Lynas Bolsters Defences With New Debt Deal

Rare earths group Lynas Corporation has made it even harder for stalkers like Wesfarmers to muscle into the company and take control.

Lynas yesterday announced the 10-year extension of the so-called JARE loan facility. JARE is a special purpose company established by Japan Oil, Gas and Metals National Corporation (JOGMEC) and Sojitz Corporation.

The JARE group are Lynas’ major supporters (and why Wesfarmers approach earlier this year had no chance of winning) and under the extension they have secured an even bigger hold on the company’s rare earths production.

The changes will also give Lynas more freedom to finance its ambitious expansion plans with a new processing plant in WA and in the US, and meeting Malaysia government demands for changes to the plant in that country.

Lynas will be able to finance capex to the value of half a billion dollars without jeopardising the JARE financial facility and associated agreements.

Under a new loan agreement, the companies have doubled its priority rights to Lynas’ production of rare earths for Japanese electric vehicle and electronics makers and the US military to 7,200 tonnes a year.

The revised loan agreement also extends Japan’s priority rights by 13 years, from 2025 to June 2038.

Lynas shares edged up 0.3% to $2.61.

But there is a big bonus for Lynas. The new agreement reduces principal repayments on the JARE loan facility to nominal levels up to 2025, which will allow Lynas to accumulate substantial cash flow from operations.

This will be used to fund the significant capital investment required for the execution of the Lynas 2025 Project. In this way, Lynas says it expects that it will be able to self-fund its growth plan.

As well the interest rate on the JARE facility is reduced to 2.5% a year (from 3.75%).

The revised principal repayment schedule now allows for with minimal principal repayments until December 31, 2024.

Voluntary repayments can be made at any time without penalty and the cash sweep mechanism is removed giving Lynas greater control over its cash flows.

And the restriction on dividend payments is removed once the principal amount outstanding is reduced to $US60 million or less.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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