EDITOR: | August 18th, 2015 | 11 Comments

Lynas flags interest in takeover or merger

| August 18, 2015 | 11 Comments
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LYNASIt 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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Comments

  • Tim Ainsworth

    Robin, strongly suggest you acquaint yourself with Lynas’s sales contracts from 2011 over Ce & La to Rhodia (Solvay) & BASF respectively. One of the fundamental distinctions to dear old Moly, Lynas placed most of the basic stuff first to two of the larger autocat & FCC producers.

    Wonderful journalism reporting second from source newspaper headlines. Original report: “Ms Lacaze told Business Spectator there was no current outside corporate interest in Lynas, despite the fact the firm’s house was now in order, but said there may be M&A opportunities in the future, thanks to growth market for rare earths.”

    Do you think that could apply to downstream activity? Anybody interested or invested in RE should welcome even a hint of REbuilding ROW supply chains but seems there’s more fun & profit to be had attempting to ridicule the only operating catalyst.

    BTW, the recent Seventh China Baotou Rare Earth Industry Forum didn’t snigger at cerium: “Meanwhile, with the gradual increase of the national environmental protection requirements, industrial furnace desulfurization and denitrification, vehicle exhaust purification, sewage treatment and other rare earth catalytic materials also provide a huge market. For example in 2014 , China’s car ownership of 1.4 million vehicles, a conservative estimate of annual emissions of nitrogen oxides, carbon monoxide, etc. at 450 million metric tons, the use of rare earth catalytic car exhaust catalyst material can be reduced by 90% or more contaminants, very broad application prospects.”

    A little research might also reveal the Chinese magnet manufacturers are also getting up to speed on Dy/Tb reduction/elimination to match their ROW peers:

    “JLMAG Rare-Earth (JLMAG) is one of the
    biggest manufacturers of sintered NdFeB
    magnets in the world, with an annual capacity
    of 6,000 tons. This will increase to 10,000 tons
    within the next two years as the Chinese company
    ramps up production.”

    “These doubts over availability mean it makes
    sense to reduce the need of heavy rare earth
    elements. There are three major ways to
    accomplish this: new material development;
    design optimization; and process variation
    reduction. JLMAG has been able to reduce the
    content of dysprosium and terbium in magnetic
    alloys using the process and recipe of raw material
    formulation optimization.”

    ” The combination of these efforts to
    reduce heavy rare earths has resulted in heavy
    rare earth free N, M and most H grades Other
    heavy rare earth free grades are currently under
    development.”

    ewea.org/offshore2013/wp-content/uploads/exhibitor-prs/JL%20MAG%20Heavy%20rare-earth%20reduction%20(10-29-13-10-32-06).pdf

    August 18, 2015 - 5:39 AM

  • Tracy Weslosky

    Tim – what was the point of your commentary? I read Robin’s piece, then your commentary; and then did it all over again and do not understand why your taking a run at Robin’s writing today…

    Robin is one of the top journalists in the world on technology metals with over FIFTY (50) years of business journalism, and was probably the source he was quoting from “The Australian”. Jack Lifton wrote me about Robin just last week: “Robin Bromby’s piece this morning tells me that he is a far better and more nuanced observer of the Chinese technology metals markets than anyone else has been.”

    I thought the above was well written and very balanced. But hey, that’s just my opinion.

    For the record, I usually enjoy your comments Tim. If you want, send me your column ideas at Tracy@InvestorIntel.com and then I can defend you when others hit you too hard…just sayin’

    August 18, 2015 - 2:12 PM

  • Robin Bromby

    Tim, you’re over-egging the omelette. I was using the report as a peg to raise several questions about Lynas’s corporate options. Chill, man

    August 18, 2015 - 4:04 PM

  • Tim Ainsworth

    Robin/Tracy,

    Original interview was reported thus:

    ‘Ms Lacaze told Business Spectator there was no current outside corporate interest in Lynas, despite the fact the firm’s house was now in order, but said there may be M&A opportunities in the future, thanks to growth market for rare earths.

    “There is no one to my knowledge right now lining up with a big cheque to buy us,” Ms Lacaze said. “That might be a bit seductive but there isn’t anyone with their pen poised right now.” ‘

    businessspectator.com.au/news/2015/8/17/resources-and-energy/lynas-says-yuan-devaluation-challenge

    Your piece prefers to reference a secondhand source and translates to:

    “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.”

    Your third hand interpretation then gets regurgitated on investment forums as gospel:

    “//investorintel.wpengine.com/cleantech-intel/lynas-flags-interest-in-takeover-or-merger/

    ” Lynas flags interest in takeover or merger” Posted on August 18, 2015 by Robin Bromby

    Question .How come CEO Amanda Lacaze talk to the media before the shareholders are informed ?
    I let you digest the article to see for yourself what the Lynas board think of the retail shareholders.”

    ‘…..if Lynas has such a great future as you would have everyone believe, why then is Lynas Corp’s Amanda Lacaze inviting a takeover:-

    //investorintel.wpengine.com/cleantech-intel/lynas-flags-interest-in-takeover-or-merger/

    appears to me she wants to “cash in her Lynas chips” ‘

    While not presuming to clarify “comments” in the article do you really believe that was the impression Lacaze sought to create?

