What Happened to the Lynas Corporation Share Price?
Shares of Lynas Corporation [ASX:LYC] rose by 10.35% on Monday, closing at $0.16.
Why Did This Happen to LYC Shares?
Since Amanda Lacaze became the CEO of Lynas, the share price has enjoyed a modest rally. The recent operational improvement plan suggests that Lynas is cutting operational costs and streamlining production. Lynas said that it’s aiming to produce ‘higher quality output [which] attracts premium pricing’.
Whether this can be achieved is another story. Lynas has a significant amount of debt which requires near term payment or restructuring. Saying this, the company is enjoying what appears to be a bear secular rally.
What Now For the Lynas Corporation?
Lynas shareholder confidence is low after production delays and capital raisings, as well as a series of environmental protests at its Malaysian rare earths plant. In this case, will the change in management and strategic direction be the medicine which brings the Lynas share price back to life?
The issue lately has to do with the company’s balance sheet. The company is currently raising $40 million dollars to repay debt — this isn’t a good sign. After this debt has been repaid and restructured, there will still be US$440 million due for repayment by mid-2016.
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Shareholders are starting to view Lynas as an extremely high risk play; it would be difficult to blame them.
As a result of China’s significant influence on the rare earths market, Lynas has seen its average rare earths ‘basket sales price’ fall from above US$200 per kilogram in 2012 to US$22.63 per kilogram. This is roughly the company’s cost of production.
As Lynas is producing at roughly its breakeven price, it can’t afford additional capital expenditure, administration fees or even debt repayments. It must continue to raise equity to pay for these necessary expenses.
Lynas can continue to increase its production, and it will still struggle based on its current fundamentals. The more rare earths Lynas processes at current prices, the more unprofitable it will be for them.
Jason Stevenson+
Resources Analyst, Money Morning
The post Why the Lynas Corporation Share Price Rose Today appeared first on Stock Market News, Finance and Investments | Money Morning Australia.
