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Lacaze ensures Lynas overcomes the odds​

The Australian, page 17
Posted on MAY 2, 2017 by Glenda Korporaal 

The CEO has guided the rare-earths miner back from the brink

Two years ago, ASX-listed rare-earths company Lynas was given a 50-50 chance of survival by one industry analyst.

It has been a long, hard road out of the red, but last week Lynas chief executive Amanda Lacaze was able to report a record positive cash flow from operations and quarterly sales of its rare-earth products, used in smartphones, magnets, batteries, wind turbines, hybrid and electric cars.

“We are not a start-up any more and we are not a turnaround, because we make money,” says Lacaze, who flew back from analyst briefings in Australia to Lynas’s production plant in Malaysia at the weekend where she runs the company.

Lacaze, a former Telstra executive, who has been running the once-struggling company for the past three years, has been pitching her case to investors that the company has not only clawed its way back from the brink, but is now looking to a future where it can become a much bigger player in the rare-earths market, in which Chinese producers still have the upper hand.

“A lot of our investors have stuck with us through thick and thin,” Lacaze tells The Australian.

“The reaction to last week’s quarterly report has been very positive. Now they are asking me, what’s next?” When Lacaze was appointed, the company was, as she puts it, almost sliding down a cliff.

“That was one of the reasons I was appointed,” she says frankly. Last week’s investor call was dominated by banter about whether Lacaze was entitled to receive a bottle of red wine for being able to deliver such a strong cash flow report after years of the -company losing money (winning a bet with one analyst). Lacaze joked that she was more of an Absolutely Fabulous girl who liked her “Bolly” (Bollinger).

Still a highly speculative investment, Lacaze’s Lynas has steadily cut back its operating loss from $89 million for the six months to the end of December 2014, to $40m for the six months to the end of December 2015 and to $19m for the six months to the end of December last year.

Which is why being able to report a record positive cash flow of $11.6m for the first three months of this year, on the back of record production (up 62 per cent in the March quarter last year) and record sales of $69m (up from $44.5m in the March quarter last year and $58m in the December quarter), was so important.

“We don’t make as much money as I would like us to make,” says Lacaze, a straight-talking, energetic woman whose career includes stints at Nestle, ICI, Orica and Telstra, and who has developed a reputation as a turnaround specialist.

“But we know what we are doing. We are starting to make money and we will continue to work on ways to do better.” Lynas is now the second-largest producer of rare earths in the world and the only producer outside China, following the 2015 collapse of US-based Molycorp.

But it operates in a complex and often volatile market, with demand from China largely setting the world price for the different rare-earth products.

World rare-earth prices boomed in 2011 when China, the world’s largest producer, restricted exports. At the time, Lynas’s shares were trading as high as $2.25. But then China eased its export controls, dumping its product on the market, sending the share price down to 14c in June 2014, when Lacaze took over as chief executive.

The continued collapse in world prices sent the company’s shares down to about 3.6c in August 2015, when some critics were speculating whether the company could survive. A year ago they were trading at the 8c mark. Last Friday, they closed at 9.1c.

Not a job for the faint-hearted, Lacaze took over as CEO, slashed production costs and has overseen a steady improvement in production of its plant in Kuantan on the east coast of Malaysia, which uses material mined at Mount Weld in Western Australia.

Along the way, Lacaze has had to deal with continued scrutiny from groups in Malaysia, using the project as a political football, and market swings and roundabouts as a result of changes in China.

Last year she renegotiated one of its major debt facilities, a $US200m loan, down from 7.5 per cent interest to 2.5 per cent. Interest on a $US225m convertible bond was cut from 2.75 per cent to 1.25 per cent.

“Our production is working, our costs are under control and our relationship with our lenders is good,” says Lacaze.

Having got its own house in order by last year, Lacaze has been helped by a stabilisation in prices in recent times.

The Beijing government has moved to shut down production at many illegal and highly polluting mines in China, which has helped to cut back on overproduction in the country.

The Chinese government’s economic stimulus, and a strong support for less-polluting hybrid and electric cars in China has also helped on the demand side.

“We are highly leveraged to the price,” Lacaze admits. “The Chinese government has been cracking down on illegal producers because of the environmental problems.

“They have forced the shutdown of some operations, which has been beneficial for us.” The key price for Lynas is the price for rare earth NdPr (neodymium-praseodymium). This has firmed from about $US30 a tonne last year to almost $US34 a tonne at the end of March.

“I am cautiously optimistic that the trend will continue,” she says. Lynas’s major customers are in China and Japan, with some sales in Europe and North America.

Potential users of rare earths were spooked by the skyrocketing prices in 2011, redoing their production plans to reduce their use and opt for other inputs.

Lacaze sees Lynas’s role as the only producer outside of China to help stabilise the market and work closely with customers to ensure they receive reliable supplies of products that are more finely tuned to their needs.

She says continued upside for Lynas will be able to upgrade the specifications of its different rare-earth products.

“We are not in a commodity business,” she says. “We produce a suite of materials that all matter to the performance of things like magnets and hybrid cars.

“We are getting better at producing more specialist material.” Lacaze is bracing herself for Lynas’s Malaysian operations to receive renewed political attention in this year’s Malaysian elections. She says the plant operates to strict environmental standards and has gone out of its way to publicise this and work with local community groups.

“We have had five years of operation in Malaysia and we have a very strong environmental position,” she says. “We expect the opposition will try to generate some anxiety over our operations and make some noise. But we are well positioned and well prepared.” Lacaze insists that Lynas has “no current plans” for any acquisitions or deals with other companies in adjacent markets. She says the challenge ahead is to help ensure the market for rare-earth products “works well” .

“We want to grow the market,” she says. But she hints that with the company’s house now in order, some deals in future might not be out of the question. “In any industry you are always looking at where there are opportunities for corporate activity and where we are today is no different,” she says.

“Over the past couple of years, thinking about any corporate activity was foolish. We have been very focused on today’s business but now we have done that, we can start to think about what tomorrow might look like.” Our investors are asking us what we are going to do next. I am wary of speculating too much on where we would like to go. I like to have things nicely formulated before we make any promises.”