Transcription of Finance News Network interview with Lynas Corporation Limited (ASX:LYC) Executive Chairman, Nick Curtis
Lelde Smits: Hello, I’m Lelde Smits for the Finance News Network and joining me from Lynas Corporation Limited (ASX:LYC) Executive Chairman, Nick Curtis. Nick, welcome back to FNN.
Nick Curtis: My pleasure, thank you very much for having me here.
Lelde Smits: Since we last spoke Lynas has achieved producer status at your $800 million Lynas Advanced Materials Plant in Malaysia. Nick, what’s next on the priorities list?
Nick Curtis: Well our priority is actually to continue the transformation from a development company into a real industrial company. The story has been a story of growth and aspiration into an extremely interesting sector. It is now up to us to prove that we can produce consistently at quality that customers want on an ongoing basis. We are highly confident.
Lelde Smits: So when will the plant be operating at full capacity?
Nick Curtis: Obviously there are stops and starts and qualification processes, and we would say three to four months for the first phase of the plant, being 11,000 tonnes, to reach full capacity. We’re waiting on delivery on the second stage of the plant which is a parallel expansion, it’s like a brown-field expansion of the same plant effectively, which will be delivered to us some time in this quarter and we expect that to ramp up over three to four months as well. So, come June 30 of this year we should be in fairly good shape towards full scale production.
Lelde Smits: Now Lynas has recently advised rare earths products will be ready for sale within weeks. Who are your major customers?
Nick Curtis: We don’t reveal the names of our major customers generally speaking because they are fairly confidential about their own supply chain sources. But, we have very strong relationships with major chemical companies globally.
Lelde Smits: So Nick when do you expect first cash flow and what are your cash flow projections?
Nick Curtis: Cash flow projections are very much a function of forward revenue which we are not able to predict at this point in time. Brokers are probably best to give you a view on forward pricing.
But, we expect first cash flow to be really into the new financial year this year [July 1, 2013 – June 30, 2014]. Not so much this [2013 calendar] year. We think that the three to four month ramp up, we need to give ourselves a time to make sure we get the product in volumes sufficient to get positive cash flow. But, our projection would say that the financial year 2013/14 will be one of strong cash flow for us.
Lelde Smits: Lynas raised $200 million at the end of last year. How comfortable are you now with the current state of your balance sheet?
Nick Curtis: Obviously we’ve had some delays and we’re quite public about that in the start up of the plant and they drained our working capital planning earlier. So we needed to replenish the working capital properly and that is what that fund raising was about. We are very comfortable that we have raised more than adequate funding for the working capital purposes we have into positive cash flow.
Lelde Smits: Moving to production hasn’t exactly been a smooth ride for Lynas. What is the most significant lesson you’ve learnt?
Nick Curtis: I would say for me personally - it’s not the entire learning of the company, but the most interesting learning for me - is that, alongside the pillars you obviously think about are finance, engineering and operations, marketing and customers, stands community. And, that’s an equally strong pillar. And, you need to work equally strongly from the very beginning of a project to ensure that you understand the community’s stories and the communities concerns and that you understand how to make the community feel proud and involved in your project.
Lelde Smits: Lynas currently has a Temporary Operating Licence valid for two years. What has to happen for you to secure a permanent licence?
Nick Curtis: The Temporary Operating Licence is like a P plate on your car. It is your licence but you have to prove for a period of time that you can comply with the road rules all the way through. And, once we’ve proven that we’ve complied with the road rules we automatically get our black licence [provisional licence] and our full licence.
Lelde Smits: But in the face lingering political, environmental, and cultural controversy, how confident are you in securing the permanent licence?
Nick Curtis: I think you have to divorce community and more specifically political discussions from the situation of the law in Malaysia. And, we are all completely validly operating within the law of Malaysia. So, we don’t see any reason why there should be any change in that status.
Lelde Smits: Now turning to politics - it is an election year in Malaysia with the ruling National Front having to go to the polls before mid this year. What result are you hoping for?
Nick Curtis: Well we’re agnostic as to the result. We’re not going to proclaim a winner one way or another. We stand by the fact that we think the political processes in Malaysia are robust, that it is a democracy; there are some sound debates that go on. I think there is a new level of debate in Malaysia associated with social media. But when we look at the debate in Malaysia it’s tame relative to some of the debates we have in Australia. That’s a healthy sign of a democracy.
Lelde Smits: But Nick, how do you anticipate a change in government if it were to occur could change the outlook for your operations in Malaysia?
Nick Curtis: I think that is a matter of policy direction for the government as to whether they want to emphasise things like the 20:20 aspirations of this government in Malaysia towards a better educated and higher value Malaysia, we would obviously welcome discussing with government their policy initiatives as a significant investor in Malaysia and we would be perfectly comfortable with an incoming government having a dialogue with them.
Lelde Smits: Finally Nick, Lynas’ stock price has shed more than 50 per cent of its value since the highs of last year. What factors do you anticipate could drive the price north this year?
Nick Curtis: I think the uncertainty associated with the political noise around Lynas has not been good for the stock. And, I understand investors standing back a little bit and saying, ‘Well hang on, we’re not sure we understand these risks”. And sadly I think the stock has come off very substantially. Rare earths prices have come back, again a macroeconomic factor that we don’t necessary have control of, which I think has also had a very significant impact on the stock. I’d be looking for our own production stability and a macroeconomic revival to see, I hope, a better share price.
Lelde Smits: Nick Curtis, thank you for the update to Lynas Corporation.
Nick Curtis: My pleasure, thank you very much.
LYC Price at posting:
63.0¢ Sentiment: Hold Disclosure: Held
(20min delay)