Rare earth oxides producer Lynas Corporation Limited (ASX: LYC) has seen its shares slammed today. At lunchtime, shares were down 16%, as the same, old issues plaguing the company reared their head.
Despite four consecutive quarters of rising production, Lynas is still a fair way from its target of 11,000 tonnes per annum. In the June quarter, the company produced 1,882 tonnes of rare earth oxides (REO), up 73% over the prior quarter. The full year production was 3,965 tonnes.
Unfortunately for Lynas, the average selling price during the last quarter was US$18.25/kg REO, which appears to be well under the miner's all-in cost of production.
That is shown by the company's cash position, with cash receipts of $26.5 million, but operational costs of $49.5 million. Without the company raising $42.1 million in shares during the quarter, the closing cash balance would have been negative.
Additionally, Lynas says it is still in talks with its financiers, which would probably be an interesting discussion, given Lynas has around US$440 million in debt, and its cash balance is going backwards.
Back in May, the company said that it was trying to renegotiate its debt facility which would mean the company wouldn't have to make any repayments until mid-2016. That would give the company time to ramp up production, further slash its all in costs, and pray for a recovery in rare earths prices.
On a positive note, Lynas' only competitor outside of China, Molycorp, is facing similar issues. Should Molycorp fall on its sword and declare bankruptcy, Lynas could attract attention from predators, looking to pick up an asset on the cheap. China is also looking to crack down on illegal producers, which could cut the supply of rare earths and push up prices.
Lynas is still a high-risk gamble – there's plenty of upside if the headwinds subside. But, if they don't, the debt load could bring the company down, and that's not a risk I'd be willing to take.