Lynas CEO Amanda Lacaze on negotiating time and an estimated $70 million in interest savings
Posted on November 9, 2016 by InvestorIntel
“The most important thing is the time because, as you know and as everybody who’s observed the rare earths market knows, the rare earths market at present the price does not reflect demand.” – Amanda Lacaze, Lynas Corporation
Amanda Lacaze, CEO and Managing Director of Lynas Corporation (ASX: LYC | OTC: LYSDY), in an interview with InvestorIntel Corp. CEO Tracy Weslosky discuss the recent debt amendment and Q1 announcement. In this interview, Amanda touches on some of the subtle complexities and associated advantages of the debt amendment negotiations with the two debt facilities which includes time and an estimated $70 million in interest savings.
Tracy Weslosky: We’re delighted to interview you because we want to talk to you about the debt amendment that you recently facilitated. Can you give our audience an overview of what Lynas just negotiated?
Amanda Lacaze: What we actually negotiated is virtually all elements of the amendments. The most important thing is that it’s time. We’ve negotiated additional time through to mid-2020 on the JARE facility and the 30th of September 2020 on the convertible bond. As well as that we’ve significantly reduced the interest liabilities. The current interest rate on JARE is 6%. It drops to 2½%. The current interest rate on the convertible bond is 2.75%. It drops to 1.25%. As well we had fixed our amortization schedule for repayment of principal on the JARE facility and now all of that is due at the end of the loan and will only make payments in the interim based upon how much cash we have in the business. It’s much more tied to cash flow of the business and it’s recognizing the market volatility. The most important thing is the time because, as you know and as everybody who’s observed the rare earths market knows, the rare earths market at present the price does not reflect demand. We expect that at some stage those two things will come back, will normalize and at that time we’re in a very good position to deliver a good outcome.
Tracy Weslosky: I understand there are numerous complexities in this deal. One writer commented that in addition to time that the interest rate savings might exceed $70 million. Can you talk to us a little bit about the numbers?
Amanda Lacaze: Yes, certainly. The interest rate savings are around about $70 million. That’s on the JARE facility and then as well there’s simply the savings in the liabilities based upon the interest rate over the remaining duration of the loan. In addition, under the current agreement we actually have $50 million U.S. payable as principal between now and the 31st in December 2017 and all of that has been pushed out to the end of 2020. People might say, well, what have you had to give in return for this? In terms of the things that Lynas has needed to bring to the table, and one of these is very important and our shareholders will need to vote on it on the 30th of November at our AGM, is that we’ve agreed to reset the conversion price with the convertible bond to $0.10 per share. That’s still at something like — just over 40% premium to the price that it’s currently trading at, as well as that we have granted 10% warrants at an exercise price of $0.05 and we have agreed new availability offtake agreement with JARE to ensure that we continue to supply the Japanese market with their NdPr. We think that it’s actually a very, very good deal for shareholders. We hope that the shareholders will vote positively for it.
Tracy Weslosky: Of course, what I would really love to ask you, because we’re seeing signs of increasing interest in rare earths and a potential, we believe that it’s inevitable, that there has to be an increase in rare earth prices. Amanda, obviously you have a better understanding of this than we do. What do you think we as shareholders and new potential shareholder should anticipate say in the next 6 months to a year with rare earth prices?
Amanda Lacaze: Oh look it’s very difficult. I think that I have actually probably done better picking when 35 is going to come up on the roulette wheel then I have been picking when rare earth prices are going to change. It’s, sort of, the rare earth market is such a complex market. We find demand is strong and you would have seen in our quarterly report that we continue to sell everything that we produce and that we’re producing more than we have every produced before. Customers are still wanting to buy from us. That normally would say therefore price should be strong. We would hope that this amendment is a good signal to everybody that Lynas is here to stay….to access the complete interview, click here
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