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Is it time to sell Lynas Corporation Limited?

Lynas Corporation Limited (ASX: LYC) has suffered more than its fair share of setbacks and difficulties, with the only tangible outcome for shareholders being an almost complete loss of capital. The company has been a source of constant frustration for analysts and investors alike. after offering such promise in the late 2000’s as a potential major player in the global rare earths market.

2014 Problems

Lynas’ 2014 seemed to be a repeat of previous year’s production problems. Finance problems also dominated the headlines as the company’s shares plunged from 34 cents in January 2014 to a low of 4 cents in December. The year was punctuated by a heavily discounted capital raising and a renegotiation of finance terms with its Japanese-based investors.

Sell in 2015?

It appears that there won’t be any reprieve for Lynas in 2015. The share price plunged by a further 8% on Tuesday following an announcement that China had removed restrictions on rare earths exports, a move that could see global rare earth prices fall even further.

The quota was applied in 2009 and resulted in a host of companies, including Lynas, starting up on the promise of high rare earth prices over the long term.  This hasn’t come about and many suppliers are apparently selling below cost. Lynas has noted that profitability will only occur when higher volumes start to be produced from its Malaysian processing plant.

Worrying Times

Lynas’ founder and outgoing chairman Nicholas Curtis noted that the November AGM that the project had been significantly more expensive than previously planned, but largely blamed the severe drop in the price of rare earths – a problem consistent among many mining companies at the moment.

Lessons Learnt

The plight of Lynas is similar to that of many small mining companies in Australia. With China controlling 86% of the global market, Lynas has no control over the price of the goods it sells and therefore inherently high risk. Now might be a good time to head for the exit.

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Motley Fool contributor Andrew Mudie does not own shares in any companies mentioned. You can find Andrew on Twitter @andrewmudie