Confidence of Lynas’s financiers to signal a more profitable change for the rare earths sector?
Lynas Corp (ASX: LYC) is developing one of the most prolific rare earth resources in the world at its Mount Weld property in Western Australia reported a 24%, year to year, sales increase in September for the First Quarter, as its Malaysian plant has finally reached full capacity. Moreover, the Atomic Energy Licensing Board (AELB) granted Lynas a Full Operating State License (FOSL) to operate its Lynas Advanced Materials Plant (LAMP) in Kuantan after the Temporary Operating License (TOL) issued in 2012 expired Tuesday. This is a very important victory for the Company, which has had to battle well organized protests for years, suffering legal and production delays amid the uncertainty.
Lynas has also made progress in winning the support of institutions, which have agreed to invest in its battered shares. Lynas’s LAMP processing facility in Malaysia has had to overcome several legal hurdles. The uncertainty that Lynas had to endure in 2012 was highly motivated by politically calculated environmentalism in view of a parliamentary election. That it still managed to emerge successful in the end is a vindication for its LAMP facility and project. It is interesting to note that Malaysia want to build a nuclear power generation facility by 2021. The government held talks with Russia’s nuclear agency Rosatom just days ago. Because of the 2011 Fukushima meltdown, the Malaysian population feels uncomfortable with nuclear power plants and this has certainly influenced the anti-Lynas sentiment.
Yes, Lynas can claim a success: the Australian company has been able to renegotiate the terms of a 225 million USD loan with Japanese lenders. The company has long said it would money be positive when the LAMP facility would reach a capacity of 11,000 tons per year. Lacaze, who took over as CEO about four months ago, said in July that should have happened by the December quarter, and she said that this target remains on track. In an attempt to win institutions back into the company, Lacaze stated that Lynas would focus on concrete results rather than overpromising what could be achieved: “it is my intention that we will surprise with excess performance, rather than disappointing underperformance.”Lynas had already reported that it had addressed existing and potential investors about its restructuring of existing credit facilities, possible further loans and other financing options.
Lynas has secured less oppressive debt repayment plan, which begins in earnest in 2016. Under the new conditions, the company will pay AUD$ 10 million later this month. The next installment will be due until March 2015. Under the previous plan, Lynas would have had to pay AUD$ 35 million by next Tuesday, which promoted the market to speculate whether the company had the resources to fulfill this obligation – and how long it would be able to survive. Lynas has also prioritized supplying rare earth oxides to Japanese customers; indeed, the new financing arrangements – the very role which the new CEO Amanda Lacaze was brought on to perform – have all come courtesy of Japanese institutions including Sojitz ( a ‘Sogo Shosha’ trading company, which will help distribute Lynas products in Japan), and Japan Oil, Gas and Metals. Originally, Lynas’s plan was to address about a third of Japan’s rare earths demand, which is estimated at 32,000 tons per year. Japan has long been trying to free itself from its dependence on China, the largest (by very far) producer of rare metals.While the new loan terms have been arranged with clear view towards supplying the Japanese market, they also help to establish a new platform for the Company, one from which it hopes to grow with more stability. Certainly, investors no longer need fear the estimated USD$ 140 million funding gap that was casting a shadow over Lynas’s plans for 2015. In May, the company had already secured USD$ 40 million in the market to meet short-term working capital needs.
Lynas Corp has announced it will raise prices for its neodymium-praseodymium Nd-Pr compound as well as overall prices starting in January 2015 in three different pricing tiers with the increases ranging from 8-20% in order to allow customers to “better manage their raw material inventories.” Lynas will also introduce new products including separated Nd, Pr and LCP (Lanthanum, Cerium, and Praseodymium). The new materials offer customers a better variety of than what even the Chinese producers have been putting on the market. Lynas said that magnet producers have preferred to base their formulations on the Nd-Pr combination rather than Nd alone in order to cut costs. Given the atomic proximity of Nd and Pr, these two rare metals share many characteristics and many Chinese companies no longer even offer the two elements separately. Some industries, such as glass and ceramics, do need separated neodymium and praseodymium oxides and the shortage of supply from China has led to price increases, prompting Lynas’s strategy. Could the confidence of Lynas’s financiers be a sign of more profitable change for the rare earths sector in general?