Lynas Rare Earth getting Global attention; Here’s why?

Key Highlights:

1. Lynas Rare Earths has signed new agreements with JARE at the signing ceremony in Tokyo, Japan.

2.  The new agreements will bolster the Company's balance sheet and support funding of capital projects intended to meet fast-tracking global demand for Rare Earth materials.

3. As per the new agreement, in the event of challenging demands with other markets, the Japanese market will obtain the below priority supply rights over LYC's growth capacity until 2038.

Lynas Rare Earths Ltd (ASX: LYC) has signed new agreements with Japan Australia Rare Earths B.V (JARE). The agreements were signed at a signing ceremony in Tokyo, Japan. The new agreements will bolster the Company's balance sheet and support funding of capital projects intended to meet fast-tracking global demand for Rare Earth materials.

Image Source: Kapitales Research

As per the new agreements, JARE will contribute AU$200 million and waive the historic US$11.5 million interest due under the Loan Facility from 1 January 2016 to 31 December 2016.

JARE's contribution will be made via a subscription for ordinary shares in LYC at a subscription price that will be the higher of the 5-day VWAP in the period immediately subsequent to this announcement and the 5-day VWAP for the 5-day trading period immediately before this announcement.

This contribution of AU$200 million from JARE will help the Company's ambitious growth agenda. It may include current as well as planned projects intended to grow the production of Light Rare Earth and Heavy Rare Earth materials.

As a part of this new deal, LYC will update the present priority supply rights in the Loan Facility to reflect continued growth in the Japanese rare earth market. Also, as per the new agreement, in the event of challenging demands with other markets, the Japanese market will obtain the below priority supply rights over LYC's growth capacity until 2038.

1. If the Company's annual production is below 9,600 tonnes/annum NdPr, the priority supply will be up to 7,200 tonnes/annum NdPr.

2. Suppose the annual production surpasses 9,600 tonnes/annum NdPr, and the expected annual demand for NdPr from the Japanese market exceeds 7,200 tonnes/annum. In that case, LYC and JARE will negotiate in good faith to agree the terms of the availability for the Japanese market.

3. Priority of supply of up to 65% of the DyTb produced from Mt Weld feedstock, conditional on any arrangement with the U.S. Government and to the amount that Lynas will suffer no opportunity loss.

4. LYC will consider in good faith priority supply to the Japanese market of the outstanding 35% of HREs from Mt Weld feedstock, conditional on any agreement with the U.S. Government.

Since 2011, JARE has been the strategic partner of the Company. Lynas is the market-leading supplier of NdPr to the Japanese rare earth industry. The recent deals with LYC will prove the deep commitment of JARE to the constant growth & success of Lynas. 

How is Lynas positioned for the future?

Rare Earths have the global attention of governments worldwide as it is essential to the global energy transition. The Global Energy transition requires US$6 trillion worth of metal. There is five times more requirement.

In the present times, we see that the demand for rare earth continues to grow in EV and wind energy markets. In 1H FY2023, the Company's total REO (Rare Earth Oxide) production increased from 7,375 tonnes in 1H FY2022 to 7,957 tonnes. The average selling price per kg REO increased from AU$48.6/kg in 1H FY2023 to AU$52.5/kg. During 1H FY2023, the Company achieved revenue of AU$370 million and NPAT of AU$150.1 million. It also invested AU$240 million in capital projects. The cash and cash equivalent also improved from AU$674.2 million in 1H FY2022 to AU$934.2 million in 1H FY2023. The Company achieved this result despite substantial production challenges due to water supply issues in Q1 FY2023 and the beginning of Q2 FY2023, plus rapid cost increases, mainly for chemical inputs.

LYC's team is focused on improving its operational efficiencies to lessen the ongoing high-cost environment. At the same time, the Company is focused on increasing production to meet the strong demand from key customers.

On 14 February 2023, Lynas received notification that Lynas Malaysia's operating licence would be renewed from 03 March 2023. There will be no modification to the licence conditions applied to the licence issued in March 2020.

Progress on Major projects:

1. Kalgoorlie Rare Earths: In 1H FY2023, LYC accelerated Kalgoorlie Rare Earths Processing Facility. The recruitment of the Facility's operational leadership team is complete. The team members are residents in Kalgoorlie and are focused on completing construction and preparations for commissioning and ramping.

2. Mt Weld: The Mt Weld Expansion Project is progressing well. It includes Detailed Engineering Design, procurement of long lead time items, and award of packages. Applications for the two major environmental approvals for the project are submitted and would depend on relevant regulatory and stakeholder consents. Faull operation is planned for 2024.

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