Rare earths miner Lynas CorporationLimited's (ASX: LYC) shares fell as much as 7.7% today to 12 cents, and have now fallen 27% over the past five days. By comparison, the S&P / ASX 200 Index (Index: ^AXJO) (ASX: XJO) is up just 0.4% over the same period.
At first glance, it's hard to work out why the company's shares were hammered, but looking at previous ASX announcements, it appears that investors are running for the exits, after the company announced a $40 million capital raising on May 5. Not to crow about it, but we did raise that exact issue in this article on May 1.
Lynas says it plans to raise $30 million through a share purchase plan (SPP) and $10 million from a placement. The issue price will be at a 17.5% discount to the average price over five trading days up to and including the SPP shortfall date. Such a large discount was likely needed to get investors interested.
Lynas directors remain upbeat about the company's future, with chairman Nicholas Curtis noting, "We believe the capital raising and proposed debt amendment provides a solid financial base for the company and addresses any liquidity concerns that the market might have had."
But it seems many investors aren't as confident and appear to be deserting the company in droves.
Where to now for Lynas?
The rare earths producer is still churning through its cash at a prodigious rate, and unless rare earths prices improve significantly, Lynas may well need to raise capital in the near future. There's still room for the company's share price to fall further from here, and it's no bargain, given the high risks attached.
If Lynas is not for you, you might be interested in three resources stocks that we think may be big winners.
