Rare earths producer Lynas secures better loan terms with Japanese backers

MELBOURNE/TOKYO (Reuters) - Australia's Lynas Corp LYC.AX said on Thursday it signed a 10-year loan extension on easier terms with its long-time Japanese backers, increasing its commitment to supply rare earths to Japanese customers.

FILE PHOTO - Rare earths dug up and processed into concentrate at Mount Weld in Western Australia, are pictured after being shipped to the Lynas plant in Gebeng, Malaysia, July 3, 2014. REUTERS/Sonali Paul

The extension to 2030 to repay $147 million will help Lynas, the only major producer of rare earths outside China, follow through on its 2025 expansion plans, with greater cash flows available thanks to the improved terms.

Under the new agreement, Japan Oil, Gas and Metals National Corp (JOGMEC) and Sojitz Corp 2768.T will reduce principal payments due and the interest charged on the loan.

Japanese customers stand to benefit from the new agreement, with Lynas promising to supply up to 7,200 tonnes a year until 2038, doubling the supply priority for Japan from their previous agreement which covered the period to 2025.

“The biggest achievement for Japan from the latest deal is to secure priority supply rights until 2038 in return for extending the loan and relaxing payment requirements,” an official at Japan’s Agency for Natural Resources and Energy, an arm of the industry ministry, told Reuters.

Last week, Lynas said it was stockpiling neodymium and praseodymium (NdPr), key ingredients in permanent magnets used in electric vehicles and wind turbines, for “strategic customers”. The move comes as markets are concerned that Beijing may use the minerals as a weapon in its trade war with the United States.

The miner and its Japanese backers started talks on the loan extension last year. Since then, the company has been hit by worries over a license renewal for its processing plant in Malaysia and rebuffed a takeover offer from Australia's Wesfarmers WES.AX, while benefiting from rising NdPr prices due to the U.S.-China trade war.

“Japan is continuing its efforts to secure long-term supply of rare earths used in cars and consumer electronics through diversifying supply sources, developing alternatives and reinforcing recycling processes,” the Japanese official said. He declined to be named as he is not authorized to talk to media.

Shares in Lynas, which have jumped 64% this year on surging rare earths prices, rose as much as 2.7% after the loan extension was announced but gave up some gains to trade up 1%.

The loan agreement had been largely expected by investors, said Andrew White, an analyst at broker Curran & Co.

“The reduced interest payments will be great. But perhaps one thing investors have on their minds is the capex that’s yet to come as well,” White said.

The company said it expects to be able to self-fund the A$500 million ($350 million) it needs to increase annual output to 10,500 tonnes a year of NdPr by 2025 from 5,443 tonnes last year.

($1 = 1.4302 Australian dollars)

(This story corrects to make clear in fourth paragraph that 3,600 tonnes supply was in prior agreement)

Reporting by Sonali Paul in Melbourne and Yuka Obayashi in Tokyo; additional reporting by Nikhil Kurian Nainan in Bengaluru; editing by Richard Pullin