Couple of points. $25M of free cash is a critical number. If they go over then all the restricted cash is returned to Mt K and Jare by who put it in. At that point Lynas has to pay interest out of operating cash. I doubt Lynas wants to go over 25 M free cash. (see free cash end of Q3) They can control free cash easily by paying down payables or AELB. This lowers cash and debt. Profits will be unaffected because of decreased debt, cash goes down. I do not expect free cash to go up at all. Jare and Mt K are no longer contributing to restricted cash (see
https://www.lynascorp.com/Shared Documents/Investors and media/Announcements and media/2016/161026 Amendments to Debt Facilities 1609212.pdfrefi)
I expect no change to the cash picture. Could they decide to go over 25M? Certainly. I would expect them to clean up allot of other negatives on balance sheet before they do this, remove overburden and expand the mine. The restricted cash is a nice buffer, I would not give it up yet. Time will tell if Lynas will.
Secound is contract lag. Almost all of the sales are now under contract. With contracts the sales price lags market. This hurts during rising prices and helps during falling. Over all it is a very good thing. it lets the company operate in a more predictable and stable environment. If the contract Lag is only 30 days then I will agree that they may be profitable H2. I just do not see how they could make enough to overcome H1 loss. I personally THINK the lag is longer, maybe 90 days or a little longer. In that case I do not see them being profitable, very close but not there yet. Last consideration is once you go profitable you do not want to go Negative again. This generates a huge amount of very negative press. Lynas can show a very good H2 and year, without a profit. Build up some reserves so once they go profitable they never go back. Once you go profitable you want to show growing profits not a return to the red.
I do not know what the lag is. We will all have a much better idea, after seeing Q4 and Q1 sales figures . This run up in prices was very steep. Lynas publishes sales figures both $ and tons every Q. It should not be hard to see when and how this price rise hits the bottom line. The one thing that could make this hard to determine is if they start selling allot more La and Ce. It will make it harder to know for sure since we do not know what they sell individual products for only market prices. The more unknowns the poorer the guess.
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