{"id":61305,"date":"2014-10-02T12:49:33","date_gmt":"2014-10-02T16:49:33","guid":{"rendered":"http:\/\/countingpips.com\/?p=61305"},"modified":"2014-10-02T12:49:33","modified_gmt":"2014-10-02T16:49:33","slug":"why-the-lynas-corporation-share-price-fell-today-6","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/10\/why-the-lynas-corporation-share-price-fell-today-6\/","title":{"rendered":"Why the Lynas Corporation Share Price Fell Today"},"content":{"rendered":"
October 2, 2014<\/div>
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By MoneyMorning.com.au<\/u><\/a><\/p>\n

What Happened to the Lynas Corporation Share Price?<\/h2>\n

Shares of Lynas Corporation [ASX:LYC]<\/strong> rose 5.06% to $0.083. As I\u2019ve been calling for many months, the share price is finally below 10 cents per share. This was clearly going to happen. The next target is 5 cents per share or less. This target should be hit by the middle of next year.<\/p>\n

Invest carefully and read below\u2026.<\/p>\n

Why Did This Happen to Lynas Corporation?<\/h2>\n

This is the first time I\u2019ve written about Lynas since its capital raising announcement. I can\u2019t help but point out that I did say this would happen. Dilution is something that I\u2019ve been warning investors about for months.<\/p>\n

The company\u2019s debt position outweighs its market capitalisation by 164% \u2014 a very high risk venture.<\/p>\n

Lynas is raising AU$83 million at eight cents per share. These shares will be attached to an option at nine cents; this is a clever way of raising capital before next year to repay more debt. The options would bring the company in close to $40 million if exercised. <\/p>

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But there\u2019s still US$440 million due for repayment by mid-2016. US$90 million (AU$103 million) will be required to meet the senior debt facility repayments to the end of 2015. As you will read below, given the company\u2019s revenue and costs, this will be nearly impossible \u2014 without another capital raising anyway. <\/p>\n

Known global rare earth resources are abundant enough to dig up and last for over 285 years. But China controls over 92% of this market. Because of its monopoly, China has the power to control prices, as it did in 2012 when it put a freeze on rare earths exports. <\/p>\n

In my view, if you buy Lynas today, you\u2019re having a punt on China doing this again. To say the least, this is a highly speculative trade. <\/p>\n

What Now for Lynas Corporation?<\/h2>\n

If nothing changes in the industry, things are likely to only get worse for shareholders from here. <\/p>\n

The issue lately has to do with the company\u2019s balance sheet. Even though the company has the cash reserves to meet its short term debt obligations, there\u2019s still US$440 million due for repayment by mid-2016.<\/p>\n

This is a serious concern of mine. And here lies the issue\u2026<\/p>\n

As a result of China\u2019s significant influence on the rare earths market, Lynas has seen its average rare earths \u2018basket sales price\u2019 fall from above US$200 per kilogram in 2012 to US$18.25 per kilogram. This is down from US$22.63 per kilogram last quarter. <\/p>\n

The company\u2019s total cost base is nearly double, on a per unit basis. In this case, operational production and administration costs were double the cash receipts from rare earths. <\/p>\n

And as long as production continues to climb, it will likely only get worse. In this case, Lynas will struggle to meet its $440 million debt commitment, due in two years\u2019 time. <\/p>\n

Investors should be prepared for more dilution. This company has quality rare earths assets but, in my view, it\u2019s more likely to go under than succeed. Increasing production will send this company quicker into insolvency than to financial success. <\/p>\n

Jason Stevenson+<\/a>
Resources Analyst, Money Morning<\/em><\/strong> <\/p>\n

Join Money Morning on Google+ <\/u><\/a><\/strong><\/p>\n

The post Why the Lynas Corporation Share Price Fell Today<\/a> appeared first on Stock Market News, Finance and Investments | Money Morning Australia<\/a>.<\/p>\n

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\nBy MoneyMorning.com.au<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au What Happened to the Lynas Corporation Share Price? Shares of Lynas Corporation [ASX:LYC] rose 5.06% to $0.083. As I\u2019ve been calling for many months, the share price is finally below 10 cents per share. This was clearly going to happen. The next target is 5 cents per share or less. This target should […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-61305","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/61305","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=61305"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/61305\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=61305"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=61305"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=61305"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}