Lynas Rare Earths Limited (LYC) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and thank you for joining us. I'm incredibly pleased to be here with the Chairman of Meteoric, Andrew Thomson; Meteoric CEO, Stuart Gale as well as my line of colleagues, Pol Le Roux, Sarah Leonard, and Daniel Havas. As you are aware, this morning, we released a very exciting announcement and presentation about the proposed combination of Lynas with Meteoric. The format today is that Andrew and I will make some opening remarks about the proposed combination, and then we'll be happy to answer questions. How will we achieve the combination? Well, Lynas and Meteoric have entered into a binding scheme implementation date under which liners will acquire 100% of the shares in Meteoric by way of a core approved scheme of arrangement. The consideration is Lynas shares with each Meteoric shareholder receiving [indiscernible] shares for each mediocre or approximately 1 line of share for each 50 Meteoric shares held. On a 60-day VWAP basis, that implies a 64% premium to Meteoric [indiscernible]. The Meteoric Board has unanimously recommended the scheme in the absence of a superior proposal emerging. The scheme is subject to an independent expert concluding and continuing to conclude that the scheme is in the best interest of Meteoric shareholders. All of meteoric directors and its larger shareholder, Paloma confirmed their [indiscernible] in favor of the scheme on the same basis. We are very deliberately chosen this asset. Because of the strategic flexibility and the scale it will deliver as well as in semi rare earth content and the quality of the work undertaken to complete the affinity feasibility study. If the scheme proceeds, it will result in the combination of Lynas' world-class Mount Weld deposit and extensive technical now with Meteoric Brazilian expertise and the older Rare earth project in [indiscernible] is the largest non-ionic rare earth, play, or mineral resource outside of China at 1.6 billion tonnes and over 2,300 parts per million to rare earth oxide. Adding a new feedstock source was precisely what we told shareholders we would do under the ad resource and scale file when we launched towards 230 strategy just over 12 months ago. This acquisition delivers on that strategy. The forecast low-cost nature of [indiscernible] will add diversification in terms of resource on the resource base and carries with it the potential to open up new downstream processing opportunities, supply chains and new customers, funding. Whilst we have a large cash balance, we have elected to make this acquisition utilizing script, preserving our net cash and liquidity position so that we can remain well capitalized to build [indiscernible] as well as to execute our other growth initiatives. We've also agreed to provide Meteoric with an interim funding facility so that work on the [indiscernible] project continues uninterrupted through the scheme implementation period. The proposed transaction is expected to be highly accretive across a range of key metrics, including net asset value mineral resources and future feedstock of NPR and YTV, why Brazil? Brazil holds the largest rare earth reserves outside China and [indiscernible] is its largest mining state. We have recently visited Brazil to meet with our wide range of ministers, funding, funding institutions and local stakeholders. Through this engagement with Brazil federal and state governments, they have been clear about wanting to build a domestic rare earth industry. We are really going to work alongside them as well as with the local municipality and the community and pass to tell us to do exactly that. How will we work in Brazil? In each of the jurisdictions where Lynas operates, we focus on creating local jobs and local skills. Our ambition is for [indiscernible] to help establish Brazil as a key play out in the global rare earth supply chain. Having helped build rare industries in both Australia and Malaysia, we are confident of our ability to successfully do the same in Brazil. The Meteoric team. Lynas has closely followed the development of the ionic flat industry for a number of years, including having engaged with Meteoric going back several years. We have immense respect for the meteoric team and what they have accomplished in Brazil. And we're looking forward to working closely with that team to deliver the [indiscernible] project. Minister Raise is a world-class jurisdiction. And whilst we are aligned to the challenges of entering a new jurisdiction, we avoid with enthusiasm about the opportunity by unlocking this sizable and world-class resource, we will deliver significant value to line shareholders and we're excited about the opportunity to invest in Brazil's rare road industry. Let me hand over now to Meteoric Chairman, Andrew Thomson.

