Saturday, 10 May 2014

SMSL/PSHK Press statement on the 10th May 2014


SMSL hereby call upon the Malaysian regulatory authority AELB and the Minister of MOSTI NOT to consider the application by Lynas for the Permanent Operating license in view of the likelihood that it is forced to close because of financial reason.

The TOL (Temporary Operating License) for two years is due to expire on the 2nd September 2014. Under the terms of the issuance, as recommended by the IAEA report, Lynas is required to submit the plan for the PDF (Permanent Deposit Facility) for its radioactive waste WLP before TOL is granted.

Lynas not only failed to submit the plan before the issuance, AELB made a provision for them to comply within 10 months after it commenced operating. On the eve of the dateline, Lynas submitted a ‘conceptual’ plan of the PDF while the Deputy Minister of MOSTI, Dato Abu Bakar Mohd Diah replied in the Parliament that Lynas did identify the site and the plan for the PDF but he declined to reveal the site! (http://www.thenutgraph.com/lynas-an-unsolved-conundrum/)

This showed clearly that Lynas failed to comply with the requirements stated in the TOL.

The IAEA report also recommended that Lynas deposit USD50 million with the AELB in installments of USD10 million each year for 5 years. This is grossly inadequate as LAMP is 10 times the size of ARE which is currently undergoing a clean-up operation which cost the former ARE owner USD100 million! In the event of a foreclosure, the residents and the people of Malaysia will be left holding the toxic ‘unwanted baby’!

The risks of a foreclosure can be real as the following paragraphs taken from various reports in the public domain show:

In its first quarterly report 2014, (note 1) Lynas has a closing cash balance of AUD$23.4m as at 31 March 2014. Their next quarter will require AUD$48.172 m to operate as tabled in its quarterly cash flow report (note 2)

Lynas seeks to raise AUD$30 million through rights issue and another AUD$10 million through institutional placement to boost its working capital.

On this, the foreign analysts commented:

“It’s almost a stay of execution,” UBS AG analyst Jo Battershill said by phone. “If there’s any price weakness, a slowdown in the Chinese economy, or a slowdown in demand for rare earths, than how long does it buy them? It’s hard to know.” (Note 3)

"The market's just looked at it and gone, 'well, this is kind of what people thought and the operational side of things continues to disappoint," UBS Metals and mining analyst Jonathan Battershill said.

"Despite the company saying they think they can have the production level up at 11,000 tonnes by June ... we are not really seeing the numbers that provide confidence. Even under the assumption that it will be 11,000, they still need to raise money." (Note 4)

We are gravely concerned about the possible foreclosure of Lynas. The toxic legacy that will be left behind will burden all future generations for centuries to come!

This is definitely not an unfounded or baseless concern as our research showed the cash flow problem and the future rare earth market ahead for Lynas will be much more challenging than before! (See report attached).

We hereby also call upon the Lynas Monitoring Committee set up under the recommendation of Parliamentary Select Committee to equally exercise care and prudence and factor in the financial hardship Lynas is currently experiencing before they make their final recommendations to the Minister concerned. If they failed to exercise them in their deliberations they are answerable to all the future generations in Malaysia!

For further information please contact:

SMSL Hotline 012 982 3302

Note: (1)
https://www.lynascorp.com/Quarterly%20Reports/2014/Q1%202014%20Quarterly%20Report_final%201324839.pdf)

Note (2)
(http://www.asx.com.au/asxpdf/20140430/pdf/42pbgdm9s1vfj7.pdf)

Note (3)
http://www.bloomberg.com/news/2014-05-05/lynas-to-sell-shares-defer-debt-payments-after-rare-earth-slump.html

Note (4)
http://www.smh.com.au/business/mining-and-resources/lynas-shares-hit-5year-low-as-funding-crunch-looms-20140311-34k1z.html

SJH’s research report.





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