FY16 Financial Report, page-27

In my opinion there is some dangerous nonsense being written on this thread. The auditors are not merely butt covering when they draw attention to the contents of note 2.2, they are ensuring that the SHAREHOLDERS, which is who they report to, cannot be under any misapprehension as to what the directors, who are the ones who are preparing the accounts, are saying.

As the auditors say, the accounts are prepared by the directors in accordance with the Corporations Act 2001 and various Accounting Standards. This means that they are obliged to produce the detail noted in note 2.2, or become personally liable for the debts of the company and subject to litigation from shareholders if they fail to disclose the sort of information in note 2.2 that they have. Sure, the auditors will have had some input into the content and the way the notes are presented (the company refer to discussions with advisors in the penultimate paragraph), but much more from the angle of making sure that the information is factual, realistic and relevant. It is butt covering for the directors, not the auditors. Contrary to the impression that nursery may give, nobody on either side wants to have to disclose such information for the very reason that nursery mentions - the credibility of the company is affected. It's not in the interests of either Lynas or E&Y to paint a worse picture than exists. To say that "They take absolutely no account of circumstances, future prospects or the value of research and development." is just not true and verging on defamatory.

Compare the note 2.2 for this year with last year's. Last year the concerns were:

Continuing extremely low prices of REE

That was it. They noted that at the June 2015 y/e they had net current liabilities but due to subsequent negotiations, the debt had been postponed and therefore at the time of the issuing of the accounts they had net current assets. That they were confident of having sufficient cash flow to carry them through the next twelve months.

And the auditors made no comment. An unqualified audit report.

This year, the concerns relating to the company' ability to continue in business for the next twelve months in note 2.2 are:

Continuing low prices of REE
Forecast production levels
Foreign currency exchange rates
Regulatory environments in both jurisdictions
Price volatility in REE prices

All the above "pose significant risks to the company".

In addition, they note that the operations for 2016 were cash flow negative, and that the company has net current liabilities.

And once again, the auditors gave an unqualified opinion - but added a note drawing shareholders attention to material uncertainty in the accounts.

This is entirely responsible reporting by the directors and auditors IMO.

If you like, check out the reaction to MBN posters when that company issued a heavily qualified Q1 financial report. It was all just accounting mumbo jumbo, nothing to worry about really, just cautionary butt covering by the directors .... four months later in VA. The cash flow continued to be poor and debt couldn't be obtained.

I'm not saying that'll happen here, the main debt holders have been accommodating so far, with good reason. But Lynas have noted that they may need alternative sources of funding if negotiations with existing debt holders (which were already concluded a week earlier than now last year) cannot be completed on terms favourable to the company.

Btw, it is also a report on what is happening NOW, not just a photograph at 30th June. It takes into account events up to and including yesterday. Last year, the debt was renegotiated between 30th June and the date of the accounts being signed, and that was reflected in the going concern note 2.2 and the auditors' report (as well as note 37, subsequent events).

The warnings are given with a sound basis and for good reasons. Interpret them as you will, but ignore them at your risk.