Lynas Corporation Limited [ASX:LYC] is involved in exploration and development of rare earth minerals. Its main asset is the Mt Weld rare earth site in Western Australia.
The share price closed 2.41% lower on Wednesday.
The first quarter financial results were released this morning. In the three months to September, revenue was $31.06 million. This is almost half the total revenue the company achieved for the 2014 financial year of $66.23 million. However, operating costs outweighed revenue by $10.4 million.
At the end of the 2013 financial year, the company had a solid $141.4 million in the bank. When 2014 wrapped up, Lynas was left with $38.1 million.
The biggest problem from this quarterly report is just how little cash is left. LYC has just $16.9 million in the bank as at the end of September 30.
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Lynas remains a speculative punt.
The recent $83 million capital raising is the second time this year the company has put its hand out to shareholders.
In spite of revenue’s growing, the company’s costs per unit are roughly double the current rare earths ‘basket sales price’ of US$18.22 per kilo. Any increases in production without a drastic increase in the price of rare earths will only drive the company further into the red.
On top of this is the massive debt that needs to be repaid within two years.
Lynas have a US$440 million debt facility due in mid-2016. However, before this is paid in full, the company must stump up US$90 million (AU$103 million) by the end of 2015. Given the cash on hand and poor revenues, this seems very unlikely.
In fact, because of these looming payments, it’s likely that 2015 will see perhaps two more capital raisings.
This highly leveraged company is one to stay away from.
Shae Smith+
Editor, Money Weekend
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