    Step back for a moment and apply a scintilla of business sense, Lynas is 80% reliant on the Japanese market and has effectively just been “rescued” by the Japanese Govt. as a source of RE to their industrial base at large. Do you believe Lacaze is hawking Lynas with, or without, their blessing? Let alone the ramifications for any suitor.

    Having had a first hand glimpse of the efforts to turn around performance at the LAMP I can say with some conviction your “gracious” rendition, twice removed, is not the message intended to staff, SH’s or investors at large.

    August 18, 2015 - 7:01 PM

  • Investor

    Well the fact is that the article was published in The Australian. The question is why? One can say to generate publicity?

    August 18, 2015 - 7:53 PM

  • Steve Mackowski

    The very interesting point here is that there is now a $1 billion REO mining and processing facility for all intents and purposes on sale for perhaps around 50% of its replacement value. And it is permitted and operating. Surely a very interesting low risk target for an up and coming REO junior. And then there is the Duncan high CREO deposit to factor in. A very interesting model to put together.

    August 18, 2015 - 8:04 PM

  • James Backus

    The one issue no one includes in discussing Lynas is it’s military importance. With the problems created in the South China Sea by China literally building an island to support an airstrip and naval port, countries not within the Chinese umbrella have but one true source of military REEs, that being Lynas.

    Unlike China, which Australia would not allow to buy Lynas, Japan has an agreement that makes purchasing Lynas much more favorable. The government of Japan and the larger banks/industrial complex have the money to offer Lynas shareholders a fair share price, I value at about $6 per share currently, for Lynas. What Japan would obtain is the free world dominate REE facility with all permits in place. While Japan did have a problem in Malaysia twenty plus years ago, having a proven safe plant makes re-entry much easier. As Japan is a major user of REEs taking possession of Lynas insures REEs for its industrial and military needs as well as excess to be sold to the US and Europe.

    August 18, 2015 - 10:06 PM

  • Roger that

    Japan has no issues dealing with China. In fact they would rather deal with China than America. Remember Americans are the one who bomb them. It all comes down to who can produce what they want at the lowest cost. The rest is propaganda for those who want to listen. Don’t get me started on the American dependency on China.

    August 19, 2015 - 12:14 AM

  • Thoughtful

    Japan Enterprises will not let Lynas down and out as long as its operation is fine and smooth in Malaysia .
    Their high tech products are relied much on rare earth material, they can’t just relied on one unstable source of China’s supply, Lynas is an alternative or even would be their products main life line. Lynas’s debt is not an issue to Japan, they will let them delay and delay the debts beyond 2018 if Lynas needs further support. Also , potential buyer is most likely Japanese company.

    August 19, 2015 - 1:03 AM

  • Alex

    I agree with Thouthful . Japanese which need 65 persent of REE market will keep Lynes till the other possibilities will not occur. Just look at other Japanese JV in India polishing poweders, in Vietnam , HREE in Myanmar may be they will keep Moly next 2-3 year. all new miners projects not connected with Japanese will surely died because they can not find demand .

    August 19, 2015 - 4:16 AM

  • Tim Ainsworth

    Well Tracy I got confirmation of my thoughts above today, your published article was nothing less than a third hand mash up of a baited comment at the very end of a 40 min interview.

    The thing I find most annoying is the apparent relish at any notion of Lynas “tripping” in popular media. Undoubtedly aspects of planning and execution are well worthy of criticism, even after the fact of a dislocated market post 2011, but IMO it pales to insignificance relative to the achievement of a vision conceived late 90’s from the catbird seat at China National Nonferrous Metals as they planned and executed the capture and extraction of US NdFeB IP & assets.

    Last Q, after nearly fifteen years, Lynas confirmed the first ROW complete NdFeB supply chain with 630t of NdPr exports to Japan, taking 60% market share. A reality that will make the task of the few successful peers that follow a good deal easier.

    Apparently not worthy of comment, yet since a Japanese alloy producer closes a Chinese JV to concentrate on Japanese customers & a major global re-embraces RE after abandoning them 2011, better a sensational headline.

    Any punter wanting to join the dots can Google the following para’s:

    “Curtis developed an interest in rare earths working with Madame Bai Jie, a former head of raw materials at China’s state planning commission. He worked for six years from 1994 at a unit of China National Nonferrous Metals Industry Corp, which controlled all of China’s non-steel-related metals until 2000.”

    “In 1995 two Chinese groups, the Beijing San Huan New Materials High-Tech Inc. and China National Non-Ferrous Metals Import & Export Corporation, joined forces with Sextant Group Inc, an American investment firm founded by Archibold Cox, Jr., and tried to acquire Magnequench.”

    “In 1995, Magnequench was purchased from GM by Sextant Group, an investment company headed by Archibald Cox, Jr-the son of the Watergate prosecutor. After the takeover, Cox was named CEO. What few knew at the time was that Sextant was largely a front for two Chinese companies, San Huan New Material and the China National Non-Ferrous Metals Import and Export Corporation. Both of these companies have close ties to the Chinese government. Indeed, the ties were so intimate that the heads of both companies were in-laws of the late Chinese premier Deng Xiaopeng.”

    Credit where credit is due.

    September 2, 2015 - 11:18 AM

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