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A stoush is brewing between junior rare earth developer Hastings Technology Metals (ASX: HAS) and its funding partner, Andrew Forrest’s private investment vehicle Wyloo Metals.
The cash-strapped developer, which is building the Yangibana rare earths and niobium project in Western Australia, reported in its September quarter report last month that it had entered into a A$5 million ($3.23 million) senior secured project loan notes facility with Equator Capital, an entity controlled by Hastings executive chairman and largest shareholder Charles Lew.
Days later, The Australian Financial Review reported that Wyloo, which issued A$150 million of exchangeable notes to Hastings in October 2022, had issued a notice of default to the junior.
In a statement to the ASX on November 11, Hastings said the facilities were established for separate purposes and were “not in contravention of each other”.
A day later, Hastings called a trading halt and on Thursday, released a statement aimed at clarifying recent speculation.
The company confirmed it had received a default notice from Wyloo on November 6 and after seeking legal advice, reiterated that no default event had occurred.
Wyloo issued the notes to Hastings to fund its C$135 million acquisition of a 21.5% stake in Canadian magnet manufacturer Neo Performance Materials (TSX: NEO) in 2022.
The exchangeable notes are secured over Hastings’ shareholding in Neo, which is currently worth around A$80 million.
Wyloo said it rejected Hastings’ assertion that no default had occurred.
It said as of September 30, the sum of the principal and accrued interest on the notes totalled A$193 million.
The notes are due to mature on October 11, 2025, at which time Wyloo estimates the aggregate value of the principal and accrued interest will be roughly A$220 million.
Wyloo said given the notes constituted a current liability for Hastings, it requested the board explain how it planned to repay the notes, clarify the company’s position regarding solvency and explain the reasonable grounds on which the board believes the company would continue to be a going concern.
“Wyloo is concerned about Hastings’ ability to raise an estimated A$220 million to redeem the Wyloo exchangeable notes in less than 11 months, especially given the fact that a further A$320 million is required to complete the construction of the Yangibana rare earths and niobium project,” a Wyloo spokesperson said.
“In light of these potential solvency concerns, Wyloo is alarmed that Hastings has taken on further indebtedness under the secured loan notes facility, especially to a related party of Mr. Lew on a secured basis, with repayment to Equator ahead of Hastings’ long-term shareholders and creditors.”
Hastings shares have declined by more than 60% since the start of the year, reducing its market capitalization to less than A$50 million.
On Thursday, Hastings said it was in discussions with Wyloo over the notes given the fixed October 2025 maturity date.
“Wyloo clarifies that it is not currently in receipt of any restructuring proposal from Hastings, nor has it been in receipt of such a proposal or in active discussions regarding a restructure of the Wyloo exchangeable notes since Wyloo issued the notice of event of default to Hastings on 6 November 2024,” said the spokesperson.
However, on Monday, Hastings announced it had agreed with Equator to amend the terms of the project loan notes such that the security interest will be released and the notes will be unsecured.
Wyloo then agreed to withdraw its default notice and Lew said there was “ongoing goodwill” between the pair.
“Wyloo is supportive of Hastings’s efforts to fund the remaining capital needed for the Yangibana project,” Wyloo CEO Luca Giacovazzi said in a statement.
Hastings describes Yangibana as a tier one asset with a 37% average neodymium-praseodymium (NdPr) to total rare earth oxide ratio over the 17-year life of mine, with up to 52% in certain parts of the orebody.
The A$503 million project is not yet fully funded but Hastings has been steadily developing the project and has spent A$156 million to date on non-process infrastructure.
The company has also spent A$67 million on hydrometallurgical plant and equipment for Yangibana’s second stage, which has capital costs of A$478 million.
Hastings, which had just A$9.9 million in cash at the end of September, said the funding from Equator would allow it to continue progressing the project, including pre-mobilisation work scheduled to start in the March 2025 quarter.
Hastings reported on Monday it was set to bank C$897,413 in dividends from Neo for the September quarter, which would take total dividends received to date of C$8.1 million.
The company said it was looking to finalize funding for stage one of Yangibana..
The Australian government’s Northern Australia Infrastructure Facility (NAIF) approved a A$140 million loan for the project in late 2022, which was subsequently increased to A$220 million.
There is yet to be a drawdown of the loan and Hastings confirmed it had not yet reached contractual close.
On Wednesday, Macquarie analysts suggested Iluka Resources (ASX: ILU) could tap NAIF for additional funds for its Eneabba rare earths facility, under construction in WA.
“We note there appears to be A$200 million of rare earths funding available via NAIF, pending review of Hastings’ strategic pivot towards Chinese financial backing and processing support,” Macquarie said, referring to Hastings’ July sale of a 9.8% stake in the company to China’s JL Mag Rare-Earth Co.
“Subject to the project’s alignment, Hastings may request an amendment to the funding facility with NAIF and/or seek other potential government agency/ECA funding including from German development bank and European ECAs,” Hastings said on Thursday.
A spokesman for NAIF told MINING.com that “any material changes to the development proposal of the project or product sales strategy would require detailed review by NAIF prior to funds being available”.
Hastings used an average consensus 10-year NdPr oxide price of $121/kg real, more than double current levels.
Canaccord Genuity head of research Reg Spencer told the Noosa Mining Investor Conference in Queensland this week that rare earths had been treated harshly by investors.
“Mainly because they seem to be bandied in the same bucket as lithium, which is suffering from the negative EV narrative,” he said.
“But you can’t deny that rare earths have been in what would otherwise be described as a bear market for almost two years now, and a lot of that has been driven more so by increases in domestic Chinese production quotas, rather than slowing demand.”
Spencer said Chinese prices had rallied 20% off recent lows due to supply side issues in China and Myanmar.
“In the meantime, in the longer term, the high capital costs and technical challenges facing greenfield development still haven’t changed and we think that the supply-demand balance for rare earths is far more favourable than that of lithium,” he said.
Following the US election last week, Citi warned that tariffs on Chinese rare earths could weaken demand and increase substitution risk. However, the bank suggested Donald Trump’s proposed 60% universal tariff was more likely to be a bargaining tool than an immediate threat.
“Our economists think a more realistic assumption would be a phased implantation with an effective rate closer to 15%,” Citi analysts said.
“Adjustment in magnet and RE metal supply chains would be challenging, if not nearly impossible, given China’s downstream manufacturing dominance of over 90%.
“Therefore, we believe factoring in a significant tariff impact within a 1-2-year timeframe seems unrealistic as any tariff would likely be implemented gradually and with a more moderate impact.”
Meanwhile, Spencer suggested rare earths could be a Trump trade opportunity.
“If there is a re-ignition of US-China trade tensions, there could be a retaliation by the Chinese by weaponizing their control of the rare earth market,” Spencer said.
“So yes, we do have a favorable outlook for rare earths into next year.”
