Lynas to Sell Shares, Defer Debt After Rare Earths Slump

May 06, 2014 2:36 am ET

(Updates with closing share price in sixth paragraph.)

May 6 (Bloomberg) -- Lynas Corp., which spent about A$1 billion ($930 million) on a rare earths processing plant in Malaysia, plans to defer some debt repayments and sell as much as A$40 million in shares after prices slumped.

The producer of elements used in cruise missiles to iPads will seek to sell A$30 million of shares to existing holders and A$10 million in an institutional placement, Sydney-based Lynas said today in a statement. It will also delay repayments on $215 million of outstanding loans to Tokyo-based Sojitz Corp. to June 2016.

“It’s almost a stay of execution,” UBS AG analyst Jo Battershill said by phone. “If there’s any price weakness, a slowdown in the Chinese economy, or a slowdown in demand for rare earths, than how long does it buy them? It’s hard to know.”

Lynas, the worst performer this year among a Bloomberg Index of 11 rare earths producers and explorers, said in March it would need more funds after its loss widened and with a $35 million repayment then scheduled by Sept. 30. It previously had renegotiated the terms of its loan facility with Sojitz to defer dates by which it was required to meet production targets.

The producer said completion of the equity raising would cause some adjustments to the conversion price of its $225 million of 2.75 percent convertible bonds due in 2016. Any adjustment will be known following the completion of the share sales, it said in the statement.

Lynas declined 9.1 percent to 15 Australian cents at the close in Sydney, extending the year’s decline to 49 percent.

China Supplies

Rare earth prices may drop further after the World Trade Organization ruled in March that China, which controls about 90 percent of global supply, violates trade rules by limiting exports. Any moves to add additional supply from China of the group of 17 chemically-similar elements, used in products such as smartphones, helicopter blades and hybrid-car batteries, may pressure prices and dent profitability for Lynas, according to UBS AG.

After hitting a peak in 2011, when China curbed sales to other nations, prices plummeted. Cerium oxide, the most abundant oxide by weight at Lynas’s Mount Weld mine in Western Australia, has slipped 90 percent since it reached a high of 207,500 yuan ($33,294) a metric ton on June 16, 2011, according to Shanghai Steelhome Information prices. Lanthanum oxide, the second-most commonly found element at the Lynas mine, has dropped 13 percent this year.

First Production

Lynas’s processing plant in Malaysia produced its first product for customers last February, according to its annual report. The facility has capacity to produce 22,000 tons of rare earths oxides a year, but will limit output to half that rate until demand and prices improve, the company said in an October presentation.

“The equity raising will secure our short-term working capital requirement,” Chairman Nicholas Curtis said today in the statement. “We expect to be at our targeted production rate during the June 2014 quarter.”

Lynas’s net loss is forecast to narrow to A$103 million in the 12 months to June 30, from A$143.6 million in the same period a year earlier, according to the median of five analyst estimates compiled by Bloomberg.