Will Lynas Corporation Limited raise capital or fold?

With just $23 million in the bank, Lynas is on the brink

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Rare earths producer Lynas Corporation Limited (ASX: LYC) is down to its last $23 million, having spent $74.3 million in the last quarter, placing the company in a perilous position.

The big problem for the company is that its production costs far exceed the average price it is currently receiving for its rare earth oxides (REO).

Lynas says the average selling price rose 5% to US$22.63/kg over the previous quarter, and received $21.9 million in revenues as a result. But operational, production and administration costs alone came to $46.1 million. Add in capital expenditure of around $7 million, debt repayments of $11.3 million, interest expenses of $9.2 million and other small expenses for a total of around $74 million, and you can see that the situation is clearly not sustainable.

During the last quarter, Lynas produced 1,089 tonnes, up 47% over the prior quarter, with the month of March alone contributing 575 tonnes. The company is targeting an annual production run rate of 11,000 tonnes and expects to meet that goal this quarter. But the company says it needs to produce double that (22,000 tonnes per annum) to get its cash cost down to $14-$15/kg REO.

And that's just the cash cost and doesn't include many other necessary expenses. It's a bit like a gold miner saying they have cash costs of $600 an ounce, but their all-in-sustaining cost might be as much as $1,100 an ounce.

With just $23 million left in the bank, and US$440 million in debts, Lynas urgently needs to raise capital to stay in business. The company's bankers may be wary of providing further financing, which leaves the possibility of Lynas asking shareholders to cough up some cash as a highly likely prospect.

With shares currently trading at 16.5 cents, the company may have to offer a significantly discounted price to entice investors to part with their hard earned cash. Even that may not be enough to keep the group afloat.

Foolish takeaway

With chairman and major shareholder Nick Curtis offloading a substantial portion of his personal stake in the company, including 10 million shares last month, shareholders may well be wondering if they will be left holding the empty can.

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »