In morning trade shares of embattled rare earths miner, Lynas Corporation Limited (ASX: LYC), soared 13% after the group released its quarterly activities and cash flow reports for the March quarter. However by early afternoon they retreated slightly to trade 10% up.
In an unusual reaction to an otherwise troubled report, investors continued to bid up a stock which traded over $2.50 in early 2011, but now changes hands for less than 5 cents.
Contained in the $167 million company's quarterly cash flow report was a net operating cash outflow of $21.67 million and net decrease in total cash held of $26.6 million.
With cash on hand of $44.4 million at the end of the period, basic arithmetic suggests it mightn't be too long before the company runs out of money. Moreover, $11.4 million of the $44.4 million figure is "restricted cash". This means Lynas' creditors will allow the miner to clawback previous debt repayments if (when) necessary.
Despite already having 3.37 billion shares on offer plus an additional $225 million of convertible debt securities and a further 740 million listed options, Lynas may be forced to issue more securities. In addition it currently has $US205 million of debt. It's important to note, undertaking a capital raising (i.e. issuing shares) isn'tcheap. This year Lynas has paid $5.1 million in "underwriting fees" on a share placement and rights issue.
So perhaps what got the market so excited today could be found in the company's 'Activities Report'. Defined by the company as "revenue less operating costs and CAPEX", Lynas says it recorded its first ever month of positive free cash flow in March. This is good news.
"Market pricing improved from the historic lows experienced in the December Quarter, however continuing uncertainty regarding Chinese government policy meant many customers were satisfied to consume inventories rather than purchase fresh product," the company said.
Gross revenue fell from $35.9 million in the second quarter to $29.8 million in the March quarter. In the first quarter of financial year 2015 gross revenues were $66.2 million. Although revenues fell the group says it has succeeded in stripping significant costs from the business, with annualised savings totalling $35 million, in excess of the $26 million target.
Should you buy, hold, or sell Lynas shares?
As I wrote yesterday, the most important thing for an investor to do is to avoid losing money. From the look of Lynas' two reports, I can't find a reason why its shares soared over 10% (other than those I listed above). What I can say, however, is that if I held Lynas shares, I'd probably look to exit the position as soon as possible.