Thanks, John. Good morning, everyone. It's naturally a pleasure to be here today with the Lynas team and [indiscernible] Macquarie as well, presenting this opportunity to both sets of our shareholders. [indiscernible] only had this asset for about 4 years, we have made remarkable progress with a very good focus on the fundamentals of geology, resources and metallurgy. It is all culminated in the Covera definitive feasibility study, which was produced at the end of July. It's an amazing milestone achieved in record time. [indiscernible] is a multi-decade asset with a competitive cost base, compelling economics as outlined in our PFS. And there's no doubt that we see real upside here from lines as the project is delivered under their stewardship. There are two reasons for the recommendation from the Meteoric for this transaction. Value today and retain exposure to [indiscernible]. So for our shareholders, I just want to go over those two reasons "The first is valued with the proposed transaction presenting a compelling premium to our recent trading; the second, and this is very important from my perspective with the continued exposure to the project. We believe it is the premier rare earth project undeveloped on the planet. And when you bring in lines' expertise, funding, customer relationships, that has the potential to unlock enormous value. For shareholders, you'll move from holding meteoric stock a junior middle tier developer to holding the only established and proven reducer have separated oxides outside of China is an amazing opportunity. For Meteoric as a single-asset developer funding and execution are the risks that matter most. Lynas' balance sheet, operating cash flow and technical capabilities materially mitigate both those risks and they complimented team that we're very proud to have built up over the last 4 years in Brazil. Today, I super like to acknowledge that team. We've gone from 2 or 3 to a team of 70. It's been amazing. I'd also like to acknowledge the underlying family, who we did the deal with the Tony family, and in particular, the community and the people of the municipality of [ Caldus ] where our project will eventually operate. Together, Meteoric, Caldus, [indiscernible] the Minister as government, we have progressed this project materially down the development path. And this transaction acknowledges the hard work and dedication of everyone at Meteoric. We absolutely look forward to being shareholders and to develop this project alongside Lynas. Thank you, John. It's been a great adventure.

Thank you, Andrew. And now I'd like to ask our acting CEO, Pol Le Roux, to comment on the merger. I think you are on mute, Pol. While we're trying to sort out the technical issues, I'd like to ask Stuart Gale to comment.

Thanks very much, John. Look, I'd just like to reiterate both the all words and Andrew's words. This has been a real journey over a very short period of time for the team at Meteoric. We've been very fortunate to have very strong relationships with the government in Brazil, both from a federal state or federal state and insure level. And as you look at the journey that we've come on over the last 4 years, I don't think you'll find many jurisdictions anywhere globally who would have been able to board a project from early stage drilling through to unit feasibility study and very shortly to be able to receive the licenses which allow us to construct the project. So that's a key for us over the next short period of time is to get the installation license the team that we have on the ground have maintained very strong relationships with the environmental agencies in [indiscernible] and we're progressing strongly along those lines. So we're very thankful for the opportunity to be working with Lines because Lynas brings those key aspects to the development of the Caldera project once the last is up and running. I'd also just like to congratulate all technical teams. As you appreciate, the -- there was a huge amount of work that goes on in the background over a period of diligence which has been a pretty significant effort to have got through this process in what is for the last 5 weeks or so, I suppose. And we're very thankful to both sides for the work that's been done. And I think it also highlights the strength of the Caldera project that we've been able to withstand [indiscernible] it just gives confidence in the whole process that we've put together and those fundamentals that Andrew spoke to. So we're very much looking forward to closing this transaction and working with Alliance team over the next little period of time. Thanks, John.

Thanks, Stuart. And Pol, it looks like we might have resolved the...

[indiscernible]. And thanks, John. I have to say I'm [indiscernible] every single people I met in the last few minutes is [indiscernible] for the deal. So we see the market is very happy with [indiscernible]. And I'm happy to say the [indiscernible] very excited with the transaction and engage in optimizing in connection of our businesses in terms of products and optimization and business opportunities. Personally, I have in my previous company for 26 years, I worked with a lot of Brazilian pro I was always in France for the quality of the work being critical processing, engineering maintenance and operation. So I feel very confident and very quite our ability to execute our plans, mostly and effectively, and that will make that deal fantastic. Great start for a greatness.

Thanks, Pol. So to summarize, [indiscernible] era is the right asset for Lynas at the right time. query consistent with our towards 2030 strategy, and we are acquiring using script to ensure that our balance sheet remains strong. I'll now hand over to the operator for questions.

[Operator Instructions]. Our first question comes from Genevieve Gilles from Barrenjoey. Genevieve, please go ahead.

Andrew, Stuart, Pol and [indiscernible] congratulations on the transaction. Now I'm just interested in [indiscernible] Lynas' perspective, how this played into the transition process? Can you give an update on the transition process and timing and whether the process has now elongated until the potential transaction completes?

Yes. Thank you for that question. The answer is no, that it's not elongated until the transaction from fleets, the selection process for and new CEO is independent of this process. The process has become proline big for reasons which I've previously discussed. But always looking forward to the completion of the process in the not distant future. So we'll certainly have an announcement before the AGM in November and maybe even by late October. So maybe embedded in that -- the question is also how or why we would do a transaction in the middle of the transition process. Well, we set out towards 2030 strategic duration over 12 months ago. And the acquisition of Meteoric, as I've said, is clearly consistent with the growth pillar of that strategy. At the time we set that strategy Amanda cars was the CEO. And Amanda was involved in pursuing that strategy and including the early discussions with Meteoric up until the 30th of June when she retires. Since that time, a matter has stayed with us to work of this particular project is a strong supporter of the acquisition. I'm pleased to be able to say that our business hasn't ground to a halt just because we're in a CEO transition. We have strategic and deep bench with talented and capable executive team we're grateful to Amanda for the ongoing assistance, but that comes executive team has been able to execute on the strategy and resulting in the announcement this morning.

