Forrest’s Wyloo Metals casts doubt over future of Aussie rare earths hopeful

A dispute is brewing between junior rare earth developer Hastings Technology Metals (ASX: HAS) and its funding partner, Andrew Forrest’s private investment vehicle Wyloo Metals.

Hastings said it received a default notice on Nov. 6 from Wyloo, which issued A$150 million of exchangeable notes to Hastings in October 2022. However, it denies a default has occurred.

The cash-strapped developer is building the Yangibana rare earths and niobium project in Western Australia, and also recently entered into a A$5-million (US$3.2 million) senior secured project loan notes facility with Equator Capital, which is controlled by Hastings executive chairman and largest shareholder Charles Lew.

The apparent default was first reported by The Australian Financial Review last month.

Wyloo claims that as of Sept. 30, the sum of the principal and accrued interest on the notes totalled A$193 million. The notes are due to mature on Oct. 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.” 

2022 deal 

Wyloo issued the notes to Hastings to fund its $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.  

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, although Wyloo says it hasn’t received a restructuring proposal from Hastings, or engaged in discussions with the company about it since issuing the default notice. 

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-mobilization work scheduled to start in the March 2025 quarter.  The company said it was looking to finalize funding for its initial stage. 

Aussie funding

The Australian government’s Northern Australia Infrastructure Facility (NAIF) approved a A$140-million (US$91 million) loan for the project in late 2022, which was subsequently increased to A$220 million (US$143 million). 

There is yet to be a drawdown of the loan and Hastings confirmed it had not yet closed. Hastings’ July sale of a 9.8% stake in the company to China’s JL Mag Rare-Earth Co. may have thrown a wrench in the financing.

On Wednesday, Macquarie analysts suggested rival Iluka Resources (ASX: ILU) could tap NAIF for additional funds for its Eneabba rare earths facility, under construction in Western Australia. 

“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.

“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. 

Meanwhile, a spokesman for NAIF told The Northern Miner’s sister publication 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.”

Rare earths still depressed 

Hastings used an average consensus 10-year NdPr oxide price of $121/kg, 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 U.S. election two weeks ago, 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 rare earth 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 U.S.-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 favourable outlook for rare earths into next year.”