the debt due in part to a significant decrease in rare earth prices would interrupt Lynas’ operations, which would in turn negatively affect the supplies of non-Chinese produced REE to Japan. For those unfamiliar with the rare earth sector, it is important to note that Lynas is the only non-Chinese producer of rare earths in the world. And to illustrate the impact of the decrease in global prices of rare earths, Lynas’ market capitalisation at one point reached AUD $4 billion in 2011, and is today AUD 200 million.

International rare earth expert and InvestorIntel Sr. Editor Jack Lifton commented “Rare earth prices will increase as China masters the reorganization of its total rare earth industry which has been plagued by overproduction, excess inventories and environmental challenges. The Chinese must raise prices.” He then adds “The Japanese are the second largest user of rare earths and they must protect their supply.”

In the case of Mount Kellett debt, the US fund agreed to cut the interest rate on its $225 million in convertible bonds to 1.25% from 2.75%.

Mount Kellett has been involved in Lynas since January 2012, when it gave Lynas $US225 million loan to fund the first phase of its Malaysian plant. In return, Mt Kellett received $US225 million of Lynas convertible bonds, and became the biggest lender of the company.

The deal will require approval from Lynas shareholders at the annual general meeting on November 30, after which will be a subject of clearance by Australia’s Foreign Investment Review Board.

Lynas’ market capitalisation reached AUD $4 billion in 2011, however has declined to almost AUD 200 million since that time, due to the collapse of global prices for rare earths.

Lynas currently operates the Mt Weld mine, in Australia, and the Lynas Advanced Materials Plant, in Malaysia. In September of the current year the full operating stage licence for the Malaysian plant of the company has been renewed for another three years, until September 2019.

The company posted sales revenue of A$196.1-million in the 2016 financial year.


Eugene Gerden

Editor:

Eugene Gerden is an international free-lance writer, based in St. Petersburg, who specializes on writing in the field of mining, metals and rare earth metals. ... <Read more about Eugene Gerden>


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Comments

  • asrms

    The Japanese refuse to let Lynas die. If the Chinese were ever of the opinion that they could kill Lynas (and MCP) via their manipulation of RE prices, maybe now is the time for them to forget that aim. As Jack Lifton suggests now maybe the time the Chinese decide to really get on with making their own RE operations more efficient, profitable and green friendly. Such a return to a more capitalist perspective will help exisiting RE producers and may allow a very few prospective companies to become actual producers. Regardless, still a long haul for weary Lynas share holders.

    October 29, 2016 - 1:59 PM

  • Alex

    This means that Lynas and MCP (and other projects) need Japanese to have second supply chain but not bring profit to investors. And all new projects which will continues or will start just will be part of second supply chain. they will add more products to the market , so prices can not grow up becaouse of additional quantaties, so investors can not get profit too.
    Chinese which already have CAPEX of rare-earth Plants – need to close their Works , because someone in Canada or Australia decided to produce rare earth ?

    October 31, 2016 - 6:46 AM

  • Tim Ainsworth

    Lazy thinking, Chinese RE exports running +50% YTD Sept, value down 37%, NdFeB exports +14.7% YTD Sept, value down 16.4%, extrapolate that full year and you get a loss circa $450M, factor a higher Dec as previous years and China’s loss of value 2016 could nudge $500M without factoring any other RE enabled component or product.

    And guess who’s capturing that value, ROW MSC, benevolent Dragon.

    At the same time pouring investment funds & subsidies into SOE, 90% operating at or below cost, most < 50% capacity.

    Tad more rational thought required IMO, works around collapse of domestic demand, some indications supply has finally balanced accordingly.

    October 31, 2016 - 1:16 PM

  • Tim Ainsworth

    Here’s some news: Tesla signs 3yr PM supply contract with Beijing Zhong Ke San Huan High-tech Co.

    “According to the relevant analysis, Zhong Ke San Huan company Tesla officially entered the supply chain has two meanings, first, Tesla Model3 high probability application permanent magnet synchronous motor”

    http://newmat.chinaiol.com/ntp/q/1031/35175006.html

    Elon may just bring his PR machine into the RE space.

    October 31, 2016 - 8:46 PM

  • Tim Ainsworth

    Hitachi connection?

    NEOMAX JV due to start production Dec 16:

    https://www.hitachi-metals.co.jp/e/ir/ir-news/20150618en.pdf

    October 31, 2016 - 9:42 PM

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