Thank you. Our next question comes from Dim Ariyasinghe from UBS.

Congratulations. Maybe just one on the project itself and how you expect it to integrate into the broader minus business. And apologies in advance if this is a simple question, but I don't -- this is volume for you -- this is effectively solve your heavy rare as shortfall from a geological perspective? Or do you then -- do you expect incremental oxide tonnes from this eventually coming out of land? And then I guess could you change the DFS like do you foresee any potential changes to this project as it currently is positioned to optimize into land? And then likewise, is there anything you need to do at lab to make way for make way for this new feed?

Daniel, maybe I'll ask you to comment in the first instance and ask Pol to add any further remarks that he might have.

Thank you, John. Thanks, Dim, for the question. I think it's not a simple question in there, Dim. First of all, from the process, your first comment around the heavies and the last is actually does add heavy to our resource. As you've seen in the statement, it adds about 127 tonnes per annum of DY TV to our resource on top of what we can already get out of the out well. If you look at the outside China market today for DICV it's around 400 tonnes per annum. So between the Mount Weld feedstock and supplementing it with this excellent heavy feedstock, we're able to get a significant volume of that outside China market demand today. So we're very confident from that perspective. It does also add lights and our process, of course, another 4,000 tonnes per annum. And so positions line is very strongly from a development perspective and ongoing development perspective we'll be able to lift production up as market demand continues with great confidence now between both Mount Weld and meteoric Cartier projects, growth in the lights and the heavies. As far as integration goes, yes, we will be working with the meteoric team. They've already done an excellent job, but we will work with them through the process to look at their flow sheet process and how they would develop that project, and we'll bring our expertise because we've done this multiple times, of course, we'll bring that expertise into the team and between us, we'll be able to revisit the flow sheet and bring it in line with Lynas' production profile going forward.

Pol, is there anything you'd like to add?

Well, not much, you said that we've been working on a trade processing for [indiscernible]. And so the team of tens I think we've worked -- I don't think I know. We work a lot together to maximize the overall efficiency of the process from mining to encash. That's a very good part of the of this deal that we can make the overall things more efficient than any the plan. So not you, but a lot of potential ahead of us.

And our next question comes from Chen Jiang, of Bank of America.

Congrats on the acquisition of this development project I guess, which is kind of in line with your upstream activation 2030 strategy. Just a question, I mean, from Line's shareholder perspective, how should we think about the downstream capacity given you have more resources and reserves now I guess, previously, the 12,000 tonne per annum NPR as well as your capacity? So that's my first question. And then secondly, again, back to that project. How -- what is the plan? I mean, over the long term, are you going to sell merit to North American market? I guess that doesn't make sense. If you have already have downstream in Malaysia, I guess, you're going to ship the Emirates from Brazil to Australia, is there any cross-border [indiscernible] restrictions, et cetera? Are those in your DC and considerations?

Thanks. Daniel?

So from a production perspective, Chen, thanks for the question, and it's a little bit soft, but I think at the question from -- from a production perspective, Lynas' strategy has always been to grow with the market, and we will continue to do that, particularly the outside China market. As you are already aware, we've said that we will lift production capacity downstream in Malaysia to 12,000 tonnes in this planning period, so that's what we can already produce out of that well. Having the [indiscernible] feedstock come online over time as we continue to ramp that up will allow us the flexibility to continue above the 12,000 tonnes over time and in line with the outside China market, it provides the flexibility of feedstock options going into Malaysia. It also allows us over time to assess the potential of downstream development in Brazil as well, which would be excellent from a derisking perspective and dispose growth opportunity. That would allow us to obviously look at feeding the Western Hemisphere market from Brazil and our existing supply chains from existing facilities in Malaysia. So it's all about the flexibility of what we will be able to do and the ability to grow with great confidence because of the feedstock options that we have in line in the short and longer term. Now from a ramp-up perspective, the initial plan, obviously, in plays produce in [indiscernible] can, with our development program be separated in Malaysia. That would be the initial plan going forward.

Our next question is from [ Bert Dons ] of William Blair.

