SRSR and the Chinese connection: Aussie REE company got $A252 mill to develop its mining operations.
Lynas Accepts Offer from Chinese Mining Firm 4 comments
by: Jim Kingsdale May 03, 2009 | LYSCF.PK
Lynas Corp (LYSCF.PK), the Australian rare earth element mining company, announced it will accept an offer from China Non-Ferrous Metal Mining Co to provide A$252 million of equity capital in exchange for a 51.6% equity position in Lynas. As part of the deal, China Nonferrous will provide guarantees to help Lynas secure financing from Chinese banks for two loans worth $104 million and $80 million. Lynas said the second loan is not needed immediately but is to be made available at the request of its board.
According to this report, while the majority of the stock would be held by the Chinese apparently the entire arrangement will be governed by a contractual agreement which, among other things, specifies that there will be 4 Chinese directors on an 8-person board with a ninth vote being held by CEO Nicholas Curtis, whose title is Executive Chairman.
In time, Lynas will issue a press statement that confirms or modifies the understandings stated above. A that point, perhaps better information will be available.
For now, what is an American investor - or any non-Chinese stockholder - to make of this development? Here are the salient facts:
1. The financing should ensure that the company can develop its Mount Weld ore.
2. Control of the operation appears to remain in the hands of Mr. Curtis, not the new stockholders.
3. Mr. Curtis is an old China hand, having successfully worked in China in the minerals business. Therefore, it can be assumed that he is well aware of the potential risks and rewards of doing business in and with China and has the skills needed to navigate such waters.
4. One could be leery of owning stock in an enterprise that could come under Chinese control. On the other hand, there are plenty of very successful Chinese enterprises in which westerners are happy to hold minority stakes.
5. While there is a potential conflict between the Chinese government potentially wanting to secure Lynas’ minerals at less than market prices, the Chinese also have a larger interest in maintaining their international credibility as a business partner. After all, China is on its way to becoming the largest economy on the planet at some point in the next 25 - 50 years. It is laying the groundwork for the yuan to become an international reserve currency some day. It is primarily concerned with peacefully transitioning from an agrarian society to a 21st century power in all respects - which above all requires peaceful cooperation with other world powers. That, in turn, will require a plethora of future business deals with western companies. I suspect such a goal will help govern matters in regard to Lynas.
6. The proposed deal between Lynas and CNFM requires approval by the Australian government. There may be additional negotiations and agreements on the subject of operational controls before a final deal is approved.
7. While the deal would ensure that Lynas could start up its engines and motor rapidly toward full scale mining operations, there could be some delay before the final deal is signed and implemented, particularly if there is political backlash in Australia. So it could be some months before Lynas moves back into production mode.
Considering all the pros and cons of this deal my sense about Lynas stock is two fold. First, the stock price is likely to fluctuate in a range of U.S. $0.30 - $0.40 until a final deal is consummated. That could be a matter of many months, although I’m sure Mr. Curtis will be pushing for a rapid conclusion. It will be interesting and instructive to see how he navigates this deal toward a conclusion.
AI
