Rare earths miner Lynas Corporation Limited (ASX: LYC) has ceased negotiations with its financier, in a sign it could be close to the end of its existence. Shares in the company have fallen 10% to 13.5 cents in mid-morning trading.
In an announcement today, Lynas says it has decided to cease negotiations with Japanese financial firm Nomura regarding a novation and amendment of Lynas' existing senior debt facility.
The company had lined up Nomura to arrange the purchase and amendment of its Sojitz/JOGMEC senior debt facility. Lynas had proposed to replace its existing semi-annual repayments with one repayment in June 2016, and was hoping to have the agreement in place before this month.
Under existing arrangements, Lynas is due to make a US$35 million repayment this month, but may not be able to afford it – without renegotiation or taking on more debt. The trouble is, potential financiers appear to be thin on the ground and the existing financiers at the end of their tether.
The Sojitz/JOGMEC facility was for an original amount of US$225 million – Lynas repaid US$10 million of that in January 2014. Lynas has also issued US$225 million in convertible notes to a US investment firm – Mt Kellett Capital Management. These notes are due to be repaid in full on July 25, 2016 – unless converted into shares in the company before then.
All up, Lynas had around A$457 million of debt on its books at the end of December 2013.
The company says it is still engaging with potential financiers and investors to restructure existing debt facilities or borrow more debt and other investment opportunities. But each of those alternatives requires the consent of its existing financier – which may not be forthcoming. The company is rapidly running out of options.
Unless prices rise significantly higher from here, it's questionable whether Lynas has a viable business model – despite the appeal of being one of only two rare-earth producers in the Western World. And there are no signs that prices will ever return to the highs set in 2011.