Pol, great to have a lunch with you today. For my question, Lynas has one of the best track records of being able to operate in a very low price environment and still come out okay on the other side. Obviously, things look good right now from a pricing perspective. But is that something that this mine helps or hurt? I guess, should we view this deal as a way to capture upside when times are good, or is this a way to solidify stability for lines regardless of the environment? And does this deal change where your capital goes in the future? Are you more in Brazil versus Australia or Police?

Daniel?

Sure. Thanks, Nice to hear from you there in the U.S. What this does for us, I mean, Brazil to begin with is an excellent jurisdiction. And [indiscernible] has great infrastructure, this is not a frontier jurisdiction. However, it does allow a low-cost opportunity to be added to the line is stable. As you know, we -- as we moved into higher-cost jurisdictions, we are always very conscious of our cost muscle, which has always been really important and critical to our success. That strategy has not changed, and Brazil offers the ability for us to continue down that pathway and bring in additional low-cost feedstock from the one play and the high quality of the in clay and the Cardial deposit as well as what we can already produce at low cost out at wells to our Malaysian facilities. So that strategy remains in place, and we've got a great deal of confidence that Brazil presents that opportunity to add that low-cost production and fee in stock at the moment. So from a capital perspective, nothing has changed from our capital allocation perspective from the 2030 strategy. That will continue as is today which includes, as I've just mentioned, going up to the 12,000 tonnes production capacity in Malaysia. We will allocate capital over time according to where it is best used, and we have a very strong balance sheet, as you are aware, and the way we have structured this deal protects the balance sheet and gives us the optionality to place capital into projects that are at the right time in the right place. And certainly, Brazil will allow us to do that. The DFS from Meteoric process already presents about USD 0.5 billion to get that moving we have the flexibility to be able to run that through our own balance sheet today as well as additional project financing. The Brazilian government development bank has shown a great interest in bidding involved in this project. they would then have skin in the game from a country perspective, which is really important going forward. So a great deal of flexibility in it to process both in downstream in Brazil as well as in Malaysia at a low cost, and that's really important for us.

And our next question comes from Austin Yun of Macquarie.

Yes. really good to see that you are executing the 2030 strategy at a pace, I mean, from Line shareholder perspective. So my question is given that you take increase your resort size, expanding our downstream and also expansion of your offering product. You take all the [ buckets ] already. And now the this transaction really deconstrain your [indiscernible] once the project is built. Now just looking at your [indiscernible] plant facility, which has been running at a lower utilization rate. Is there a possibility that for you to even shut that plant given that you can find a different source to [indiscernible] your downstream Southern [indiscernible] party in Malaysia?

Daniel, do you want to comment initially and then I'll ask Pol to add his comments.

I think Austin as I was just talking about, the additional feedstock provides flexibility into the business as part of our growth strategy. It makes us a much stronger company by having that additional feedstock available to us over time. So not just in the short term, but in the long term as well as a business. Now as far as ability goes and what we do with [indiscernible] is an integral part of our operations today. We have been working very closely there to work out when we will lift production capacity. The technical teams there have a great deal of confidence now in their ability to do that over time. We have run through many of the bottlenecks in that facility. So I'm not going to comment anything around what we may do with it in the future, but it remains an integral part of what we're doing today from an MRI perspective, I think we've always mentioned in the past that there are customers who are interested in [indiscernible] that we produce out of [indiscernible] and certainly what we can produce in the future from this opportunity. No, we need to make a strategic decision as a business. Do we want to sell [indiscernible] and help potential competitors get going. And that's a decision for the business as we move forward. But certainly, there is demand from that perspective for the business if we chose to go down that pathway.

Thanks, Daniel. Pol is there anything you'd like to add?

Yes, simple cables part of the supply chain from Northwell. It's safe to say that we are not yet fully done in Calgary. But we get there and we get there pretty fast. And onto remains our prime results of raw material. And so we will execute [indiscernible] I have some more [indiscernible] fantastic factory. So it's not one or the other. There is on top of monthly results. So there is no questions about -- again, that and, therefore, shutdown to February part of our processing of [indiscernible] and we'll get there and we'll pretty get there very nicely sometime soon. And this is additional resource and all of this is contributing to our role towards 2030 where basically, we want to at least on the size of our business. So we need a receipt.

Thanks, Pol. Next question?

Our next question comes from Sam Berridge of Perennial.

Good day, guys. I just want to follow on from Geneva's question. Being that you've got in a CEO transition period, who owns this decision, if it turns out that the metric resource doesn't quite perform up to its DFS numbers, is responsible for this, the responsibility sits with the acting CEO at this stage and the board?

Good enough. We thought about how we would think about this we're satisfied, but our structures, even though matter, it still down were sufficient, but the decision is the decision [indiscernible] by the executive team of Pol is the leader and it's owned by the Board.