It certainly has been a disappointing start to the week for the Lynas Corporation Ltd (ASX: LYC) share price.
In morning trade the rare earths company’s shares are down almost 17% to $1.75.
Why have Lynas’ shares been crushed today?
Investors have been hitting the sell button in their droves today after media reports in Malaysia this weekend revealed that the local government is planning a review of Lynas’ Malaysian operations.
According to Malaysia’s The Star, Fuziah Salleh has been appointed as the chairman of a Lynas evaluation committee and will evaluate the operations of the Lynas Advanced Materials plant in Gebeng over a three-month period from today.
She is the deputy minister in the prime minister’s department and the MP for Kuantan, the closest major town to the controversial Lynas plant.
This morning the company defended its operations and stated that it will cooperate with any review.
It then reminded investors that it has been the subject of several previous reviews and numerous court challenges to its operating licence in the past and each was dismissed.
It has also implemented all recommendations from the International Atomic Energy Agency (IAEA) and the Parliamentary Select Committee.
And finally, it has pointed out that it has been compliant with regulatory requirements during almost six years of operations. It added that each review has “confirmed that Lynas operates in accordance with regulatory requirements imposed by Malaysian law and evidences that Lynas has adopted best practices on a range of environmental matters.”
Why are investors still selling shares?
While Lynas has a strong track record and appears confident that it will be business as usual, it has noted changes in the time that it is taking to gain approvals for licence renewals.
As these renewals are integral to continuing its operations as projected, investors appear concerned that this could be a bad sign.
In addition to this, the choice of chairman by the committee appears to have caught the eye. Lynas has stated that: “The media has speculated that the chair of the proposed committee may be a long time anti-Lynas campaigner. If that appointment is confirmed, then that will raise concerns.”
Should you buy the dip?
Considering the economic benefit that the operations bring to the country I would be surprised to see them closed, but there is always a risk that this could happen.
As a result, I would suggest investors hold off an investment until the review is complete and the future is more clear.
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Returns as of 6th October 2020
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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