(yearly comp pick)
Trading halt to prepare a response to the AFR article.
Billionaire businessman Andrew Forrest’s private mining group is in a debt dispute with rare earths hopeful Hastings Technology Metals, with the stoush threatening the future of the taxpayer-backed, ASX-listed junior.
At the centre of the dispute is a loan to Hastings from the company’s chairman, Charles Lew. Dr Forrest’s Wyloo Metals is bankrolling Hastings’ purchase of a European manufacturing plant and the development of a mine at Yangibana in Western Australia. Wyloo believes that the financing from Mr Lew’s company puts Hastings in breach of its own loan agreement.
Hastings is working on turning Yangibana, 270 kilometres north-east of Carnarvon, into a major rare earths mine. Those elements are used in magnets and other components for electric vehicles and wind turbines.
But the company needs to raise $300 million more to complete construction of Yangibana. It had $9.9 million of cash on September 30.
Last week, Hastings borrowed $5 million from Equator Capital, an investment vehicle in which Mr Lew has a 34.4 per cent stake. That loan has angered Wyloo which believes it is in breach of conditions attached to a $150 million loan, in the form of a convertible note, made in 2022.
Those conditions allow Hastings only to borrow money that would be prioritised for repayment over Wyloo’s note if it is financing for Yangibana or working capital provided by an “agreed financial institution”.
Wyloo believes Mr Lew’s company Equator does not qualify as an “agreed financial institution”, which the 2022 agreement specifies as either “state-owned development banks” or “institutional investors”.
Hastings is developing the Yangibana rare earths project in WA’s Gascoyne region.
Wyloo can force Hastings to repay the $150 million note if the company is deemed to have defaulted on the conditions of the loan agreement. It would be difficult for Hastings to repay the loan if required. On Friday, the company had a market capitalisation of just $53 million.
Vince Catania, the general manager of corporate affairs at Hastings, did not respond on Friday when asked if Wyloo had issued a default notice.
One day earlier, Mr Catania said there had been no change to the status of the Wyloo notes. “Hastings has acted within terms of the loan agreement with Wyloo, and there has been no change in status. Due process was followed including external legal and ASX review.”
A Wyloo spokeswoman disagreed with Mr Catania’s interpretation.
“Wyloo rejects Hastings’ position that the notes issued to Equator Capital are permissible within the terms of our exchangeable notes. We also reject any suggestion that Hastings has not contravened the terms of Wyloo’s exchangeable notes in issuing the notes to Equator Capital,” she said.
Key European plant
Aside from demanding repayment, Wyloo could redeem the notes by converting them into Hastings shares at a rate that would give Dr Forrest’s company a substantial stake and dilute existing shareholders.
Of particular interest to Wyloo would be Hastings’ 21.49 per cent stake in Neo Performance Materials, a Toronto-listed group which owns a factory in Estonia that turns rare earths into pure metals such as neodymium. The Estonian factory is the only metalisation plant in Europe.
That makes Neo, and by extension Hastings, strategically important at a time when governments in North America, Europe and Australia are trying to establish supply chains for rare earth elements – also critical to the defence sector – that do not rely on Chinese producers or processing.
When Wyloo first loaned the $150 million to Hastings, it was on the condition that the funds be used to buy the Neo stake. Wyloo’s note has security over the Neo stake. The 21.49 per cent stake in Neo was worth about $78.2 million on Friday; well above Hastings’ entire market value.
The dispute with Wyloo is the latest step in the slow demise of Hastings, which has lost more than 85 per cent of its value since February 2022.
Hastings had promised to build a non-Chinese supply chain of separated rare earth elements, attracting $320 million worth of loan pledges from federal agencies such as the Northern Australia Infrastructure Facility and Export Finance Australia. It is unclear whether those federal agencies are still willing to lend to Hastings since it changed its strategy last year in an attempt to reduce construction costs at Yangibana.
The switch to a cheaper strategy pushed Hastings towards a model that relies more on China. Yangibana will now produce a rare earths concentrate that requires processing elsewhere, and most of that type of processing is done in China.
Hastings struck a deal in February for its product to be processed in China by a company named Baotou Sky Rock, while Chinese magnet maker JL MAG took a 9.8 per cent shareholding in the company in July.
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