Japanese lenders and a hedge fund have struck a deal to save Australia’s Lynas Corp, the only rare earths producer outside China, from collapse, cutting its interest costs and giving it nearly four years breathing room to pay off its debt.

State-owned Japan Oil, Gas and Metals National Corp (Jogmec) and Sojitz Corp are eager to ensure a supply of rare earths from outside China, the world’s biggest producer of the elements crucial for smart phones, computers and cars.

Loss-making Lynas urged shareholders today to approve the debt restructure, even though their stakes could shrink as the deal allows New York-based hedge fund Mount Kellett to buy more shares in the company and sets a lower price for converting its bonds to equity.

“Notwithstanding the potential for dilution, Lynas directors have concluded that approval of the proposed amendments is important to assist the continued operation of the Lynas business as a going concern,” the company said in a statement to the Australian stock exchange.

Lynas shares jumped as much as 17 percent after the announcement to a one-month high at US6.2 cents a share. The company peaked at A$2.70 a share in 2011 when rare earths prices rocketed following a Chinese curb on exports.

Under the deal, Lynas will not have to make any fixed repayments on the US$203 million it still owes to Sojitz and Jogmec until 2020. It previously faced staged repayments up to 2018.

The Japanese, eager to ensure that Lynas stays viable following the collapse of the only other rare earths producer outside China, US company Molycorp, have also agreed to slash the interest on their loan to 2.5 percent from 6 percent.

At the same time, Mount Kellett has agreed to cut the interest rate on its US$225 million in convertible bonds to 1.25 percent from 2.75 percent.

The deal needs to be cleared by Australia’s Foreign Investment Review Board.

- Reuters