Here’s why Lynas Corporation Limited is getting crunched today

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.

A Billionaire's Investing Secrets - and 2 New ASX Ideas for You

Now you can discover the investing secrets of $60 BILLION man Warren Buffett -- widely recognized as the world's greatest investor. Plus, you'll get two brand new ASX ideas! Your copy of The Motley Fool's brand-new report "The Wisdom of Warren Buffett -- Plus 2 ASX Shares Buffett Could Love" is FREE when you click here. I can let you in on a little secret, neither one is Lynas!

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

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.