Wednesday, 16 April 2014

http://finance.ninemsn.com.au/newsbusiness/motley/8826878/is-lynas-corporation-limited-cheap-or-trouble

Is Lynas Corporation Limited cheap or trouble?

Lynas Corporation Limited (ASX: LYC) shares have gone for a cliff dive recently as investors worry over a perfect storm of cost blowouts, delays, regulatory risks, excess debt, and dramatic falls in the market prices of the key rare-earth commodities it produces.

All this means analysts expect another capital raising may soon be required to keep the company in business and fix a balance sheet weighed down by borrowings of around $477 million.

Once considered Australia’s most promising next-generation mining company, Lynas has blown around $1 billion developing its Malaysian Lynas Advanced Material Plant (LAMP) facility to process rare earth minerals mined at its Mount Weld plant in Western Australia.

The group has burnt through the cash in an attempt to get the LAMP operationally cash flow neutral. The quarterly report for the period ending December 2013 showed cash-in-hand remaining of $74.7 million with negative operating cashflow of $17.19 million partly a result of sales coming to only around one-fifth of operating production and administration costs for the quarter.

In the six-month period to December 2013 Lynas spent $67.1 million with cash receipts from sales at just $10.2 million.

In April 2011 shares traded at $2.55 and today trade for less than 20 cents, which leaves the question has the group reached the bottom?

Lynas' announcements to the market last week included proclamations that at current prices for the rare-earths sold it will be operationally cash flow neutral at a monthly rare-earth sales rate of 750 tonnes.

In March 575 tonnes were produced (not sold) and the company says come June 2014 it will be producing the equivalent of 11,000 tonnes per annum (tpa) as part of its Phase I project. That's equivalent to 917 tonnes per month and well above the operationally cash flow neutral level if sold at expected prices. Even if the plant is operationally cash flow positive, Lynas has its debt pile to service and other required investments and expenses to meet.

This means the 11,000 tonnes per year figure is a minimum and given that only 575 tonnes were produced in March that's going to require a rapid, problem free, production ramp-up over the next quarter to end of June 2014.

Lynas also received approval in November for the Phase II part of its LAMP project which if successful would allow it to bring an additional 11,000 tpa of capacity online, making a total of 22,000 tpa at which it estimates a 14$-15$ cash cost per kilo produced. This versus a reported selling price of $22.63 per kilo in the quarter to March 2014.

Lynas’ Achilles’ Heel though is the massive decline in prices of two of its key rare-earth resources over the last two years. Lanthanum Oxide and Cerium Oxide have more than halved in market price at exactly the wrong time, leaving the business unable to produce some of its key rare earth resources at a profit for now.

Lynas believes its time will come, as rare-earth production requires significant capital and operational expenditure to safely manage residual wastes. This means as demand rises new supply is likely to come from existing producers raising capacity, rather than newcomers entering a capital intensive and evidently tricky market.

It estimates that demand for its rare-earth materials used for renewable energy, electronics, lighting and oil refining sectors could grow at 5-6% per annum. Almost all other production comes from Chinese controlled producers and their varying levels of production have tended to dictate market prices received per kilogram of rare earths produced.

It’s also notable that while the company has been talking up its prospects over the last week, its own chairman and major shareholder, Nick Curtis, has been offloading his own shareholding on a substantial basis over the past year, including dumping 10 million shares to Credit Suisse in March 2014 alone.

Foolish takeaway

If the group's stars align and it meets production guidance alongside a recovery in the rare-earths price it may be in a position to manage its debt and shares trading around the 20 cent level today will look a screaming bargain soon enough.

However, the prospects of a price rise in its key commodities looks thin and bargain-hunting investors will be placing their faith in a company and management team that has been long-on-promise and short-on-delivery so far. Given the debt and cost blowouts this is a very high-risk investment, however, if the company is able to execute a turnaround in union with an eventual rare earth price rise, now would be the time to snare a bargain.

3 comments:

  1. Hello Everybody,
    My name is Mrs Sharon Sim. I live in Singapore and i am a happy woman today? and i told my self that any lender that rescue my family from our poor situation, i will refer any person that is looking for loan to him, he gave me happiness to me and my family, i was in need of a loan of S$250,000.00 to start my life all over as i am a single mother with 3 kids I met this honest and GOD fearing man loan lender that help me with a loan of S$250,000.00 SG. Dollar, he is a GOD fearing man, if you are in need of loan and you will pay back the loan please contact him tell him that is Mrs Sharon, that refer you to him. contact Dr Purva Pius,via email:(urgentloan22@gmail.com) Thank you.

    BORROWERS APPLICATION DETAILS


    1. Name Of Applicant in Full:……..
    2. Telephone Numbers:……….
    3. Address and Location:…….
    4. Amount in request………..
    5. Repayment Period:………..
    6. Purpose Of Loan………….
    7. country…………………
    8. phone…………………..
    9. occupation………………
    10.age/sex…………………
    11.Monthly Income…………..
    12.Email……………..

    Regards.
    Managements
    Email Kindly Contact: urgentloan22@gmail.com

    ReplyDelete
  2. If you want your ex-girlfriend or ex-boyfriend to come crawling back to you on their knees (no matter why you broke up) you got to watch this video
    right away...

    (VIDEO) Want your ex CRAWLING back to you...?

    ReplyDelete
  3. There is a chance you're qualified for a new government solar energy program.
    Determine if you qualify now!

    ReplyDelete