Fiscal Year Debt Paydown

Greenleaf made the following comment in the "Lynas at 121 Mining Investment New York 2018" thread.

"One compelling reason which like everything else Amanda said in a "passing by" quote ... is the huge reduction in debt made in the past 8 months. Blow away comment..."

There is no argument with this. Lynas debt dropped by $219,757,996.21 for the fiscal year. How it was done is important. Of this amount, $184,757,996.21 was because of Mt Kellett converting their bonds to shares. The debt was reduced in exchange for 246,343,990 Lynas shares. There are currently 662,550,000 shares outstanding so it is possible that Mt Kellett possesses up to 37% of all Lynas stock. The exact amount I do not know and it may be significantly less if it sold the shares.

Of the JARE debt, which began the fiscal year at $185,000,000, only $35,000,000 was paid down. Sometime between 9/27 AND 10/18 $15,000,000 was paid and on June 28, 2018 an additional $20,000,000 was paid. For the fiscal year Lynas paid down $35,000,000. By no means do I not appreciate this effort.

However, the JARE debt remains at $150,000,000 with two years remaining to pay this amount off. From a previous post (in a different thread) I came up with a need for Lynas to pay down the debt at a value of $19,240,000+/- per quarter to pay off the entire amount. In rough numbers, Lynas will need to pay off $76,960,000 +/- this coming fiscal year and the next fiscal year to clear the JARE facility. This means that Lynas MUST pay off twice the amount it did this last fiscal year. My question is, has this been factored in going forward? If not then Lynas has a problem

It's been said that Lynas could ask for an extension if it comes up short in 2020. That is true. However, this is not necessarily a good position to be in. The JARE doesn't have to agree to rewrite the terms to include an extension which would force Lynas to find capital elsewhere. Such capital would be expensive either in interest paid or in shares exchanged. The JARE could be understanding and extend the payment but the interest charged would reflect the upward movement of interest rates since the original agreement. I would anticipate interest increasing by 1% minimum. A 1% increase equals $1,500,000 more interest due per year!

The JARE has filled a vital role in helping Lynas come through some dark times. However, realize that this was done for self-preservation of Japan's industries. The JARE and Japan needs Lynas to counter any problems with China. The second world war, WWII, saw the Japanese invade China in a search for resources, with atrocities being committed. Xi, of China, and the Communist Party of China have never forgotten this and till this day the subject is front and center for China which still demands public apologies from Japan. China is therefore not Japan's go to reliable source. Lynas is.

As a shareholder, you face a problem if Lynas management doesn't pay the JARE down on schedule. Either profits will be reduced by increased interest rates, share dilution could occur as an easy solution for the board (they control issuance of stock), or to the extreme, the JARE could force Lynas to sell itself to get capital to make the payment. Fortunately, Mt Weld is in Australia thus presenting difficulties this probably would slow this option to a crawl and be a non-start.

The question remains: if Lynas could only find $35,000,000 to pay back the JARE last fiscal year, does it have the ability to find $76,960,000 this year? Lynas hasn't indicated whether it can or can't. While a lot of interesting conversation goes on about batteries and motors, it may be time to begin discussing finances, asking hard questions of Amanda and the board, if for no other reason than to let them know shareholders, aka owners of Lynas, are watching and aware of the situation. After all, Amanda and the Board of Directors work for Lynas. You own Lynas.

I like Amanda but there's an old expression that is true today as it was years age. "Friends is friends and business is business." Don't let personal admiration for Amanda cloud business judgment as regards Lynas.