Lynas Corp strikes $505m China deal

China Nonferrous Metal Mining Group Co (CNMC) is set to gain control of Lynas Corporation, which holds a rare earths project in Western Australia, after striking a $505 million deal.

Earlier this year, Lynas suspended work at the Mt Weld project near Laverton following a dispute with bond holders over $US95 million.

At the time Lynas had said it will look to secure a suitable funding arrangement for the project.

Today, CNMC has agreed to subscribe to 700 million Lynas shares for a discounted 36 cents each to raise $252 million. The placement will give CNMC a 51.6 per cent shareholding of Lynas.

The CNMC deal also includes a corporate guarantee for Lynas to a Chinese bank to the tune of $US184 million ($A253 million).

The total amount of the deal is $US366 million ($A504 million).

Additionally, CNMC will help Lynas obtain a $US15 million ($A21 million) working capital facility within 10 business days of the signing of the binding heads of agreement

As part of the agreement, Lynas' board will expand by four with all current board members expected to stay on.

News of the deal prompted Lynas shares, which had previously been in a trading halt, to surge 44 per cent to 42.5 cent at 11:30 AEST.

Lynas today said it will allocate $US286 million ($A394 million) of the funds towards the first phase of Mt Weld, which is targeting a 10,500 tonnes per annum rare earths oxide production rate.

The first phase will require 90 people to construct the concentration plant in WA while 300 people are expected to be employed in Malaysia to construct the advanced materials plant.

Overall, the Lynas sites will need a peak workforce of around 1,200, including 200 people at the WA site.

The agreement is subject to Australian and Chinese regulatory approval.

The announcement is below:

Lynas Corporation Limited (ASX: LYC) is delighted to announce the introduction of a proposed new majority shareholder, China Nonferrous Metal Mining (Group) Co., Ltd (CNMC).

Lynas and CNMC have signed a binding Heads of Agreement whereby CNMC shall arrange provision of full funding for the Lynas Rare Earths project. This shall enable the company to lift the suspension of the project and complete construction and commissioning of both the Concentration Plant in Western Australia and the Advanced Materials Plant in Malaysia, allowing the company to deliver against our existing customer contracts in North America, Japan and the European Union - the business model remains unchanged.

The transaction is subject to the conditions set out in the Attachment, which include Australian and Chinese regulatory approvals as well as Lynas shareholders' approval at a special meeting anticipated to be held in 3 to 4 months time.

The key terms of the binding Heads of Agreement are, upon receipt of the required approvals CNMC will:

1. Subscribe in cash for 700,000,000 ordinary shares in Lynas at A$0.36 per share. The total amount raised from this placement of shares will be A$252,000,000.

2. Provide a corporate guarantee to a Chinese bank to provide to Lynas:

a. A senior loan of approximately US$104,000,000 to bring the total capital provision to US$286,000,000.

b. At the request of the Lynas Board, a further guarantee to support an increase of the senior loan to cover the capital required for the second phase of the Rare Earths project (approximately 21,000tpa REO), currently estimated at US$80,000,000.

It is intended that the senior loan will be secured over the assets of Lynas in accordance with standard project financing provisions.

Therefore, including the estimated US$80 million for the second phase, the company shall receive a total of US$366 million (A$522 million). The initial US$286 million shall fund the first phase of the Lynas Rare Earths project at 10,500 tonnes per annum Rare Earths Oxide (REO) including project suspension and remobilisation costs, working capital, contingency, financing fees and corporate overheads until positive cash flow, as well as work towards a feasibility study on the balance of the Mount Weld resources.

Within approximately ten business days of the signing of the Heads of Agreement, CNMC will assist Lynas to obtain a US$15,000,000 working capital facility, which upon receipt of approvals and satisfaction of the specified conditions, shall be replaced by the above facilities.

The placement price represents a control premium of 52.5% above the volume weighted average price of Lynas shares for the 30 trading day period prior to the date the binding Heads of Agreement was signed. Upon completion CNMC will be the majority shareholder with 51.6% of the shares on issue.

Mr Nicholas Curtis is to remain as Executive Chairman and the Lynas Board shall be expanded by four to include Directors appointed by CNMC. The Lynas Board shall therefore consist of eight Directors with the Executive Chairman having a casting vote. The current executive management team shall remain in place.

During construction, the Lynas sites will employ peak numbers of approximately 1,200 people, including 200 people at the Western Australian site. During the first phase of operation, the Lynas sites will employ approximately 390 people, including 90 people at the Western Australian site.

The Executive Chairman of Lynas, Mr Nicholas Curtis said "Lynas is delighted to have attracted such a strong shareholder who fully supports the development of our business model. This new shareholding by CNMC affirms the attractive economics of the project. The funding package will enable restart of the Lynas Rare Earths project with anticipated first production approximately 12 months from the receipt of funds, and will enable the company to fully implement the Lynas vision of being a global leader in Rare Earths for a sustainable future. I strongly believe the new shareholding of Lynas by CNMC will provide a stable foundation for further growth of the company."

The President of CNMC Mr Luo Tao said, "CNMC is very pleased to be able to participate in an investment opportunity as exciting as Lynas. CNMC shares the Lynas vision and supports the Lynas development strategy for participation in this exciting industry. We have identified Lynas as a company that is well positioned to deliver its shareholders a very strong return from its high quality Mount Weld resource and CNMC is very happy to become a major shareholder."