Why is the Lynas share price surging higher on Tuesday?

The rare earths company has announced details of an agreement with a Japanese rare earths player.

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Key points

  • The Lynas share price has started the session well on Tuesday
  • The gains follow a company update after the closing bell yesterday
  • In the last 12 months, the Lynas share price has climbed more than 23%

The Lynas Rare Earths Ltd (ASX: LYC) share price is climbing from the open on Tuesday.

At the time of writing, shares in the rare earths player are swapping hands for $8.56 apiece, 0.71% higher, following a company announcement after the closing bell yesterday.

The gains reverse course for the Lynas share price which has been heading lower since 17 August. Let's check the details of the company's latest news.

What did Lynas announce?

Yesterday, the company advised that it has signed agreements with Japan Australia Rare Earths B.V (JARE).

Lynas notes that JARE is a special purpose company established by Japan Oil, Gas and Metals National Corporation and Sojitz Corporation.

Lynas CEO Amanda Lacaze said the relationship is "significant for the global rare earths industry".

"We are pleased to have JARE's continued support, including for our exciting exploration program at Mt Weld," she added.

The pair are already partnered on a long-term senior loan that pays an interest rate of 2.5% p.a. with the balance currently at US$141 million.

Under the agreement, JARE will provide a contribution of US$9 million to the exploration program at Mt Weld.

It will make the contribution through a US$9 million subscription for ordinary shares in Lynas.

Perhaps most importantly for Lynas shareholders is that restrictive covenants on the abovementioned loan facility will be abolished.

The company said:

JARE has agreed to remove capital management restrictions in the loan facility.

Lynas will no longer be subject to capital restrictions in respect of issuing dividends, share buy backs, capital expenditure or incurring financial liabilities.

Instead, covenants will be dictated by the gross debt-to-equity ratio and backward-looking debt service ratios.

Considering the bulky mining profits that have been on offer these past two years, and the potential for rare earths in Australia looking ahead, this opens the gates for various types of investors to gain exposure to the share.

In the last 12 months, the Lynas share price has climbed more than 23%.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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